Tax problems may plague Obama's Treasury pick

[January 14, 2009]  WASHINGTON (AP) -- A Capitol Hill grilling is likely for Timothy Geithner, President-elect Barack Obama's pick to head the Treasury Department, after public revelations he failed to pay $34,000 in taxes several years ago.

Senate Democrats are pressing to schedule a quick confirmation hearing for Geithner on Friday, hoping to tee up swift approval of his nomination on Inauguration Day. But newly released information about the tax goofs by Geithner, regarded as a brilliant financial markets specialist well-positioned to deal with the nation's considerable economic problems, could complicate the process.

Republicans have yet to sign off on expediting the hearing, although senior Democrats expressed confidence that the disclosures would do little to slow Geithner's path to confirmation. At least one Republican, Sen. Orrin Hatch of Utah, said he had "no problem" with Geithner.

Still, the disclosures virtually guarantee a tough hearing for Geithner before the Senate Finance Committee, which is considering his nomination.

Geithner failed to pay self-employment taxes for money he earned from 2001 to 2004 while working for the International Monetary Fund, according to materials released by the committee Tuesday.

He paid some of the taxes in 2006, after an IRS audit discovered the discrepancy for taxes paid in 2003 and 2004. But it wasn't until much later -- days before Obama tapped him to head Treasury late last year -- that Geithner paid back most of the taxes, incurred in 2001 and 2002. He did so after Obama's transition team found that Geithner had made the same tax mistake his first two years at the IMF as the one the IRS found he made during his last two years there.

The panel's report also noted that Geithner briefly employed a housekeeper in 2005 whose legal immigrant work status had lapsed.

Taken together, the disclosures cast a cloud over what otherwise had appeared to be a smooth road to confirmation for Geithner. Obama's transition team told Finance Committee Chairman Max Baucus, D-Mont., and senior Republican Charles E. Grassley of Iowa of the tax problems in early December, but most rank-and-file members of the panel only learned of them recently.

Some heard about them for the first time at a closed-door committee meeting on Capitol Hill on Tuesday afternoon. Later, Geithner joined the huddle to defend himself and address questions about what he and Obama's team called a mistake.

"These errors were not intentional; they were honest mistakes," Baucus said after the session.

Grassley, who pressed for the irregularities to be made public, hasn't said whether he considers them grounds for opposing Geithner's nomination.

Grassley regards the disclosure as "serious, and whether or not it's disqualifying is to be determined," said Jill Kozeny, a spokeswoman.

Senate Majority Leader Harry Reid, D-Nev., dismissed the events as "a few little hiccups," and said he was "not concerned at all" about the impact.

Obama reiterated his support for Geithner.

"He's dedicated his career to our country and served with honor, intelligence and distinction," incoming White House spokesman Robert Gibbs said. "That service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed."

Obama's team says his mistake was a common one for people hired by international organizations and foreign embassies that don't pay the employer share of Social Security taxes. The IRS estimated in 2006 that as many as half those employees had made tax-filing mistakes, and offered a group settlement to let them correct the errors.

But some tax experts said the problem is not that common.

Tom Ochsenschlager, vice president of tax for the American Institute of Certified Public Accountants, said it would be difficult for someone preparing a tax return for a self-employed person to skip the Social Security and Medicare tax lines.

"It's such a basic mistake that I kind of wonder if we know all the facts," Ochsenschlager said.

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On the Net:

Senate Finance Committee documents on Geithner's taxes (PDF)

[Associated Press; By JULIE HIRSCHFELD DAVIS]

Associated Press writers Nedra Pickler, Andrew Taylor and Brett J. Blackledge in Washington and Eileen AJ Connelly in New York contributed to this report.

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