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Geithner urges ending tax cuts for the wealthy

The Treasury secretary says allowing some Bush-era tax breaks to expire will not harm economic recovery and is 'the responsible thing to do.'

July 26, 2010|By Christi Parsons and Lisa Mascaro, Tribune Washington Bureau

Reporting from Washington —

As the White House gears up for a fight to end controversial Bush administration tax cuts, Treasury Secretary Timothy F. Geithner said Sunday that allowing those targeted at the wealthy to expire is "the responsible thing to do" and would not deter economic growth.

President Obama's plan would end the tax cuts for only 2% or 3% of the highest-earning Americans, Geithner said, while sending an important message to the world about the U.S. commitment to fiscal austerity.

"We think that's the responsible thing to do," Geithner said, speaking to White House correspondent Jake Tapper on ABC's "This Week." "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-term deficits."

But Republicans and even some Democrats are unsure about the wisdom of raising taxes at this point in the economic recovery. Among those affected would be business owners, just as the economic recovery hinges on whether they decide to create jobs.

Enacted under President George W. Bush, the tax cuts will expire this year if Congress and Obama don't extend them. Republicans and some Democrats favor continuing them all, which would add at least $2 trillion to the federal deficit over the next 10 years. Congress passed the tax cuts with an expiration date to minimize their effect on projected federal deficits.

Obama has suggested keeping the tax breaks in place for individuals earning less than $200,000 a year and for families earning less than $250,000, which would cost the Treasury less.

The brewing fight is stoked by the fact that every member of the House and a third of the Senate are on the campaign trail. Republicans hope to wrest control of one or both chambers from Democrats in the November elections, at the midpoint of Obama's first term. The party in the White House historically loses several seats in the midterm elections.

Democrats are intent on showing voters they can resolve the complicated tax policy issue. Yet divisions remain in the party's ranks over whether it is politically wise to delve into the debate before the elections, when vulnerable members may be reluctant to cast votes on such a volatile issue.

Amid mounting concern over the nation's growing debt, lawmakers are acutely aware that the price tag for allowing the tax breaks to continue — or of finding offsetting budget cuts elsewhere — would be daunting.

"We have to have a discussion nationally on where we're going to go on this," said Rep. Jason Altmire (D-Pa.), who is among those considering the options. "We have to deal with it. It's inconceivable that all of the tax cuts would be allowed to expire."

On Sunday, Geithner took the administration's argument to ABC and to NBC's "Meet the Press." He said he didn't think that ending some tax cuts would harm the economic recovery.

"Just letting those tax cuts that only go to 2% to 3% of Americans, the highest-earning Americans in the country, expire," Geithner said on ABC, "I do not believe it will have a negative effect on growth."

In addition, Geithner said the administration was urging Congress to pass a series of tax measures to benefit small businesses and help them get credit so they could expand their operations. He said he expected the administration's push to "absolutely" come before the November elections.

But critics disputed Geithner's predictions about how the expiration of the tax cuts would play out across the economy, and with American voters.

"Businesses with narrow margins, they're going to go under," said Steve Forbes, publishing magnate and two-time Republican presidential candidate, on CNN's "State of the Union." "You have even entrepreneurs, people who are willing to buck the tide, just being very hesitant because they don't know what kind of costs they're going to get hit with."

But Geithner said he didn't think there was a chance that all of the Bush tax cuts would survive, even for a year or two.

"I don't believe it should," he said, "and I don't believe it will."

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