U.S. Treasury Secretary Timothy F. Geithner next week plans to step up the Obama administration’s efforts to persuade lawmakers that tax cuts for wealthy Americans should be allowed to expire at year end, an administration official said today.
Geithner is preparing to make his fiscal policy case before the Senate finishes its session, the administration official said. Geithner’s message and the event, still in the planning stages, are intended to signal that the administration is serious about cutting the budget deficit in a way that won’t harm the economic recovery, the official said.
The administration wants to let tax breaks expire for Americans who earn more than $250,000 per year, while extending the tax benefits to families who earn less than that. The tax cuts, enacted in 2001 and 2003 during former President George W. Bush’s administration, are expiring in months as an election- year fight looms over whether to continue them.
After Geithner spoke about the administration’s tax plans in four separate public appearances last week, his event next week may be aimed at solidifying support among Democrats preparing to spend much of August among constituents.
Some Democrats already are breaking ranks with Obama’s policy, including Senator Kent Conrad of North Dakota, the Budget Committee chairman.
“My reaction would be: don’t cut spending, don’t raise taxes and that would mean on anyone,” Conrad said in an interview this week. He said he was following the advice of economists who predict a weak economy for the next 18 to 24 months.
A Commerce Department report tomorrow may show the economy expanded at a 2.6 percent annual rate in the second quarter, after a 2.7 percent pace from January through March, according to the median estimate of 81 economists surveyed by Bloomberg News.
“In the short run, I think we need to emphasize growth above all else,” said Senator Evan Bayh, an Indiana Democrat, in an interview on Bloomberg Television’s “Street Smart” last week. “Raising taxes right now would be the wrong thing to do.”
Even as the U.S. budget deficit approaches an estimated record of $1.47 trillion in the fiscal year that ends Sept. 30, yields on Treasuries this year have reached the lowest level during an economic expansion since the Eisenhower administration.
Such low yields don’t mean the U.S. can be complacent about reining in the red ink, said Neel Kashkari, head of new investment initiatives at Pacific Investment Management Co., in an interview today on Bloomberg Television.
“We shouldn’t be fooled by that,” said Kashkari, former head of the Treasury’s financial stability office. “The absolute size of our deficits matter and our relative position matters. Today we’re the strongest weakling.”
Geithner said on July 25 that the expiring tax cuts would only affect 2 percent to 3 percent of Americans, and therefore would help shrink the deficit without hurting the recovery.
“We need to make sure we can show the world that we’re willing, as a country, now to start to make some progress bringing down our long, our long-term deficits,” Geithner said in an interview on ABC. “I do not believe it would have a negative effect on growth.”
The Obama administration official said Geithner’s growth-and-fiscal-policy push will be separate from his already announced event in New York on Aug. 2, when he’ll discuss the financial regulatory overhaul that Obama signed this month.