As of this posting, Treasury Secretary Timothy Geithner is speaking before the budget committee. Check out live blogging here. Here is his prepared testimony:
Chairman Conrad, Ranking Member Gregg, and members of the Committee, thank you for providing me the opportunity to appear before you today to discuss the President’s Budget at this moment of economic crisis, but also of real possibility, for the United States. What I propose to do in the remarks that follow is to: Describe the economic and financial challenges that greeted us upon our arrival in office, and discuss how we are addressing them; Lay out the intermediate and long-term threats to our fiscal condition, and explain how the President’s Fiscal Year 2010 Budget will return the nation to a sustainable fiscal position; and Explain how this Budget puts the nation on a path towards energy independence, better educational outcomes, and a reform of health care that both lowers costs and expands access. Current Economic and Financial Challenges The economy suffers from a severe lack of aggregate demand, both from families and businesses – a problem that is driven by a slumping job market, where 4.4 million jobs have been lost in just over a year – the largest number as a fraction of total employment in more than a quarter century and the largest number in absolute terms in over a half century. This problem is made worse by a contraction of demand from many of our key trading partners. Businesses, facing or projecting fewer customers for their goods and services, are laying off workers or cutting back on their hours or wages, causing families to further reduce their demand and businesses to respond with more layoffs and cutbacks. This dynamic is made worse by a financial system that is unable to provide the credit necessary for recovery. You can see this across America as families find it difficult to get the financing they need to buy new houses and cars while businesses have trouble lining up the credit necessary to meet payroll. The contraction in credit is causing more job losses and further declines in business activity, which, in turn, is adding more pressure on the financial system.
Both our economic and financial problems are being compounded by problems in our housing market, where a record of nearly 2.5 million families faced foreclosure last year, undercutting overall home prices, shrinking Americans’ real estate wealth by $2.8 trillion from its peak, causing further reductions in demand, more layoffs and a greater credit squeeze that threatens another round of foreclosures. You can see the scale of the damage in the recent announcement that the Gross Domestic Product, the broadest measure of the nation’s output of goods and services, dropped at a 6.2% annual rate during the final quarter of last year. That was its worst performance in more than a quarter century, and the third worst in more than a half century. In addition to a deepening recession and financial troubles, the Obama Administration inherited the worst fiscal situation in modern American history, with a federal budget deficit of $1.3 trillion, equal to nearly 10% of GDP – the largest that the nation has faced since World War II – not counting the economic recovery or other legislation undertaken by the Obama Administration. And we begin our time in office after a long period in which our government was unwilling to make the long-term investments required to meet critical challenges in health care, energy and education. This is the reality that we face today. These are the challenges that shape both the American economy and the Administration’s strategy. I want to outline for you today the President’s program for addressing these challenges. Let me start with our immediate response to the acute problems confronting the country. A Comprehensive Economic Recovery and Financial Stability Plan Economic Recovery Plan Immediately upon taking office, the President and the Administration worked with Congress to enact the American Recovery and Reinvestment Act, a package of targeted investments and tax cuts designed to get Americans back to work and get the economy growing again. Every agency of government is moving quickl y to implement the recovery plan in order to reignite economic growth. We have introduced three of the plan’s major tax provisions – the Making Work Pay tax credits of $400 a year for individuals and $800 for working families; a first-time homebuyer credit that could get up to $8,000 into the pockets of those buying homes before December 1, 2009; and a subsidy to ensure that unemployed Americans and their families can keep their health insurance. We estimate that the plan will save or create at least 3.5 million jobs over the next two years, and will boost GDP – over where it would have been had we not acted – by almost 1% this year and more than 3.2% next year. Read the rest here.
Geithner took a little heat from Sen. Jeff Sessions (R-Ala.) who said Geithner had failed to deliver "an honest appraisal of the situation we're facing today." He said Geithner "needs to get out of campaign mode" and accused him of parroting the Democratic party line laid down by David Axelrod, a top political adviser of the president.
Geithner: Banks Still In 'Defensive' Mode
10:34 A.M.: Geithner said that recovery is being impaired by forward-looking markets examining the toxic assets on the books of financial institutions and estimating greater losses if the recession gets deeper.
This has led banks and other lending institutions to maintain a "defensive" posture.
To combat that, Geithner said a more detailed look at these toxic assets is required. "We need to look under the hood more carefully, which we're doing," he said.
Today Obama met with Speaker of the House Nancy Pelosi and this week he'll meet with democrats and republicans on the economic package. He'll give an economic speech on Thursday. See photos here. He also met with his economic team today. Swift middle class tax cuts and incentives to business are the priority. Present at the meeting, according to The Hill, were:
Chief of Staff Rahm Emanuel, Treasury Secretary-nominee Timothy Geithner, chief economic adviser Lawrence Summers, energy czar Carol Browner, HHS Secretary-nominee Tom Daschle and Ron Klain, incoming chief of staff to Vice President-elect Biden.
