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STEPHANOPOULOS: Hello again. Washington back to work this week, but with just 30 days to go until America hits the fiscal cliff that could mean a tax increase for everyone, there is no signs that Congress and the White House are anywhere close to a deal.
So let's get right to where this is all headed with the president's top negotiator, Treasury Secretary Tim Geithner. Thanks for joining us again, Mr. Secretary.
It sure sounds like those meetings you had on Capitol Hill this week did not go very well. Senator Mitch McConnell told the Weekly Standard that he burst into laughter when he heard your proposal, and we just heard Speaker of the House John Boehner said, let's not kid ourselves, there's a stalemate.
So is there a stalemate, and did Mitch McConnell really laugh out loud when you heard your proposal?
GEITHNER: George, I actually think we're going to get there. I mean, you know, just inevitably going to a little bit of political theater in this context. Sometimes that's a sign of progress. I think we're actually making a little big of progress, but we're still some distance apart.
But you know, what's at stake here is very important. What we're trying to do is not just prevent a tax increase on 98 percent of Americans -- and there is no reason why we can't do that -- but we're trying to go beyond that and make sure we're doing something that's going to be good for the long-term future of the American economy. And I think we have a chance to do that.
STEPHANOPOULOS: But you said you're getting closer. They say you're getting much farther apart. They say this is not even a serious proposal. It was a proposal designed to fail.
GEITHNER: We have a very good plan, a very good mix of tax reforms that raise a modest amount of revenue on the wealthiest 2 percent of Americans, combined with very comprehensive, very well designed, very detailed savings that get us back to the point where our debt is stable and sustainable. And we -- if we can do that carefully, we can create some room to invest in things that make America stronger, like rebuilding America's infrastructure, helping Americans refinance their mortgages, some careful tax incentives for business investments. We think those are good investments in America, and we think we can afford them. And we should do that as part of a deal like this. That's what we think makes sense.
STEPHANOPOULOS: Let's look at an outline of what the Republicans said they heard in the meeting, your offer. $1.6 trillion in tax increases over the next ten years. $50 billion in stimulus spending right now. $400 billion in unspecified Medicare cuts over the next 10 years, and then permanent authority to increase the debt limit. The president wants that authority. They look at that $1.6 trillion in revenue and say it's twice as much as you get from raising taxes on the wealthy, again, and much more than Democrats would ever accept in the Senate. That's why they say this is not serious.
GEITHNER: Let me tell you what we propose what we think makes sense, and let me start with part of what you said, which is how to make sure we're lifting the threat of default over the American economy, over the credit (ph) of the United States, over the savings of Americans. What we propose is to take an idea that Senator McConnell proposed last in December of 2011 and just extend that. And what that does is, again, lift the cloud of default over the economy, because the president has to (inaudible) propose an increase in the debt limit, and Congress then has a chance to express his view to disapprove that. And it was a very smart way by a senator with impeccable Republican credentials, to, again, lift this threat, this periodic threat of default from the American economy, and that's what--
STEPHANOPOULOS: He said he never intended it to be permanent.
GEITHNER: But, again, it was a good idea then, it's a good idea going forward. And again, it came from him. It wasn't our idea. It makes a lot of sense.
Now, what you said there was not quite right is, what we laid out for them is a detailed, comprehensive set of $600 billion of reforms in health programs, other government programs over ten years, which are going to be tough, but that we think that make sense.
They don't like all of those changes. They might want to go beyond that, might want to do some different things, but they have to tell us what those things are.
Now, you're right on the revenue side. We're proposing to let rates go back up to the Clinton levels on 2 percent of Americans. Again, now is a very good time for the American economy. We can -- that would be a good thing to do, sensible economic policy, and we want to combine that with tax reforms that will limit deductions for the top 2 percent of Americans. There's no surprise in this. We have been proposing this for a very long time. The president campaigned on it, and I think that's where we're going to end up. And I think there's going to be very broad support from the business community and from the American people for an agreement with roughly that shape.
STEPHANOPOULOS: And when you talk about limiting the deductions, there have been proposals from Governor Romney during the presidential campaigns, from other Republicans, to also limit deductions to maybe $25,000 cap on deductions. When you talk about those limitations on deductions, do you include the charitable deduction and the home mortgage deduction?
GEITHNER: Well, I think you're right to point out the essential problem in this, which is that if you try to limit deductions like you say with a $25,000 cap, what you do is you end up hitting millions and millions -- actually 17 million middle-class Americans. A huge part of the revenue comes that basic fact, which we do not prefer to do. It completely eliminates the incentives for relatively wealthy Americans to give to charities. We don't think that makes sense. And if you protect charitable contributions, you lose a huge amount of additional revenue. So those proposals, they may be worth considering, but if you design them carefully, they don't raise anything close to the type of revenue you need to get us back to a fiscally responsible position.
STEPHANOPOULOS: So you mentioned charitable -- are you saying now the charitable deductions should be off the table?
GEITHNER: What we propose -- and we think it's a better way to do it -- which is we propose a percentage limit on the value of all deductions and exclusions for 2 percent of Americans. And what that does is, it preserves a very significant economic incentive, financial incentives for Americans to give to charities. And of course that's very important to all universities across America, all hospitals, and millions and millions of nonprofit entities across the country that depend on those giving, and we think that's a better way to do it. That slightly reduces the marginal benefit of the deduction, but it preserves a substantial incentive to give to charity. We think that's a better way to do it.
