Video: Tough questions for Geithner, Clinton

  1. Transcript of: Tough questions for Geithner, Clinton

    MATT LAUER, co-host: But now to Washington . Just six days to go before his inauguration , President-elect Obama and Vice President-elect Joe Biden will visit with the Supreme Court justices a little later today . But across the street at the Capitol , his Cabinet picks are hitting a few snags. Hillary Clinton grilled about potential conflicts of interest posed by her husband's foundation, while the nominee for Treasury secretary, the man who would oversee the IRS , is revealing mistakes on his personal tax returns . NBC 's Andrea Mitchell has more on this. Andrea , good morning to you.

    ANDREA MITCHELL reporting: Well, good morning, Matt. The transition team acknowledged an embarrassment for the brainy, new Treasury nominee, what the transition calls an honest mistake , not paying his payroll taxes when he worked for the IMF , an international organization that does not withhold taxes the way US companies do. Tim Geithner has now paid up, but it's at least a speed bump on an otherwise smooth road to confirmation . Tim Geithner came to the Senate Tuesday to explain how he failed to pay more than $34,000 in taxes between 2001 and 2004 . Finance Committee chairman Max Baucus said Geithner corrected the errors as soon as they were brought to his attention.

    Senator MAX BAUCUS (Democrat, Montana): The errors were in my judgment honest mistakes. Not in any way intentionally make those mistakes. The country needs a Treasury secretary quickly.

    MITCHELL: According to the Obama transition team, Geithner paid his income taxes but quote, "made a common mistake on his tax returns with regard to self-employment taxes that he owed on income earned while working at the IMF . Aides say he thought the IMF was withholding the money , but it wasn't. With the economy on the line, both Democrats and Republicans say this will not derail Geithner 's nomination.

    Offscreen Voice: Is this a big problem, senator?

    Senator ORRIN HATCH: I support him. I have no comment on it.

    MITCHELL: At her confirmation hearing, Hillary Clinton displayed a mastery of foreign policy and what she calls smart power.

    Senator HILLARY CLINTON: I assure you that if I am confirmed, the State Department will be firing on all cylinders to provide forward thinking , sustained diplomacy in every part of the world.

    MITCHELL: That renewed diplomacy will include reaching out to Iran .

    Sen. CLINTON: We are not taking any option off the table at all. But we will pursue a new, perhaps different approach that will become a cornerstone of what the Obama administration believes is an attitude toward engagement that might bear fruit.

    MITCHELL: The only controversy over possible conflicts of interest with foreign donors to her husband's charities.

    Senator RICHARD LUGAR (Republican, Foreign Relations Committee): The bottom line is that even well-intentioned foreign donations carry risk for United States foreign policy . This was bound to be a dilemma from the moment that the president- elect asked you to become secretary of state.

    Sen. CLINTON: I hasten to say that my career in public service is hardly free of conflict, Senator, so I have no illusions about the fact that no matter what we do, there will be those who will raise conflicts.

    MITCHELL: Now, no one questioned Bill Clinton 's good works, only the possibility of undo foreign influence on his wife. Clinton says that she and her husband are already doing more than the ethics rules or the law require and support for her confirmation is so overwhelming that her Senate colleagues are holding a farewell party for her today. Matt :

updated 1/15/2009 10:28:53 AM ET 2009-01-15T15:28:53

President-elect Barack Obama called disclosures about Treasury choice Timothy Geithner's tax problems an embarrassment Wednesday but said Geithner's "innocent mistake" shouldn't keep him from confirmation as the new administration's top official in urgent efforts to revive the economy.

The revelations that Geithner had failed to pay $34,000 in taxes several years ago derailed Senate Democrats' plans to speed him to confirmation by Inauguration Day, but senators in both parties said the information was unlikely to torpedo his chances in the end.

Obama had hoped for approval by Tuesday, but senators now have scheduled Geithner's confirmation hearing for next Wednesday, with Senate debate and a vote sometime after that.

Two Republicans objected to scheduling a confirmation hearing this Friday at the Senate Finance Committee after the panel disclosed Geithner had failed to pay taxes he owed for several years. Democrats were working to clear away the obstacles, holding out hope that he could still be confirmed the day Obama is sworn in.

The president-elect, asked about the situation on Wednesday, said, "Look is this an embarrassment for him? Yes. He said so himself. But it was an innocent mistake. It is a mistake that is commonly made for people who are working internationally or for international institutions. It has been corrected. He paid the penalties."

