I Was the Victim of a Series of Accidents

Kurt Klein “wonders how liberals rationalize a Secretary of the Treasury who cheated on his taxes ($34,000–oops! rounding error)”.  Well, here’s how I would do it.  Not that I’d necessarily want to be called a liberal:

Tim Geithner is a very qualified guy, who happens to speak Mandarin, and have expertise in international monetary affairs.  He’s a good fit for the job of Treasury Secretary, because we’re in the midst of some pretty heavy international monetary affairs, involving (amongst others) a bunch of people who speak Mandarin.  So far as I can tell, nobody on the right or left is seriously disputing whether Geithner is a very well qualified guy for the job (true fiscal conservatives and Austrian economists, unfortunately quite rare on either the right or the left, might well differ).

Alas, while he worked for the IMF in 2001-2004, he failed to pay his medicare and social security taxes.  When this was brought to his attention, during his vetting for the post of Treasury Secretary, he paid the back taxes plus interest, apologized, and said it had been unintentional, but that that was no excuse.  But actually, he wasn’t working for the IMF, he was self employed (as are all IMF “employees” from the US), and working under contract for an international organization, which reimburses your domestic income taxes, but not Social Security and Medicare payments, etc., blah blah blah, ad infinitum.  The real problem here is how absurdly arcane our tax code is.  And I quote, from Publication 17, Chapter 5:

Foreign Employer

Special rules apply if you work for a foreign employer.

U.S. citizen. If you are a U.S. citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income.

Social security and Medicare taxes. You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government.

Employees of international organizations or foreign governments. Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States).   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true.

• You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States).
• Your work is like the work done by employees of the United States in foreign countries.
• The foreign government gives an equal exemption to employees of the United States in its country.

Waiver of alien status. If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. See Foreign Employer in Publication 525.

Employment abroad. For information on the tax treatment of income earned abroad, see Publication 54.

After a brief perusal of this gobbldygook, I am entirely willing to entertain the possibility that Geithner actually screwed up his taxes honestly.  I’ve certainly screwed up mine honestly, even while using TurboTax, with a relatively simple income.  In fact, every year when I file my taxes, I say to myself, “I probably screwed up something in there.  Hopefully it was in my favor, and hopefully they don’t notice.”  And it turns out that if they don’t notice, and 7 years go by, they won’t even take your money if you suddenly have pangs of guilt and send it in.  The IRS policy is to return such payments, so it shouldn’t be so surprising that Geithner initially (in November when he was being vetted) chose not to submit payment for 2001.  Later when it was clear that the Senate was going to make a stink about it, he submitted the payment.  Who knows whether the IRS kept it or not?  The times I’ve screwed up my taxes and been caught, the IRS just sent me a letter and asked me to pay, with interest, which is what Geithner did.  If it’s not willful evasion, the consequences seem to be pretty mild.  It does not appear to me that Geithner is getting special treatment because of his status as nominee for Secretary of the Treasury.  So I don’t think there’s been an ethical breach here of any kind.  (Nevermind for the moment that both Social Security and Medicare are totally bankrupt, and Geithner is conceivably young enough that he’d have to suffer as a consequence… if he weren’t going have a federal pension, and retire loaded anyway – I certainly wouldn’t pay into those programs if I thought I could get away with it!).

Much more troubling, I think, was the appointment of Henry Paulson, who was CEO of Goldman Sachs, an investment bank, who was ultimately charged with administering without any oversight more than $700,000,000,000 worth of Treasury funds, and who overwhelmingly chose to effectively give that money away to – suprise – investment banks.  And not to suggest that this is only a GOP problem: Robert Rubin, Treasury Secretary under Clinton was also a CEO of Goldman Sachs.  He just didn’t happen to have to oversee one of the biggest ever government giveaways to corporate America.  More troubling still is the apparently continuing assumption that the only way we can solve our financial mess is to encourage more debt, and more material consumption, in an ever increasing proportion of humanity, and the assumption that for some reason, the shareholders of all these banks are supposed to not totally lose their shirts, when the companies that they own made manifestly lousy investment decisions.

So I agree with Kurt’s criticism that Geithner does not represent a much needed change from a policy point of view.  I think he may have fewer conflicts of interest than Paulson (or Rubin) in regulating the finance industry, but ultimately he’s continuing the policies of his former boss, albeit with somewhat more transparency and oversight.  I emphatically disagree, however, with the suggestion that Geithner somehow represents a failure of the Obama administration to select principled and qualified people for positions of power.