Also present were Christina Romer, Obama’s chairwoman of the council economic affairs; Melody Barnes, the head of Obama's domestic policy council; and Peter Orszag, Obama’s incoming director of the Office of Management and Budget.
Here are some of the highlights. For the full transcript: CQ Politics:
SPEAKER: PRESIDENT-ELECT BARACK OBAMA
[*] OBAMA: Well, thanks for taking the time to come in for a moment.
You know, this is the core of my economic team, and the message of our meeting today is one that comes as no surprise to most Americans, and that is we are in a very difficult spot. The economy is bad. The situation is getting worse.
Last week, we learned that manufacturing had hit a 20-year low. On Friday, we’re going to get the final jobs report from this year, and every indication is that we will have lost in 2008 more jobs than at any time since World War II.
It’s clear that we have to act and we have to act now to address this crisis and break the momentum of the recession or the next few years could be dramatically worse. That’s the message that I delivered to Speaker Pelosi this morning. I will be meeting with Harry Reid and with the bipartisan leadership group this afternoon.
And the most important message today is that the situation is getting worse, we’ve got to act boldly, and we’ve got to act swiftly. We cannot delay.
....
Over the last few weeks, our economic crisis has only grown deeper. Two million Americans have now lost their jobs over the last year. We have a substantial number -- in fact, Christina Romer, our economist from the Council of Economic Advisers, indicates to me that in addition to the 2 million who’ve lost jobs, you’ve got 2.8 million who have moved from full-time work to part-time work.
So when you start counting in people who are underemployed, then the situation is very dire for American families.
Again, manufacturing’s hit a 28-year low.
OBAMA: Across America, millions of Americans are struggling with rising costs, growing debts, concerns about home foreclosure, a deepening sense of unease.
When I last met with my team, I asked them to continue their work on an American recovery and reinvestment plan that would not only create jobs in the short term, but also spur economic growth and lay the foundation for a sustained competitiveness in this global economy over the long term.
....One of the things that I’ve emphasized to my team -- and one of the things that I’ve emphasized to congressional leadership and will emphasize again today -- is that not only do we have to act boldly, swiftly and with a sufficient magnitude to make a difference, but we’ve also got to do things in a new way.
It’s not going to be sufficient for us just to fall back into the old Washington ways and simply throw money at the problem. We need to demand vigorous oversight; we need to have strict accountability in terms of how the -- the recovery and reinvestment plan operates. The American people have a right to know how every dime of their money is spent, and that is going to be built into the plan, so that everybody understands what is being done in order to address this crisis.....
So I’m looking forward to meeting with both the Democrats and Republicans this afternoon. My expectation is that they will share the same sense of urgency that I do, that we are going to move quickly, that we’re not going to get bogged down in a lot of old-style politics on either side. OBAMA: There’s not going to be a lot of finger-pointing or posturing. The American people need action now. That’s what I intend to provide as president of the United States. So with that, let me take a couple questions. QUESTION: How fast does this plan need to move to passage? And in moving swiftly and boldly, are you concerned at all about sacrificing transparency and a full examination of the process? And also, if you don’t mind, could you also talk about the extent to which the tax cut part of this plan is political (OFF-MIKE) getting it passed? OBAMA: Well, let take the second question first. Some of you, at least, were following the campaign. And for the last two years, I’ve talked about the need for middle-class tax cuts. So the notion that me wanting to include relief for working families in this plan is somehow a political ploy, when this is -- was the centerpiece of my economic plan, for the last two years, doesn’t make too much sense. What -- in a bad situation, there is a happy convergence between what I had pledged during the campaign and what’s required for the economy, right now, to put more money into the pockets of ordinary Americans who are more insecure about their jobs, who are continuing to see rising costs in an area like health care, who are struggling to make ends meet. But, you know, we think it is very important to have a balanced recovery and reinvestment package. Part of it is going to be addressing consumers and making sure they’ve got money in their pockets. Part of it is to provide incentives for businesses so that they start investing in plants and equipment that ultimately leads to jobs. Part of it is going to be investing in the kinds of job-creating growth industries of the future, whether it’s health I.T., whether it’s energy, that assure economic competitiveness over the long term. OBAMA: So I wouldn’t separate any of these parts. They’re all of a piece. And, as far as your first question, we are confident that we can accomplish unprecedented transparency, even as we move this package forward. Not only will Congress know exactly what’s in this bill, but we’re exploring steps, for example, like putting on a Web site very detailed information about all the projects that are taking place, what kind of impact we expect them to have, what kinds of job growth we hope to generate as a consequence of any of the discrete items that we are -- that we’re putting forward. QUESTION: Good afternoon, sir. To what extent has the violence in the Middle East distracted your team on the economic plan? And is the deadline for your stimulus -- are you still hoping for -- has it slipped to February? (CROSSTALK) OBAMA: Well, as I said before, I strongly believe that a president or a president-elect or his team should be able to do more than one thing at a time. And so, obviously, international affairs are of deep concern. With the situation in Gaza, I’ve been getting briefed every day. I’ve had consistent conversations with members of the current administration about what’s taking place. That will continue. I will continue to insist that when it comes to foreign affairs, it is particularly important to adhere to the principle of one president at a time, because there are delicate negotiations taking place right now, and we can’t have two voices coming out of the United States when you have so much at stake. With respect to the timetable for the economic recovery and reinvestment plan, we are going to do most of this work this month. OBAMA: And, you know, we’re not waiting. The reason I’m here today is that we are going to present our latest ideas to Congress. We expect them to begin this week on this process. And, you know, I expect to sign a bill to create 3 million jobs for the American people shortly after I get inaugurated. QUESTION: Sir, what do you mean by shortly after? (LAUGHTER) OBAMA: Well, look, there are only so many days in the legislative process, and it’s going to take some time, even on an expedited schedule, to get a bill passed and on my desk. But we anticipate that by the end of January or the first week in February we have gotten the bulk of this done. STAFF: Thanks, guys. We got to get to the Hill. OBAMA: All right. Thank you.
