The Senate Finance Committee begins hearings this morning on the nomination of Timothy Geithner to be Treasury Secretary. Perhaps the biggest question, as far as Geithner’s qualifications are concerned, is whether committee members, particularly Republicans, will aggressively pursue questions about Geithner’s personal tax problems. He has had to pay the IRS more than $48,000 in back taxes and penalties to make up for, among other things, failing to pay Social Security and Medicare taxes in 2001, 2002, and 2003. He failed to pay those taxes even though he signed for, and accepted, reimbursement from his employer, the International Monetary Fund, specifically for the taxes he had not paid. To read about the nature and extent of Geithner’s problems, see here, and here, and here.
Geithner has told senators that he can’t explain why he didn’t pay his taxes. “His explanation was kind of, ‘I don’t know — it was stupid, obviously it was a mistake, and I don’t know why I did it,’” one senator who was present during Geithner’s surprise appearance before a members-only meeting of the Senate Finance Committee told me last week. “What do you say to that?”
Also today, McClatchy Newspapers reporter Greg Gordon has looked into some aspects of Geithner’s personal financial situation during the years involved:
[I]t’s difficult to trace Geithner’s financial condition from 2001 to 2004, when he failed to pay self-employment taxes of $34,023, information that might shed light on whether he made an honest mistake or had some reason to try to skirt tax laws…
Based on a review of real estate records of homes bought and sold by Geithner and his wife, Carole, the couple wasn’t rolling in cash during the years of his tax omissions, when he worked at the International Monetary Fund as part of a 20-year public service career. Carole Geithner has worked as a clinical social worker when she wasn’t looking after their two children. Such work typically isn’t high-paid….
Geithner earned $398,200 as president of the New York Fed, and the taxes might seem to be a minor issue for the couple. If their home purchases in earlier years are an indication, however, finances were more challenging earlier in the decade when the unpaid taxes may have been an issue.
The couple bought a home in the Washington suburb of Bethesda, Md., in 1992 for $275,000, taking a mortgage of $202,300. Through a series of refinancings and the sale of two properties, they climbed the economic ladder until they bought a house for $1.6 million in Larchmont, N.Y., in 2004.
All of the Geithners’ mortgages — from big banks including Nationsbanc, which is now Bank of America; Chase Manhattan, which is now J.P. Morgan Chase; and Wells Fargo — carried adjustable-rate mortgages with the risk that annual rate increases could raise their interest payments to as much as 11.25 percent, though the couple tended to refinance or sell their homes before ever they faced a rate adjustment.
They also took out second mortgages, now known as home equity lines of credit, borrowing a total of nearly $1 million in 2002 on their second Bethesda home, which they bought a year earlier for $1,085,000.
In 2004, they sold that house for $1.45 million and bought their current house in the New York suburb of Larchmont with a $1 million Wells Fargo mortgage, later adding a $400,000 home equity line of credit, also from Wells Fargo.
Update: I should have said that Geithner had to pay the IRS more than $48,000 in back taxes and interest, not back taxes and penalties. My apologies.