Rules for scandal

Are Timothy Geithner’s tax mistakes serious enough to derail his nomination as U.S. Treasury secretary? Has his failure to pay $34,000 in federal levies, over a four-year span, rendered him unfit for the critically important post in this time of economic crisis? Or, to put it in more colloquial terms, does his past behavior constitute a major scandal? Is it a deal-breaker? Or is this a passing squall that Geithner will ultimately weather?

Frankly, I have no idea how this episode will play out. But I can hazard a decent guess, based on the scandal criteria outlined below. Before proceeding, however, let’s pause for a moment and recap the basics:

Geithner, a career civil servant and Treasury bureaucrat, briefly detoured into the private sector and worked for the International Monetary Fund. At the IMF, the tax rules for American personnel are a tad tricky. The Americans are responsible for paying their own payroll taxes (that’s the levy – we all pay it - which goes to Social Security and Medicare). The IMF, which does not make contributions toward those taxes, repeatedly reminds its American employes to cough up the necessary bucks. Geithner did not. When the IRS discovered, in a 2006 audit, that Geithner had failed to pay his payroll taxes for 2003 and 2004, he quickly complied, paying the back taxes plus interest. And when Barack Obama’s transition team discovered last autumn that Geithner had also failed to pay his payroll taxes for 2001 and 2002, he again complied, albeit retroactively. All told, his back-tax tab (plus interest payments) totaled $43,200.

Now let’s go to the scandal criteria, which might help us determine whether this episode is ultimately perceived as a hiccup or a hemorrhage:

Unfortunately for Geithner, the answer is yes. Tax policy is complicated, at least for us laypeople. But this episode can be encapsulated in a single sentence: “Obama’s Treasury nominee, the designated number one tax man, didn’t even pay his own taxes.” That kind of line is potential grist for populist outrage; witness this blast yesterday from Republican Sen. George Voinovich: "He may be a smart guy, but the average person on the street sees that he hasn't paid his taxes."

Mostly no. No, in the sense that the Obama team quickly confirmed on Tuesday that Geithner had erred in his past taxes. No, in the sense that Geithner himself has been personally contrite, ‘fessing up to any and all interested senators. On the other hand, Geithner didn’t exactly do a full mea culpa at the time of his ’06 IRS audit. Yes, he quickly came up with the back payroll taxes for ’03 and ’04, after the IRS discovered that he’d been remiss in those years…but he stayed mum about the unpaid payroll taxes of ’01 and ’02 – until the Obama transition team uncovered the same problem.

Maybe not. Weird little incidents keep trickling out, like the fact (which trickled yesterday) that Geithner augmented the size of his dependent-care tax credit by listing the money he spent to send his child to sleepaway camp in 2001, 2004, and 2005. Under tax credit rules, sleepaway camp doesn’t qualify as an allowable expense. Meanwhile, on another payroll tax front, the Obama team keeps referring to Geithner’s “honest” and “innocent” mistakes – but (another trickle) we now know that Geithner had signed IMF paperwork formally acknowledging that the payment of the payroll tax was his responsibility. Which would appear to constitute at least some level of awareness. And is there more to learn?

No. And this is where Geithner’s prospects for survival start to look better. Geithner is widely respected in the international and domestic financial community; when Obama first announced his nomination back on Nov. 21, the markets spiked by nearly seven percent. Geithner’s misadventures with the IMF tax rules might look a lot worse if we were living in peaceful, prosperous times; in those circumstances, Congress might feel it had the political luxury to beat him up or bounce him entirely. But today, Geithner is widely viewed as “mission critical.” Which brings us to the next question.

Apparently, yes. Geithner has strong support from an incoming president with a 70 percent approval rating, and some key Republican senators are making nice. Lindsey Graham yesterday called Geithner “uniquely qualified,” and said “these are not the times to think in small political terms.” John Ensign has endorsed the Obama line about "honest mistakes." Charles Grassley, ranking Republican on the Senate Finance Committee, which will question Geithner next Wednesday, hasn’t formally taken a position on the nominee, and he faulted Geithner for tax "sloppiness" - but he also said yesterday: “I don’t believe there’s any doubt about his qualifications.” Meanwhile, Republican strategist Kevin Madden wrote yesterday on the Politico website that “at a time of great economic anxiety and enormous challenges, Mr. Geithner’s reputation for competence has afforded him a bipartisan level of respect,” sufficient to overcome the tax episodes.

Timing is everything, in politics and in life. It’s hard to imagine that Obama will be denied his top economic adviser in the first days of a new administration, in the teeth of an economic crisis. And one might also ask whether the American people feel sufficiently scandalized by Geithner’s behavior, after all that has transpired on the scandal front these past 10 years, from Bill Clinton’s sex-trysting to George W. Bush’s truth-twisting. Given our current straits, I wonder whether Timothy Geithner’s sleepaway camp expenses have the power to shock.