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WALLACE: And, hello again from Fox News in Washington.
Well, we had quite a day around here Friday, with talks to avoid the fiscal cliff deadlock and everyone saying, the other side is to blame, Treasury Secretary Geithner scheduled a round of interviews. But then, Friday afternoon, Speaker Boehner's office called to say he wanted to come on "Fox News Sunday" to tell his side of the story.
You'll hear from Boehner in a few minutes, but first, here's my conversation with Tim Geithner about the lack of progress in steering away from that cliff.
WALLACE: Secretary Geithner, welcome back to "Fox News Sunday."
TIMOTHY GEITHNER, TREASURY SECRETARY: Nice to see you, Chris.
WALLACE: I spoke with House Speaker Boehner just before I came over here. He says when you present your plan to him on Thursday, he said you can't be serious, and, Mitch McConnell, the Senate Republican leader says he burst into laughter.
GEITHNER: You know, Chris, they are in a kind of tough position now and it's going to be -- it's obviously a little hard for them now and they are trying to figure out where they go next and we might need to give them time to figure out where they go next. But what we did is, I think what you expect from us, is we laid out a very detailed, carefully designed set of spending, savings and tax changes that help put us back on a path of fiscal responsibility, to protect taxes, taxes from going up for 98 percent of Americans, and provide some modest room for investments on things we need, like infrastructure.
And we think that's a very good set of proposals. We think that's what's good for the economy.
If they've got some different suggestions, they want to go further in some areas, then they should lay it out to us.
WALLACE: When you say they are in a hard spot, what do you mean?
GEITHNER: Because they are trying to figure out how to find a way to support things that they know they are going to have to do. That's going to be hard for them.
Again, you've heard them for the first time, I think, in two decades, acknowledge that they are willing to have revenues go up as part of a balanced plan -- that's a good first step but they have to tell us what they are willing to do on rates and revenues. That's going to very hard for Republicans. We understand that, but there's no way through this without that.
And they have to tell us on the spending side -- if they want to go beyond where we are and do it differently, they have to tell us what makes sense to them.
What we can't do, Chris, is try to figure out what works for them.
WALLACE: The president campaigned for re-election on the idea of a, quote, "balanced approach," end quote, to deficit reduction -- a mixture of tax increases and spending cuts. Here's the plan that the Republicans say you presented to them this way --
GEITHNER: I can tell you what I presented. It will be helpful.
WALLACE: Let me ask you, they say --
GEITHNER: But it's our plan, Chris, why don't you let me do it? Why don't you let me explain it?
WALLACE: Well, I'd like to ask you about this part of it, and then anything I leave out, you can tell me.
WALLACE: $1.6 trillion in tax increases, more than $80 billion in new stimulus spending, next year, and, unspecified nonguaranteed spending cuts.
WALLACE: Question, is that your idea of balance?
GEITHNER: It is. And let me explain what is in the explain they didn't report to you and they didn't explain to people, which is, we propose alongside the trillion dollars in spending cuts we agreed with Republicans, last year, on defense and a comprehensive range of other government programs, we proposed $600 billion of detailed reforms and savings, to our health care and other government programs. That's $600 billion.
In fact, the health care savings in that plan are larger than the plans we have seen Republicans in the past in the context. Now --
WALLACE: Is that -- is that what was in the budget?
GEITHNER: Well, these proposals have been -- we proposed these things last fall and in the president's budget, they are very detailed. Now --
WALLACE: That was a budget voted down 99-to-nothing in the Senate.
GEITHNER: Well, Chris, you know, this is -- a lot of politics happen in this town, but this is very carefully designed set of reforms. And if Republicans would like to go beyond these reforms, or they want to do it differently, they should tell us how they want to do it.
Again, what we can't do is --
WALLACE: What if they were to propose the Republican budget that they passed? That they passed the last two years.
GEITHNER: There is no risk they're going to do that, Chris.
WALLACE: Well, wouldn't it be as serious as you proposed in your budget?
GEITHNER: No, but the American people have taken a long time to take a careful, hard look at the plan and they found no merit in it. So, the Republicans aren't going to propose it again.
WALLACE: Just like the Senate voted 99-to-nothing against your budget.
