March 3 (Bloomberg) -- Treasury Secretary Timothy Geithner said the U.S. bank rescue program may cost more than the $700 billion Congress approved, and he pledged to crack down on companies and individuals who try to avoid paying taxes.

Testifying before the House Ways and Means Committee on the Obama administration’s 2010 budget, Geithner pledged to work with Congress to “determine the appropriate size and shape” of further bailouts.

“As expensive as it already has been, our effort to stabilize the financial system might cost more,” Geithner said. He also urged lawmakers to “commit” to cutting the $1.3 trillion budget shortfall this year and reiterated the administration’s pledge to cut the deficit to $533 billion, or 3 percent of gross domestic product, by 2013.

The Treasury chief said the administration will unveil a series of “legislative and enforcement measures” in coming months to deal with companies and wealthy individuals who use offshore accounts to avoid paying taxes. The agency also plans to propose rules that would curb companies’ ability to delay paying U.S. tax on their foreign earnings, Geithner said.

Today’s hearing marked Geithner’s first appearance before the panel that writes U.S. tax law. His nomination faced resistance earlier this year in the Senate after Geithner, who oversees the Internal Revenue Service, agreed to repay almost $50,000 in back taxes and penalties.

2010 Budget Plan

Last week, President Barack Obama sent Congress a $3.55 trillion budget for the fiscal year beginning Oct. 1. It would increase spending by 32 percent over this year, resulting in a deficit of $1.17 trillion.

Obama left a $250 billion “placeholder” in the budget for additional aid to the financial industry. In his testimony, Geithner said that “doesn’t represent a specific request.”

The administration plans a three-pronged approach for the crisis: injecting more capital into banks; providing financing to revive consumer-loan markets; and starting a public-private investment fund to buy the illiquid mortgage-backed securities clogging financial firms’ books.

Today, Geithner said that the Treasury will release more information on the public-private program in the next few weeks. He said the government money will come from “some combination” of financing from the Federal Reserve and the Federal Deposit Insurance Corp.

The Treasury also is close to finishing guidelines to carry out executive pay limits for bailout recipients, enacted by Congress last month. Wall Street compensation, “got out of whack with basic fundamentals,” Geithner told the committee.

3.5 Million Jobs

Geithner said the recently passed economic stimulus bill would save or create at least 3.5 million jobs over the next two years and boost gross domestic product by almost 1 percent this year and more than 3.2 percent in 2010. He added that the economy is projected to have recovered by 2011.

“Unless we move aggressively, the cost of the crisis will be much more damaging,” Geithner said.

He criticized American International Group Inc., the insurer that yesterday announced a fourth-quarter loss of $61.7 billion and, in the past six months, has required multiple interventions of government aid.

“AIG is a huge, complex, global insurance company attached to a very complicated investment bank, hedge fund that was allowed to build up without any adult supervision,” Geithner said.

Because of “the risks AIG poses to the economy,” Geithner told the committee, “the most effective thing to do is to make sure the firm can be restructured over time, so that we can get through this.”

Tax Rates

He also touted an administration proposal that would increase the tax rate on managers of investment partnerships by making them pay ordinary rates as high as 39.6 percent on profit shares known as “carried interest.” That income now is often taxed at the 15 percent capital gains rate.

“The tax code will provide equal tax treatment for wages regardless of whether an individual works as a teacher or a hedge fund manager,” he said.

Stocks fell for a fifth straight trading day. The Standard & Poor’s 500 stock index is down almost 17 percent since Geithner was sworn in Jan. 26 as Treasury secretary. Before taking his current position, Geithner had been president of the Federal Reserve Bank of New York since 2003.

Representative Ginny Brown-Waite, a Florida Republican, told Geithner that she had “mixed” emotions about his appearance before the committee.

“Every time a statement is issued by you, the stock market plummets,” she said. “I am sure that is not something you feel good about.”

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.

Last Updated: March 3, 2009 17:39 EST