After Tax Errors Raised, GOP Leaders Defend Treasury Nominee

By Lori Montgomery
Washington Post Staff Writer
Thursday, January 15, 2009

Was he cheating on his taxes or just sloppy with his finances? Lawmakers vetting the nomination of Timothy F. Geithner to serve as Treasury secretary say they may never be sure. But leading Republicans nonetheless joined Democrats in leaping to his defense yesterday, calling Geithner's tax gaffes small potatoes compared with his qualifications for saving the global economy.

Sen. Orrin G. Hatch (Utah), the second-most senior Republican on the Senate Finance Committee, which is charged with reviewing Geithner's nomination, called him "brilliant" and "honest" and said that, despite his tax errors, "I don't think we can get a better person for this position. . . . He has the kind of background that should be very helpful to us at this time."

Sen. Robert F. Bennett (R-Utah), a close associate of Senate Minority Leader Mitch McConnell (R-Ky.), said: "If I was a traffic officer, I'd say he may have exceeded the speed limit, but he wasn't weaving out of lanes, he wasn't drunk and he wasn't endangering anybody. He may have some explaining to do, but in the end, I think he's going to be just fine."

The chorus of support from key Republicans suggests that Geithner, president of the New York Federal Reserve Bank, is unlikely to encounter serious turbulence on his path to the Treasury Department, where he would serve as President-elect Barack Obama's top adviser on the worldwide credit crisis and manage a $700 billion financial rescue program as well as the Internal Revenue Service. His confirmation hearing, delayed until Wednesday, takes on added importance, with many fence-sitting Republicans saying they are eager to hear how such a smart guy made tax errors that cost him nearly $45,000.

But while some Republicans were grumbling about Geithner, others were reluctant to criticize what they view as one of Obama's most politically palatable appointments.

"He's about as conservative a nominee as you could hope for in that position, so people are hesitant to blow the guy up," a senior Senate Republican aide said.

Geithner is under scrutiny for a variety of errors on his tax returns, including using his child's time at overnight camps to calculate deductions for dependent-care, taking deductions for ineligible donations to charity and failing to pay an early-withdrawal penalty from a retirement plan. According to a Senate investigation, he also employed a housekeeper, a legal U.S. resident, whose work papers expired three months before she left his employ.

But those matters have drawn little attention from lawmakers, who have focused on Geithner's failure to pay Social Security and Medicare taxes while he was working at the International Monetary Fund from 2001 to 2004. After being audited by the IRS audit in 2006, Geithner repaid nearly $17,000 in back taxes and interest for 2003 and 2004. But he did not correct his returns for 2001 and 2002 until Obama summoned him to serve at the Treasury, when he voluntarily paid nearly $26,000 in back taxes and interest.

"He only fixed it after discovering he was going to be the nominee, so the timing is troubling," said Sen. Pat Roberts (R-Kan.), adding that Geithner called him late Tuesday after the gaffes were revealed and was "very contrite."

IMF officials said hiccups in tax filings are not unusual among their U.S. staff, who must calculate and pay their own taxes quarterly because the international agency does not collect taxes for any government. They noted that Geithner was hired as director of policy development in June 2001, when there was no orientation program to detail the tax rules.

The gaffes are also common among Americans who work at other international organizations, such as foreign embassies. In 2006, the IRS offered an amnesty period for people to correct their tax returns, noting that "as many as half of these employees . . . either fail to report their wages, claim deductions they are not entitled to, incorrectly establish SEP/IRA retirement plans, fail to pay self-employment tax or fail to file tax returns at all."

But a number of ordinary IMF staffers, as well as some tax experts, said the rules are laid out clearly in the quarterly notices the IMF sends its employees, along with the checks they are supposed to use to pay their taxes.

"I don't think he was intentionally setting out to cheat anyone. I just wish somebody had stood up and said: This was awfully dopey of him," said Royal Dellinger, a Rockville accountant and former Reagan administration labor official who has handled tax returns for several IMF and World Bank employees, including his wife.

Obama aides said the IRS told Geithner in 2006 that he had no other tax obligations after paying what he owed for 2003 and 2004. They said Geithner did not know that he owed money for prior years until the matter was uncovered by the Obama transition team in November.

"Is this an embarrassment for him? Yes. He said so himself," Obama told reporters yesterday. But, Obama said, "It has been corrected."

Obama officials said yesterday that Stuart Levey, who runs the Treasury's anti-terrorism efforts, will serve as acting Treasury secretary until Geithner can be confirmed.

Some Republicans continued to express concern. Sen. Charles E. Grassley (Iowa), the senior Republican on the Senate Finance Committee, said he considered the matter a serious infraction, though he added that he is withholding judgment on whether it disqualifies Geithner until the Treasury nominee testifies on Wednesday.

"It's more a matter of principle than the amount of money," Grassley said. "But the amount of money is very significant."

Sen. Jon Kyl (Ariz.), one of two Finance Committee Republicans who insisted that Geithner's hearing be pushed to next week, said, "people are trying to understand what's going on here and not just have this rushed through."

But Sen. Lindsey O. Graham (R-S.C.), appearing with Obama at a photo shoot yesterday, urged his colleagues to back off.

"These are huge times. These are not the times to think in small political terms,'' Graham said, praising Geithner's involvement with the Bush administration in crafting the U.S. response to the global financial crisis. "We need a new secretary of Treasury that understands where this country is at financially and has a game plan to move forward. I think he is the right guy."

Staff writer David Cho contributed to this report.

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