Less than a week after proposing a record $1.75 trillion budget deficit, President Barack Obama's top budget officials told Congress on Tuesday that Washington can't keep spending more than it takes in.
With the economy in a deep recession and the federal government spending trillions of dollars for stimulus and financial rescue plans, Treasury Secretary Tim Geithner and Budget Director Peter Orszag told two House committees that putting the government's finances on a sustainable path over the long run is absolutely essential.
"We arrived at this point because of an era of profound irresponsibility," Orszag said at the House Budget Committee. "We threw fiscal caution to the wind and ran up trillions of dollars in debt" by cutting taxes and ignoring "the deep, systemic problems" that are a drag on the economy.
"We have set an ambitious but economically crucial goal for bringing our deficits down dramatically once the recovery is firmly established," Geithner told the House Ways & Means Committee.
Republicans attacked Geithner, Orszag and Obama. The top Republican on the budget committee, Rep. Paul Ryan of Wisconsin, said Obama had offered up "the mother of all budgets" that would take a "decidedly ideological turn" toward a European-style system.
Ryan said the budget plan proposes a $1.4 trillion tax increase, a foolish course during a recession. The budget plan calls for allowing the expiration of the 2001 tax cuts on those who make more than $250,000 in 2011. Most analysts believe the recession will end later in 2009 or early 2010.
Orszag, Geithner and Federal Reserve Chairman Ben Bernanke testified at separate hearings Tuesday. All delivered the same essential message: The government has no choice right now but to step in to fill the gap left by the shell-shocked private sector. In the longer term, however, the costs and benefits of government must be balanced.
Bernanke said the $787 billion fiscal stimulus package will help the economy.
No one likes trillion-dollar deficits, Bernanke said. "But our economy and financial markets face extraordinary challenges, and a failure by policymakers to address these challenges in a timely way would likely be more costly in the end."
If the economy is to stabilize, markets must be confident that the government won't increase the debt indefinitely, Bernanke said. He also warned Congress that the recovery could be blunted if the stimulus is taken away too early.
Geithner strongly defended the tax components of the budget, including the tax cut for 95 percent of working families, as well as the planned tax increased for the wealthy and the plan to begin taxing carbon-based energy supplies beginning in 2010.
While the economy is struggling, the tax burden on the economy will be reduced, Geithner said. But once recovery takes hold, "it will be important for the nation to put in place policies that restore fiscal responsibility" by allowing the 2001 tax cuts on the top 2 percent of earners to expire in 2011.
Copyright 2009 McClatchy-Tribune