Obama officials eye more jobless aid, weigh taxes

U.S. Treasury Secretary Timothy Geithner testifies before a House Financial services committee hearing on Regulatory Perspectives on the Obama Administration's Financial Regulatory Reform Proposals on Capitol Hill in Washington July 24, 2009.

WASHINGTON (Reuters) - Top U.S. officials said on Sunday it may be necessary to extend jobless benefits to firm up an economic recovery unlikely to create jobs until next year and declined to rule out future tax increases to tame massive budget deficits.

Although output in the U.S. economy will begin to turn positive in the second half of this year, job growth will take longer, U.S. President Barack Obama's top economic officials told Sunday morning talk shows.

"Historically, increased hiring typically lags increases in output, so it's going to take time before you see it ... in the employment statistics," White House economic adviser Lawrence Summers told NBC's "Meet the Press."

The New York Times reported on Sunday that up to 1.5 million Americans will exhaust their unemployment benefits in coming months, pushing more into home foreclosures and destitution.

Summers and U.S. Treasury Secretary Timothy Geithner said the Obama administration would work with Congress on ways to extend unemployment benefits later this year.

"We'll do what's necessary to make appropriate unemployment benefits available," said Summers, adding that this has helped maintain consumer spending.

They can likely count on some Republican support for the move. Sen Jim DeMint, a Republican from recession-wracked South Carolina, told "Fox News Sunday" he would "definitely support" extension of aid to the unemployed.

DEFICIT WORRIES

But overall, the administration's stimulus spending and health care reform plans have run into a chorus of criticism from Republicans, who charge the government is running up a national debt that could smother the economy in the next decade.

"We have put trillions of additional debt on future generations of Americans," said Republican Sen. John McCain.

"In the words of the Congressional Budget Office and others, it is 'unsustainable.'"

Geithner and Summers sought to blunt these concerns on Sunday, saying the government needed to show the will to slash deficits. They declined to rule out future tax increases to accomplish that.

"We have to bring them down to a level where the amount we're borrowing from the world is stable at a reasonable level," Geithner said on ABC's "This Week with George Stephanopoulos."

"And that's going to require some very hard choices. And we're going to have to do that in a way that does not add unfairly to the burdens that the average American already faces."

Geithner left unclear whether Obama would be willing to set aside his campaign pledge not to raise taxes on Americans making less than $250,000 a year. "We can't make these judgments yet about exactly what it's going to take and how we're going to get there," he said.

Summers later said Geithner was not laying the groundwork for tax increases, and added that none of the White House proposals would burden the middle class.

"It's never a good idea to absolutely rule things out no matter what, but what the president has been completely clear on is this: That he is not going to pursue any of his priorities, not health care, not energy -- nothing -- in ways that are primarily burdening middle-class families," Summers told CBS' "Face the Nation."

The officials' emphasis on deficit reduction came a week after Chinese officials at economic talks in Washington stressed the need to pursue deficit reduction. China holds over $800 billion in U.S. Treasury debt and over $2 trillion in total U.S. securities.

LONG SLOG

The U.S. officials took a guarded view of U.S. recovery prospects, particularly on the job front. Christina Romer, who leads the White House Council of Economic Advisers, put it most starkly on CNN.

"I do absolutely think that we can probably see some positive GDP growth (by Christmas). It will be a while after that before we see employment actually going up."

Asked if the United States needed a second fiscal stimulus program, Summers said the Obama administration was focused on executing the $787 billion spending plan passed in February. But he said there could be adjustments to the program, such as extending the "cash for clunkers" car rebate offer.

"As you go into 2010, we can't just limp out of this thing," said Romer. "We need to be growing robustly to make sure that the unemployment rate comes down."

(Editing by Doina Chiacu)