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Feature
Secretary Loophole
From his unprecedented power grabs to his personal income taxes, Timothy Geithner has made a career of bending the rules and threading the needle.
When Timothy Geithner worked at the International Monetary Fund, he managed a feat that probably very few Americans have even contemplated: he got himself reimbursed by his employer for taxes he never paid.
You see, foreigners working at the IMF don’t have to pay U.S. income taxes or payroll taxes, and so to create parity between the foreigners and the Americans, the IMF reimburses the Americans for their income taxes and for half of their payroll taxes.
But the IMF also doesn’t withhold taxes from its employees’ paychecks or pay the employer half of their payroll taxes. That means American IMFers, as with freelancers and contractors in any industry, need to pay the “self-employment tax,” which is both the employer and the employee portions of the payroll taxes funding Medicare and Social Security. Geithner, for four years, didn’t pay the payroll taxes he owed, but still managed to get the IMF to reimburse him for the taxes he would have paid had he been obeying the law.
This episode was extraordinary for Geithner only because it didn’t work—he eventually had to pay all the taxes.
But the effort—trying to wind his way through an impossible path—was typical of Geithner’s career. From his time at the Federal Reserve Bank of New York to his turbulent four months so far at Treasury, Geithner has made a career out of seeking—and usually finding—ways to do what most people thought the rules wouldn’t allow.
His nose for loopholes was critical to his orchestrating the bailout that sparked the bailout inferno: the March 2008 save of Bear Stearns. Similarly, his Treasury Department has wielded the Great Wall Street Bailout in ways Congress never imagined its law would be used. Even his hiring practices at Treasury involved finding narrow and dubious loopholes in President Obama’s ethics rules. Geithner admitted that it was his staff that requested the bonus loophole in the executive pay law—the loophole that allowed the AIG bonuses that sent Wash ing ton into convulsions for a week.
This trait of Geithner’s is important going forward, and it also may explain why Obama has gone to such lengths to save him, both before confirmation and after. Surely Geithner hasn’t made the administration look good, nor does he give the impression of supreme aptitude. Why was he worth saving while Bill Richardson, Tom Daschle, and others could be cast overboard?
It could be that Geithner’s value for Obama— in these unprecedented times and given Obama’s unprecedented ambition—is precisely his ability to find his way around the rules.
The Banker’s Bank Bails Out a Non-Bank
THERE WAS A TIME WHEN corporate bailouts were shocking to the American media and the American populace. The U.S. Constitution didn’t set up any mechanisms for the federal government to bail out private companies, and the unpopularity of bailouts has made Congress hesitant to change the law to allow them.
But today, bailouts are commonplace. We all assume that more struggling industries will get on the federal dole in the coming months, and in our next recession we can expect bailouts as a matter of course.
The sea change came in March 2008. It came in the form of a slightly complex bailout of Bear Stearns. And it came thanks to some crafty navigation of the law by the president of the Federal Reserve Bank of New York, Timothy Geithner. The behind-the-scenes workings of the bailouts of 2008 are still mostly unknown, but all accounts of them have placed Geithner at the heart of the Bear Stearns bailout.
In school, teachers call the Federal Reserve “the banker’s bank.” That’s where banks keep their reserves—the fraction of all deposits that federal law requires them to actually have on hand. The Fed also lends money to banks from its “discount window,” which requires collateral from the banks.
In March of 2008, Federal Reserve chairman Ben Bernanke and Geithner, who also served on the Fed’s Board of Governors, decided Bear Stearns needed a bailout loan. The problem: Bear Stearns wasn’t a bank. To be more precise, Bear Stearns was an investment bank, not a commercial bank, and thus the company was not regulated by the Fed nor was it eligible for a loan from the Fed.
Bernanke and Geithner could have called on Congress to pass an emergency bailout law, as Jimmy Carter did for Chrysler in 1979 and President Bush did for the airlines after 9/11—but that would involve messy politics and democracy-type stuff.
Letter to the Editor View all comments (85) | Leave a comment
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Paul Milenkovic| 5.15.09 @ 11:08AM
Threading a needle through a loophole? The payroll tax matter was one of smashing an M1-A1 tank through a building.
Much as there has been populist and right-wing snark against Mr. Daschle getting a limo and not counting that as income, the average person out there, who admittedly doesn't get a free limo, can at least sympathize with getting some non-monetary freebie. Tell me that no one here has not put Frequent Flier miles to personal use (my reading of the tax rules is that there is an exemption for Frequent Flier miles being taxable income, and that is probably the result of airline lobbying).
Secretary Sibelius has also been the target of criticism for whatever tax problem she had. But her problem involved deductability of mortgage interest when her house was in some kind of post-sale limbo, and this kind of gray-area tax problem can happen to any of us.
