WASHINGTON — Treasury Secretary Timothy Geithner warned lawmakers Wednesday that cutting too much spending too soon could put the economic recovery at risk.
Geithner said the administration of President Barack Obama wants to work with Congress on a multiyear agreement on spending and taxes that will accelerate the pace of cuts as the economy pulls out of a recession. Those comments were part of prepared remarks he delivered to the Senate Finance Committee in his second day of Capitol Hill testimony on Obama’s proposed fiscal 2012 budget.
Geithner said 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 that 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. The U.S. Treasury projects the limit will be reached between April 5 and May 31.
In his testimony, Geithner also said the Obama administration would consider a tax holiday on repatriated profits as part of a broader effort to reform the way the government collects money from businesses.
The tax code allows businesses to defer paying taxes on overseas profits, unless the funds are brought back to the U.S., which would trigger tax rates up to 35 percent. Proponents of the tax holiday argue that it would free up hundreds of billions that U.S. firms could plow back into U.S. hiring, capital equipment and research, giving a jolt to the U.S. economy.
A 2004 law cut taxes on repatriated profits for one year. That led companies to bring roughly $300 billion back to the United States.
