My instant reaction to Tim Geithner's embarrassment over his taxes was that it would not stop the appointment going forward, but I am beginning to wonder. The hostile editorial in the NYT certainly did not help.
As much as Mr. Obama and his team may wish it, however, the disclosures cannot be dismissed so easily, or papered over. The just-the-facts report of Mr. Geithner's tax transgressions, compiled and released by the Senate Finance Committee, paints a picture of noncompliance that is considerably more disturbing than his supporters are acknowledging...
Many people find taxes baffling, but before his job at the I.M.F, Mr. Geithner was a senior official in the Treasury Department under President Clinton, and for the past five years he has been the president of the Federal Reserve Bank of New York. With that professional profile, tax transgressions are tough to excuse.
My guess had been that Geithner would in the end be given a pass. I had supposed he made an honest mistake, and the bafflement quotient is not to be denied, such is the complexity of the system. (As the Times points out, an aggravating factor in this case was an error over "wrongly claimed expenses for sleep-away camps in calculating his dependent care tax credit". Is there a correct way to claim such expenses? What are sleep-away camps, by the way? Is there such a thing as sleep-at-home camp, even if only as a tax loophole?) But the fuss is not dying down. Geithner continues to be cruelly mocked by the television comedians--and make no mistake, they are a political force to be reckoned with.
Suppose nonetheless that he is confirmed. Even then, this little scandal worsens a problem I've mentioned before: lack of clarity over economic-policy leadership. It may be possible to devise good policy by committee, but I doubt that it is possible to explain it adequately unless you have a principal, credible spokesman. Who is that supposed to be? For the time being, presumably not the man everyone is laughing at, even if he does become Treasury Secretary. If the matter is resolved as the Obama team would wish, it still serves to subordinate (further subordinate?) Geithner to Larry Summers in the White House. Or perhaps not. As I say, lack of clarity is the issue.
I have a hard time imagining this is anything other than the NYT having a hissy fit over the fact that Obama turned down a meeting with them.
Re: the simple mistake. There's an excuse for the mistake. The method of reporting those untaxed wages is unusual, and if he prepared the return himself, a mistake isn't unexpected.
However, look at what happened next. He was audited in 2006, which means only 2002, 2003, 04, and maybe 05 were audited. They caught the mistake and he paid the price.
The next question is why didn't he amend those returns prior to 2003. Simple answer: the IRS couldn't get to them because the statute was closed. So, catch me if you can't.
He must have known his prior returns were wrong and he chose to ignore it. Reason for not approving his appointment? You decide.
He had no legal obligation to amend those earlier returns. IRS has no practical means to assess those out-of-statute returns. Home free. Unless of course you're nominated for a cabinet position,
Geithner wittingly failed to pay taxes for which he had acknowledged reimbursement. Then he prevaricated about it. Then, if I read it right, he lied. Does this make him unqualified to serve in the position to which he is nominated? Were he a Republican, the answer would undoubtedly be yes.
Use this as a lesson in tax simplification: Scrap the current code and introduce the flattest tax that you can possibly come up with. The result will be less money spent on compliance, fewer loopholes and deductions, and higher revenues, if the final rate is not too high.
Food for thought.
Reilly
Bush's team certainly has suffered from lack of clarity among other problems
I can't believe Geither will lose out over this piddling issue. I have had several cases where I got conflicting advice regarding self-employment taxes - once the IRS dunned me for self employment taxes and I replied that I'd paid my full allocation of SocSec via regular employment; they then backed off. Another year my accountant said I needed to pay self-employment tax and again I clarified - to his satisfaction- that I'd already met my obligation to Soc Sec. We should remember that there is a limit to how much one pays in, and the guidance is not so clear cut. The IMF apparently gave him a gross up of income to pay taxes (based on what I read in newspapers) but I would not be quick to condemn him and he paid the tax - big deal. Maybe it will make him a better Treasury Secretary.
As to the policy team, Larry Summers is to be the political lead - I can't see that that would be any clearer. Geither is to be the mechanic and deal maker, bringing the Fed and Treasury and bankers together, something Summers has less practical experience in.
I would prefer that there is one policy leader.
"What are sleep-away camps, by the way? Is there such a thing as sleep-at-home camp, even if only as a tax loophole?"
Sleep-away camps are rustic retreats where Americans can unload their kids for a month or so at a time during the summer. The kind of summer camp where the kids sleep at home is called a day camp. The Geithner case is the first I've ever heard of either of these camps having an associated tax deduction.
