WASHINGTON – The U.S. treasury secretary fired a warning shot on Sunday, alerting Americans that Republicans will push the country off the so-called fiscal cliff — and into a potential recession with global consequences — if they don’t agree to tax increases for the wealthiest two per cent of citizens.
With fiscal cliff negotiations currently consuming the U.S. capital, Timothy Geithner appeared on the Sunday morning talk-show circuit to make clear: President Barack Obama won’t agree to any deal that does not allow George W. Bush-era tax cuts to expire for the richest Americans.
“There’s not going to be an agreement without rates going up,” Geithner told CNN’s “State of the Union.”
“If (Republicans) are going to force higher rates on virtually all Americans because they’re unwilling to let tax rates go up on two per cent of Americans, then, I mean, that’s the choice they’re going to have to make.”
The fiscal cliff is a combination of deep spending cuts, federally mandated in 2010, and the expiration of the Bush tax cuts.
While Republicans insist lower tax rates spur economic growth, several U.S. economists say the tax cuts were the single biggest contributor to the deficit over the past decade, reducing revenues by about $1.8 trillion between 2002 and 2009 as the country was fighting two monstrously expensive overseas wars.
The fiscal cliff stalemate is being followed with alarm by investors from Toronto to Hong Kong and Frankfurt. The Fitch rating agency recently declared that “the U.S. fiscal cliff represents the single biggest near-term threat to a global economic recovery.”
Geithner has submitted the administration’s fiscal cliff proposals to congressional Republicans. They include US$1.6 trillion dollars in tax revenue, cuts to Medicare, and another $50 billion in stimulus spending.
He says the administration will refuse any deal without tax hikes on the wealthy.
“It’s a very good plan and we think it’s a good basis for these conversations,” he said.
“What we did is put forward a very comprehensive, very carefully designed mix of savings and tax rates to help us put us back on a path to stabilizing our debt, fixing our debt and living within our means.”
Republicans see it differently. Indeed, less than a month since Obama’s re-election, Democrats and Republicans are as utterly unable to see eye-to-eye on fiscal issues as they’ve ever been.
John Boehner, speaker of the House of Representatives, said on Sunday he was stunned by Geithner’s plan when it was presented to him by the treasury secretary.
“I was just flabbergasted,” Boehner said on Fox News. “I looked at him and I said, ‘You can’t be serious.'”
The White House “has responded with virtually nothing; they’ve actually asked for more revenue than they’ve been asking for the whole time,” he said, adding there is a real chance of the U.S. careening off the cliff as a result.
“Right now I would say we’re nowhere. Period. We’re nowhere. We’ve put a serious offer on the table by putting revenues up there to try to get this question resolved, but the White House has responded with virtually nothing.”
Boehner acknowledged that Obama won re-election on a platform that included a pledge to increase taxes on those making over $250,000. Polls suggest the majority of Americans, as well, want to see the Bush tax cuts expire for the wealthy.
“They won the election, (but) they must have forgotten that Republicans continue to hold the majority in the House,” Boehner said. “But the president’s idea of a negotiation is: ‘Roll over and do what I ask.'”
In response, Geithner urged Boehner to come up with a counter-proposal, noting that Republicans have at least agreed that revenue hikes should be on the table. The party, however, wants revenues to increase through tax code reform and closing loopholes, not by raising taxes.
“You’ve heard them — for the first time in two decades now — acknowledge that they are willing to have revenues go up as part of a balanced plan,” Geithner said on Fox News.
“That’s a good first step, but they are going to have to tell us what they are willing to do on rates and revenues.”
He also defended the White House’s proposal to spend another $50 billion to kickstart the economy, calling it a “modest investment in making this country stronger.”
Geithner expressed sympathy for Republican leaders, saying they’re being pulled in two different directions: American voters endorse higher taxes on the rich, while Republican politicians view any tax hike as a potential job-killer.
“They really are in a difficult position,” he said. “And they’re going to have to figure out their politics of what they do next.”