NEW YORK (Reuters) - U.S. lawmakers must act quickly to tackle a large budget deficit if the United States wants to avoid the kind of debt crisis that hit Greece, the White House’s top budget official said on Wednesday.
“We want to make sure we never wind up facing the sorts of choices that Greece now faces,” White House budget director Peter Orszag told Reuters Insider in an interview.
While the United States was in “no imminent danger” of a crisis of Greek proportions, Orszag said “I would prefer to be addressing this sooner rather than later.”
The U.S. budget deficit hit $1.4 trillion in 2009, just shy of 10 percent of gross domestic product, when the economy was in a deep recession. The gap could be even larger this year.
A bipartisan commission of U.S. lawmakers looking for ways to tackle the U.S. budget deficit met for the first time in late April and is due to make proposals by December 1.
He said U.S. politicians needed to come up with more ambitious proposals for ways to return the country’s public accounts to health.
“Frankly the political system does not deal well with long-term problems until they become a crisis, and we do not want this to become a crisis,” he said.
“Everyone always wants the deficit to be addressed but they’re against everything you could do to address it,” he said. “Proposals to cut government spending, if you then look at the specifics of what people are willing to cut, it often amounts to a lot less.”
Greece’s crisis worsened this year when the government revealed it was running a much higher budget deficit than thought, spurring investors to drive up Greek borrowing costs.
In exchange for emergency aid from the European Union and International Monetary Fund, Greece was forced to cut wages and other public spending sharply and raise taxes.
Concerns have grown that other European countries facing sluggish growth and rising deficits, including Spain and Portugal, may also be at risk, prompting the EU to approve a $1 trillion bailout earlier this week.
The United States also spends more than it earns in tax revenue. But global investors have remained eager buyers of U.S. Treasury debt, particularly during times of crisis.
Orszag said this buys lawmakers some time but should not encourage complacency. “Right now, there is no imminent danger, but to try to predict exactly when that will shift is a fool’s errand.”
Orszag declined to address the viability of a value-added tax as a U.S. deficit-cutting measure, saying the White House wants to give the commission time to present its proposals.
But he did say that there were likely to be legislative changes soon in the way the United States taxes profits earned by venture capital and private equity managers.
A measure to change the tax treatment of fund managers’ profits known as carried interest passed last year in the U.S. House of Representatives, which has approved the changes several times only to have them die in the U.S. Senate.
The changes in accounting for carried interest could come “within the next few weeks,” Orszag said.
“Venture capital and private equity funds may be affected,” he said. “I’m at least unaware of any credible evidence that there would be any significant adverse effect.”
Congressional sources said last month that U.S. lawmakers were reexamining the tax treatment of carried interest.
Reporting by Emily Flitter and Steven C. Johnson; Editing by Chizu Nomiyama