More On Tax Planningfrom The Advisor's Professional Library
- Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.
- Long Term Care Insurance: Premiums While premiums for qualified long-term-care insurance may be deductible as medical expenses there are exceptions to this general rule. Learn how to avoid unnecessary tax liabilities.
When asked if he agreed with Alan Greenspan that the debt ceiling should be eliminated, Treasury Secretary Tim Geithner responded, “Oh, absolutely.” Geithner was also optimistic, believing a budget deal could be struck within two weeks.
These were some of the revelations to come from his interview on Friday with Bloomberg TV'S “Political Capital with Al Hunt.”
AL HUNT, HOST, POLITICAL CAPITAL: We begin the show with Treasury Secretary Timothy Geithner. Mr. Secretary, thank you for being here.
TIMOTHY GEITHNER, TREASURY SECRETARY: Good to be here.
HUNT: Friday morning, meeting at the White House, you were there with the congressional leaders, John Boehner, Barack Obama. Did you come away - first of all, were there any specific numbers put out there for a framework agreement? And did you come away encouraged or not?
GEITHNER: It was a good meeting, and the tone was very good. And you heard each of the leaders say coming out that it was a very constructive meeting. You know, they said what you'd hope for them to say at this point, which is that this is something we can do, we're committed to do it, we want to do it as soon as we can, we know the stakes are very high. We know there's a lot of tough -
HUNT: But they're not - too soon for specifics. I mean, not talking numbers yet about taxes or entitlements?
GEITHNER: Well, I think we try to - we're trying to get and make sure people have a common assessment of the magnitude of the additional savings you have to find from revenues and spending to get the deficit to a point where they're sustainable and how to make sure we're doing things that help the economy.
So I think, on broad areas of magnitude, we're trying to make sure we have a common assessment of what's necessary, and then, you know, again, we have the hard stuff ahead of us still. But it was a good meeting.
HUNT: On short term - in short term, the tough issue is the Bush tax cuts. Both sides have had a different view on that. Rob Portman and others are saying, hey, how about this? How about extending the tax cuts for the rich, as well as everybody else, for six months with a trigger, that if you don't come up with the amount of savings, it automatically then reverts in July to 39.6 percent? That way you get the savings guaranteed, and they get to keep the tax cuts for a while. Would you accept that?
GEITHNER: Well, without - I don't want to comment on every specific idea out there. Let me tell why in general I think deferring things doesn't work. You know, we've had several periods now where there was a choice made to defer.
GEITHNER: And if this political system again, with all that's at stake for America, decides to defer again, in the hopes that Americans will give us more time to come together, I think you'll - I think it would be a mistake.
HUNT: Even -
GEITHNER: I think you leave - you leave this huge cloud of uncertainty hanging over the economy. And more importantly, perhaps, you reduce the incentives both sides now have to come together.
HUNT: But even with an automatic trigger, that it would take effect -
GEITHNER: Well, you know, we've tried several automatic triggers, and they can have some value, but I think that - and I believe this view will prevail, and I think this is a view held by the people that'll be principal to an outcome, principally responsible for the outcome, which is you have to lock in upfront enough savings so that people believe there's going to be meaningful change ahead.
HUNT: You think you can do that?
GEITHNER: If it's all a promise, then I think it has less credibility.
HUNT: You think you can do that in a lame-duck session?
GEITHNER: Oh, I think you can do a lot in a lame-duck session.
HUNT: You do?
GEITHNER: Yeah, I do. I do think we can.
HUNT: Really get specific savings?
GEITHNER: I think you can do a lot in a lame-duck session. You don't need to solve everything in that context, but I think what we're trying to do is to come up with a - I think the word people use is a framework agreement that sets up a process for locking in long-term savings, but you have to do a meaningful amount of things upfront. Now -
HUNT: But the Bush tax cuts would then expire?
GEITHNER: Well, of course, that's our view. That's the president's view.
HUNT: And you think that's what will prevail?
GEITHNER: I do think that's what'll prevail. But can I just one thing in this context, which is, you know, what we're focused on is not just how to make sure we're living within our means as a country. Again, that's very important. But we want to do things that are going to help make the economy stronger in the short term. And so extending these middle-class tax cuts are central that. That's probably the most important thing you could do to defuse many of the risks in the fiscal cliff. But there's other things we think we can do upfront, too, and that's important to keep in mind.
