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Jan 15, 3:13 AM EST

Geithner slowed, not stopped by tax problems

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WASHINGTON (AP) -- Revelations that Timothy Geithner failed to pay some of his taxes have derailed Democrats' efforts to install him quickly as President-elect Barack Obama's treasury secretary, but senators in both parties say his tax problems won't torpedo his chances for confirmation.

Obama said Wednesday that the disclosures that Geithner had failed to pay $34,000 in taxes between 2001 and 2004 were embarrassing, but added that Geithner's "innocent mistake" shouldn't keep him from taking the helm of the new administration's urgent efforts to revive the economy. Several Republicans agreed that Geithner would get Senate approval and said their party had little appetite for a partisan fight at a precarious time for the economy.

GOP opponents of Geithner should "think this through," said Sen. Orrin G. Hatch, R-Utah., a member of the Senate Finance Committee that's considering his nomination. "They're not going to get anybody better than him from this administration for treasury secretary."

Still, Senate Republicans, who have been mostly deferential to Obama's nominees, are blocking Democrats' efforts to fast-track Geithner's nomination through the committee, with at least one panel member saying his tax problems deserved greater scrutiny.

Sen. Jim Bunning, R-Ky., another Finance Committee member, "did not feel it was appropriate to rush forward with the hearing this week in light of the late-breaking information," his spokesman, Mike Reynard, said. "He wanted more time to carefully consider" the disclosures. Sen. Jon Kyl of Arizona, the No. 2 Senate Republican, also was objecting, aides said.

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

"Is this an embarrassment for him? Yes. He said so himself. But it was an innocent mistake," Obama said. "My expectation is that Tim Geithner will be confirmed."

In the meantime, Stuart Levey, the Treasury Department's undersecretary for terrorism and financial intelligence, has agreed to stay on until the Senate confirms a replacement for Treasury Secretary Henry Paulson, according to a government official with knowledge of the situation but unauthorized to speak publicly.

Democrats and Republicans on the Senate Finance Committee are backing Geithner, who's engaged in an intense damage control effort, including numerous phone calls to senators, to persuade them that his tax problems were the result of innocent errors, not deliberate attempts to avoid paying the Internal Revenue Service.

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

GOP Sen. Lindsey Graham of South Carolina was among those coming to Geithner's defense.

"These are huge times. Now is not the time to think in small political terms," Graham said. "I don't see any desire by the Republican Party to play gotcha on this. ... I think he's the right guy."

Iowa Sen. Charles Grassley, the senior Finance Committee Republican, said Geithner's tax troubles were "disconcerting" given that the New York Federal Reserve president was auditioning for a post in which his considerable powers would include control of the IRS, but not necessarily "disqualifying."

The flap all but guarantees that Geithner's confirmation hearing will feature 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 Finance Committee on 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 final two years there.

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

Sen. John Ensign, R-Nev., said he didn't foresee trouble for the nominee, and Sen. Pat Roberts, R-Kan., said he'd probably vote to confirm Geithner.


Associated Press writers Martin Crutsinger, Ann Sanner, Charles Babington, Jim Kuhnhenn, Ken Thomas and David Espo contributed to this report.

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