InvestmentNews Editorials

Choosing Geithner was a mistake

Feb 1, 2009 @ 12:01 am

The nomination and confirmation of Timothy Geithner as Treasury secretary was a mistake that will weaken the U.S. income tax system. The confirmation must increase public cynicism about paying income taxes, especially as many taxpayers will find incredible his explanation of his failure to pay the taxes he owed.

In addition, the arguments that Mr. Geithner's tax sins have to be forgiven because he is the best — or only — person who can handle the job of Treasury secretary at this critical time also are incredible.

This is hard to believe, given that he was intimately involved in the development and implementation of the Troubled Asset Relief Program, the first rescue package, which is now widely perceived as a failure, and given the extraordinary depth of talent in America's great universities. Many of the academics in these institutions have served in the Department of the Treasury and/or the Federal Reserve.

Mr. Geithner failed to pay self-employment taxes on income he earned during the four years he worked for the International Monetary Fund in Washington, which as an international organization is exempt from paying Federal Insurance Contributions Act and Social Security taxes.

The omission was discovered during an audit by the Internal Revenue Service, after which he paid the taxes he owed for two of those years but not the first two years — which weren't covered by the audit due to the statute of limitations.

Mr. Geithner claimed that the failure to pay the taxes was an oversight and that he didn't realize he owed the taxes until the audit.

DOESN'T WASH

Yet he received extra income from the IMF to defray the taxes he was expected to pay but didn't pay, and he signed a form acknowledging that he understood he was receiving compensation for those required tax payments. The explanation doesn't wash.

Was it also an oversight when, even after the audit, and Mr. Geithner paid the taxes owed for the two years audited, he didn't pay the taxes owed for the first two years until he was nominated to be Treasury secretary? Granted, he wasn't legally required to do so.

Sen. Robert Byrd (D-W.Va.) had it right when he voted against Mr. Geithner's confirmation. "Had he not been nominated for Treasury secretary, it's doubtful that he would have ever paid these taxes," Mr. Byrd said, according to published reports.

This isn't the right mind-set for the person who will be responsible for the nation's Treasury and its income tax system, nor is it an appropriate example for the taxpayers of the country.

The damage from this appointment won't be obvious, but it will be real. Mr. Geithner's cavalier attitude toward his tax obligations must weaken taxpayer belief in the fairness of the tax system.

Many will wonder how many other important, high-earning people also dodge paying their tax obligations and get off with a slap on the wrist when caught.

As a result, some may be tempted to dodge paying their full tax obligations, thinking: "Others are doing it, so why shouldn't I?"

In short, the revelations of Mr. Geithner's failures to pay his full tax obligations, and his subsequent confirmation as Treasury secretary, weaken the country's voluntary tax system.

His confirmation also will throw into question Congress' seriousness about cracking down on tax evasion, which, according to government estimates, totaled $345 billion in 2007, 14% of total federal revenue.

It is difficult for Congress to claim to be serious about fighting tax evasion while at the same time approving as Treasury secretary someone suspected of an attempt at tax evasion.

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