Today, Secretary Geithner appeared before the Senate Budget Committee to address questions regarding the President’s budget for the 2010 fiscal year. Secretary Geithner testified before the Senate Finance Committee on the same matter last week.
Chairman Kent Conrad (D-ND) and Ranking Member Judd Gregg (R-NH) expressed concerns over the long term effect of perceived increased spending. Chairman Conrad stated that he was “very worried” about the “unsustainable” future deficits projected for the second five years and the dramatic increase in health care spending. Ranking Member Gregg complained that the budget may jeopardize the ability of the U.S. government to sell U.S. debt and essentially passes on to the next generation obligations that should be borne by current generations. Secretary Geithner responded that spending increases are largely due to interest costs associated with the inherited deficit. He noted that health care reform is expected to significantly reduce Medicare spending. Additionally, he stated that the spending hikes are short-term and should end as the economy recovers. Secretary Geithner also suggested that a deficit of 3% of GDP is fiscally sustainable and achievable under the current budget. Overall, Secretary Geithner argued that the budget contains no drastic spending increases, just shifting priorities.
The Committee also questioned Secretary Geithner about the proposed tax structure. Chairman Conrad suggested that the budget may account for as much as a $2.2 trillion reduction in taxes by extending the minimum tax level, extending the estate tax level and by reducing taxes for many. Ranking Member Gregg, however, criticized the tax policy for “clubbing risk capital” by increasing capital gains taxes and taxes on small businesses.
Secretary Geithner responded that more Americans will receive a tax break, rather than an increase, and that even those earning over $225,000 will be restored to their 2001 tax rate by 2011, as the economy recovers. Secretary Geithner did not provide a definitive answer when pressed about whether the tax decrease in 2011 would be contingent on economic recovery.
Additionally, Secretary Geithner faced questions on a number of issues, which often strayed from the proposed budget. These issues included: getting toxic assets of bank books, addressing foreclosures, unfreezing the credit markets, bailing out AIG and measures to prevent use of taxpayer investments to fund executive compensation. Secretary Geithner noted that plans are being developed to combine federal and private capital in order to get toxic assets off the books; the government is applying pressure to lower mortgage rates and to make it easier to refinance; forceful action will be applied to get credit flowing again; AIG poses systemic risk and had to be rescued; and future federal funds will come with tough conditions on compensation.