The Details on Geithner's Household Help & Taxes Problems
The Senate Finance Committee just released a memo detailing the two gaffes that are causing a media storm today over Treasury secretary-designate Tim Geithner.
According to the committtee's inquiry, Geithner recently filed five years of amended tax returns, taking care of self-employment tax bills that it appears he had mistakenly not paid while working abroad for the International Monetary Fund. He ended up paying the bills, with interest, at a cost of $31,536 $43,200. About $26,000 of that total was paid to settle tax bills from 2001 and 2002 after Geithner was nominated by Barack Obama last month.
The mini-scandal is not considered a deal-breaker for Geithner -- it may reduce his level of support from Finance Committee members, but it's unlikely to become a retread of the Zoe Baird/Kimba Wood days. Still, given Republican senators' past focus on illegal immigration, the part about Geithner's household aide could prove troublesome. From the Finance memo:
Mr. Geithner has employed three persons to provide household help since 2004. He did not obtain the required Form I-9, Employment Eligibility Verification, from these persons at the time they were hired to verify their legal work status. The legal status of the three employees was reviewed and notes were entered into an address book with citizenship dates, passport numbers and employment authorization numbers, as applicable, for each employee. No copies were retained of the documents used to determine legal status.
Geithner's household aide was working for him for three months with a lapsed immigration status, according to the senators.
"When errors or issues of concern are discovered, transparency is vital to allow members of the Committee and the entire Senate to fully review and assess the relevant information before hearings and votes occur," Finance chairman Max Baucus (D-MT) and senior Republican Chuck Grassley (IA) said in a joint statement accompanying the info.
Obama spokesman Robert Gibbs also responded to the unfolding flap:
The President-elect chose Tim Geithner to be his Treasury Secretary because he's the right person to help lead our economic recovery during these challenging times. He's dedicated his career to our country and served with honor, intelligence and distinction. That service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed. He made a common mistake on his taxes, and was unaware that his part-time housekeeper's work authorization expired for the last three months of her employment. We hope that the Senate will confirm him with strong bipartisan support so that he can begin the important work of the country.
Late Update: Here's a link to the Finance memo on Geithner.
I wouldn't say these are "gaffes" so much as minor oversights that have since been corrected. Time's Karen Tumulty has more details concerning these, and from what I can see, there's nothing here that rises to the level of a disqualifying offense.
And if the Republicans want to raise a fuss over immigration, then I say let them - the last time immigration was a major issue, it ended up dividing the Republican party.
January 13, 2009 4:57 PM | Reply | Permalink
I agree. Immigration and "Barack the Magic Negro" spell problems for the Republicans.
Since Geithner has paid the back taxes, and since failure to pay the self-employment tax seems to have been a pretty common occurrence, I wouldn't think this would be that big of a deal.
It's a way for Republicans to tsk tsk, look concerned, and pretend to actually care about confirmation hearings. You know, to play a legislator on the TeeVee.
January 13, 2009 5:06 PM | Reply | Permalink
"failure to pay the self-employment tax seems to have been a pretty common occurrence"
Among Treasury Secretaries, not so much.
January 13, 2009 7:55 PM | Reply | Permalink
So in other words, THEY THINK YOU'RE STUPID. The mere notion that these republicans have the audacity to question anyone's credentials is pure hyperbole to me. To put forth the most unqualified vice presidential nominee since Scratchy picked Icky, and then question Senator Clinton (I'm looking at you Prostituion Vitter) and then Geithner. Especially after Creepy Uncle Hank Paulson has been a babbling buffoon- is incomprehensible. My stance is this, if the designees have not killed someone, they should be confirmed. The republicans and Pres Bush have f'd up so much in the world, the republicans should STFU for the next eight yrs.
And of course, the great tabloid known as Politico is all over this. What does this mean, how come Obama didn't know, wah wah wah. Between Politico and The PAGE- I might as well ask a 3 yr old what's new in politics.
January 13, 2009 5:17 PM | Reply | Permalink
I just can't excited about this. The Senate finance committee knew about this since December 5th so they had over a month to go over this.
Everything was disclosed.
January 13, 2009 5:33 PM | Reply | Permalink
He paid his taxes AFTER he was nominated?? If this was a Republican we'd be asking for his head.
Dump him, nominate someone else.
January 13, 2009 5:34 PM | Reply | Permalink
Not going to happen.
He will be approved.