But as to Mr. Geithner, there was not gray-area or "I forgot to enter it" or "TurboTax made me do it" excuse that works here. It has been reported that the HR people where he worked took people aside and told them they had to pay the tax. And we are not talking about the Income Tax here. We are talking the Payroll Tax, you know, that regressive tax on working stiffs who would not otherwise have any withholding from their meagre paychecks, that tax that funds Senior Citizens through the Third Rail of American Politics: Social Security and Medicare.
I mean here is the head of the Treasury which is in charge of the IRS. Maybe this is a "it took Nixon to go to China" matter. Perhaps Geithner is the only person with the moxie for the financial crisis, and it took a left-liberal President to put him in charge as a right-conservative President would never be allowed to to this.
Tim| 5.15.09 @ 2:26PM
Dr Ray Stantz: Personally, I liked the university. They gave us money and facilities, we didn't have to produce anything! You've never been out of college! You don't know what it's like out there! I've *worked* in the private sector. They expect *results*.
Pingback| 5.15.09 @ 6:35PM
Twitted by Lyn_Sue links to this page. Here’s an excerpt:
D. Smith| 5.15.09 @ 11:36PM
Interesting, insightful dissection of Tiny Tim, omitting one of his more creative interpretations of IRS filing of taxes. Did TurboTax tell him it was OK to call posh summer camp tuition for his kid "child care"?
In my opinion, this kind of penny-ante skirting of paying one's taxes requires a criminal mind with the sensitivity of a safe-cracker. A perfect fit for the Obama Administration.
Every time I hear of Geithner's avoidance of four years of IMF taxes, I think anyone who calls summer camp "child care" and gets away with it can get away with anything with the asleep-at-the-wheel IRS. How about private school tuition, is that child care, too?
Just wait until we get Souter's replacement. We will have plenty to howl about, then. A Supreme Court Justice chosen based on empathy, compassion and having "been there". Describes Oprah, doesn't it? You don't have to be a lawyer to be a Supe.
Pingback| 5.16.09 @ 7:22AM
Instapundit » Blog Archive » TIM GEITHNER: “Secretary Loophole?” (Via NewsAlert)…. links to this page. Here’s an excerpt:
Pingback| 5.16.09 @ 8:27AM
Tim Geithner: Our Treasury Secretary a.k.a. “Secretary Loophole”?? « Romanticpoet’s W links to this page. Here’s an excerpt:
elHombre| 5.16.09 @ 12:21PM
Cheaters and criminals. The Chicago Way. The Obama Way.
Pingback| 5.16.09 @ 1:01PM
Secretary Loophole « Depravity links to this page. Here’s an excerpt:
2Guns, AZ| 5.16.09 @ 7:00PM
'nuff to make you sick, ain't it. And to think the Demo's called Bush II a culture of corruption.
89543guns, wonderland| 5.17.09 @ 12:14AM
Wow, just think! Try it.
Pingback| 5.17.09 @ 1:16PM
Tim Geithner: Our Treasury Secretary a.k.a. âSecretary Loopholeâ?? | acorn 8 links to this page. Here’s an excerpt:
Pingback| 5.17.09 @ 1:17PM
Tim Geithner: Our Treasury Secretary a.k.a. âSecretary Loopholeâ?? | acorn 8 links to this page. Here’s an excerpt:
Netizen19380| 5.29.09 @ 6:09PM
An Open Letter to American Government and Business:
Okay, that’s it; why does the United States continue to deal with China?
Our nation has been subtly at war with China. Communist China has already breached the borders of Capitalist America, in many ways. And their insidious “attacks” have been deadly. America needn’t even engage in a military war with China, China has already successfully attacked American families in their very homes. China has assaulted us through the avenues of our own consumerism:
- China has killed our pets, with inferior tainted petfood.
- China has killed our elderly and sick, with inferior tainted drugs.
- China has sickened our children, with inferior lead and toxin laden toys.
- China has destroyed our newly-constructed homes values, with inferior tainted drywall.
- China has destroyed our job base, through outsourced manufacturing jobs.
- China mocks fair trade, by perennially running trade imbalances with the U.S.
- China damages our digital data, through state sponsored cyber attacks and censorsoring our companies.
- China has stolen our personal identities, through online identity theft.
- China steals our stories, by wantonly ignoring copyright laws.
- China continues to flagrantly harm the global environment; by poor pollution controls, by on-lining coal-burning power plants one-a-week and by dumping cheap plastic goods the world over.
- China ruins economies the world over, by keeping their own currency’s value artificially low.
- China despises the American Dollar, China wants to no longer base the International Monetary Fund currency on the U.S. Dollar.
- ...and ultimately China could very easily behead our economy, when they call in the U.S. debts which they hold.
Capitalist America has undermined itself in the short-run by “selling out” to Communist China, at the long-term expense of having a robust American economy. China is no friend the the United States. Ultimately, if America wants to reverse it’s decline during this 21st century, American government and business leaders must help our nation by limiting and eliminating many imbalanced policies and dealings with China. No excuses, no gray areas. Period.
- A Concerned American
Pingback| 8.31.09 @ 2:53PM
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