"My expectation is that Tim Geithner will be confirmed," Obama said.

He spoke at his transition office after a meeting with Vice President-elect Joe Biden and Sen. Lindsey Graham, R-S.C., about their recent trip to Afghanistan, Pakistan, Iraq and Kuwait.

Democrats and Republicans on the Finance Committee voiced strong support for Geithner, who was phoning senators individually in an effort to persuade them his tax problems were the result of innocent errors, not deliberate attempts to avoid paying the Internal Revenue Service.

Senators' comments suggested that Geithner's tax troubles are being viewed on Capitol Hill more as embarrassing mistakes than as disqualifying misdeeds. That's despite the fact that tax problems have sunk other government nominees, including Zoe Baird, Bill Clinton's choice for attorney general, who stepped aside when word leaked that she had hired illegal immigrants as household workers and failed to pay their Social Security taxes.

"It's an honest mistake," said Sen. Max Baucus, the Montana Democrat who chairs the committee, adding that Geithner's confirmation was "a given."

Geithner is "very, very competent, and add to that the country needs to have an economic team in place immediately to address the dire economic problems," he said.

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Sen. Jon S. Kyl of Arizona, the No. 2 Republican, is blocking the hearing by insisting on rules that require a full week's notice for scheduling such a session, according to an aide close to the confirmation process. Kyl's objection was disclosed on condition of anonymity because the aide was not authorized to announce it.

A second Finance Committee Republican, Sen. Jim Bunning of Kentucky, was also balking at expediting the hearing.

"Senator Bunning did not feel it was appropriate to rush forward with the hearing this week in light of the late-breaking information," said his spokesman, Mike Reynard. "He wanted more time to carefully consider" the disclosures.

Sen. Charles E. Grassley, the senior Finance Republican, said he was not inclined to oppose a quick hearing. He planned to meet individually with other GOP members of the panel to see whether they could agree on the Friday session.

"I'm not saying at this point it's disqualifying," Grassley told reporters in a conference call. "But it's a little more important about income tax for somebody that's overseeing the IRS than there is, maybe, for the secretary of agriculture, as an example."

Whenever he goes before the Finance panel, Geithner — whose responsibilities in his new post would include authority over the IRS — is likely to face a grilling about his tax errors.

He failed to pay self-employment taxes for money he earned from 2001 to 2004 while working for the International Monetary Fund, according to materials released by the committee Tuesday.

He paid some of the taxes in 2006, after an IRS audit discovered the discrepancy for taxes paid in 2003 and 2004. But it wasn't until much later — days before Obama tapped him to head Treasury late last year — that Geithner paid back most of the taxes, incurred in 2001 and 2002. He did so after Obama's transition team found that Geithner had made the same tax mistake his first two years at the IMF as the one the IRS found he made during his last two years there.

Despite the disclosures, several committee Republicans appeared to be leaning toward backing Geithner. Sen. Orrin G. Hatch of Utah called the tax problems "a mistake that a human being can make."

"I'm confident in the man's ability. I think he's a very fine man. I'm not one that holds mistakes against people," Hatch said.

Sen. John Ensign, R-Nev., who said he spoke with Geithner for about a half-hour Wednesday morning, said he didn't foresee trouble for the nominee.

Video: Kerry: Geithner made ‘honest mistake’ "I don't think I see enough in there to cause a problem," Ensign said. "It's very, very easy to make honest mistakes."

Sen. Pat Roberts, R-Kan., said he'd probably vote to confirm Geithner.

Obama's team informed Baucus and Grassley of the problems in early December, and a subsequent investigation by their staffs unearthed another embarrassing detail about Geithner: that a housekeeper he employed in 2005 allowed her legal immigrant work status to lapse for three and a half months.

It was the unpaid taxes, though, that were proving more damaging. Obama's team says his mistake was a common one for people hired by international organizations and foreign embassies that don't pay the employer share of Social Security taxes. The IRS estimated in 2006 that as many as half those employees had made tax-filing mistakes, and offered a group settlement to let them correct the errors.

But the Finance Committee, in 30 pages of documents released on Tuesday, noted that the IMF issues several clear guidelines each year for its employees detailing their responsibility to pay all their self-employment taxes, and that Geithner had signed annual statements saying that he would do so. He also had experience dealing with such taxes, the panel noted.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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