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Geithner on Potential Deficit Deal: ‘We’re Closer Than People Think’

April 13, 2011 at 6:20 PM EST
President Obama spelled out his plan Wednesday for cutting the deficit by $4 trillion over 12 years. Treasury Secretary Timothy Geithner speaks with Jim Lehrer about the president's budget goals and the likelihood of getting cooperation from congressional Republicans.
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TRANSCRIPT

JIM LEHRER: And now to our newsmaker interview with Treasury Secretary Timothy Geithner.

Mr. Secretary, welcome.

TREASURY SECRETARY TIMOTHY GEITHNER: Nice to see you, Jim.

JIM LEHRER: In general, the House Republican leadership said that the president’s speech today was – was not a plan; it was a political statement based on his re-election campaign.

What do you think about that?

TIMOTHY GEITHNER: Well, you know, I sat with the president and the leadership off both houses, both parties, this morning at the White House.

And, actually, I think we came away from that more optimistic, more confident that this is a moment where we have a chance to get both sides to come together and lock the Congress into a comprehensive, balanced, responsible plan to bring our deficits down over time.

I think everybody recognizes this is the necessary thing to do. It’s something we can do. It’s something we have to do. And if you listen to people carefully, we agree on a lot. We agree on a $4 trillion objective for reducing the deficits. We agree we need to bring them down in a way that allows us to start to pay down our debt burden.

We have big disagreements on how to do it, but that’s a pretty good place to start. And if we can take advantage of this opportunity to get the Congress to lock itself into a set of constraints that allow us to live within our means, that would be an enormously positive accomplishment. It would be very helpful for recovery, make Americans more confident Washington can work.

And, again, listening to people talk a little carefully, people say — you have to say a bunch of things as politicians, but if you listen carefully to what they’re saying, I would say a little more optimistic.

JIM LEHRER: I was listening very carefully to what the president said. He said there is no way he is going to permit the taxes for the wealthy, for the upper-income group in America to get a tax cut, period. He said it twice: No way.

And the Republicans said just the opposite: We will never support anything that has to do with raising taxes.

Now, what did I miss?

(LAUGHTER)

TIMOTHY GEITHNER: Well, you’re right that there’s a fundamental disagreement here.

But let’s talk about what’s at stake. If you look at the most fortunate 2 percent of Americans today, their actual tax rates are very low. They pay a relatively small share of income relative to in the past. And if this country wants to keep those rates where they are, then we have to do one of two things.

We have to either cut savagely deeply into basic commitments for our seniors, for the disabled, for the poor, or you have to ask me and my successors to go out and borrow hundreds of billions of dollars, trillions of dollars over time from our children, from foreign investors, from the Chinese, to make that possible.

Now, it’s not responsible to go out and borrow to finance those tax cuts. You can’t afford them. And it is not necessary to solve our fiscal — in order to solve our fiscal problems, to cut so deeply into basic commitments generations of Americans have made to the elderly and to the poor.

So, we do disagree on how to do this, but we both agree it’s necessary, it’s important to get these deficits on a downward path. And that requires the Congress commit itself to live within a set of constraints so that the country can live within our means.

Now, of course, we want to do that in a way that preserves our capacity to invest in things that are critical to how we grow in the future, in education, in basic science, in research and innovation. We want to maintain those commitments to the elderly and to the poor and to the disabled.

And we want to make sure that we’re fair to the middle class, we don’t leave them with a larger burden than they already bear today. Those things are completely achievable to do. We just have to decide to do that. And it’s important for people to understand that this is going to be hard to do, because our deficits are very high.

They’re unsustainably high. But it’s something we can do, and we can do with acceptable costs for the economy as a whole. But we have to do it right, in the right way, in the responsible way.

JIM LEHRER: But can it be done without raising taxes?

TIMOTHY GEITHNER: Oh, no. There is no — no plausible way.

JIM LEHRER: No way?

TIMOTHY GEITHNER: Again, unless you’re going to cut deeply into commitments we have made to seniors and to the disabled and to the poor, or ask the country to go borrow the money, you can’t solve this.

And, again, that’s what — that’s the conclusion that the bipartisan fiscal commission reached. That’s the premise in which a bipartisan group of senators have been operating on. And it’s a — it’s a basic reality that we’re going to have to live with over time.

Now, it’s true we’re apart on this, but that’s a good debate for the country to have.

JIM LEHRER: But it’s huge. But it’s huge — hugely apart, right?

TIMOTHY GEITHNER: Yes, but let me — again, let me try and take the optimistic side.

JIM LEHRER: OK. All right. Be my guest.

TIMOTHY GEITHNER: You know, we just spent the last two years preventing the great depression, getting the economy growing again, cleaning up a bunch of terrible messes in the financial system.

Both parties came together in December and did a very important thing in giving families and businesses some well-designed temporary tax cuts. You saw both parties come to agreement just last week on a way to restrain spending, cut spending, but preserve critical priorities to both sides that matter a lot for the trajectory of spending going forward.

