-Can’t Cut Deficit Without Moderate Tax Rate Increases

By Brai Odion-Esene

WASHINGTON (MNI) – U.S. Treasury Secretary Timothy Geithner Tuesday spoke
out against any efforts to delay a permanent solution to the encroaching “fiscal
cliff,” warning that to do so would merely exacerbate the level of uncertainty
already present in the economy.

In remarks during a moderated discussion at the Wall Street Journal’s
annual CEO Council, Geithner also said putting the nation’s fiscal policy on a
sustainable path will not be possible without a moderate increase in the tax
rate for wealthy Americans.

As for raising the government’s borrowing authority, Geithner said that
considering the damage to the country from last year’s debt impasse, lawmakers
now understand that toying with raising the debt limit is an experience they do
not want to repeat.

He noted the increasing bipartisan consensus on Capitol Hill regarding how
to slash the federal deficit, noting that GOP leadership have acknowledged for
the first time in public that revenues will have to be part of any set of fiscal
reforms.

“That’s a very important change,” Geithner said, adding that a balanced set
of reforms is needed to restore fiscal sustainability.

Some have discussed the possibility that lawmakers might agree to a
temporary reprieve rather than a permanent solution to averting the fiscal
cliff, delaying any concrete action until next year.

That is not an attractive alternative, Geithner warned; “You leave all the
uncertainty … on the American economy.”

Postponing a decision would take away any incentive to negotiate, he
continued, and eliminate all confidence that negotiators from both sides will
return to the table next year.

“They’ll always believe that if they hold out they can just extend again,”
he cautioned.

So while the fiscal cliff would cause a lot of damage to the U.S. economy
if allowed to happen, Geithner said the damage is “eminently avoidable,” and not
that complicated to solve.

“Be careful about those who argue, and urge for, ‘lets just extend while we
debate, while we negotiate.’ That will leave all the uncertainty you don’t like
on the table, it’ll leave a different sort of uncertainty, which is — what’s
going to give people the incentive to come back and do something tough,” he
said.

As for dealing with the looming deadline of expiring tax relief and
spending cuts, Geithner again characterized it as a “solvable” problem.

“There’s a lot of support for trying to do things that will help make the
economy stronger in the short term,” he said, such as extending the Bush-era tax
cuts for those making under $250,000 a year.

Doing this, Geithner argued, “would remove the greatest source of anxiety
and much of the greatest risk in the fiscal cliff.”

In addition, the administration also wants to take advantage of the
opportunity presented to make some progress on other issues such as extending
the patch for the Alternative Minimum Tax, boosting businesses’ incentives to
expand, and addressing the country’s long-term fiscal challenges.

While declaring his openness to all options in addressing the fiscal cliff,
President Barack Obama has made it clear he will veto any bill that includes tax
cuts for the top 2% of Americans.

Looking at the amount of deficit reduction that has to be put in place over
the next decade, and the realistic set of revenues needed to contribute to that,
“I don’t see how you do this without higher (tax) rates, I just don’t think
there’s any feasible, realistic way to do it,” Geithner said.

He said the White House is proposing a package that would raise roughly
another $5.5 trillion in revenues, about 1% of GDP, through a combination of
moderate tax rate increases and reforms that limit the value of deductions or
upper income Americans.

This is the method that would restore the United States’ fiscal
sustainability without hurting long-term growth prospects or adding to the
burden of a struggling middle class, Geithner added.

“I think that’s how we’ll solve this,” he said.

Although the discussion was dominated by concerns about the fiscal cliff,
Geithner did face some questions on Europe and China.

With regards to the eurozone, Geithner said actions taken over the last
several months “puts them in a much better position to more carefully manage the
incredible difficulty of the reforms that are still ahead for those countries.”

And the difficult reforms put in place so far by Greece, Geithner
predicted, will be rewarded by more support from other European nations.

Still, Europe has “a lot of tough decisions ahead,” he said, and must
demonstrate that they are moving to put in place economic reforms and
constraints on the ability of countries’ to borrow in the future.

On the question of China, Geithner said the Asia giant has a really
difficult set of challenges ahead as its population ages “and they run out of
room to use those past forms of stimulus to get the economy moving in the short
term.”

But with China undergoing a once-in-a-decade leader transitions, Geithner
said all indications the U.S. has received is that those who will be at the
center of the new Chinese leadership are “very much committed” to the path of
economic reform.

China, he said, recognizes how important it is to have a stable, expanding
global economy.

** MNI Washington Bureau: 202-371-2121 **

–email: besene@mni-news.com

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