January 13, 2009 5:42 PM | Reply | Permalink
Because it was Obama's vetters who uncovered this obscure tax problem--caused by a quirk in the way the IMF and many foreign embassies report compensation for their U.S. employees--buried in the guy's tax returns which, I am sure are a hundred or more pages per return. Not this guy or his accountant.
So please, spare me the concern-trolling.
January 13, 2009 5:54 PM | Reply | Permalink
The Commenter,
you can't differentiate between concern trolling and someone who wants honesty and integrity in his Government?
Just how much "business as usual" are you perpared to accept?
January 14, 2009 6:59 AM | Reply | Permalink
Agreed.
January 14, 2009 1:10 AM | Reply | Permalink
Yes, if he was a Republican we'd be asking for his head. But he's not a Republican, so we should continue to support the nomination.
There's only two sides to this particular issue. Either the Democratic PEOTUS gets what he wants, or the Republicans do. Easy choice. Stand up for the tribe.
January 14, 2009 8:13 AM | Reply | Permalink
I'm sorry but you have GOT to be kidding, right? You think people are not disgusted about this? And the transition team KNEW about this? You can't tell me a man who is up for the job of top IRS agent didn't know he was supposed to pay taxes. He STILL hasn't paid what he owes. What is wrong with Barry? This is the kind of stuff that will ruin your credibility. This is really terrible, but worse, its an ironic example of the sickness that permeates Washington. So let me get this straight, you can break the law if your friend is Barry, but if the Washington cabal decides that you are toast, then its guilty city. Tell that to Blago. I'm starting to appreciate that guy.
January 13, 2009 5:43 PM | Reply | Permalink
Get real. Granted, Internal Revenue is part of the Department of the Treasury, but that doesn't mean that the guy that heads the Treasury Department (let alone the guy who is not yet even part of the Treasury Department) is an expert on the esoterica of tax law. Internal Revenue is only one part of the operation of the Department.
It's not like he didn't pay his regular taxes; where he tripped up is with the added-in self-employment tax, which, according to NC Steve, is triggered because of a quirk in the way the IMF reports income for its overseas employees. I'm sure the guy has a tax accountant who handles his tax returns, and apparently this got by the the tax accountant as well.
Lighten up, already.
Where did you see that? It's not part of the story here.
January 13, 2009 6:36 PM | Reply | Permalink
"It's not like he didn't pay his regular taxes; where he tripped up is with the added-in self-employment tax,"
I don't know how you can seperate "regular" taxes out? You must mean the "income tax" portion of his taxes. Here's the detail, and an open question, from the NYTimes story today:
"From 2001 until 2004, when he received his final payments from the I.M.F., Mr. Geithner paid his state and federal income taxes but did not pay self-employment payroll taxes. The I.M.F., as an international organization, does not withhold U.S. payroll taxes for Social Security and Medicare from its American employees’ paychecks, so they are required to pay the roughly 15 percent tax on their own. "
What is unstated is if they withhold income taxes, or did his checks come through with the gross amount. Checks with witholding have at least three line items (Income, SSI, FICA) and four or five if there are state and/or city taxes. Yes, "Mr. Geithner paid his state and federal income taxes" but was that withheld from his checks (with him making an adjustment up or down when he filed returns) OR were there no withholdings at all on the checks and he either paid quarterlies and then any nbalance overdue on his return.
Either way he is screwed. Let me explain:
1. IMF withheld only the income tax portion: Geither should have seen that there were no line items for SSI or FICA (and possibly state tax) and realized he had to pay them. That is the time to determine if he is responsible for the self-employment match. But he definitely without a doubt is liable for his portion. Not rocket science here. This is real basic tax law and so simple that you can not fill out a return without seeing it. If he does not understand the simple fact that he is responsible for SSI and FICA he has so little financial knowledge I would not hire him to make change at the 7-11. If he did know and ignored it, worse yet.
2. IMF withheld nothing: In this case, when he saw no withholding, when he filed he had to have known he was to do so as a self employed person. Same as above - either the lack of this rudamentary knowledge OR the flouting of the requirements disqualifies him.
NONE of this is complex ort less than straightforward. Millions of self-employed taxpayers in this country understand it. It is just another example of the self-annointed elites figuring that the laws don't apply to them.
Until they are caught that is.
January 13, 2009 7:52 PM | Reply | Permalink
I cannot disagree with a word you said. And, I am frankly surprised that most contributors expect that he should get a pass, minimizing his actions—and his failure to act—or simply indicating that this isn't a 'real' problem.
