Monday, January 19, 2009

Tim Geithner: Tax Dodger to Head Treasury

Tim Geithner’s nomination as the next Secretary of the Treasury has encountered a “hiccup”.

The “hiccup” is that he’s is a confirmed draft dodger. The Internal Revenue Service is in the Department of the Treasury.

The real problem is a question of judgment. As President of the Federal Reserve Bank of New York he opposed the bailout of Lehman Brothers, whose collapse triggered the credit crisis which is racking the global economy. By itself, that should result in a rejection of his nomination.

Public attention though is focused on his failure to pay taxes on income earned as a consultant to the International Monetary Fund (IMF). He claimed his mistake was “innocent.” Obama has echoed that remarked that the oversight was an “innocent mistake.” Many liberal commentators have explained that these mistakes are common because of the complexity of the Internal Revenue Code.

A closer look, as provided by both the New York Times and Wall Street Journal, provide a much different story. He

Geithner has a history of omissions and questionable deductions, which have only been rectified when audited or seeking appointment as Secretary of the Treasury.

After serving in the Treasury Department in the Clinton Administration, Geithner became a consultant to the IMF. The IMF is not subject to US income taxes, but American employees and consultants are. He earned $25,000 in 2001, 2002, 2003, and 2004.

The nuances of quarterly payments for outside income can be mind boggling, and subject to extensive errors. But that is not the case with Geithner, who was on express notice of the duty to file. He was not only provided quarterly and annual notices of his tax obligations, but he even signed a statement acknowledging the self-employment tax obligation. In addition, to ensure that the Americans like Geithner actually netted $25,000, the IMF overpaid them to cover the taxes.

The IRS in 2006 audited his 2003 and 2004 returns and noted the IMF omissions. He paid the past due taxes and interest. Significantly, he did not though file amended returns for the 2001 and 2002 taxes until his appointment to the Treasury two years later.

The Geithner saga does not end there. Geithner claimed on his 2002, 2004, and 2005 tax returns expenses for sleep away camps in calculating the dependent care tax credit. An accountant questioned this claim for his 2006 return and Geithner dropped it. As with the 2001 and 2002 self employment taxes, he only filed an amended return for the three earlier returns when his appointment to Treasury unfolded.

Perhaps the most intriguing aspect of his late filings is that the IRS, which Geithner will oversee, waived all penalties on Geithner.

Should he be confirmed, as is likely, he will join Congressman Charles Rangel, Chair of the House Ways and Means Committee, as a tax dodger. Of course, we’ve already had a draft dodger as President, and hence Commander in Chief of the military.

If Geithner were a Republican nominee for the Treasury, the mainstream media would be crucifying him, rejecting his protestations of innocent mistakes. To its credit, the New York Times has consistently questioned the conduct of both Rangel and Geithner.

16 years earlier, both Zoe Baird and Judge Kimba Wood had to withdraw their nominations for Attorney General because of their failure to pay the Nanny Tax; that is, social security taxes on domestic employees including nannies.

Taking deductions up to the line is permissible. As stated by the great jurist Learned Hand in the 1934 case of Helvering v. Gregory: “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury.”

That does not include the failure to omit taxable income.

Judge Hand’s famous passage also includes this statement: “There is not even a patriotic duty to increase one’s taxes.” Someone should remind Joe Biden of the Hand quote.

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