Page last updated at 01:13 GMT, Tuesday, 27 January 2009

Tim Geithner's taxing problems

By Steve Schifferes
Economics reporter, BBC News, Washington

Timothy Geithner
Geithner admitted he should have read forms more carefully

Tim Geithner has been sworn in as the new US Treasury secretary, just hours after his nomination by President Barack Obama was approved by the US Senate.

He is expected to play a key role in shaping the economic recovery plan that is at the centrepiece of the president's domestic agenda.

But his appointment - ultimately approved on Monday by 60 votes to 34 - was delayed by questions about his failure to pay social security payroll taxes when he was an official at the International Monetary Fund (IMF).

At his confirmation hearings on 21 January, Republicans aggressively questioned him about the omission.

Mr Geithner, who has spent the last year at dealing with the financial crisis as head of the US Federal Reserve, does not easily take a humble approach.

I have paid what I owed
Timothy Geithner
US Treasury Secretary designate

But he profusely apologised to Congress for his mistake.

"These were careless mistakes. They were avoidable mistakes. But they were unintentional," he said. "I should have been more careful."

And he insisted that as a public servant he would never have knowingly not paid his taxes.

Humble pie

Mr Geithner's tax problems arose when he left the US Treasury, where he served in to Clinton administration under Larry Summers, to take a job at the IMF in 2001.

He says that he did not realise that he was required to pay a self-employed payroll tax, despite signing a form every quarter from the IMF acknowledging that he was being paid compensation for the extra tax liability.

Despite the help of tax accountants, he did not spot the mistake until his tax returns were audited by the Internal Revenue Service (IRS) in 2006.

"I absolutely should have read it more carefully," he said. "I signed it in the mistaken belief I was complying with my obligations."

Mr Geithner said that he paid all the back taxes demanded by the IRS - although he only filed corrected tax returns for 2001 and 2002 when he was being vetted for the treasury secretary position in the autumn.

The total in all back taxes, including interest and penalties, amounted to $42,000.

Republican Senator Charles Grassley said that it was worrying that the man who would become head of the IRS had not paid his taxes.

And Republican Jim Bunning said it was "hard to explain to my constituents who pay these taxes on a regular basis".

"I have paid what I owed," Mr Geithner replied. "I apologise to the committee for putting you in the position of having to spend so much time on these issues."

Big challenges

Democrats were less concerned about Mr Geithner's tax problems than his role in the controversial $700bn financial bail-out, which led to huge sums being injected into the banks.

In a close vote, the Senate approved the roll-out of the second $350bn bail-out tranche in mid-January.

Senators from Arkansas and Oregon wanted to know why the bail-out hadn't helped the small businesses and banks in their states.

Mr Geithner reassured the Senators that the Obama administration was going to listen to their concerns about the bail-out, making sure that more funds reached small businesses and homeowners, and reporting fully to Congress.

He also revealed that the administration was hoping to bring forward three major new proposals "within weeks" to stabilise the financial system, to give more help to homeowners, and to fundamentally reform financial regulation.

The depth of the financial crisis - with fresh bail-outs for US banks still under discussion - makes it highly likely that Mr Geithner will eventually be confirmed by the Senate.

Even some of the Republicans on the committee said they would back his appointment.

In explaining the task he faces, Mr Geithner pointed out that restoring confidence in the financial system once it had been lost was a long and difficult process.

He must now hope that he can retain the confidence of the public as well as the financial markets in his own leadership.

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