It is a VERY real problem, and symbolically sits at the heart of the fundamental unfairness of a portion of the US tax system, and why those who can afford representation manage to consistently push the envelope regarding such rules.
Your observation nails it nicely: It is just another example of the self-annointed elites figuring that the laws don't apply to them. Until they are caught, that is.
This is fundamentally no different that the 'creative accounting' and reporting techniques engaged in by Governor Palin, her husband, and her accountant. No, his conduct—nor hers, incidentally—do not rise to the level of criminal conduct. But, they are clear, intentional misrepresentations of material fact, designed to lower the taxable income of the party, and therefore, their legitimate share of such taxes. There is no question about it: the issues are cut and dried, clearly outlined in relevant tax code, in material published on behalf of and supplied by the IRS to interested parties, and the truth of such information on returns is attested to by the individual taxpayer or joint taxpayers on behalf of who the returns are filed.
He should clearly do the right thing, and step aside. Enough of this ex-post-facto 'reimbursement' of his long standing obligation. If he were a Republican nominee or office holder, many would rightly call for the same thing.
I am astonished and surprised that observers seem to believe that one of 'our guys' should get a pass. Particularly in these poor economic times. Seriously, people: don't you get what this represents?
January 13, 2009 8:13 PM | Reply | Permalink
I agree. Too many here are supporting him because he was appointed by a Democrat. We should not support an Democratic who thinks he is above the law anymore than we should support a Republican in the same situation. It is time to clean it up. Fight him from the left, that will give Washington (the villagers) something to think to think about.
January 14, 2009 1:09 AM | Reply | Permalink
Actually, missing the SE tax for someone overseas is a common mistake easier made than you might think. I worked for about 5 years in the Expat tax group of a major accounting firm. The WSJ story noted that the IMF reimburses their ee's for their income taxes. Without knowing the details of the IMF's plan, most companies charge the employee's a "hypothetical tax" that is meant to be similar to the employees home taxes and then the company pays all the actual taxes. It helps smooth out the cost differences for someone working in a high tax country but coming from a lower tax home and helps the company recover some of the cost. Long story short, most Expats on such a program have NO IDEA what their paystub should look like. They often have no actual withholdings, but a line item for Hypo Tax that is a deduction just like they are used to seeing for taxes. When the W-2 comes, it can be 3 times the actual base pay because they have to pick up the taxes reimbursed (and the taxes due on those taxes) and may or may not have any actual withholding. Unless the accountant who was preparing the return was specifically trained for both Expat tax work and the IMF's program/deal with the local governments, this is a very simple item to miss. For the expats I worked with, most took the return we prepared on faith because we took their simple 5 page return and made it a 75 page book with forms and requirements they had never heard of. As one accountant to another, I blame the preparer for not knowing enough to ask the right questions.
One side note, the US is one of about 3 countries that tax on citizenship. Most of the world taxes based on residency so that when their citizen's go overseas, they are no longer responsible for their home country taxes. We still tax citizens no matter where they work. Yes, we have ways to try and avoid double taxation, but they do not cover social security and medicare. It's a crazy system that makes sending US people overseas to work very costly for most companies. I helps keep tax accountant employed, but is a massive headache for most company HR and payroll teams. But expat tax policy is another issue...
January 14, 2009 5:23 AM | Reply | Permalink
Um, $31k seems to me to be a bit more than a minor oversight. I'm sure he probably makes quite a bit of money and this is just a minor blip, but to me that's like 2 annual grad-student salaries.
January 13, 2009 5:45 PM | Reply | Permalink
You'd be amazed at how much self-employment tax can amount to, and by the time you add in penalties and interest -- no, $31K is really not an unusually large sum.
January 13, 2009 6:28 PM | Reply | Permalink
Listening to the Dem senators, it sounds like this stuff's not a big deal because it's a REALLY IMPORTANT job he's being asked to do.
Actually, it is specifically because of the gravity of the job that I would like someone who DOESN'T purposely avoid paying taxes because the IMF has wink-wink rules and he figured he could get away with it.
Sorry, but that's not change we can believe in. Surely there's an honest AND smart economist out there.
January 13, 2009 6:34 PM | Reply | Permalink
And what evidence do you have that he purposely avoided paying taxes?
January 13, 2009 6:38 PM | Reply | Permalink
Well, I'm NOT an economic whiz kid who is credited with being able to handle amazingly complicated economic crises...
and even I know that when I'm self-employed and taxes aren't coming out of my check, that I need to pay those taxes.
So I find it unbelievable that apologists would ask me for "evidence" or say this is an "honest mistake" with a straight face!