GEITHNER: No, the Senate has already proposed and enacted a middle class tax extension that protects 98 percent of Americans from their taxes going up. And we proposed very substantial additional spending reforms, alongside what we did last year, which is a trillion dollars, to make us get to a broader fiscal balance.
Now, again, Chris, you referred to things that will help make the economy stronger in the short-term and let me explain why we proposed that. What we are suggesting is that we work to rebuild the country's infrastructure, rather than just putting it off, doesn't save money just to put it off, to extend unemployment insurance benefits, to help make Americans -- easier for Americans to refinance their mortgages, take advantage of lower interest rates. We proposed some tax incentives for business investment, and we proposed how to do that in a fiscally responsible way that we can afford to pay for.
So, we matched those proposals, with spending savings that, together as part of the plan, get us down to the point where we stabilize our debt. And that is the critical test.
WALLACE: Let me drill down into the spending part of the equation. Here are the increases, spending increase as you are proposing: $150 billion, in stimulus, public works projects over several years; a $30 billion extension of unemployment insurance, for one year; extension of payroll tax cuts; mortgage relief; deferral of automatic cuts for doctors and Medicare.
Here are the spending cuts: unspecified savings from non- entitlement programs, next year -- let me finish -- and, the promise of $400 billion in savings, from entitlement programs to be worked out next year with no guarantees.
Speaker Boehner says, even if you get all of that, it's a net increase in spending, not a net cut.
GEITHNER: Not true and let me explain why. Again, those investments in infrastructure, extension of unemployment benefits those are very important things and they are very good things. And we can afford those. They have very modest cost, and we proposed how to pay for them.
And what we proposed is -- in contrast to what you said -- is we proposed $600 billion in reforms to mandatory programs, over 10 years and are prepared to do a substantial portion of those up front in ways that are measurable so that we can replace the much more damaging cuts in the sequester.
So, when Republicans say to us that we want to see spending savings locked in up front, we say we agree with you and we are prepared to do that. You have to -- you have to -- you have to give us some sense of what you think we should do up front, what we should do in the second stage and we are waiting to hear from them.
You know, again, if they need a little more time to figure out what they can do, what they want to do, that's OK. We don't have much time, though. And what they have to do is to make sure they commit to all Americans that they're not going to let taxes go up for 98 percent of Americans.
WALLACE: I just want to ask one more question on spending and then I want to move to taxes. The Bowles-Simpson debt commission proposed $3 in spending cuts for $1 in tax increases. In your $4 trillion, what's your ratio, spending cuts to tax increases?
GEITHNER: Very good question, roughly 2-1. Now, the Bowles- Simpson commission also proposed about $2.5 trillion in revenues over 10 years, relative to current policy. So, we proposed a more modest increase in revenues, alongside very substantial spending and savings, too. Again, the ratio is roughly --
WALLACE: -- $1.6 trillion in tax increases is a modest proposal?
GEITHNER: Well, again, it is. And relative to $2.5 trillion in the Simpson-Bowles commission, remember, Chris --
WALLACE: I think it's 3-1.
GEITHNER: No, hold on. No, again, we're -- it's true, we're not 3-1. We are roughly 2-1. And we think that's a better way to do it.
And, again, what we are trying to do is make sure we are strengthening Medicare, not shifting costs to seniors, and we're creating some room to invest in things that are very important to how we grow in the future.
WALLACE: Let's talk about taxes. The president made it very clear and made it clear during the campaign he will not extend the Bush tax cuts on the top earners. Does he insist on raising the top rate from 35 percent all the way up to the Clinton rate of 39.6 percent, or would he compromise on something lower, like 37 percent? Is that negotiable?
GEITHNER: We're not going to extend an extension of the tax rates for the top 2 percent. We think they should go back and need to go back to Clinton levels.
And let me explain why we believe that.
WALLACE: So, I just -- to answer my question, specifically, you are saying nonnegotiable, 39.6 percent?
GEITHNER: Again, we think that's the way to do it. Let me explain why, OK? If you don't do that, it costs a trillion dollars -- roughly a trillion dollars over 10 years.
WALLACE: Not if you went to 37 percent.
GEITHNER: Again, you're -- you're --
WALLACE: Well, that's one of the ideas that's out there, sir. I'm not just making this up.
GEITHNER: That's true. There's lots of ideas out there.