The broader point about Geithner's tax evasion, if I had to guess, was that he felt underpaid as a public servant. Sure, he was making close to $400k per year as New York Fed President, but compared to the executives of the companies he was responsible for regulating, this must have felt like pocket change. There was a disconnect between Geithner's power and status and his income, and so he sought to supplement it by evading his taxes, figuring that the chances of a high Federal Reserve official getting audited were slim.
You bring up a good point about the lack of clarity in economic policy leadership (and as your paper's editors pointed out recently, this extends to other policy areas, with Obama pairing a Cabinet Secretary with a White House policy adviser). Another point is that the financial meltdown of 2007-2008 occurred on Geithner's watch, e.g., he was the one who turned down Lehman's request to become a bank holding company. Summers, on the other hand, was merely a Harvard professor during the same period. Perhaps Obama ought to just nominate Summers as Treasury Secretary and not pair him with a White House policy adviser (he already has Volcker in some sort of other economic policy role in any case).
According to the Wall Street Journal, the government has already decided to waive penalties and interest for Mr. Geithner's "embarassment", something that would not be given to an ordinary taxpayer. If I remember correctly, some of Mr. Clinton's appointees were skipped over due to failure to pay "nanny" taxes. Is it too much for Americans to expect that a high ranking official that has worked for the Treasury, Federal Reserve and the IMF at least be able to make sure his tax returns are done right? I mean, he did know that we were all going to get to see his returns, right? Who is the dumb one here? Mr. Geithner or the person(s) who selected him?
Not sure if you're being facetious here, but "sleep-at-home" camps are normally referred to as day camps. The child goes to "camp" during the day, but sleeps at home. Effectively, it's used as seasonal daycare for the children of the (upper) middle class when school is out during the summer.
so he forgot to pay his taxes for four years? not a biggie. it could happen to anyone. why, i myself almost forgot to pay mine just last year!!! i remembered in the nick of time. In all seriousness this man has got to go. The Wall Street Journal also was not too supportive of his "innocent mistake"
As I understand it, Geithner's main error was failing to realize that despite being a salaried employee, he was liable for the Self-Employment tax that self-employed persons pay in lieu of FICA payroll tax. For all taxpayers--apparently excepting only a few who work for IGOs--the Self-Employment tax (declared in Form SE) is payable only if they file Schedule C listing business activity. Even TurboTax, which has been proven more accurate than most tax preparers, won't flag the SE tax if you don't need to file Schedule C. In fact, Geithner relied on a professional to do his taxes in all years after 2001 and the latter didn't catch the problem either. On balance I think this is an easy-to-commit error that points up the unnecessary complexities of the income tax code more than any failure of honesty on Geithner's part.
One aspect of this situation that, as an immigrant, I find fascinating is that while articles frequently describe Geithner as embarassed, never is he ashamed. He should be. His actions do not bear close scrutiny, and he cannot blame 2001 and 2002 on an incompetent accountant. Can't America do better than this?
Says it right here: http://www.irs.gov/pub/irs-pdf/p503.pdf
"The cost of sending your child to an overnight camp is not considered a work-related expense."
A tax preparer called in to Howie Carr's radio show, (WRKO Boston), and said point blank that many people try to get away with that and he just tells them it's tax fraud. If Geithner is soooo brilliant then the "it was just an innocent mistake" holds no water - the guy is DISHONEST.
With his appointment of a tax evader to head OUR Treasury, I don't have to just suspect that Obama wasn't including himself when he said we need to accept a "new era of responsibility" - I KNOW IT FOR SURE!
Check out James Fallows' comment on this issue (also on the Atlantic voices). I was pleased to see it, because I think Geithner should go based on this tax issue.
He has a tax background, and he worked with other people being taxed the same way, and he supposedly received not only notices about the tax implications but also extra compensation to cover the cost. This isn't just the confusion of self-employment. HE KNEW. He made a calculation of how likely he was to get caught and decided the risk was worth it. So first he cheats, then he lies about what he did, figuring most people will just say, "Yeah, taxes are complicated."
This isn't the kind of ethics I am looking for in someone with so much power. I need to trust the person who will be in charge of distributing so much money.
Oh, and regarding sleep-away camps--that's not a joke, either. If your children are of day-care age, you are entitled to consider the cost of DAY CARE in the summer as including a day camp, such as are frequently run by YMCA's, park districts, etc. You are not entitled to include the full cost of an away-from-home camp, which obviously extends beyond day care as far as cost. So did he cheat on that too?