STEPHANOPOULOS: I think one of the things that Republicans want to know if the president is still behind ideas that he has seemed to back in the past, for example gradually raising the eligibility age for Medicare, this adjustment in Social Security payments and so-called chained CPI, which would adjust the cost of living adjustments over time for people on Social Security. Is the president still behind those ideas?
GEITHNER: There is a lot of ideas out there, George, from Democrats and Republicans about things we can do to help strengthen Medicare and strengthen Social Security. And what I can do is to tell you the merits of the specific things we proposed, which, again, are very substantial savings over ten years, $600 billion, billions of dollars. And when Republicans come to us and say, we would like to do something different or beyond that, we'll take a look at how to do that. If it meets our basic values and our test, then we'll give it serious consideration.
STEPHANOPOULOS: So you're even willing to consider new restrictions on Social Security, because people like --
GEITHNER: No. I didn't say that. Let me clarify that. Thank you for asking me that.
What the president is willing to do is work with Democrats and Republicans to strengthen Social Security for future generations. So Americans can approach retirement with dignity and with the confidence they can retire with a modest guaranteed benefit. But we think you have to do that in a separate process, so that our seniors aren't -- don't face the concern that we're somehow going to find savings in Social Security benefits to help reduce the other deficits.
STEPHANOPOULOS: So to be clear, that is one thing that is clearly off the table. Social Security is off the table in these negotiations.
GEITHNER: We are prepared to, in a separate process, look at how to strengthen Social Security, but not as part of a process to reduce the other deficits the country faces.
STEPHANOPOULOS: OK, so that sounds like a yes to that, that question. On the issue of taxes, is there any flexibility in the president's position? Does it have to go all the way back, the tax rates on the wealthy, all the way back to the Clinton rates? Or is there some kind of formula below the Clinton rates that is still tax rate hike that the president can accept?
GEITHNER: Again, George, we think the best way to do this, and this is what we have proposed, is have those tax rates go back to where they were at one of the best, most prosperous times in recent American economic history, and then to combine that with reforms that limit deductions for the top 2 percent of Americans. We think that's the best way to do that. I'm deeply skeptical, deeply skeptical about ways to get through this without that mix of rates and reforms.
STEPHANOPOULOS: And if Congress does not agree to have those rates go up, you're comfortable with the idea of going over that cliff on January 1st?
GEITHNER: There's a huge amount at stake in this (inaudible), and there is just no reason why 98 percent of Americans have to see their taxes go up because some members of Congress on the Republican side want to block tax rate increases for 2 percent of the wealthiest Americans.
Remember, those tax rates, those tax cuts cost $1 trillion over ten years. There's no responsible way we can govern this country at a time of enormous threat, and risk, and challenge, uncertainty, millions of Americans retiring, huge levels of poverty, inequality, huge under-investment in education and infrastructure, with those low rates in place for future generations. Those rates are going to have to go up. That's an essential part of --
STEPHANOPOULOS: But as you know, a lot of Democrats think if the Republicans do indeed dig in on those tax rates, it's far preferable to go over the cliff than to reach a different kind of deal? Do you agree?
GEITHNER: I don't think that's going to happen. It certainly doesn't need to happen, and we're going to work very hard to make sure it doesn't happen. And what we're going to try to do is, again, not just protect the vast bulk of Americans from that kind of tax increase and the other damage that would come from the fiscal cliff, but we're going to do something good for the long-term of the country.
STEPHANOPOULOS: What would happen to the economy if we do go over the cliff?
GEITHNER: It would be very damaging to average Americans. There's no doubt about it. But there's no reason why it has to happen. And again, we're going to work very hard to prevent it. And the only reason that would happen, again, is if a small group of members of Congress decide they're going to block an agreement because they're not prepared to see tax rates rise modestly for just 2 percent of the wealthiest Americans.
STEPHANOPOULOS: Mr. Secretary, I hear you say you're going to work very hard, but boy, you listen to every Republican coming out of the meetings with you this week, they say you're going backwards, not forwards. So what is the specific next step to get this back on track? Is the president ready to meet face to face with the speaker, face to face with the Republican leader in the Senate to try to nail this down?
GEITHNER: Of course he is. And we'll do that when it makes sense. At this point, though, you've got to recognize that they're in a very difficult place. And they recognize they're going to have to move in a bunch of things, but they don't know really how to do it yet and how to get support for the members on the Republican side. And so, what we're going to do is to continue to look for ways we can solve this problem. But ultimately, they have to come to us and tell us what they think they need. What we can't do is to keep guessing about what --
STEPHANOPOULOS: So the ball is in their court?
GEITHNER: Oh, absolutely. Absolutely. And they understand that. And when they come back to us and say, we would like you to consider this, and we'd like you to consider that, we'll take a look at that.
STEPHANOPOULOS: Finally, one final question. This is your last assignment for the president, wrapping up these negotiations. So, how much longer you think you're going to be staying? And also, it was interesting to see this week that Warren Buffett thinks your best replacement would be Jamie Dimon, the head of JP Morgan.
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WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: I think Jamie Dimon actually would be -- I think he would be terrific, because I think he -- I think he -- if we did run into problems in markets, I think he would actually be the best person you could have in the job.
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STEPHANOPOULOS: Any chance of that?
GEITHNER: George, the president is going to choose somebody very talented to lead the Treasury for his next four years. And I'm very fortunate, I have been able to work with him to help solve these problems for the country over this period of time, and I'm very confident he's going to have somebody in place in January to succeed me.
STEPHANOPOULOS: I didn't think you were going to bite on that. But thanks for your time this morning. Mr. Secretary, thanks very much.
GEITHNER: Thanks, George.
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