U.S. Treasury Secretary Timothy F. Geithner endorsed the “modest” tax increases proposed by President Barack Obama and opposed by congressional Republicans, saying they would be preferable to spending cuts.
Reducing the U.S. budget deficit over the next decade without raising taxes would require damaging cuts to Medicare (USBOMDCR) benefits and national security, Geithner said in testimony today before the Senate Finance Committee. In the budget plan released yesterday, Obama called for $1.4 trillion in fresh revenue from Americans at the top of the income scale, including higher taxes on wages and investments and limits on tax breaks for retirement savings and health insurance.
“We think the economics are quite good, quite sound,” Geithner said in his testimony.
Geithner said he would prefer to see additional revenue raised through a comprehensive rewrite of the U.S. tax code. The administration hasn’t made such a detailed proposal, and Geithner said that one won’t be forthcoming. He described that decision as a realistic nod to House Republicans’ unwillingness to agree to the same broad framework.
The administration is being “too patient” on taxes, said Senator Charles Schumer, a New York Democrat, who said he wants the Senate to vote this year on tax increases for top earners.
“Why wait?” he asked. “Why shouldn’t we be debating these issues now?”
Senator Tom Coburn, an Oklahoma Republican, urged Geithner to pursue cutting duplicative federal programs and reducing Medicare fraud instead of tax increases.
“It’s not right to assume that we couldn’t run the federal government more efficiently and that the only option is to raise revenue,” he said.
Senator Max Baucus, a Montana Democrat who is chairman of the panel holding the hearing, backed Obama’s proposal for permanent extensions of expiring tax cuts. He also called for overhauling the tax code.
“We must make the tax code fairer and more predictable,” he said. “We need to simplify it and close loopholes.”
Baucus said the administration’s cuts to rural assistance programs are “too deep” and could “paralyze our ongoing economic recovery.”
The tax proposals in the administration’s budget plan were immediately rejected by business groups and some congressional Republicans, who said the ideas were part of Obama’s re-election strategy and that they had little chance of advancing into law in 2012.
“This budget is a plan for a permanently larger, European- style government,” he said. “It does not set our country on a sustainable fiscal path.”
Later this month, the Obama administration will release what Geithner called a “framework” for corporate tax reform. At one point, Geithner said the plan would be released next week. He said the plan will be “a little tougher” than the proposals offered in the House.
Treasury’s tax plan will “eliminate dozens and dozens of specific corporate tax preferences,” Geithner said. He added that the plan will call for retaining a few breaks that support U.S. jobs.
Lower Corporate Rate
Representative Dave Camp, chairman of the House Ways and Means Committee, is calling for dropping the corporate tax rate to 25 percent from 35 percent and removing most taxation on profits that U.S.-based companies earn outside the country.
Geithner said the two plans would share some ideas.
“We’ll be more specific than principles but not as detailed as legislative language,” he said.
Geithner said he believes that over time the Congressional Budget Office’s estimate of the $25 billion cost of the Troubled Asset Relief Program, which provided bank bailouts during the financial crisis, will “prove high.”
“The costs are vastly lower than what people thought, hundreds and hundreds of billion dollars lower than what people thought,” Geithner said. “We’ve gotten most of that money back already and we’re in a very good path to show a very high return.”
The administration in its budget plan doubled to $61 billion the amount to be raised from a bank tax that institutions with more than $50 billion in assets would pay for their role in the financial crisis. The fee also would pay for the administration’s mortgage refinance plan.