Obama and senators defend Treasury nominee

President-elect Barack Obama’s pick to head the Treasury Department -- and therefore oversee the Internal Revenue Service -- held a meeting Tuesday with key senators concerned about his failure to pay some personal income taxes and the immigration status of a onetime household employee.

Timothy F. Geithner, Obama’s choice to lead the economic rescue effort, admits underpaying his taxes earlier this decade in what Obama transition officials described as a common mistake.

He has since paid more than $48,000 in back taxes and interest.

Geithner also employed a housekeeper whose work papers expired during her final few months with his family, according to documents from the Senate committee reviewing his nomination. Transition officials said Geithner didn’t realize the documentation had lapsed.

Senate Democrats dismissed the matter as a minor bump in the road for Geithner, whose confirmation process had been going smoothly, and the Obama camp reiterated the president-elect’s support for Geithner after the meeting.

Senate Finance Committee Chairman Max Baucus (D-Mont.) called for the confirmation hearing to go forward Friday, but the Washington Post reported that Sens. Jim Bunning (R-Ky.) and Jon Kyl (R-Ariz.) had blocked a request to proceed with the hearing.

Sen. Orrin G. Hatch (R-Utah), a committee member, said Geithner still had his support.

Other Republicans would not speculate on whether the concerns were enough to disqualify Geithner.

“We have just learned about these allegations and the finance committee’s investigation,” said Don Stewart, an aide to Senate Minority Leader Mitch McConnell of Kentucky. “The committee is the appropriate place to review these allegations.”

Given the gravity of the nation’s economic crisis, Obama’s Treasury secretary will play a central role in the new administration.

Geithner was considered an inspired choice by Wall Street, economists and conservatives: News of his nomination last month sparked a nearly 500-point gain in the Dow Jones industrial average.

In announcing Geithner’s nomination, Obama lauded his “unparalleled understanding of our current economic crisis in all of its depth, complexity and urgency.”

The revelations about Geithner followed the withdrawal last week of Obama’s choice for Commerce secretary, New Mexico Gov. Bill Richardson, after questions arose about an investigation involving a state contract negotiated during his administration.

Questions about household hiring have derailed previous Cabinet nominations, notably Zoe Baird, President Clinton’s 1993 choice for attorney general, who hired illegal immigrants as household employees and did not pay Social Security taxes for them.

Clinton’s subsequent pick, Kimba Wood, also withdrew because she had hired an illegal immigrant for baby-sitting, even though it was not illegal to do so at the time.

Linda Chavez, President Bush’s choice for Labor secretary in 2001, withdrew after revelations that she had provided housing and financial assistance to an illegal immigrant. The FBI later found no crimes had been committed.

Geithner’s tax problems came to light in early December when the Obama transition team disclosed them to the Senate Finance Committee staff, according to panel documents. The nominee later discussed the matter with staff members.

After Republicans began raising questions this week, Geithner and the Obama team went into response mode. On Tuesday, Geithner requested a meeting with committee Republicans and Democrats.

Geithner told lawmakers that he made a “common mistake” on his tax returns while serving as an official of the International Monetary Fund from 2001 to 2003, a transition official said. Under the IMF payroll system, the official said, Geithner was considered self-employed. The IMF did not withhold federal and state taxes for its employees.

Geithner paid all of the taxes on his income, he said, but erred on his self-employment taxes.

The IRS audited Geithner in 2006 for tax years 2003 and 2004, according to the Senate committee’s documents. This resulted in additional taxes of about $15,000, but the IRS waived penalties for those years.

Geithner paid most of his past-due taxes shortly before Obama nominated him in November, committee documents show. He had paid some in 2006, but the Obama transition team discovered that more were actually due.

Geithner told senators he didn’t know he owed those taxes. Likewise, he said he was unaware that his part-time housekeeper’s work documents were no longer valid during the final three months of her employment.

According to the transition team’s account, the Geithners checked to see that the woman had a current employee authorization document when she was hired. But they were unaware that the authorization expired shortly before she quit the job to have a baby.

The transition team said the woman lived legally in the U.S., was married to an American citizen and was subsequently granted a green card.

Obama’s spokesman said the president-elect stood by his nominee, who was president of the Federal Reserve Bank of New York when he was nominated to lead the Treasury Department.

“We hope that the Senate will confirm him with strong bipartisan support so that he can begin the important work of the country,” said incoming White House Press Secretary Robert Gibbs.

Baucus said he still hoped that Geithner could be confirmed shortly after Obama was sworn in Jan. 20.

“I am disappointed in the errors found in Tim Geithner’s tax returns and other information,” Baucus said. “But I am satisfied that Mr. Geithner has taken the steps necessary to fix those problems.”

Senate Majority Leader Harry Reid said he saw no reason why the nomination shouldn’t go forward. He said the questions amounted to “a few little hiccups” and that the nominee was “extremely well-qualified.”

“I am not concerned at all,” Reid said.

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cparsons@tribune.com

joliphant@tribune.com