July 24 (Bloomberg) -- U.S. Treasury Secretary Timothy F. Geithner said President Barack Obama is “absolutely committed” to letting tax cuts for the wealthiest Americans expire as scheduled at the end of this year.
“If the president were to say now, ‘I’m prepared to extend the taxes for the top 2 percent of Americans,’ it’s a deeply irresponsible thing to do fiscally and economically,” Geithner said in an interview yesterday on the “Charlie Rose” show broadcast on PBS and Bloomberg Television. “It would hurt our credibility. It would leave us with no capacity to address these long-term fiscal problems.”
Lawmakers remain deadlocked over long-delayed budget decisions including the future of the George W. Bush-era income tax cuts that expire Dec. 31, automatic spending cuts set to take effect in January and raising the federal debt limit. The end-of-year tax and budget impasse has led to warnings the U.S. could careen off a “fiscal cliff” if Congress doesn’t act.
Geithner said it wouldn’t be “responsible” to push back deadlines including defense sequestration. The cuts are set to occur because talks failed last year on a bipartisan plan to curb the nation’s debt.
House Republicans propose extending the tax cuts for all income levels and cutting food stamps, Medicaid, federal workers’ benefits and other programs to avoid reductions in defense spending. Democrats are balking, threatening to go over the fiscal cliff if Republicans don’t allow tax cuts for top earners to expire.
Geithner said Obama is “going to stand by” his pledge not to extend the tax cuts for the wealthy. “He is absolutely committed to that.”
U.S. Senator Patty Murray, a Democrat from Washington state, has said her party will be in a stronger negotiating position in January if Congress doesn’t reach a deal before year end on the expiring 2001 and 2003 tax cuts. Her comments are a sign that the Democrats may be willing to go over the fiscal cliff of automatic tax increases and spending cuts at the end of the year if Republicans continue to oppose higher taxes for top earners.
Geithner said the Obama administration wants to “bring both sides together after the election, try to negotiate a carefully designed, balanced mix of tax reforms and spending saving.”
On Europe, Geithner said the economic crisis is “going to be with them for years and years. There is no realistic prospect of a quick resolution to this.”
Geithner said German Chancellor Angela Merkel is right to be concerned that if Germany relieves “too much of the pressure, the incentive for reform will fade and they’ll have spent a bunch of the taxpayers’ money of Germany without any real return to make Europe work better.”
The Treasury Secretary said that “if you leave Europe on the edge of the abyss as your source of leverage, your strategy’s unlikely to work because you’re going to raise the ultimate cost of the crisis.” He said that Europe was “burning because of deep concerns about political will” there.
Geithner said he was “deeply offended” by accusations, including by Neil Barofsky, former inspector general of the Troubled Asset Relief Program, that he has been too sympathetic to Wall Street banks. Geithner said it’s the result of an “urban myth” that he worked for Goldman Sachs Group Inc. “rather than as a public servant, which is what I’ve done with my life.”
“A lot people thought the Federal Reserve Bank of New York was a bank, a private bank, rather than the fire station of the financial system,” he said. Geithner was president of the New York Fed for more than five years, including during the 2008 financial crisis.
Geithner reiterated his view that he was aggressive in expressing concerns about manipulation of the London interbank offered rate while at the New York Fed in 2008.
“We moved quite quickly to try to get the British to address it and make sure that we brought it to the attention” of U.S. regulators, he said.
Barclays Plc was fined a record 290 million pounds ($450 million) for rigging interest rates and the scandal cost Chief Executive Officer Robert Diamond his job. At least a dozen banks are being investigated.
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