Treasury Secretary Timothy Geithner praised the “positive side” of the tea party movement Sunday, suggesting the movement’s concern with deficits could align the group with the administration in the future.
Asked by NBC “Meet the Press” host David Gregory about the movement, Geithner said its concerns were informed by the expansion of spending under President Bush, and that the awareness now that there’s no way to pass an “enormous expansion of government without paying for it” is “an important change.”
From the advance transcript:
DAVID GREGORY: Finally, before I let you go, as I mentioned it was tax day. You also saw these tea party rallies around the country. And it seems that their biggest grievance, those who show up to these rallies, have to do with taxes, with government spending, with the size of the deficit. How serious do you take those concerns? How viable a political force do you consider—
TIMOTHY GEITHNER: Let—
DAVID GREGORY: --the Tea Party to be?
TIMOTHY GEITHNER: --let me-- let me do the positive side of this. Okay? We've-- just been through eight years where people said-- many people said, ‘Deficits don't matter. We can-- we can pass huge tax cuts, pass huge new programs without paying for them.’ That debate has changed fundamentally. Now you don't hear people say anymore, ‘Deficits don't matter.’ You don't hear people saying that we can pass enormously—enormous expansion of government without paying for it. That's an important change. I think all Americans understand that our deficits are unsustainable. And I think that'll be helpful as we move to try to make the hard choices to bring them down again.”
http://www.nytimes.com/2010/04/18/business/18view.html?ref=business
Can’t Cut Spending? Look Around the Globe
By TYLER COWEN
Published: April 16, 2010
Consider the tax burden on high earners once the Bush administration’s tax cuts expire next year. Add up the federal, state, city and sales taxes for a lawyer in New York City who earns $300,000 a year. Depending on the circumstances, this individual could be facing marginal tax rates in the range of 60 percent. Higher income tax rates would discourage hard work and encourage tax avoidance, thereby defeating the purpose of the tax increases.
The most potent way to add revenue is to impose a value-added tax. As its name indicates, a V.A.T. takes some percentage of the value added at each stage of production. V.A.T.’s raise money so readily and so invisibly that they often climb to a range of 15 to 20 percent; politicians like the revenue, and voters don’t always notice the burden.
A move toward a V.A.T., however, also brings price inflation, a big increase in the tax-collecting bureaucracy and the emergence of favored sectors with exemptions or lower rates. Though we may well end up with a V.A.T., it isn’t obviously the best option.
Burdening citizens with much higher taxes would fundamentally change what this country is about. Our founders envisioned a government that would provide public goods but not guarantee everyone’s well-being against every possible obstacle. Immigrants would be offered a franchise to come here and make good if they could — while bearing considerable risk themselves. To this day, this openness has elevated many millions in health, prosperity and liberty — and enabled many newcomers to innovate and offer new goods and services, or scientific ideas, to the world.
Higher levels of government spending and taxation would also soak up resources that might otherwise foster innovation and new businesses. And sentiment would most likely turn ever stronger against those immigrants who consume public services and make the deficit higher in the short run. Current residents might feel more secure in a larger welfare state, but over time the loss of commerce and innovation takes a toll.
The macroeconomic evidence also suggests the wisdom of emphasizing spending cuts. Ina recent paper, Alberto Alesina and Silvia Ardagna, economics professors at Harvard, found that in developed countries, spending cuts were the key to successful fiscal adjustments — and were generally better for the economy than tax increases. Their conclusion was based on data since 1970 from the Organization for Economic Cooperation and Development.
The received wisdom in the United States is that deep spending cuts are politically impossible. But a number of economically advanced countries, including Sweden, Finland, Canada and, most recently, Ireland, have cut their government budgets when needed.
Most relevant, perhaps, is Canada, which cut federal government spending by about 20 percent from 1992 to 1997. The Liberal Party, headed by Jean Chrétien as prime ministerand Paul Martin as finance minister, led most of this shift. Prompted by the financial debacle in Mexico, Canadian leaders had the courage and the foresight to make those spending cuts before a fiscal crisis was upon them. In his book “In the Long Run We’re All Dead: The Canadian Turn to Fiscal Restraint,” Timothy Lewis describes Canada’s move from fiscal irresponsibility to a balanced budget — a history that helps explain why the country has managed the current global recession relatively well.
To be sure, the spending cuts meant fewer government services, most of all for health care, and big cuts in agricultural subsidies. But Canada remained a highly humane society, and American liberals continue to cite it as a beacon of progressive values.
Counterintuitively, the relatively strong Canadian trust in government may have paved the way for government spending cuts, a pattern that also appears in Scandinavia. Citizens were told by their government leadership that such cuts were necessary and, to some extent, they trusted the messenger.
IT’S less obvious that the United States can head down the same path, partly because many Americans are so cynical about policy makers. In many ways, this cynicism may be justified, but it is not always helpful, as it lowers trust and impedes useful social bargains.
Forces like the Tea Party movement argue for fiscal conservatism, though it isn’t obvious that they are creating the conditions for success. Over the last year, we have been treated to the spectacle of conservatives defending Medicare against proposed cuts, in large part to curry favor with voters and mobilize sentiment against the Democratic health care plan.
Right now there is plenty of concern about debt and deficits, but little consensus on which expenditures should be cut or reined in. Sooner or later, we’ll have to reconsider virtually every segment of the federal budget.
The issue of fiscal responsibility isn’t going away. So the question is now this: How deeply will we dig ourselves in before we create a more mature and more forward-looking political culture?
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