Treasury Secretary Timothy F. Geithner said it will be necessary to raise personal income-tax rates on the wealthiest Americans to reduce long-term budget deficits because capping deductions won’t raise enough revenue.
President Barack Obama is “not prepared to extend the upper-income tax cuts,” Geithner said today at the Wall Street Journal’s CEO Council meeting in Washington.
“There’s obviously universal support for the middle-class tax cuts. Doing that would remove the greatest source of anxiety and much of the greatest risk in the fiscal cliff.”
Obama has invited leaders in Congress for talks on a possible deficit-cutting accord that would avert the fiscal cliff, the $607 billion in automatic spending cuts and tax increases slated to take effect Jan. 1. The Congressional Budget Office has forecast that the fiscal cliff would push the economy into a recession next year.
The role of tax deductions will be crucial in the negotiations. Geithner said that “when you take a cold, hard look at the amount of resources you can raise from that top 2 percent of Americans through limiting deductions, you will find yourself disappointed relative to the magnitude of the revenue increases that we need.”
U.S. Sen. Orrin Hatch, R-Utah, said in an interview today (Nov. 13) that higher tax rates are “not going to be” part of any deal. U.S. Sen. Kent Conrad, D-N.D., and chairman of the Senate Budget Committee, disagreed.
“If you’re going to meet the progressivity test, if you’re going to raise the revenue, it can’t just be loophole closings,” he said in an interview.
House Speaker John Boehner said last week that “shoring up entitlements and reforming the tax code – closing special interest loopholes and deductions, and moving to a fairer, simpler system – will bring jobs home and result in a stronger, healthier economy.”
Geithner also said today he is optimistic that Republicans want to reach an agreement.
“I think it’s very encouraging that you’ve seen the leadership just in these last couple of days recognize that we’re going to have to generate a modest amount of additional revenues from high-income Americans,” he said.
After conceding that “revenues are going to have to go up on the most fortunate Americans, why would you decide to take the economy over the cliff, put the economy through the damage that’s going to cause?”
Obama, who plans to reduce the shortfalls by increasing taxes for top earners, is holding meetings with labor and business leaders in the White House this week. The talks are intended to shore up the support for his plan before Nov. 16 discussions with Boehner, Senate Minority Leader Mitch McConnell, Democratic House Minority Leader Nancy Pelosi and Senate Majority Leader Harry Reid.
While Obama said Nov. 6 elections showed that voters back his proposal, Boehner cited public support for the re-elected House Republican majority and said that tax rates must not go up.
Obama on Nov. 9 reiterated his call for Congress to pass an immediate extension of existing tax rates for middle-income Americans and to let rates rise to 39.6 percent from 35 percent for individuals with income of about $200,000 annually and married couples earning more than $250,000.
The deficits add to national debt, which will most likely hit the $16.4 trillion limit at the end of December, with extraordinary measures enabling the U.S. to meet its obligations “until early in 2013,” the Treasury Department said on Oct. 31.
Geithner today said budget deficits should be brought down gradually to below 3 percent of gross domestic product to avoid damaging the prospects for economic growth.
Geithner, 51, will stay in his post through Obama’s inauguration on Jan. 21 as the administration and Congress negotiate, White House press secretary Jay Carney said Nov. 9. Geithner had said before the election that he doesn’t plan to stay at the Treasury for a second Obama term.