-Problem So Large It Can’t be Solved Unless Tax Rates on Wealthy Rise
-Will Walk Away Unless Also Get Debt Limit Deal

WASHINGTON (MNI) – The administration is prepared to allow the government
to go over the so-called fiscal cliff unless Republicans in Congress agree to
allow tax rates to increase on the top 2% of Americans, Treasury Secretary Tim
Geithner said Wednesday, though he said the sides are making progress in the
negotiations.

He also said the administration would not go along with any deal that fails
to include a solution to the periodic paralysis to debate raising the government
debt limit.

Asked in an interview with CNBC if the administration was ready to go
beyond the end of the year – when the Bush-era tax cuts expire and severe
across-the-board spending cuts take effect – Geithner responded: “Oh,
absolutely. There is no prospect to an agreement that doesn’t involve those
rates going up on the top 2% of the wealthiest Americans.”

He repeated that the administration will hold out for a “balanced” plan
with a “significant amount of revenues.”

“The size of the problem is so large it can’t be solved without rates going
up,” he said of the White House proposal to allow rates to return to the level
seen in the Clinton era for earnings above $250,000 a year. He said there is
“broad recognition” that rates will go up, and support for that approach in the
business community.

“I think we’re making a little bit of progress. We’re still some distance
apart, but they’re clearly moving and trying to figure out how to move further,”
Geithner said of the most recent GOP proposal, though it is short on detail. “I
think we’re going to get there.”

The administration also will hold out for a debt limit deal to be included
in the broader fiscal agreement, Geithner said.

“We are not prepared to have the American economy held hostage to periodic
threats that Republicans will force the country to default on our obligations,”
he said, since that would be “too damaging.”

Still, Geithner said the Republicans are moving their position despite the
“inevitable orchestrated drama surrounding the negotiations.”

“What we need to see is have them acknowledge that they’re prepared to see
rates go up and if they’re willing to accept that and commit to that as part of
the agreement, then we think we can do something really good for the economy,”
he said, but noted that more details are required.

“We don’t actually know what the Republicans think they can do … We don’t
know what mix of rates and limitations on loopholes that would support,” he
said, but added, “We think there is a good case as part of an agreement,
alongside increased tax rates on the top 2% of the wealthiest Americans … to
try to limit deductions as well for those Americans.”

–MNI Washington Bureau; tel: +1 202-371-2121; email: hscott@mni-news.com

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