NEW YORK—Treasury Secretary Tim Geithner updated the Obama administration’s deficit-reduction goals on Tuesday, laying out a strategy of multi-year spending cuts, entitlement reform, and tax increases designed to allow Congress to increase the federal debt limit by early August.
However, should Republicans hold out on increasing the nation’s borrowing limit in an effort to enact their budget resolution, which dramatically cuts spending on the poor and elderly and taxes for the wealthy, Geithner said the GOP would “own” the ensuing economic consequences, which include a potential default on the government’s debt.
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Nonetheless, Geithner, speaking at the Harvard Club in New York City, said he was optimistic about the possibilities of a deal, saying that Republican leadership “are sitting at the table with us. We’re talking about detailed spending, detailed reforms now, going through the areas where the money is, and they’re actually pretty realistic.”
Geithner expanded on a framework for $4 trillion in savings over 12 years laid out by President Obama in April, beginning with a substantial down payment of spending cuts and the closure of tax loopholes this year, and a debt fail-safe that would force lawmakers to take action in 2013 to stabilize the debt. Failure to act would mean automatic cuts in spending and the closure of tax breaks; implicit in the deal is the expiration of the 2001 and 2003 tax cuts.
“The size of the remaining cuts in spending will depend in part on the future of the Bush tax cuts, which without new legislation will expire at the end of 2012,” Geithner said. Overall, the framework would bring deficits down to 3 percent of the gross domestic product in 2015, enough to stabilize the national debt as a share of GDP and begin reducing it over time as the nation’s economy grows.
Alternative plans to solve fiscal problems, Geithner said, were not viable. Spending caps like those proposed in the Senate could not cap the growth of America’s aging population, he said, nor allow the government to counter recessions effectively. He characterized the GOP fiscal year 2012 budget resolution passed by the House as a lesson in the need for revenue increases.
“The essential value of the House budget is to show that if you try to deliver fiscal sustainability with no contribution from tax reform, then you have to make drastic cuts to these critical government functions,” Geithner said.
The Obama administration views such cuts as inappropriate at a time when 40 percent of children born each year in the United States are covered by Medicaid and infant-mortality rates in cities like St. Louis and Baltimore are worse than in Sri Lanka or Belarus, while the effective income tax rate for the wealthiest Americans is at its lowest since the 1950s.
“If Republicans try to impose that plan on this country as a condition for raising the debt limit, then they will own the responsibility for the first default in our history, with devastating damage to the nation,” he said.
Notably, Geithner did not mention plans for tax reform to close loopholes and lower rates on either a corporate or comprehensive level, an idea that has populated administration discussions of fiscal issues in the past, saying afterward that it would not be part of the next two months of discussions. His speech here focused on the need to return to Clinton-era tax rates, long a mainstay of Democratic rhetoric.
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