And, again, what we're -- we are proposing to let those rates go back to Clinton levels. Remember, that was a -- that was a time of remarkably good economic growth, in this country -- very strong private investment, strong job growth, strong broad-based growth in incomes. It was a good time for the American economy. It makes a lot of sense.
But in addition to that, we proposed to limit deductions for the top 2 percent of Americans as well. Now, we are willing to work with Republicans on tax reform to create a more simple, more fair system, but only as part of an agreement that has those rates go back up at the end of the year.
WALLACE: So, the Clinton rate?
GEITHNER: We think that's the way to do it.
WALLACE: Thirty-nine-point-six percent?
GEITHNER: And, again, the reason why is because --
WALLACE: I understand the reason why.
GEITHNER: If you -- again, if you don't you have to ask yourself, where are -- whose taxes are you going to raise, where are you going to find the money to bring a balanced plan in place that reduces our long term deficit?
WALLACE: How disastrous for the economy if we go over the cliff as the treasury secretary?
GEITHNER: For the American economy?
GEITHNER: It is pretty damaging to the average American. It would be very damaging. There's no reason it should happen.
Again, the only reason why it would happen is if a group of members of Congress decide they're going to block an agreement because they want to extend tax rates for the rich that we can't afford. That's the only reason that will happen.
WALLACE: Or they now say because you're not willing to cut spending enough.
GEITHNER: No, but that's not true. Again, if they want to do more on the spending side than the $600 billion we proposed on top of the trillion already enacted, in top of the savings from the wars, then they can tell us how they propose --
WALLACE: Savings in the wars that we were never going to fight?
GEITHNER: No, that's not true. We're -- as you know, we're winding down two wars.
WALLACE: I understand that.
WALLACE: And you are thinking savings that nobody thought that you were going to spend that money any way. It's a budget gimmick, sir.
GEITHNER: No, that's not right. You know, let me say it this way, those were expensive wars, not just in Americans lives but in terms of the taxpayers' resources. And when you end them as the president is doing, they reduce our long term deficits and like in the Republican budget proposals, the world should reflect and recognize what that does in savings.
And we propose to use those savings to reduce the deficits and help invest in rebuilding America. We think that makes a lot of sense.
WALLACE: But it was money that wasn't going to be spent anyway, and --
GEITHNER: If those wars have gone on, they would be spent.
WALLACE: I understand. But you're not saving -- you're not ending the wars for budget purposes. You're ending the wars because of a foreign policy decision. The wars weren't going to be fought. You're not really saving money.
GEITHNER: Chris, we all agree --
WALLACE: I mean, it's a budget gimmick, but it's money never intended to spend.
GEITHNER: No, it's not a budget gimmick unless you are -- when Republicans propose, it's a budget gimmick?
WALLACE: Sure, absolutely.
GEITHNER: And you should address that to them. But what it does is --
WALLACE: Well -- so, I'm addressing it to you.
GEITHNER: But, again, it's a basic challenge that we face, Chris. It's the biggest challenge we face, which is how to bring the deficit down over time.
Now, it's going to require spending savings, it's going to require increasing in rates of revenues. We think we can do that. We're going to work very hard to do that and I think we were in a very good chance to do it and there's no reason we can't do it.
WALLACE: Last question: can you promise that we will not go over the cliff?
GEITHNER: No, I can't promise that. That's a decision that lies in the hands of the Republicans that are now opposing increases in tax rates. If they recognize the reality that we can't afford to extend those tax rates, then we have the basis for an agreement that would be good for the American people.
WALLACE: And the president bears no responsibility, it's all up to the Republicans?
GEITHNER: Chris, ask yourself this question: why does it make sense for the country to force tax increases on all Americans, because a small group of Republicans want to extend tax rates for 2 percent of Americans, why does that make any sense? There's no reason why it should happen. We can't afford the tax rates. That's like the deep tragic lesson of the last decade. We can't afford them.
So we're not going to get through it -- we're not going to get to the end now without a recognition of the Republicans to that basic reality. And that's going to be the responsible thing to do.
And my judgment is, they're re going to do it because there's no alternative to that.
WALLACE: Mr. Secretary, thank you. Always a pleasure to talk with you.
GEITHNER: Good to see you.
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