A Geithner Tax Amnesty

Washington is abuzz over Treasury Secretary-designate Timothy Geithner's $34,000 self-employment tax "mistake." The brouhaha has prompted a second delay for Mr. Geithner's confirmation hearing, which was originally scheduled for Friday but will now be put off until after the inauguration.

When he does appear, Senators will want to know how a reputed financial wizard could have overlooked his Self-Employment Tax liability for four years. All the more so because he had signed a document from his employer at the time, the International Monetary Fund, certifying "that I will pay the taxes for which I have received tax allowance payments." Democrats are saying this is no big deal, but if that's true then perhaps they should consider applying their tax absolution a little more broadly.

Some of our readers may recall something called "the tax gap," which is the estimated difference between taxes due under the law and the taxes that the Internal Revenue Service actually collects. In 2007, the IRS estimated that the gap stood at $290 billion a year. And since Democrats took control of Congress, Senators like Max Baucus and Kent Conrad have made a fetish out of closing the gap. Mr. Baucus has browbeaten the IRS over the gap, demanding plans to close it and putting out newsletters decrying it.

In response, the IRS issues regular "fact sheets" to inform taxpayers about such questions as whether your small business is actually a "hobby," and how you can "help yourself by filing past due returns." The IRS also audits taxpayers to check that their deductions are legitimate and that they've included all their 1099 income and so on. The IRS estimates that more than 90% of the gap is the result of honest mistakes or misunderstandings, but it also includes people who didn't report their snow-shoveling income, their eBay sales or even their babysitting money.

But now Mr. Geithner has come along seeking the job of overseeing the IRS, among other duties. And lo, Mr. Geithner is a living embodiment of The Gap.

He's no different from those people -- you know who you are -- who overestimated their charitable contributions or "forgot" about that $500 cash payment they received when it came time to do their taxes. Even after the IRS audited him in 2006, Mr. Geithner paid back taxes only for the two years -- 2003 and 2004 -- for which he had been audited. He did not bother to amend his 2001 and 2002 returns until late last year, when the tax issue came up during the Obama vetting process.

But Mr. Baucus, who once called the tax gap "an affront to all the rest of us who pay our taxes," is not affronted. "This is an honest mistake and it's clear there was no intention not to pay," said the Finance Committee Chairman.

For our part, we are delighted that Mr. Baucus and Democrats are suddenly in such a forgiving tax mood. In addition to being a teaching moment for liberals, perhaps Mr. Geithner's tax snafu can do all of America some good. We'd suggest that Mr. Geithner and Mr. Baucus together set a new standard for the IRS in dealing with people who, like Mr. Geithner, make a boo-boo on their tax returns.

Let's have an amnesty -- with penalties waived, as they were for Mr. Geithner -- for all those Americans who somehow "forgot" to pay their taxes but are now willing to fess up or are audited. If forgiveness is to be the order of the day for the man who may soon be responsible for the IRS, American taxpayers deserve a similar reprieve.

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