Treasury Secretary Timothy Geithner spoke in front of the Council on Foreign Relations Wednesday, and he gave what amounts to an endorsement of the Bowles-Simpson deficit reduction plan.
Addressing the Council on Foreign Relations Wednesday afternoon, Treasury Secretary Timothy Geithner said that the debate about the path to fiscal responsibility “really began with Bowles-Simpson and that’s where it’s going to end.”
He added that while the president’s Fiscal Year 2013 budget “differs in slight–in small respects from that basic framework, [it] is very close to that basic design. That’s the neighborhood in which we’ve planned to govern.”
The Administration’s budget for FY2013 indeed includes a $4 trillion deficit reduction package, and the major complaint that President Obama has had for Bowles-Simpson is that it cuts defense spending too harshly. In February, Geithner echoed that criticism, but did add that the cuts to Social Security were not preferable to him.
The lame duck session has so many fiscal issues expiring at the same time that many view it as an opportunity to put together the long-sought “grand bargain” on deficit reduction. Erskine Bowles and Alan Simpson have recently come out of their shells and resumed a high-profile media tour in an effort to get their framework into the discussion for the lame duck session. The Bowles-Simpson plan does include tax increases of hundreds of billions above the Bush tax cut rates, albeit lower than what would occur if the Bush tax cuts were allowed to completely expire.
Because of this, Democrats like Nancy Pelosi have embraced Bowles-Simpson to tease Republicans for their opposition to higher tax rates. But that also puts Democrats on the hook for embracing cuts to the social safety net, including Medicare and Social Security. And on Wednesday, Geithner said that Bowles-Simpson is “the only path to resolution politically [and] growing essentially economically, and I think that’s where it’s going to end up.” He didn’t make the caveats on Social Security or other entitlements.
Meanwhile, we have 8.2% unemployment due to low aggregate demand, and ultra-low borrowing rates that would allow the government to borrow and spend money to raise demand, with a negative rate of payback.
Max Baucus has scheduled a hearing on Bowles-Simpson in the Senate Finance Committee for sometime in the next few weeks.