Treasury's Geithner Says U.S. Economy Faces Tough Challenges
By Phillip Kurata
Washington - The U.S. economy is growing again after suffering its worst downturn since the Great Depression of the 1930s but faces tough challenges to maintain its upward momentum, according to Treasury Secretary Timothy Geithner.
Speaking at the Economic Club of New York March 15, Geithner called for "policymakers to continue to work together to get the economy growing faster in the short term and not shift prematurely to fiscal restraint."
For the short term, Geithner urged Congress to fund President Obama's plans to rebuild infrastructure, help small businesses and prevent more layoffs of teachers, police and firefighters. "The buffers that normally help to cushion families and small businesses from downturns have been run down or exhausted," he said. "Infrastructure investment is one of the most efficient job-creation programs available. And investment in infrastructure helps increase productivity, increase economic activity, and lower costs for businesses and individuals."
In the long term, Geithner said, the U.S. economy can be strengthened by improving education, supporting scientific research, encouraging investment and expanding exports. The secretary said the American workforce has suffered from an erosion of the quality of education, while countries like China, Mexico and Brazil are improving their competitiveness.
In addition to encouraging the public and private sectors to work together in scientific research, Geithner said, a "fundamental reform" of the business tax system is needed "to strengthen the incentives for creating and building things in the United States." Many U.S. companies complain that the U.S. tax code provides incentives for them to ship production abroad rather than manufacture domestically.
While the U.S. manufacturing base is growing, the secretary said, foreign markets need to be opened for American products. "We want to see the market share of U.S. companies expand overseas, and we want to see a large part of the growing demand in the emerging market economies met by things we create and build in the United States," he said. "This economic strategy, focused on education, innovation, investment and trade, is the most promising path to greater economic opportunity and higher economic growth."
Parallel with efforts to spur the economy, Geithner said, the U.S. government needs to put its fiscal house in order through a balanced mix of tax increases and spending reductions. The tax increases would be aimed at the wealthiest Americans, who, he said, are taxed at a "historically low effective rate." The spending reductions would come from trimming the defense budget, slowing the rate of increase in health care spending and preserving Social Security.
"We can't cut our way to growth. Severe austerity now would be very damaging," he said.
Geithner said the end of 2012 would be a good time for Congress to act on fiscal issues because tax and spending cuts amounting to 5 percent of the U.S. gross domestic product expire at that time.
(This is a product of the Bureau of International Information Programs, U.S. Department of State.)