If Geithner was unaware that he needed to pay taxes on his income, then I sure don't want his incompetent economic help anywhere near this fiscal meltdown. That's one scenario.
The other scenario, and the likely one - given that he let this go on for five years and then only filed amended returns when he was about to be nominated - is that he figured he could get away with it.
And, in fact, it appears he did, because these people aren't subject to the same laws as the rest of us ordinary Americans.
I repeat, that is not change we can believe in. Increasingly, I'm wondering if I didn't get fooled by another Democrat.
January 13, 2009 7:50 PM | Reply | Permalink
Sorry, I read wrong: He didn't pay the taxes for four years, not five.
And I did mean "self-employment taxes on his income" -- lest anyone try to use my shorthand as a red herring argument.
January 13, 2009 8:00 PM | Reply | Permalink
Sioen, if the IRS thinks that it is not an honest mistake, they don't let you amend your taxes and pay with interest, they sue you for tax evasion. The fact that he amended his taxes indicates that it is a mistake. Regarding to the amount, self employment tax is 15% of the income. This is about 31,000 over 5 years, so he missed to report $200,000 over 5 years ($40,000/yr). For the amount of money these guys make, it is not a huge deal, I think.
January 13, 2009 7:15 PM | Reply | Permalink
OOps, I overestimated the income, since the $31,000 include interest.
January 13, 2009 7:18 PM | Reply | Permalink
The dollar figure isn't the problem. The IRS regularly overlooks "whoopsies" (that are as much as I make in a year) for rich people, so that doesn't make it any more honest.
The problem is that either Geithner is so economically inept that he didn't realize he needed to pay taxes on his income,
or
he thought he could get away with it.
Either way, get him out of my government, please.
January 13, 2009 7:53 PM | Reply | Permalink
Just another example of how BOTH parties have NO BUSINESS representing good, honest taxpaying citizens of this country>
Oh... I keep forgetting... they no longer DO represent us, do they?
January 13, 2009 7:12 PM | Reply | Permalink
amazing how people here turn a blind eye to this criminal.
YOU try avoiding taxes for 5 years.
and then tell everyone it is acommon mistake.
the guys a thief!
who knows what else this criminal has done.
obama sure is laughing now at all the fools.
January 13, 2009 7:24 PM | Reply | Permalink
Look, I am all for sending crooks to jail, no matter what party they are. But in this case there is nothing that indicate that the guy is a criminal. I agree that you think that he should know better, but I hate to call a guy a criminal when for all we know it is a mistake.
January 13, 2009 7:58 PM | Reply | Permalink
The guy should withdraw his name.
People who are self employed understand, very well, the difference between income taxes and self-employment taxes (mostly because the SE Tax is such a ripoff). Income taxes are just that -- taxes on one's income. Self-employment taxes cover things like social security and Medicare. The IMF, it appears, didn't withhold and so Geithner had to manually pay his self-employment taxes each year.
I suspect that those who have worked for the IMF or World Bank or various other DC-area employers that are not based in the U.S. understand that employees manually pay some of their own taxes.
The big problem with Geithner is this: an audit uncovered his problem a couple of years ago and he chose to correct only the portion that allowed him to adequately respond to the audit. It appears that he didn't correct the full amount he actually owed until the nomination interest arose.
He's going to be running the agency responsible for the IRS. I love Obama, I really do. But, this is a bad deal for him. I don't know if his people just don't get the significance or if he just insists on Geithner, but either way, Geithner's error is major. It may not be criminal, but it makes him unfit to lead Treasury.
January 13, 2009 8:52 PM | Reply | Permalink
I know we want our public servants to be perfect, especially those who make and enforce the laws that the rest of us must live by. But damn, if the only way to the top is never to have made a mistake or cut a corner, we're going to be picking our leadership from an extremely small subset of the citizenry -- and maybe end up with people whose ONLY virtue is that they've never made a mistake or cut a corner, never mind that they aren't particularly good at what they do. That would be a shame.
January 13, 2009 9:08 PM | Reply | Permalink
I guess it explains a lot about America that I am the one portrayed as unreasonable when I'd like the people running my government to be honest.
January 13, 2009 11:49 PM | Reply | Permalink
I am pretty surprised by people calling the guy a "criminal." It was sloppy and unacceptable for a man in his position, but people make mistakes on their taxes all the time. There are bankruptcy attorneys who are very good at their job...but still go bankrupt themselves. The question that matters is whether he is the right man for the job professionally.
