It’s not all the time that a speech by a Treasury secretary is a must-read, but Tim Geithner’s Wednesday speech to the liberal centre For American Progress is just that.The topic at hand is the coming expiry of the Bush tax cuts, an issue which is closely tied into the debate about the deficit.
Here’s the crucial line:
Others have suggested we delay, by extending all Bush tax cuts temporarily, for a year or two.
But the world is likely to view any temporary extension of the income tax cuts for the top two per cent as a prelude to a long term or permanent extension. That would hurt economic recovery by undermining confidence that we are prepared to make a commitment today to bring down our future deficits.
You know what this is similar to? When John Kerry said in a debate with George W. Bush that any military intervention on the part of the US ought to be subject to a “global test.”
In other words — and this is something we’ve been saying — the tax hike is all about signaling something to the rest of the world, based on the idea that we can only sustain our current spending if the rest of the world believes we’ll do something about future spending (it’s the ‘stimulus in the front; austerity in the rear’ plan all over again).
In the end, this isn’t about deficit. It’s about signaling. Tim Geithner wants to signal to the rest of the world that we’re just beginning the deficit-closing process, though tax hikes, etc. If we can’t take this little step of raising taxes on the “top 2 per cent of Americans,” then we’re doomed.
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