We’ve got good examples of people coming together. And again, both sides recognize now that this is the right thing to do for the economy, meaning to lock in now a set of reforms that will put our deficits on a path that we get them low enough that we can start to bring down our debt.

Of course, we disagree on how to do that. But even on parts of the — how to do it, we’re closer than people think.

JIM LEHRER: Now, one of the four main pillars to his — to the president’s plan was tax reform, as well as raising taxes on the wealthy. And there’s a lot of things about deductions, like for housing and that sort of thing, that — if you — if you remove deductions, you’re essentially raising taxes, too, are you not?

TIMOTHY GEITHNER: Well, the — what the president said is that we want to take and build on the model laid out by the fiscal commission led by Erskine Bowles and Alan Simpson.

And that was a bipartisan commission, had support from Democrats and Republicans. And what they propose to do is to take some of the spending in the tax code, and reduce that spending, and use some of the savings to potentially lower rates, but also help lower our deficits.

And that is, I think, the best idea out there, the best idea out there for trying to figure out how do we fix the tax code and make it more simple, more fair, less complicated, but also help make sure we do things that are responsible for our long-term fiscal position.

JIM LEHRER: David Leonhardt wrote in The New York Times today that finding — – quote — “Finding a way to raise taxes may well be the central political problem facing the United States” — end quote.

Do you agree with that?

TIMOTHY GEITHNER: Yes, I think that’s one of our challenges.

But we also have to decide how we’re going to make sure we can meet our commitments to seniors, to the disabled, and to the poor. And on those two fundamental questions, the country is divided and both parties are apart.

But, again, where we agree — and this is very important — this is a necessary condition for progress on this — is, we agree that we have to put these deficits on a downward path. We agree on how far we have to go, what it’s going to take to do it. There’s lots of areas where we think we have some common ground.

And what we have to do is to figure out how to, again, lock future Congresses in, this Congress in, to those kind of constraints, so we’re living within our means again, and we can afford to meet these other commitments to the country.

JIM LEHRER: Now, you say you’re an optimist. And the president said, well, we’re going — beginning in May, there’s going to be a bipartisan group of folks put together, under the chairmanship of the vice president, Vice President Biden, and we are going to work this whole thing out by the end of June.

Do you really think that’s realistic?

TIMOTHY GEITHNER: Well, I don’t think anybody believes — and we don’t need to come to a comprehensive solution on how to do tax reform…

JIM LEHRER: OK.

TIMOTHY GEITHNER: … or, fundamentally, how we solve our remaining health care problems between now and the end of May or June. That’s not possible to do. It’s not necessary to do.

But what I think we can do is, again, get people to come together and agree on a basic framework of targets and limits that allow us to go back to living within our means. And what the president proposed today is a set of targets for that, again consistent with what the House Republicans have proposed over the next, roughly, 10 years, 10 to 12 years and what the fiscal commission proposed.

And then he proposed a strong enforcement mechanism, so in the event Washington is unable to make the tough choices necessary, then…

JIM LEHRER: Like on taxes.

TIMOTHY GEITHNER: On both, on spending…

JIM LEHRER: OK, and taxes. I got it.

TIMOTHY GEITHNER: … on spending and tax code — then there will be some automatic changes that will come in time to make sure we achieve those objectives.

And our hope is that you make that enforcement mechanism tough enough, that it will make it easier for politicians to make these decisions.

JIM LEHRER: Finally, the debt-limit ceiling, there’s going to be a vote on that in the next few weeks.

You have said, if that does not happen, it would be a catastrophe. What’s your reading on whether — what’s — and the Republicans have said: Wait a minute. We’re not going to vote for that if we don’t get some more cuts out of this. In other words, there’s got to be a tradeoff.

TIMOTHY GEITHNER: Right.

Well, the Congress will pass an increase in the debt limit, because they have to. And the leadership of both houses has recognized that the country has to meet its obligations. And they are not prepared and should not be prepared to take the risk that that’s called into question.

And we heard the leadership of, again, the Republican Party in both houses make that commitment to the president today. That’s very important to recognize that. And again, there are some people up there who are going to want to take this to the edge, to the brink.

But we can’t take that risk. And so, you want Congress to move as quickly as possible to raise that. And, of course, they recognize they have to do that. And, of course, we also want to work with them to try to put in place a framework that can help put our deficits on a more sustainable path.

JIM LEHRER: What’s the brink?

TIMOTHY GEITHNER: Oh. Well, as I laid out in a letter to Congress a couple weeks ago, we have into June to solve this basic problem, but we don’t have much more time beyond that.

And, again, what you don’t want to do — and, again, I think the leadership in both houses recognizes this — you don’t want to take it too close to the edge, because you don’t want to call into question the commitment of the United States to meet its obligations. And I’m very confident this will happen.

JIM LEHRER: OK. Mr. Secretary, thank you very much.

TIMOTHY GEITHNER: Nice to see you, Jim.

GWEN IFILL: Tomorrow, we will get reaction to the Obama plan from economists Douglas Holtz-Eakin and Paul Krugman.