UPDATE: Geithner:Long-Term US Debt Reduction Crucial For Econ
By Martin Vaughan Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- U.S. Treasury Secretary Timothy Geithner said Tuesday it is imperative for the government to reduce over time the debt that is piling up as a result of the government's response to recession and financial-market turmoil.
"We have set an ambitious, but economically crucial, goal for bringing our deficits down dramatically once the recovery is firmly established and financial stability has returned," Geithner said in prepared remarks to the House Ways and Means Committee.
Geithner testified at the committee on President Barack Obama's budget blueprint for the next 10 years.
The Obama budget plan envisions reducing the annual federal deficit to $533 billion by 2013. Geithner said that would cut in half the $1.3 trillion portion of the deficit for 2009 that he said the administration has "inherited," or budgetary factors that were in place as a result of decisions made during the previous administration.
The Obama administration estimates the total deficit for 2009 at $1.75 trillion, taking into account the cost of economic-stimulus legislation signed by the president last month.
Geithner warned of consequences if Congress and the administration fail to reduce the deficit to about the $533 billion level, which is roughly 3% of GDP.
"Failure to reduce deficits to this level would result in higher interest rates as government borrowing crowds out private investment, leading to slower growth and lower living standards for Americans," he said.
House Republicans at the hearing said Obama's proposals to combat climate change would raise energy costs for all Americans, more than offsetting any tax cuts in the budget.
Geithner said revenue from the trading of carbon credits would be used to make tax credits permanent for lower- and middle-income workers. He also said it is up to individuals to change their energy consumption habits, in order to cut energy costs.
"If people don't change how they use energy, then they will face higher costs for energy," Geithner said.
But Rep. David Camp, R-Mich., said retirees, students and the unemployed don't benefit from the worker tax credit. Even for those who do, "20 cents an hour will not offset the higher energy costs in this proposal," said Camp.
Geithner said tax-increase proposals in the budget plan were borne of a "deep moral imperative to make our society more just." That would be accomplished in part by taxing the gains of Wall Street fund managers at ordinary income rates, instead of lower capital-gains rates.
Under questioning from Rep. Sander Levin, D-Mich., Geithner said the administration is proposing to tax all partnerships that have "carried interest" at ordinary income tax rates. House and Senate lawmakers have disagreed in the past on the extent to which real estate partnerships, for example, would be affected by the change.
Geithner also said the Obama administration has tried to mitigate the impact of tax increases on small businesses, now threatened by the economic recession, by delaying increases to the top two individual tax brackets until 2011.
In addition, the marginal tax rate increases would take effect only for married couples with income above $250,000, which excludes about 97% of small businesses, Geithner said.
The Obama administration will propose a series of measures "over the next several months" to reform taxes on the foreign profits of multinational companies, and to crack down on abusive offshore tax shelters used by companies and wealthy individuals, Geithner said.
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com
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Publié le 03 mars 2009 Copyright © 2009 Dowjones
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