Geithner faces tough questions on taxes, TARP

But the Senate Finance Committee, in documents released Tuesday, noted that the IMF issues guidelines to employees on self-employment taxes and that Geithner had signed annual statements saying that he would pay them. He also had experience dealing with such taxes, the panel noted.

In a 2006 audit of Geithner’s return, the IRS caught the back payments on his 2003 and 2004 returns, which Geithner then paid. But Pro Publica, an independent news Web site, reported that a three-year statute of limitations precluded the agency from auditing the 2001 and 2002 tax returns. Those additional payments weren’t made until the Obama team discovered the additional errors in November, according to Pro Publica, which quoted an aide to the finance committee.

While few senators so far have voiced outright opposition to Geithner’s nomination, next week's hearing likely will also provide a forum for critics of the Treasury’s Troubled Asset Relief Program, in which Geithner has played a central role.

Opposition to continuing the TARP has been growing in Congress for weeks. It escalated Tuesday when Sen. David Vitter, R-La., and five other Republican Senators introduced a resolution to block the release of the remaining $350 billion in funds, which requires congressional approval. President George W. Bush formally asked for release of the funds last week on behalf of Obama.

Critics of the program — from both parties — have raised several concerns:

• Despite the investment of an initial $350 billion in the banking system, the credit markets remain sluggish and the economy continues to deteriorate. (Supporters of TARP argue that without the funds, the banking system would be in much worse shape.)
• Originally designed to buy up bad, mortgage-backed assets from banks, the Treasury abruptly shifted course in November and announced it would invest directly in banks instead. Treasury officials at the time said the asset buyback plan was unworkable and that direct investment would have a more immediate impact.
• The program has lost focus. Though bailouts for industrial companies were initially ruled out, the Bush administration reversed course in December and allocated TARP funds to help the auto industry.
• Treasury hasn’t provided an adequate accounting for the funds. Though the Treasury has posted basic information about how the money was allocated among banks, those banks have not had to disclose how they’re using the money.
• Too much federal intervention. Critics of the plan say that, by choosing which banks get TARP funds and which don’t, the government has taken on the role of “picking winners and losers” in the financial system.
• Not enough foreclosure relief. Though the original TARP bill directed the Treasury to establish a plan to stem the rise in foreclosures, those efforts have fallen short.

The House is considering a revision of TARP that would include more aggressive foreclosure relief and better accountability. But opponents argue that with the government set to spend as much as $800 billion in new funds for an economic stimulus package, the remaining TARP funds aren’t needed.

But in a speech Tuesday at the London School of Economics, Federal Reserve Chairman Ben Bernanke said the banking system remains fragile and may need further TARP funding. Bernanke suggested that Obama may want to consider going back to the original plan of buying up bad assets on the books of banks.

"Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system," Bernanke said.

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