(1)

The consensus seems to be that Tim Geithner‘s tax issues will not impede his confirmation. However, looking at the talking points that “the Obama team is circulating to defend Treasury Secretary-designee Timothy Geithner”, it seems pretty clear to me that only one possible interpretation fits the facts: Geithner deliberately cheated on his taxes.

As such, I believe he should not be confirmed as Treasury Secretary.

Here, from Politico, are the talking points:

* As part of the vetting process conducted by the Presidential Transition Team, it was discovered that Mr. Geithner mistakenly had not paid self-employment taxes in 2001 and 2002 as an IMF employee. Mr. Geithner had initially prepared the returns himself. However, an accountant reviewed his 2001 returns as part of an amended return filed 2002, and also failed to catch the mistake on the self employment taxes.

* Upon learning of this error on November 21, 2008, Mr. Geithner immediately submitted payment for tax that would have been due in those years plus interest. For 2001 Mr. Geithner paid additional tax of $2,364 and interest of $956, for a total of $3320. For 2002 he paid additional tax of $16,812 and interest of $5838, for a total of $22,650. The total additional amount paid for the two years was $25,970. All of his taxes have now been paid in full, and at no time was there any intention on Mr. Geithner’s part to avoid taxes.

* Mr. Geithner worked for the IMF until the fall of 2003, and he also received a small amount of income from the IMF in early 2004. An accountant prepared Mr. Geithner’s 2003 and 2004 returns and advised him in writing that he was exempt self-employment taxes on his IMF income.

* In 2006, the IRS initiated a letter audit of Mr. Geithner’s taxes for 2003 and 2004 and concluded that he owed self-employment tax and interest for 2003 and 2004 with respect to his IMF employment. He paid tax and interest totaling $17,230 (of which $14,847 was tax and $2,383 was interest) for the two-year period, and the IRS waived all penalties. Also, Mr. Geithner was advised that he had no further liability for Social Security taxes on his IMF income.

Remember, this is the Obama team talking on Geithner’s behalf.

Now here’s the thing:
— Geithner did his taxes for 2001 and 2002 himself. So there is no way he didn’t know that he hadn’t paid self-employment taxes when he filed his returns.
— We can be generous to Mr. Geithner (see below) and posit that at that time he may have been unaware that IMF employees are required to pay self-employment taxes.
— However, when he was audited by the IRS in 2006, he certainly became aware of this principle.
— He still made no move to pay self-employment taxes for 2001 and 2002 until the non-payment came to light during the nomination vetting process.

I would very much like to hear Geithner himself explain who advised him that he had no liability for Social Security taxes on his 2001 and 2002 IMF income. (That’s obviously the crux of the defense being advanced on Geithner’s behalf. That’s the only thing that lets him off the hook for deliberate tax evasion after 2006. For that reason, Geithner needs to not only explain this point, but prove it.)

Then, I would like him to explain how he could have been credulous enough to believe that advice. Surely anyone with any sense at all had to realize that if self-employment taxes were required to be paid on 2003 and 2004 IMF income, they were also required to be paid on 2001 and 2002 IMF income?

And I would like Geithner, and those who still enthusiastically support his nomination, to explain why someone who cannot distinguish patently crappy advice from sound advice should be put in charge of the Treasury Department at this very critical juncture.

(2)

The Senate Finance Committee has released a 30-page document relating to Geithner’s tax travails, which is available here (pdf). It includes the following text:

IMF employees are responsible for meeting their own tax obligations, including federal income taxes, state income taxes and self-employment taxes. The IMF provides employees with several documents throughout the year to help employees understand and meet their tax obligations. These documents include:

• IMF Employee Tax Manual. This manual is given to employees at the time they are hired and includes information describing how to pay self-employment taxes.
• Quarterly Wage Statements. These statements are provided to employees on a quarterly basis. They report on separate lines for each type of tax the amount of gross-ups for federal, state and self-employment taxes that have been included in wage income for that quarter.
• Year end Wage Statements. These statements are delivered annually via an e-mail that describes the data as very important and includes information regarding the payment of self-employment taxes. The wage statement sent with the e-mail contains a detailed breakdown of wages and compensation paid to the employee for the entire year including separately stated amounts for federal, state and self-employment taxes.
• Annual Tax Allowance Request. IMF employees are required to file annually a form requesting the federal, state and self-employment gross-ups to wages.

Mr. Geithner acknowledged receiving all these documents. He wrote contemporaneous checks to the IRS and the State of Maryland for estimated tax payments in amounts that tied exactly to the federal and state tax allowances reported on the IMF quarterly wage statements. He did not write checks corresponding to the self-employment tax allowance that was separately stated directly underneath the federal and state allowance amounts. He filled out, signed and submitted an annual tax allowance request worksheet with the IMF that states, “I wish to apply for tax allowance of US Federal and State income taxes and the difference between the “self-employed” and “employed” obligation of the US Social Security tax which I will pay on my fund income.”

If Geithner is really as smart as everybody says he is, it’s hard to see how he could have worked at the IMF from 2001 to 2004 and never realized that the IMF does not deduct and pay Social Security taxes on behalf of employees, and that employees are required to pay self-employment taxes.

Conversely, if he did in fact never realize it, he couldn’t really be as smart as everybody says he is, and we wouldn’t want him running the Treasury Department, would we? Eight years of incompetents running the Treasury Department have brought us to the point we’re at. The one thing we can’t afford is another clueless incompetent taking over from the current one.

(3)

There is also the question of whether Geithner deliberately evaded taxes when he filed his original returns for 2001 through 2004.

In order for Geithner to be innocent of deliberate tax evasion, it would need to be true that either he never looked at his IMF pay-stubs so he never knew that he wasn’t paying Social Security taxes, or he looked at his pay-stubs but he just didn’t know that he was supposed to pay Social Security taxes like everybody else.

It would also need to be true that in all the time he spent at the IMF he never once participated in, or overheard, a single water-cooler conversation about how easy it is to get away with forgetting to pay your self-employment taxes. (I’ve never worked at the IMF, but in my experience this is the kind of valuable information that is invariably passed down by word-of-mouth to every new employee, especially as he or she approaches their first tax season. Every new employee must hear it over and over. It’s easy to understand why Geithner might want to stand in front of sundry senators and swear that he never heard it. But what possible excuse can the senators have for believing him?)