“The dog ate my 1099.” Treasury nominee Timothy Geithner pleads “honest mistake” on taxes. He should be addressing the injustice of a double tax.

You can’t write stuff this good.  Treasury secretary nominee Timothy Geithner should get along well with Rep. Charles Rangel (D. N.Y.) who chairs the House Ways & Means Committee.  Working together they will be responsible for drafting, amending, and interpreting the Internal Revenue Code.  Geithner, if confirmed, will see the largest part of his agency’s budget go to the IRS, the IRC enforcer via audit.  Rangel didn’t seem to understand that rental income is income in the sense that it must be reported.  Mr. Geithner, to whom we are about to entrust the regulation of investment banking, hedge funds, and CDOs, didn’t seem to understand that all income is income, including IMF compensation, especially when IMF tells you that you need to pay your SS and Medicare taxes yourself.  These are complex concepts.  Why, the Barometer has seen an intern bookkeeper struggle for 2.5 seconds to conclude, “Yup, rent is income and consulting income requires SS taxes.”  Mr. Geithner calls the failure to pay the $43,200 an “honest mistake,” (actually, it’s $48,268 with some other “honest mistakes” including improper charitable deductions and utility deductions taken for business purposes that were really for personal use) and he did ante up the dough to the IRS, but the Barometer worries.

Admittedly, the Barometer still carries deep resentment from the 1993 Zoe Baird and Kimba Wood derailed nominations for U.S. Attorney General by then-President Clinton. Mrs. Baird and Judge Wood had not paid the wage taxes on their nannies, but Mrs. Baird’s husband was simply a scholar on tax law.  Judge Wood was just a federal judge who had sentenced Michael Milken to prison for financial crimes.  There were so many honest mistakes that year that we kept rolling through female nominees for attorney general who were derailed because they had not paid their nanny taxes.  The Barometer was sounding her barbaric yawp, “Yo, I’m a woman, I’m an attorney, and I paid my nanny taxes.  By all rights I should be attorney general of the United States!” Of course, Janet Reno, nanny-less, came along and both the parade and the Barometer’s hopes ended. 

Resentment and personal bias aside, Mr. Geithner’s “mistake” is troubling.  As the story unfolds, we learn that the IRS audited Mr. Geithner for tax years 2003 and 2004.  The audit was inevitable because the IMF filed 1099s on him and the income it reported was not showing up for SS and medicare taxes on Mr. Geithner’s returns.  A safety tip for all:  Your income tax return should match what those who pay you file with the IRS.  That mismatch is done easily by computer and is an enforcement tool for the budget-constrained IRS.  Mr. Geithner did voluntarily amend the returns for those two years and paid taxes and interest of $17,230.  The gracious IRS waived the penalties.  However, Mr. Geithner had similar tax deficiency issues from 2001 and 2002 that he did not volunteer to make right by paying similar taxes due.  Why should he?  The IRS had come too late to demand them statutorily (5 years and all being the statute of limitations). 

But, when the Obama vetting team turned up the audit issues, Mr. Geithner filed amended returns for those 2001 and 2002 years and paid another $25,970.  As long as he was ‘fessing up, he lopped in some other tax transgressions, such as using his child’s camp costs for the child-care deduction.  All this tromping about on his tax returns also revealed that Mr. Geithner had a Linda Chavez (Bush II nominee for Labor Secretary- derailed) issue because his housekeeper worked for him for three months with expired work-authorization papers. 

What we have here is not a series of honest mistakes, but, as one young congressional aide said, “A character moment.” How do we behave when we think no on is looking as opposed to when our conduct is front-page A1 news?  Accompanying this moment are questions about judgment and worries about trusting a man with the very heart and recovery of our economy and markets when he fancies himself above such simple compliance standards. 

If Mr. Geithner is confirmed as Treasury secretary, the Barometer would expect an interoffice memo to the IRS audit division that reads, “Subject:  Taxpayers entitled to Geithner Warnings. If you find anyone who has not paid taxes on 1099 income, and they tell you it’s an honest mistake, just let them pay any back taxes without penalty or other sanctions.  I can’t hold U.S. taxpayers to a higher standard than the one to which I hold myself. In fact, be sure to offer them the the ‘honest mistake’ defense if they have no initial response.  We don’t want taxpayers confused and not knowing their defenses to ‘honest mistakes.’  We all know how complex and confusing this notion of income can be.  P.S.  Chairman Rangel has made a bunch of honest mistakes and is entitled to the same treatment as all other taxpayers (or even those citizens who could not be considered taxpayers because they are so confused by the concept of income that they filed nothing).  Remember, taxes are now in the eye of the beholder.  And what beholder hasn’t made a mistake or two?”    

Mr. Geithner has a moment here to make a a difference.  He should be talking at his hearings about the injustice the self-employed and those who moonlight experience on these wage taxes.  Even those who max out on their wages in their salaried positions and pay more than their share into SS must still ante up 15% or more of their entrepreneurial income to SS.  The federal government double dips on those who work harder.  Mr. Geithner should take his “honest mistake” and use it as a means for obtaining tax reform, a type of small-business stimulus that just might help the economy in a grass-roots way.  An “honest mistake” defense has a little more teeth if grounded in the notion that you thought you had already maxed out on SS payments at your regular job.  Welcome to the world of the self-employed who pay more than their fair share, Mr. Geithner!  In your humility, work to change it.