January 13, 2009 10:32 PM | Reply | Permalink
I'm sorry, but, does this mean his not qualified to be Treasury Secretary? This sounds an awful lot like more DC political craziness that never becomes an issue in private work or private life.
January 13, 2009 10:36 PM | Reply | Permalink
Geithner is just another Wall Street / Washington luminary who is part of a corrupt system. The reason notwithstanding, we can't have someone running the nations finances who can't even assure his own tax return is done correctly. For five years running no less. Geithner has held positions in high finance that place him at the scene of the crime of mismanaging major pieces of national finance. Why isn't it obvious that this disqualifies him for Treasury Sec? Or are we in a situation where anyone who might be deemed qualified is going to be an insider who is conflicted and most probably corrupt? This doesn't speak well for the system that has evolved and strongly suggests it needs a serious overhaul.
January 14, 2009 1:42 AM | Reply | Permalink
Damn, you people are harsh.
I did taxes for a lot of years, and I can see how this mistake could be made quite easily. The accountant probably misclassified the income. The question of what income is subject to self-employment tax is not nearly so cut and dried as some imply. People with complex returns and multiple sources of income run into these kinds of questions regularly. And if they take their information to five different accountants, they likely will get five different answers on what their tax should be. That's why accountants have permanent migraines from January to April.
January 14, 2009 2:39 AM | Reply | Permalink
There is something very wrong if you ask five different professionals the same question and get five different answers. I can't help but associate the financial mess we have with the idea that there are no prescribed or regulated ways to do things. This resolves to everybody doing what they damn please. Yet when a typical working class person is left to deal with the system there is usually one way and one way only to satisfy the government bureaucracy. The same applies to big business. The little guy has no allowance at all to conduct his or her business on their terms. Everything is dictated to us. There is a double standard at work here and it is in your face every day. Just read the news.
Geithner was chairman of the NY Fed during the period when the finacial marketplace was allowed to run amok. There is no way to place him in charge of a piggy bank. Him and all the rest are part of the problem, not part of the solution. The vast majority of these people have an ingrained focus of how to generate profits and many of them have no idea of how their perspective is skewed in that regard. The very fact they failed to recognize how messed up they have allowed the system to become is an undeniable indicator of that.
January 14, 2009 5:10 AM | Reply | Permalink
Got that. But, you are obliquely describing the fundamental problem with the role of accounting professionals. Let's face it: they largely see themselves as solely representing their clients, and believe it's their duty to reduce to the absolute minimum, the tax obligation of each client.
So, the boundaries are pushed and creative means are used to 'create' deductions. I know an accountant who encouraged a client to right off the full cost of annual trips to Mexico where—allegedly—he and his wife, the sole additional LLC member—conducted their required annual corporate meeting. They wrote off EVERYTHING, including costs associated with dragging their children along on this 'business activity,' which was clearly a vacation. Fair? Legal? Reasonable? Of course not! The IRS finally caught the practice on audit, and made some adjustments. The client still got a way with huge tax reductions based upon engaging in an activity which he could have easily done in his office.
When I work in the field at a Starbucks, I don't attempt to claim any expenses associated with that activity at all. Most others I know who are creatively 'self-employed' and producing little or no revenue do so with every expense they possibly can. Fair? Legal? Reasonable? No, their phantom 'expenses'—generated almost solely for themselves—do not have a legitimate business purpose, and are not deductible. It's typically a ploy used by the spouse of a well paid professional, such a doctor or lawyer, to magically reduce their joint taxable obligation. Accounts routinely encourage just this sort of behavior, helping their clients invent such schemes.
I could go on, but I'm sure you get it. The system is rigged to benefit the wealthy and their facilitators, including most accounting professionals. In the aggregate, this results in a HUGE shift of tax liability to the little guys who cannot afford to hire clever conspirators, don't believe it's the right thing to do, or choose not to participate in these sham practices for some other reason.
Sadly, if prostitution is the oldest 'profession' in the world, surely accounting must have come along next…
January 14, 2009 12:14 PM | Reply | Permalink
Is it that difficult to "forget" to check a self employment box for several years? Have any of you? The immigration thing is pretty light weight but being a "smart" guy doesn't make it everything ok. I mean how do you explain that you or possibly a loser accountant forgot this for 3 or 4 years? We can't let blind party support, even with this momentous presidency, well, blind us. He needs to step up, fess up and/or get the heave ho. Its a no brainer.
January 14, 2009 6:13 AM | Reply | Permalink