Politics & Policy

Timothy Geithner’s Story

The treasury secretary-designate tries to explain his unpaid taxes.

Give Timothy Geithner credit. He has a story, and he’s sticking to it. Even if it’s not the whole story.

When the treasury secretary-designate walked into his confirmation hearing before the Senate Finance Committee Wednesday morning, he knew he would face questions, from Republicans at least, about his non-payment of Social Security and Medicare taxes in 2001, 2002, 2003, and 2004. Democrats seemed to have no interest in the topic, but some Republican senators wanted to know why Geithner accepted reimbursement from his then-employer, the International Monetary Fund, for taxes that he had not, in fact, paid. They also wanted to know why, when a 2006 Internal Revenue Service audit forced him to pay back taxes and interest for 2003 and 2004, Geithner didn’t just go ahead and pay up for 2001 and 2002 as well. (He didn’t do that until after he was nominated to be treasury secretary.) More generally, Republicans wanted to know whether Geithner had been completely forthcoming with the committee.

Now, after more than three hours of questioning, those Republicans still want the answers they didn’t get from Geithner at the hearing.

Geithner came in with a carefully prepared confession of error. “These were careless mistakes,” he told the committee. “They were avoidable mistakes. But they were unintentional.” Geithner explained that when he first went to the IMF in 2001, he somehow believed — he didn’t explain exactly how — that he was not required to file those Social Security and Medicare taxes. As he thinks about it today, he said, he realizes that the IMF informed him repeatedly, and precisely, about his obligation. But back then, he just didn’t get it. “Looking back, it was very clear,” Geithner said. “If I had thought about it more carefully at the time, and I’d asked more questions — I would have gone back and asked a bunch more questions about that, and I would have approached it differently.”

As the hearing went on, Geithner repeated that explanation several times, whether it answered the question he had been asked or not. He relied on it, for example, when Kentucky Republican Sen. Jim Bunning asked Geithner a very simple and direct question. “Would you have paid your 2001 and 2002 tax had you not been nominated to be the treasury secretary?” Bunning asked.

“Senator, as I said initially, I should have asked more questions when I concluded that audit at the time, and I didn’t,” Geithner responded. “When I think back on that, I regret not having done that. But I should have done it at that point.”

Most people who have reviewed the facts of the Geithner case would probably say that no, he would never have paid those 2001 and 2002 taxes had he not been nominated. But only Geithner can say for sure. Bunning’s question was one of those moments when it became clear that there were questions the nominee simply couldn’t answer, at least not if he wanted to avoid damaging himself.

Bunning let Geithner off the hook, quickly moving to another topic. The senator has since re-asked the question in writing, but Geithner got away with the non-answer in the hearing.

Got away, that is, until the questioning came around to another Republican, Sen. Jon Kyl. The IRS has a three-year statute of limitations on offenses such as Geithner’s, Kyl said, which meant that, after that 2006 audit, Geithner was obligated to pay for 2003 and 2004 but not for ’01 and ’02, which were too distant in time. Kyl wanted to know whether Geithner, when he paid for ’03 and ’04, knew that he also would have owed for ’01 and ’02 were it not for the statute.

“When you found out what you had done wrong, it is incomprehensible to me that you did not immediately realize that you had done it wrong for the entire time that you had been at the IMF,” Kyl told Geithner.

“Senator, as I said before, I took the audit very seriously,” Geithner answered. “I hired an accountant to go back and help me figure out what I’d done wrong and how to correct it. I paid what the IRS said I owed.”

“I understand that,” Kyl said. “But I’m asking about your state of mind when you were — when you first became aware of the fact that you had an additional liability as a result of this audit and you found out why you had that additional liability. It strains credulity to think that it didn’t immediately occur to you that you had that liability for the whole time that you were at the IMF.”

“Senator, as I said, if I thought about it more at the time, I would have asked more questions,” Geithner said. “I would have handled it differently, and I regret not having done so. This is my mistake, and it’s my responsibility…I looked carefully at what they said I owed. I paid what they said I owed.”

“Sure,” Kyl said. “Any taxpayer would. But my question to you is a little different from that. And that is whether you thought at the time or at any time thereafter, you know, ‘I didn’t do anything different those first two years, I probably would have owed that too, except that the statute of limitations has run so I don’t have to pay that.’ Did that thought never cross your mind until you became a candidate for nomination as secretary of the treasury?”

Geithner simply wasn’t going to answer. “Senator, again, as I said, the IRS told me what my obligations were,” he said. “I met the obligations…”

Kyl became visibly frustrated. “Would you answer my question rather than dancing around it, please?” he asked.

Kyl’s demand forced Geithner to open up, just a little. “Senator, I did not believe when I settled that audit and paid what they said I owed that I had obligations to go back,” he began. “I did not think about that until I was going through the vetting process…I had not thought about it in the intervening years. No occasion to think about it. And I might not have thought about it unless I had gone through the process.”

“Okay, that’s a relatively clear answer,” Kyl said, “the answer being no, you didn’t think about it until it became important in connection with your nomination.”

Geithner wouldn’t agree with Kyl’s characterization. “Well, what I said was that I didn’t think about it until, having gone through that process and disclosed all this to the transition team, I was forced to go back and go through it again and think about it. And having done that, I did what I thought was appropriate then.”

“Yes,” Kyl said. “And that’s the first time it occurred to you that it may be that you had avoided the liability because of the statute of limitations.”

When Kyl said that, at that moment, Geithner’s perfect composure broke slightly for the first and only time. “I did not believe, senator, that I was avoiding my liability,” he told Kyl. “Senator, I have worked in public service all my life. My first job in government was as an employee of the treasury. I grew up in government with a deep appreciation of the obligations that come with that. I would never put myself in the position where I was not — where I was intentionally not meeting my obligations as an American taxpayer.”

“Okay,” Kyl concluded. “Rather than me asking for any additional testimony, review carefully what you said, and if you think it needs to be modified — because you’re under oath here — if it needs to be modified in any way, please provide that for the record.” The message could not have been clearer: Kyl simply didn’t believe Geithner’s story and was giving him one last opportunity to change it.

We’ll find out very soon whether Geithner takes that opportunity, because the Democratic leadership of the Finance Committee is rushing the nomination to a vote. After Wednesday’s hearing ended, sometime between 1 P.M. and 2 P.M., chairman Max Baucus decreed that all written questions for Geithner had to be submitted by 5 P.M. Then he said that Geithner was required to submit his written answers by 10 A.M. Thursday — a total of 17 hours later. Then, Baucus made clear, senators would be given a half-hour or so to assess those answers before they would be forced to vote yea or nay on the Geithner nomination.

There is no way all the questions could be answered with care and evaluated with equal care in such a brief time. But Baucus will undoubtedly prevail. It just so happens that on Wednesday, the Finance Committee announced its new members, and Democrats have an expanded majority because of their big win in last November’s elections. Starting Thursday, there will be 13 Democrats on the committee, as opposed to 10 Republicans. That three-vote edge means Democrats can do whatever they want, even if Republicans are united against Geithner (which they’re not).

Geithner may or may not answer all the questions candidly. But with a big majority of Democrats united behind him, it doesn’t really matter.


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