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Tax Experts: Geithner Should Withdraw

Thursday, 15 Jan 2009 07:15 PM

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President-elect Obama should withdraw the nomination of his Treasury secretary-designate, former Republican presidential candidate Gary Bauer tells Newsmax.

The nomination of a man who has cheated on his taxes to become Treasury secretary “doesn’t pass the straight-face test,” Bauer said. “If this were a Republican Cabinet nominee, he would be in deep trouble, even in a Republican-controlled Senate.”

Time magazine and others have said that New York Federal Reserve President Timothy F. Geithner must be confirmed because he’s “the only one who understands the TARP,” the Troubled Asset Rescue Program the Bush administration crafted to bail out the financial services industry.

“It seems odd to me that he understands the TARP but doesn’t understand that you have to pay self-employment tax on self-employment income,” Bauer said.

The Treasury secretary oversees the Internal Revenue Service, among other agencies. This means that Geithner, whose tax cheating is described in detail in a 30-page memorandum released this week by the Senate Finance Committee, will become the nation’s top tax collector if confirmed.

“Geithner’s errors and/or misjudgments” on tax returns since 2001 “make him unfit to serve as secretary of the Treasury,” says John Berlau, a tax and financial affairs analyst at the conservative Competitive Enterprise Institute in Washington.

“His nomination should be withdrawn, and, if this does not happen, he should be voted down by the Senate.” Berlau called Geithner’s nomination “a slap in the face” to millions of law-abiding taxpayers.”

The Senate Finance Committee investigation of Geithner’s tax returns found that he owed $42,702 in back taxes and interest for the years 2001 through 2004.

At the time Geithner worked for the International Monetary Fund (IMF) in Washington, DC.

Because the IMF does not pay payroll taxes, it allows American employees to request a special “tax allowance” in addition to their salary to cover their U.S. tax obligations. The IMF sends instructions to its American employees on how to handle these payments, detailing what they owe the U.S. Treasury in quarterly and annual wage statements.

“Mr. Geithner acknowledged receiving all of these documents,” the Senate Finance Committee memorandum states.

He also filled out, signed, and submitted to the IMF a request for additional funds to pay his U.S. taxes that states, “I wish to apply for tax allowance of U.S. Federal and State income taxes and the difference between the 'self-employed' and 'employed' obligation of the U.S. Social Security tax which I will pay on my Fund income,” the form states.

And yet, despite receiving the extra payments from the IMF, Geithner never paid the self-employment taxes, apparently just pocketing the extra money.

“Obviously, he thought he could get away with it,” said Dee Hodges, president of the Maryland Taxpayers Association. “He didn’t even pay fines. You and I would be paying fines if we had done the same thing.”

Senators should “not give him a free pass” by saying he made an honest mistake, said Brian Darling, director of U.S. Senate relations at the conservative Heritage Foundation.

“How can you be head of the Department of Treasury, which oversees the IRS, when you have tax problems? It just calls into question his qualifications,” Darling told Newsmax.

“Putting him in charge of the Treasury and the IRS sends a message to the American people that they really don’t need to be all that careful about filing their taxes. It sets a dangerous precedent.”

The Senate Finance Committee memo notes that Geithner “has experience with Social Security tax issues,” and so the likelihood of an honest mistake was low.

Furthermore, he prepared his own tax returns for four of the years where tax delinquencies were found, using commercial tax-preparation software.

“It's bad enough we have a Ways and Means chairman with a selective memory about his own tax returns — now we may have a Treasury secretary who either needs to upgrade his tax preparation software or listen a little more carefully to his accountant,” Pete Sepp, vice president of the National Taxpayers Union, told Newsmax on Thursday.

“If he is confirmed, we can only hope his public tax ordeal will convince him that the system needs simplification — not just for his sake, but for about 130 million taxpayers,” Sepp said.

Vincent R. Reinhart, a former monetary affairs director at the Federal Reserve who is now a resident scholar at the American Enterprise Institute, said he believes that Geithner probably will win confirmation regardless of his tax problems because Democrats hold majorities in Congress.

Geithner’s problems “would be damaging if he were a Republican in a Democratic Senate, but it’s not going to derail his candidacy,” he told Newsmax.

If the Senators’ willingness to gloss over Geithner’s repeated failure to pay taxes sets a precedent that will “make it easier to join the government from here on out, then that’s good. But I suspect the confirmation process will remain partisan,” Reinhart said.

After an IRS audit in 2006, Geithner paid $17,000 in back taxes and interest for 2003 and 2004, the Senate Finance Committee memorandum noted.

But Geithner didn’t pay an additional $26,000 in back taxes and interest he owed on IMF income for 2001 and 2002 until he was nominated for the Treasury job by Obama in December.

“He only fixed it after discovering he was going to be the nominee, so the timing is troubling,” said Sen. Pat Roberts, R-Kan.

Brian Darling and other conservatives also worry about Geithner’s role in the federal bailout of the financial markets, known as TARP.

Darling called TARP “a pork barrel project for Wall Street,” that was “chipping away at the free market,” and called Geithner “a government interventionist.”

[Editor's Note: Watch U.S. Sen. James Inhofe discuss TARP - Go Here Now]

“Our government needs to get out of the business of managing industries,” he added. “We don’t reward failure in this country.”

Competitive Enterprise Institute analyst John Berlau agrees.

Geithner’s “only significant policy accomplishment has been his role in the Bush-Paulson bailouts,” he said.

Citing a Bloomberg wire service report, Berlau noted “Geithner pushed for Citigroup to take over the operations of Wachovia Corp. at taxpayer expense, even after Wells Fargo’s offer to purchase the firm without taxpayer backing.

“Had Geithner prevailed, who knows how much more trouble the financial system would be in given Citigroup’s current financial troubles,” Berlau said.

Peter J. Wallison, a former general counsel at the Treasury Department who is now a financial markets analyst at the American Enterprise Institute, believes that once the U.S. public learns the details about Geithner’s tax situation, “there could be a backlash from the country.”

Nominating someone who failed to pay his taxes as the nation’s tax collector is “very worrisome, and demoralizing to all the people at Treasury,” he added.

“I don’t think this is a small mistake. It’s a serious thing and hard to square with a person who takes his tax obligations seriously, because it seems to involve deliberately ignoring the things he was required to do.”

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