Politico: Aiming to foster bipartisan support for his record-setting economic stimulus, President-elect Obama plans to propose huge tax cuts for businesses and middle-class workers that will total about 40 percent of the package, or up to $310 billion, congressional officials said.
The revelation is part of an intricately orchestrated roll-out of the plan that includes an appearance by Obama on Capitol Hill on Monday and a major speech about the economy later in the week.
Obama plans to ask Congress for a stimulus package of $675 billion to $775 billion, so the planned tax cuts will total about $270 billion to $310 billion, the officials said.
Obama strategists say he wants to get 80 or more votes in the 100-member Senate, and the emphasis on tax cuts is a way to defuse conservative criticism and enlist Republican support. read the rest.
What form will the tax cuts take?
For families, the tax cuts include the $500 “Making Work Pay” payroll tax credit Obama proposed during the campaign.
For businesses, the tax cuts would include breaks for small employers and a “new jobs credit.”
Dems are planning on getting the package to Obama in mid-February. More from MSNBC:
Congressional aides briefed on the measure say it probably would blend tax cuts of $500 to $1,000 for middle-class individuals and couples with about $200 billion to help revenue-starved states with their Medicaid programs and other operating costs. A large portion of the measure will go toward public works projects and include new programs such as research and development on energy efficiency and an expensive rebuilding of the information technology system for health care.
The Obama tax-cut proposals, if enacted, could pack more punch in two years than either of President George W. Bush's tax cuts did in their first two years. Mr. Bush's 10-year, $1.35 trillion tax cut of 2001, considered the largest in history, contained $174 billion of cuts during its first two full years, according to Congress's Joint Committee on Taxation. The second-largest tax cut -- the 10-year, $350 billion package engineered by Mr. Bush's in 2003 -- contained $231 billion in 2004 and 2005.
CNN: Remember all the talk during the presidential campaign about a middle-class tax cut? It could be showing up in your paycheck early next year.
As the debate heats up over how to pull the economy from the ledge, it's likely that tax cuts for the middle-class will play a central role.
President-elect Barack Obama hopes to have a massive economic stimulus plan waiting for his signature when he takes office on Jan. 20. It's expected to include hundreds of billions in spending on infrastructure and green energy, but he also made clear last week that he wants it to also feature tax cuts to lower- and middle-income Americans.
Tax cuts are "part and parcel of what we need when it comes to stimulus," Obama said last week.
"We're going to be putting money in people's pockets so that they can spend on buying a new computer for their kid's school, so that they can, you know, make sure that they are able to deal with heat and groceries and all the other strains on the family budget," he added.
But Obama may hold off on reversing Bush's tax cuts:
One promise he made but may hold off on for awhile: the reversal of some of the Bush tax cuts for high-income taxpayers, who are roughly defined as individuals making more than $200,000 and couples making more than $250,000. Specifically, Obama has said he would increase the top two income tax rates and the capital gains rate to their pre-2001 levels.
What might the tax cuts look like?
So what kind of tax cuts are being considered? Obama's transition team isn't offering details yet and one Democratic aide on the Hill told CNNMoney.com that specifics have not yet been discussed.
But in talking about his economic recovery package, Obama has mentioned his campaign promise to offer a "net tax cut" for "95% of American workers."
One option that could get Obama a good way toward that 95% is his proposed Making Work Pay credit -- a centerpiece promise in his campaign. The credit would essentially work as a payroll tax credit equal to $500 for individuals and $1,000 for couples.
