In the latest skirmish with Republicans over the future of Bush-era tax cuts, Treasury Secretary Timothy Geithner unequivocally rejected conservative pressure to extend those cuts for the wealthiest Americans.
In a speech in Washington, Geithner took aim at the core conservative claim that the faltering U.S. economy would be damaged if taxes on the richest 2 percent of U.S. taxpayers were allowed to rise next year.
Geithner, however, says that he wants the tax cuts enacted during George W. Bush’s first term to continue for middle-income Americans.
To make his case, Geithner contrasted the economic performance under Bush with that during the 1990s under Democrat Bill Clinton, which has been described as the longest peacetime economic expansion in U.S. history. In his first major legislative battle in 1993, Clinton pushed through a tax hike on the richest Americans and ultimately used that revenue to help balance the federal budget for the first time in decades and leave office with a trail of budget surpluses.
Bush, however, rolled back that tax increase once he took office. That, along with the cost of wars in Iraq and Afghanistan, once again helped plunge government spending back into the red.
Those Bush-era tax cuts are due to expire at the end of 2010 unless Congress extends them. Conservatives have mounted a forceful election-year campaign designed to force the Democrats to pass such an extension.
“There is no credible argument to be made that the purpose of government is to borrow from future generations of Americans to finance an extension of tax cuts for the top two percent,” Geithner says in a speech delivered last week at the Center for American Progress, a left-leaning think tank.
He pointedly drew his arguments to a conclusion by saying, “Borrowing to finance tax cuts for the top two percent would be a $700 billion fiscal mistake.”
Geithner drew stark contrasts between the fiscal policies of the Clinton and Bush administrations.
“In the 1990’s, sound fiscal policies led to large surpluses and important investments in the middles class, which helped contribute to a period of strong growth and job creation,” says Geithner, before describing the fiscal failures of the subsequent Bush years. “Washington changed course, abandoned the basic disciplines of budgeting, and borrowed to finance expensive tax cuts skewed towards the most affluent,” he said of the Bush era. “The result was a huge increase in our debt burden, relatively slow job growth, and stagnation in incomes for the middle class.”
At the end of his tenure, Bush also presided over the worst meltdown of the U.S. financial sector since the Great Depression, sparking a deep recession that the nation has yet to fully recover from.
Geithner attacked the idea that letting tax cuts for the wealthiest Americans expire would hurt small businesses, saying, “This is a political argument masquerading as substance.”
Only 3 percent of small businesses owners are affected by these tax cuts, Geithner insists.
Geithner considers these tax cuts for the wealthiest Americans one of the weakest ways to stimulate economic growth, arguing that tax cuts at that level have a negligible effect on household spending. He would rather see middle class families who make less than $250,000 per year granted tax cuts.
“I believe that extending middle class tax cuts is … essential to continued economic recovery,” he says, advocating for President Obama’s proposed tax plan, which he says would save typical middle class families $2,000 per year.
During the event, Geithner faced off against Republican budget expert Douglas Holtz-Eakin, who argues that the federal “deficits we face are driven by spending problems, not tax revenue problems.”
Holtz-Eakin was a top economic adviser to Republican John McCain’s failed 2008 White House bid.
Geithner admits that spending in some areas must be reined in, which, he says, is why Obama this year froze certain nonsecurity discretionary spending in an effort to reduce the deficit.
He acknowledges that “difficult choices and even painful cuts in government programs” will have to be made, but commends Secretary of Defense Robert Gates’s work toward cutting superfluous military spending.
The publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.