(CNSNews.com) - Treasury Secretary Timothy Geithner said Tuesday that a deal to raise the legal debt limit, which he expects to be completed in the next few weeks, will be only a short-term “down payment” on solving the nation’s debt problem, and that it would be "irresponsible" to reduce the massive federal deficit anticipated over the next ten years with spending cuts alone.
What is needed, he said, is a longer-term deal on a “balanced framework” that includes “revenue increases through tax reform.”
Geithner said negotiations with Congress over such a longer-term plan could be completed within the “next few months.”
In the vernacular, when the government changes the tax laws to extract more tax revenue from citizens it is called a tax increase.
“I think for it to work for the economy you need to have a balanced framework,” Geithner told a Washington, D.C. gathering of CFOs from major corporations.
“If you try to do this, the magnitude of deficit reduction we need--and we need about $4 to 5 trillion in deficit reduction over the next ten years--to try to do that only on spending cuts in parts of the budget would be irresponsible and really not achievable politically,” said Geithner. "You can't pass the budget without that.
“So, you need a balanced plan that has modest revenue increases through tax reform as well as some near-term spending savings and long-term entitlement reforms,” he said.
“Again, I think if you look at the structure of our budget and what is driving these long-term deficits, if you look at the scale of challenges we need in terms of creating some room for investing in things that matter for long-term growth, you can’t do it through spending reductions concentrated in a very narrow slice of the government where the economy sort of depends on the government doing things that only the government can do,” said Geithner.
The national debt is now $14.34 trillion. This year, according to the Congressional Budget Office, the federal government will run a deficit of $1.4 trillion. Over the next decade, according to the CBO, the budget proposed by President Barack Obama would run up deficits totallling $9.5 trillion.
Geithner said that the adminstration’s negotiations with congressional leaders on a deal to increase the legal limit on the national debt are aimed at trying to lay the groundwork for a longer-term reform package.
“We don’t see a realistic path to solving all of this at once in the next few weeks,” Geithner said of the debt-limit negotiations. “It’s just not possible.”
“What we’re trying to do is to do a framework where there is a substantial down payment of spending reforms that lock in savings of say deficit reductions over a ten-year period of time and then a framework of constraints--we call it a debt failsafe--or a set of targets and triggers that would force the remaining deficit reduction to happen soon enough so we don’t fall behind the curve in this,” said Geithner.
Geithner outlined a two-step process that would start with a deal for a short-term increase in the debt limit paired with some spending cuts followed by a longer-term deal for fiscal reform.
“So whatever we don’t do in the down payment we’ll have to do in the next couple of years,” said Geithner. “And if Congress can’t act, we want an automatic enforcement mechanism that locks in the deficit reduction savings we need.”
Geithner said that Vice President Joe Biden and congressional negotiators were getting “close” to making a deal on the first step but that there needed to be significant progress this week.
“We’re meeting every day the remainder of this week and we’re making a lot of progress in fleshing out the shape of sort of a down payment with this broader framework of constraints--debt cap, enforcement mechanism--and we’re getting closer, we’re getting closer but we need to make some progress this week to give everybody more confidence that there’s a framework that has the votes,” said Geithner.
“I think it’s very likely we’re going to do this thing in two stages over the next few months,” he explained.
“In that room,” said Geithner of the debt-limit negotiations, “you have people focused on the overwhelming pragmatic imperative of how to legislate--meaning get the votes--to legislate a comprehensive, long-term fiscal consolidation program that allows us to go back to living within our means, recognizing that we are not going to be able to agree in the next few weeks about ultimately what we’re going to have to do to make our longer-term entitlement programs more sustainable, what mix of reforms on Medicare and Medicaid are ultimately going to be necessary and we’re not going to resolve in the next few weeks the precise shape of tax reform, not feasible.”