WASHINGTON (Reuters) - The economy is not likely to slip back into recession but letting tax cuts for the wealthiest Americans expire is necessary to show commitment to cutting budget deficits, Treasury Secretary Timothy Geithner said on Sunday.
In appearances on several Sunday talk shows, Geithner said only 2 to 3 percent of Americans — those making $250,000 or more a year — will be affected when tax cuts enacted under former President George W. Bush end on schedule this year.
Republicans want to extend the tax cuts and Democrats are divided but Geithner said reductions for top earners should end.
“We think that’s the responsible thing to do because we need to make sure we can show the world that (we’re) willing as a country now to start to make some progress bringing down our long-term deficits,” he said on ABC’s “This Week” program.
Geithner played down fears that a slow-paced recovery might slide into a double-dip recession. He told NBC’s “Meet the Press” he did not expect that to happen, although recovery from the deep recession that followed the 2008-2009 financial crisis will be prolonged.
“I think the most likely thing is you’ll see an economy that gradually strengthens over the next year or two, you’ll see job growth start to come back, investments expanding ... but we’ve got a long way to go still,” Geithner said.
The Obama administration has said it wants to keep tax cuts in place for Americans earning less than $250,000 a year. Some Republicans say letting any of the tax cuts expire is effectively a tax hike that may hurt recovery.
Geithner disagreed, saying it was more important to aim tax cuts at lower-earning Americans and businesses.
“Just letting those tax cuts that only go to 2 percent to 3 percent of Americans, the highest-earning Americans in the country, expire I do not believe it will have a negative effect on growth,” he said on ABC.
Geithner said the Obama administration wants Congress to agree on measures to help small businesses, traditionally the main job-creating engine. He said there were signs “critical” private sector hiring was strengthening.
“We want to see it happen at a faster pace but I think most people understand that ... this was a deep crisis,” he said. “It’s going to take time to repair that damage, take time to grow out of this.”
He said the overhaul of U.S. financial rules signed into law last week by President Barack Obama should bolster confidence in the economy by giving consumers new protections and the government more powers to restrain bank risk-taking.
Geithner said no reforms can ward off all future crises but can mitigate the harm. If the reforms that are now law, including powers to wind down troubled financial firms, had been in place before the crisis, the damage to jobs and fortunes would have been less, he said.
On NBC, Geithner said there is work ahead to repair the housing finance system that contributed to the crisis and led to putting mortgage finance giants Fannie Mae and Freddie Mac into government conservatorship.
“We have to bring to Fannie and Freddie, to the GSEs (government-sponsored enterprises) and to the broader housing finance market a better set of policies to make sure we can deliver affordable financing ... without leaving the economy vulnerable to this kind of crisis,” he said.
Geithner said some type of government guarantee to make sure people have the ability to borrow to finance a house even may be necessary but said Fannie and Freddie will not be preserved in their current forms.
“We’re going to have to bring fundamental change to that market but I think there’s going to be a good case for taking a look at preserving or putting in place a carefully designed guarantee so homeowners have the ability borrow ... even in a very difficult recession,” he said.
Geithner said it was encouraging China recently ended a peg between its yuan currency and the dollar, which should help correct a trade relationship that enables China to rack up huge surpluses while the United States and others record soaring trade deficits.
“What matters to us and to all of China’s trading partners is that they let that currency appreciate,” he said. “What matters to us is how fast and how far they let it go.”
Editing by John O'Callaghan