US Treasury Secretary Timothy Geithner said on Wednesday that extending tax cuts for the wealthy instituted by former US president George W. Bush would be a US$700 billion mistake. He also rejected a compromise proposal Pbr />
Geithner said cuts for families making more than US$250,000 annually should be allowed to expire on schedule at the end of the year, but the administration believes tax cuts for the 95 percent of taxpayers making less than US$250,000 should be extended.
Geithner’s comments came during a speech at the Center for American Progress and focused on what is likely to be a key economic battle leading up to the November midterm elections. Unless Congress acts, all of the tax cuts approved in 2001 and 2003 will expire at the end of December.
PHOTO: REUTERS
Republicans have argued that all of the tax cuts should be extended. They contend that raising taxes on any group at the current moment would be harmful to the economy.
Geithner said extending the tax cuts for the top 2 percent of taxpayers would cost US$700 billion over a decade and US$30 billion for a single year. He said wealthy families are more likely to save the money, which doesn’t help the economy in the short run.
Geithner said allowing the tax cuts on the wealthy to expire would also help get the soaring deficits under control.
“Borrowing to finance tax cuts for the top 2 percent would be a US$700 billion fiscal mistake,” Geithner said. “It’s not the prescription that the economy needs right now and the country can’t afford it.”
Geithner rejected the argument that all of the tax cuts, including those for the wealthy, should be extended for a couple of years.
He said the money spent on extending the tax cuts for the top 2 percent of taxpayers would not do that much to boost the economy because the wealthy would save a greater proportion of these savings than lower income households, who would spend more of their tax savings, giving a boost to the economy.
He said the economy would get more of a boost by taking the US$30 billion that extending tax cuts for the wealthy would cost for one year and providing increased aid to state and local governments or expanded help for small businesses.
He also said extending tax cuts for the wealthy could burden future administrations with a difficult decision.
“The world is likely to view any temporary extension of the income tax cuts for the top 2 percent as a prelude to a long-term or permanent extension,” Geithner said. “That would hurt economic recovery by undermining confidence that we are prepared to make a commitment today to bring down our future deficits.”
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