Treasury Secretary Timothy Geithner said the U.S. needs to face its fiscal challenges in a way “that’s designed to support future growth” as he testified to the Senate Finance Committee.
Geithner said today that job creation isn’t happening fast enough as the economy recovers from the recession. He called for tax incentives to encourage investment along with infrastructure and education improvements.
The Treasury chief repeated the administration’s call for an overhaul of the corporate tax structure, possibly accompanied by an agreement to allow companies to repatriate overseas profits. Such an agreement won’t be considered on its own, he said.
Senator Michael Crapo, an Idaho Republican, said the administration was making a “huge mistake” by proposing the elimination of many tax breaks in the budget without also proposing a rate reduction. “It uses up a huge portion of our opportunity for tax reform,” Crapo said.
Companies such as Cisco Systems Inc. have been seeking a change that would let them bring profits back to the U.S. at a reduced tax rate. Federal Reserve Chairman Ben Bernanke told the House Budget Committee on Feb. 9 that Congress shouldn’t consider a temporary repatriation holiday and instead should look at switching to a “territorial” tax system that exempts overseas profits.
Geithner said today that the administration was open to considering a territorial system, as long as the details of such a plan didn’t encourage companies to shift income and investment outside the U.S. In recent years, Japan and the U.K. have shifted to similar tax systems, and the U.S. Chamber of Commerce supports territorial taxation.
“When we look at territorial tax systems, we’ve got to make sure that the ultimate outcome supports that objective,” Geithner said.
The Obama administration is open to additional ideas beyond those it has proposed and doesn’t have a “monopoly on wisdom,” Geithner said. “If there are better ideas out there, we’ll be happy to take ‘em.”
Obama’s proposed budget for the 2012 fiscal year aims to reduce deficits by more than $1 trillion in coming years. The plan, his first since Republicans took control of the House of Representatives, includes cuts to energy, transportation, housing and other programs popular with Democrats.
‘Drunken Sailor’s Budget’
Senator Orrin Hatch of Utah, the top Republican on the finance committee, said Obama’s plan falls short of what is needed. He said at the opening of the hearing that the U.S. could learn about managing finances from inebriated sailors.
“Unlike the drunken sailor’s budget, the president’s budget doesn’t cut the government off from its spending spree,” Hatch said in his opening statement.
Geithner said that limiting the home-mortgage interest deduction and other itemized deductions to 28 percent wouldn’t harm the housing market. “In my judgment, if Congress were to enact that proposal we could withstand the impact, if any, on the broader housing market,” he said.
Also, he said the U.S. must rein in budget deficits over the next 10 years and then tackle entitlement spending that is poised to reach “untenable, unsustainable” levels. He said it would damage the economy to attempt this only through discretionary spending cuts without considering revenue.
“We do have a real problem in the next 10 years,” Geithner said. “It’s about a huge imbalance between commitments and resources.”
Geithner said he isn’t worried the U.S. will face an immediate liquidity crunch, noting that investors continued to allow the U.S. to borrow at low rates during the financial crisis. He called on lawmakers to pass a long-term plan that would allow companies and households to build the confidence needed for economic growth.
“You cannot provide that confidence” if the tax and budget environment is uncertain, he said. “We have to have a multiyear, clear set of commitments to bring those deficits down over time.”
Geithner repeated his call for Congress to raise the debt limit, which stands at $14.29 trillion now. Treasury projects the limit will be reached between April 5 and May 31. He said the department’s cash-management tools can provide only six to eight ways of extra time.
“It’s a question of math. It’s not a question of discretion,” Geithner said. “They will not relieve the Congress of the obligation to pass” legislation raising the debt limit.
The U.S. “would never contemplate” putting financial markets in a position of uncertainty as to whether the government could meet its obligations, he said.
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