CHICAGO (Reuters) - Americans can’t let fear of deficits stop necessary government spending, U.S. Treasury Secretary Timothy Geithner said on Wednesday as he laid out the administration’s economic agenda ahead of November’s presidential election campaign.
Speaking to the Economic Club of Chicago a day after President Barack Obama had assailed Republican budget plans as ‘social Darwinism’, Geithner sharply criticized Republicans who claim the administration’s spending is excessive.
“There is no economic or financial case for using the fear of future deficits to cut as deeply into core functions of the government, to weaken the safety net or fundamentally alter Medicare benefits as do the Republican proposals,” he said.
In exceptionally blunt terms, Geithner claimed Republicans aim to roll back Wall Street reforms, cut government investments in education and infrastructure and slash protections for low-income Americans.
“This strategy is a recipe to make us a declining power - a less exceptional nation,” he said. “It is a dark and pessimistic vision of America.”
Last month, U.S. House Republicans unveiled a deficit-slashing budget proposal for 2013 that called, among other things, for revamping the Medicare health spending program. It would essentially dismantle Obama’s 2010 healthcare reform law and has drawn a battle-line for this year’s election campaign.
Geithner said the U.S. economy still was in the process of deleveraging, or paying down excessive debts from the 2007-2009 financial crisis, but it was growing moderately and needs a boost that only government can provide.
“We are gradually getting stronger, but we still have very tough challenges ahead,” he said.
Some of the challenges the recovery still faces, such as high rates of unemployment and the need to export more and become more competitive, need government action such as long-term investments in infrastructure projects.
“We have to be willing to do things, not just cut things,” he said.
Geithner said big U.S. budget deficits were not sustainable indefinitely but suggested they shouldn’t be made the primary challenge over all others and said they can be dealt with over time through a mix of spending cuts and revenue increases.
Responding to questions later, Geithner said one area where the United States remains far behind on financial reform is in reshaping the housing finance system.
Major mortgage finance sources Fannie Mae and Freddie Mac were placed under government control during the financial crisis and it is still unclear what model for the future will be adopted, although Geithner claimed to see early signs for a bipartisan compromise on the issue.
But on the broader issue of government’s role in the economy, he continued to hammer on Republicans for their reluctance to raise taxes on wealthy Americans as a way to get the nation’s finances under control.
He said cutting programs for poorer Americans “is not financially necessary and cannot plausibly strengthen economic growth” but implied that was Republicans’ choice for closing the budget gap instead of raising taxes, adding:
“Ask yourself, if you’re not going to do that with revenues, where are you going to find the $1.5 trillion? Are you going to take it out of other core functions of government? Out of defense, out of Medicare benefits?”
“I don’t see how you can justify doing it. It would be deeply damaging to the capacity of government. ... And I think it would be deeply unfair,” he added.
Additional reporting by Glenn Somerville, Rachelle Younglai and Jason Lange; Editing by Neil Stempleman and James Dalgleish