Congress and the White House could buy time to make the difficult decisions needed to cut the US budget gap if they can agree on a broad deficit reduction framework, US Treasury Secretary Timothy Geithner said on Tuesday.
With the deficit projected to reach USD 1.4 trillion this fiscal year and the country's public debt at USD 14 trillion, lawmakers and the Obama administration are scrambling to find a way to telegraph to the world that they are serious about fiscal reform.
Geithner argued a broad plan that laid out deficit-cutting targets and contained an enforcement mechanism could hold the confidence of investors in U.S. government debt, allowing politicians to settle differences later on where to cut.
"It is very important to act now before a crisis forces action," he told the Council on Foreign Relations.
The White House has called for USD 4 trillion in deficit reduction to be phased in over 12 years or less, while Republicans want to cut USD 4.4 trillion over the next decade.
However, they remain far apart on the details.
The Republican plan would lower corporate taxes, while slashing spending on health care for the poor and elderly. The White House views the Republican spending cuts as too draconian and wants to let tax cuts for the wealthiest Americans expire.
Geithner said the agreement among Republicans and Democrats on the scale of the budget cuts that were needed gives the country a chance to put a fiscal framework in place.
"If we are able to legislate a broad framework ... that locks in reforms over a multi-year period, constrains the ability of future Congresses and executive branch officials to live with larger deficits, then we do not need to resolve immediately all the basic choices that still divide so much of the country," Geithner said.
Setting a long-term but vague deficit-reduction plan would allow President Barack Obama to make the question of how to reduce the deficit a central re-election campaign issue next year.
In particular, he would be able contrast Republican plans to make deep cuts to the popular Medicare health care program for the elderly to his more modest approach. Polls show voters overwhelmingly are opposed to changes to Medicare.
Debt ceiling deadline looms
The debate over how to get the country's fiscal house in order is coming to a head with Republicans threatening not to allow the Treasury to borrow more unless the government makes deep cuts to spending.
The Treasury predicts the U.S. government will reach the USD 14.3 trillion legal limit on its debt by May 16. It has said it could employ emergency measures to give the government about eight more weeks of borrowing room after which it will start defaulting on its loans and other obligations.
Geithner has warned of catastrophic consequences if Congress fails to raise the limit.
The business community and Wall Street have also been sounding the alarm bells. Treasury's debt advisory panel, which includes executives from JPMorgan Chase and Goldman Sachs, told Treasury in a letter released on Tuesday that a failure to raise the limit could trigger another financial crisis.
Geithner repeated on Tuesday that he was confident Congress would do the right thing and raise the debt ceiling.