* Obama: Geithner to win confirmation despite tax trouble
* Senate panel delays hearing on Geithner until Jan. 21
* Top panel Republican: time needed to consider tax errors (Adds background on tax issue, paragraphs 12-13)
By Jeff Mason and Jeremy Pelofsky
WASHINGTON, Jan 14 (Reuters) - U.S. President-elect Barack Obama on Wednesday predicted that Timothy Geithner, his pick for Treasury secretary, would win Senate approval despite a controversy over back taxes and the immigration status of a former housekeeper.
"My expectation is that Tim Geithner will be confirmed and my expectation is that he's going to do an outstanding job," Obama told reporters. "It was an innocent mistake ... It has been corrected. He paid the penalties."
Geithner worked the phones to try to allay senators' concerns about his problems in hopes of winning quick confirmation to the job so he can quickly jump in to address the financial crisis and deepening recession.
Senate Finance Committee Chairman Max Baucus, however, was forced to postpone to next Wednesday a nomination hearing that he wanted to hold on Friday as some panel members demanded more time to consider the controversy.
Nonetheless, several members voiced support for Geithner, who as president of the New York Federal Reserve Bank has played a big role in efforts to calm roiled financial markets.
"He'll clearly get confirmed, clearly. That's a given," Baucus told reporters.
The delay in the hearing means Obama will enter office on Tuesday without a battle-tested Treasury secretary at his side during the worst U.S. economic crisis since World War Two. U.S. stock markets sagged again on Wednesday as worries rose on just how bad bank earnings would be.
Some Senate Republicans said they were withholding judgment on Geithner, whose nomination in November was greeted warmly by financial markets. But others said his tax mistakes did not rise to a level that would sink the nomination.
"I don't think I see enough in there to cause a problem," Republican Sen. John Ensign of Nevada, a member of the Finance Committee, told reporters after a lengthy telephone conversation with Geithner. "I think that the mistakes he made were pretty honest mistakes."
JUDGMENT WITHHELD
The flap over Geithner's back taxes and his domestic help boiled over on Tuesday when he met with Finance Committee members to explain his failure to fully pay several years worth of Medicare and Social Security taxes and the lapse of a housekeeper's work papers during her employment by his family.
Obama aides have characterized the errors as honest mistakes, and Geithner has amended his tax returns to repay about $42,700 in back taxes and interest. [ID:nN13422623]
The tax controversy stems from years when Geithner worked for the International Monetary Fund. IMF employees are responsible for meeting their own tax obligations, because unlike most U.S. employers, the IMF does not automatically pay or deduct certain payroll taxes on behalf of employees.
The IRS audited Geithner in 2006 for tax years 2003 and 2004, resulting in additional taxes and penalties. However, he did not amend his returns for 2001 and 2002 until after Obama expressed his intent to nominate him to be Treasury secretary.
Sen. Charles Grassley, the top Republican on the finance panel, said members "needed time to reflect" on the tax matter before considering the nomination, which must be approved by the full Senate.
The Iowa Republican told CNBC television he would not make his mind up on whether to support Geithner until after next week's hearing. "If this hadn't come up ... this would have been handled very quickly," he said.
However, another Republican panel member, Sen. Orrin Hatch of Utah, said Geithner was still worthy of support.
"He made some mistakes that he is embarrassed by," Hatch said. "But that doesn't diminish the fact that he's an excellent choice for this position ... I think he will make it."
Even if he wins confirmation, the tax matter could complicate his dealings with some lawmakers on Capitol Hill.
Sen. George Voinovich, an Ohio Republican, said it was "a very bad thing" for someone chosen to run the Treasury, which oversees tax collection, to have failed to pay some taxes. "He's got a real problem with me," he said.
Any delay in Geithner's confirmation by the Senate -- or any chance that he might withdraw -- could unnerve investors at a time when the banking sector is weak, lending scarce and the economy in a deepening recession.
Geithner is expected to be a key salesman for Obama's request for Congress to release a second $350 billion in federal financial bailout funds, as well as for his economic stimulus plan, which could result in up to $800 billion in tax cuts and new spending. (Additional reporting by Mark Felsenthal, Jeff Mason, Thomas Ferraro, Richard Cowan and Caren Bohan; writing by David Lawder and Jeremy Pelofsky; Editing by Dan Grebler)