Treasury Secretary-designate Timothy Geithner apologized for his tax mistakes and promised reforms of both tax policy and the controversial Troubled Assets Relief Program during a confirmation hearing.
The hearing before the Senate Finance Committee was postponed from last week after Geithner admitted to errors in calculating his self-employment taxes for work he did for the International Monetary Fund between 2001 and 2004 (see Geithner Admits Tax Problems). Geithner, president of the Federal Reserve Bank of New York, has paid the Internal Revenue Service over $42,000 in taxes, interest and penalties to fix the problems.
"They were careless mistakes," he said. "They were avoidable mistakes, but they were unintentional. I want to apologize to the committee for putting you in the position of having to spend so much time on these issues."
Geithner (pictured) blamed part of the problem on his accountant. "I relied on the judgment of my accountant and I should not have relied on that judgment," he said.
Some of the returns were self-prepared, however. Under prodding from ranking member Charles Grassley, R-Iowa, Geithner reluctantly admitted he used Intuit's TurboTax to do his taxes, but said the mistakes were his own and not the fault of the software.
Committee Chairman Max Baucus, D-Mont., called the errors "disappointing," but added, "I am confident Mr. Geithner is up to the job." Some of his colleagues were less sure. Sen. Jim Bunning, R-Ky., criticized the hearings as rushed and complained that the committee did not have the opportunity to interview IRS or IMF officials. He noted that one IMF official had called his office to express his disbelief that Geithner could not have known about complying with the IMF's instructions.
Sen. Orrin Hatch, R-Utah, quizzed Geithner about another tax matter, corporate taxes, and asked whether Geithner planned to lower them to make them more competitive with other countries. Geithner said he would look at the entire Tax Code through the prism of what incentives it provides.
"The president believes we have potential for reform of the entire corporate tax structure," he said. "I will work on a package of reforms to give us confidence that American businesses will be open and competitive. The president is committed to making the R&D tax credit permanent. It is important to address broad changes on the tax front."
Hatch noted that he hears complaints from businesses in Utah that they are taxed regardless of where their income is produced. Hatch advocated a move to "territorial taxation," saying it would simplify the tax system.
Geithner replied that he would have to think more carefully about the issue and would look at the entire system of tax incentives in the context of what other nations do to make sure American businesses are as competitive as possible.
Sen. John Kerry, D-Mass., talked about problems in the financial bailout, especially in the TARP program, which Geithner would be taking over if confirmed. "We're simply propping up troubled institutions that need to clear their books of toxic assets," said Kerry. Banks need to have their books cleared of the illiquid assets in order to start lending again, he argued. "There are too many zombie banks out there," said Kerry.
Geithner said he agreed with Kerry's concerns. "I will try to meet that objective with a plan, to make it work so institutions have the strength to lend," he said. "We have a very complicated financial system. We have to make sure we get the risks down and credit flowing through the markets."
Geithner also said he would put in a "set of accounting requirements and disclosure requirements to make sure investors have a better measure of the risks they face," but he acknowledged, "It's very hard to do in the environment we are in."
Baucus asked how the Treasury was going to value bad assets. Geithner described a range of approaches the Treasury might take and said he would report back to the committee on the program it decides to follow. Baucus urged him to "err on the side of protecting taxpayers as you set up valuation schemes."
Geithner was also asked about a set of reforms to health care tax rules proposed by Baucus in a recent white paper, and whether he would work with Health and Human Services Secretary Tom Daschle on implementing them. "If Tom Daschle calls about changing the tax treatment of health care, I will say I'm open to it," said Geithner.
Sen. Ron Wyden, D-Ore., pressed Geithner on the problems facing small businesses in securing loans and credit, and asked what he would do.
"The president believes very strongly in this," said Geithner. He noted that the economic stimulus package proposed last week by Democrats has important targeted tax benefits for small businesses and said that support would be made available to "small banks across the country that play a critical role in our communities." He wants to get a small-business lending program underway.
The Recovery and Reinvestment Plan has provisions "that will directly address challenges facing small businesses," he said, adding that the new administration is looking at changes to existing small-business credit programs to make them more effective and put in place credit programs to get small-business lending going again. "It will be a critical test of whether our program is working," he said.
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