Geithner’s Senate Hearing Delayed By Republicans

By Ryan J. Donmoyer

Jan. 15 (Bloomberg) -- Senate Republicans moved yesterday to delay Timothy Geithner’s confirmation as Treasury secretary, pushing President-elect Barack Obama to defend his nominee’s “embarrassing” mistake of underpaying his taxes.

Senate Finance Committee Chairman Max Baucus was forced to reschedule Geithner’s confirmation hearing for Jan. 21 after Arizona Senator Jon Kyl, the panel’s second-ranking Republican, objected to holding the session tomorrow.

While Kyl said he requested the delay because of a scheduling conflict, Republicans may be using Geithner’s tax troubles to gain political leverage, said Bill Frenzel, a former Republican congressman from Minnesota.

“Obviously, they’re after something else,” Frenzel said of the Senate Republicans -- “perhaps something unrelated,” such as pushing for larger tax cuts in the fiscal-stimulus bill than the Democrats who are crafting the measure support.

Baucus said yesterday he was trying to persuade Kyl to remove his objection so that Geithner’s hearing could be held tomorrow. If he is unsuccessful, Obama will take office on Jan. 20 without a Treasury secretary at a time when the economy struggles through a credit crisis that has transferred control of large swaths of the financial sector to the department.

Stuart Levey, the U.S. Treasury Department’s top official on terrorism financing, will run the agency as acting secretary starting on Jan. 20, when the outgoing administration leaves, pending Geithner’s confirmation, a person briefed on the matter said.

Political Risk

Frenzel, 80, a guest scholar on economic studies at the Brookings Institution in Washington, said the re-scheduling of the Geithner hearing could carry political risk for Republicans, who lost seats in the Senate and House in the November election to the Democrats, who control both chambers and will next week take back the presidency.

“If they’re doing this to flex their muscles, all they’re going to do is dig their hole a little deeper.”

At least two Republicans on the Finance Committee, Pat Roberts of Kansas and Orrin Hatch of Utah, said they would back Geithner.

Obama, in comments to reporters yesterday, said of the questions about Geithner’s taxes, “Look, is this an embarrassment? Yes. But it was an innocent mistake.” He also said that Geithner, 47, will be approved by the Senate.

‘Honest Mistake’

Baucus also expressed support for Geithner. “This is an honest mistake and it’s clear there was no intention not to pay it and he did pay immediately, as soon as his mistake was discovered,” Baucus, a Montana Democrat, said. “Add to that, the country needs him.”

Geithner, president of the Federal Reserve Bank of New York, told committee members on Jan. 13 that he had discovered he underpaid his taxes for several years earlier this decade. With the interest penalties, he paid the Internal Revenue Service $48,268, according to documents released by the Finance Committee. Obama told CBS News that his team knew of Geithner’s tax issue before his nomination for the post in November.

As Treasury secretary, Geithner would oversee the IRS, the largest agency in his department. Iowa Senator Charles Grassley, the top Republican on the panel, called the tax issue “disconcerting.”

‘Hardly a Precedent’

“There’s hardly a precedent for it,” Grassley said in an interview with Bloomberg Television. Senators must weigh their concern about Geithner’s tax situation with his qualifications to steer the economy out of its troubles, Grassley said. “For the next seven days or so, they’re going to be weighed.”

Kyl, in seeking the postponement of the hearing on Geithner tomorrow, said it was likely to conflict with a Senate Judiciary Committee hearing for Eric Holder, Obama’s nominee to be attorney general. Kyl serves on both panels.

“He’s reserving his right to attend both confirmation hearings,” said Ryan Patmintra, the senator’s spokesman. He said the Holder hearing, scheduled for today, may extend into tomorrow.

Kyl hasn’t decided how he’ll vote on Geithner’s nomination, Patmintra said.

Roberts, the Kansas senator, said he spoke with Geithner on the telephone and that he is a “good man” who “really knows his stuff.” Although Roberts said the timing of the disclosure about Geithner’s taxes is “troubling,” he said his “guesstimate is he’ll be approved with my vote.”

At issue is Geithner’s failure to pay self-employment taxes while working at the International Monetary Fund. In addition, questions were raised about a lapse of his housekeeper’s legal status.

‘Appropriately Paid’

Geithner said he was unaware that the woman’s immigration papers had expired three months before she stopped working for him, according to an official on Obama’s transition staff. The Finance Committee said taxes for the housekeeper were “appropriately paid.”

The IRS in 2006 and 2007 offered leniency to U.S.-based employees of international organizations and foreign embassies, saying there were rampant problems with tax-law compliance.

“The IRS estimates that as many as half of these employees subject to U.S. tax fail to report their wages, claim deductions they are not entitled to, incorrectly establish” retirement plans, “fail to pay self-employment tax or fail to file tax returns,” the agency said in a March 22, 2007, news release.

Self-Employment Taxes

Geithner, who prepared his own tax returns in 2000, 2001, 2002 and 2005 and used paid preparers in other years, acknowledged receiving a written guide on how to pay the self- employment taxes he owed, according to a summary of the case by the committee. He also late-filed Social Security taxes for household employees in the 1990s, the committee said.

The Treasury secretary-designate didn’t pay some of the back taxes until it was clear he would be nominated for the post, the panel said. He also made other errors such as claiming dependent-care deductions for sending a child to sleep-away camp; only the cost of day-camps is deductible.

Hatch, the Utah senator, in discussing his support for Geithner said, “If we expect perfection around here we’d never have anyone for any of these positions.” He also said, “The man is qualified, competent, one of the best choices” Obama has made.

Former IRS Commissioner Mortimer Caplin, who served from 1961-1964 and founded the law firm Caplin & Drysdale, agreed that Geithner’s tax errors are forgivable.

“It sounds like an honest mistake to me,” said Caplin, 92. “It’s very understandable.”

Don Alexander, another former IRS commissioner who served from 1973-1977, said Geithner would have a more difficult time winning confirmation if the economy weren’t in crisis.

“He is getting a pass,” Alexander, 87, said. “But not a free pass; this won’t help him at all in his later duties. It’s a problem that someone who’s running the Treasury Department should not have.”

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net; Nicholas Johnston in Washington at njohnston3@bloomberg.net