In a speech at the Center for American Progress on August 4, Secretary of the Treasury Timothy Geithner adamantly argued against renewing Bush-era tax cuts for the wealthiest two percent of Americans, calling for Congress to let them expire at the end of this year as scheduled while ensuring that the other 98 percent would still see tax cuts.
“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,” said Secretary Geithner. 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.”
Secretary 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,” said 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.”
The event was co-sponsored by the American Action Forum, a center-right policy institute. AAF President Douglas Holtz-Eakin spoke and participated in a question and answer session with Secretary Geithner. Holtz-Eakin raised concern about the effect that allowing the Bush tax cuts to expire would have on small businesses. 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 three percent of small businesses owners are affected by these tax cuts, Geithner insisted.
Geithner considered 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 said, advocating for President Barack Obama’s proposed tax plan, which would save typical middle class families $2,000 per year.
Holtz-Eakin claimed that the “deficits we face are driven by spending problems, not tax revenue problems.” Geithner admitted that spending in some areas must be reined in, which, he said, is why President Obama has frozen certain nonsecurity discretionary spending in an effort to reduce the deficit. He ceded that “difficult choices and even painful cuts in government programs” will have to be made, but commended Secretary of Defense Robert Gates’s work toward cutting superfluous spending.
Secretary Geithner’s speech focused tightly on the wide-reaching potential effects tax policies have on American economic health. He repeatedly called attention to the positive effects of the Clinton tax code of the 1990s, and the devastating effects of the Bush administration’s tax policy. When it came to the issue of whether or not to renew Bush’s tax cuts, Geithner said, “Permanently extending the tax cuts for the top two percent would require us to borrow over $700 billion over the next decade… That would be a mistake.”