HUNT: Let me just stay one more question - keep one more question on the taxes, because you have said it's very hard to find the revenue to offset letting the Bush tax cuts for the wealthy - but I look at your proposal, the 28 percent cap, at a cap of 20 percent rate, and that raises over half the revenue that you would get from the Bush tax cuts. Congress resisted that, of course. But if you could get something like that and they went along on capital gains and dividends and the estate tax, they being the Republicans, could you cut a deal then and keep the Bush - keep the tax rates at higher than - or lower, rather, than 39.6 percent?
GEITHNER: Well, Al, you know, the president spoke to this earlier this week, to that same basic question. And I'm not going to add to what he said in this context. But let me say what you have to look at in this context. First of all, you have to look at, how much revenue do you need to make sure you have a balanced deal to get this back to the point we're living within our means? That's going to require a substantial amount of revenue, we think in the neighborhood of $1.5 trillion to $1.6 trillion.
Now, alongside, a very substantial amount of spending savings, too, in that context. And if you look at how much revenue you need to raise and you want to make sure you're protecting the middle class from bearing a larger burden than they already have for this economy, then it is the - the math does not make it possible -
GEITHNER: - to do that without higher rates.
HUNT: All right. You don't want to - you don't want to extend the Bush tax cuts. You don't want to postpone that. You don't want to kick that down - how about the sequester? Would you - would you go - it's awful hard to deal with $1.1 trillion in a lame-duck session. Would you be willing to postpone that taking effect for several months in order to give the political process time to work it out?
GEITHNER: Well, I think the ideal thing is to try - and remember what the sequester was designed to do. And both parties agreed to this. What it was designed to do was to try to force agreement on a more sensibly designed set of long-term savings and reforms that could phase in more gradually over time.
So what we're all trying to do is to make sure we can replace that mechanism, that sequester, with something that is better designed mix of savings for the long term that stays in more gradually, so you're not -
HUNT: So if you can get a framework agreement to do that, because you can't get that all done in a lame-duck, you could then postpone the sequester with the agreement you're going to do it?
GEITHNER: Again, there's infinite options to solving this problem. And, again, what I want to emphasize, I think, is that - and I - and I feel this way based on the discussion we've had in the last few days or so, which is that this is something we can do. This is within our grasp, without our reach. It's not that complicated to try to do.
What we just need is people to come with a spirit of compromise and recognize that there's going to be hard things on both sides, but there's lots of ways to -
HUNT: Well, I don't want to misinterpret you. I think what you're saying is that if we come up with an agreement to do something on these spending cuts, we could postpone that sequester - that sequestration, because we have an agreement to do that. Is that a correct interpretation?
GEITHNER: Well, if you - if you - if you found me - if you find me unwilling to do details with you now at this point, it's just because it's in the service of maximizing the chance we'd reach agreement. But, again, what we're trying to do is to make sure we do some things upfront that help the economy, avoid damage to the economy, lock in some upfront savings that help restore fiscal sustainability, and set up a process for reaching agreement on the additional savings that we're going to need.
HUNT: Let's assume you don't get there. I know you're optimistic, but would you worry, as Michael Duke, the CEO of Wal-Mart does, that, boy, if we hit three weeks from now and there's no agreement, that's really going to affect consumers at Christmastime, that's going to have a blow?
GEITHNER: Well, I very much agree, that I think the uncertainty right now about whether this'll be resolved on sensible terms, whether our middle-class families see their taxes go up, already is having an effect on consumer confidence and the economy, and that will -
HUNT: So to affect the Christmas season, when do you have to get -
GEITHNER: You'd want to do it as soon as you can. And -
HUNT: But when, two weeks?
GEITHNER: Well, I think if you - I think this is doable within several weeks, I think so.
HUNT: OK. OK.
GEITHNER: And the sooner, the better in this - just for the reason you said, and I think it's good you reference those comments. Remember, his customers are the average American.
GEITHNER: A hundred and fifty million average Americans. And the basic responsibility we have is to make sure that we're protecting them from a tax increase that they don't deserve, don't need in this context. Now, we can do that. That's not enough. We want to go beyond that and do something good for the long term future of the economy, too.
HUNT: If you don't get an agreement, would you freeze withholding rates for those making under $250,000, so they don't face a smaller paycheck in January?
GEITHNER: You know, the way our country's designed, this is a good thing. It does give the secretary of the treasury the ability to save the Congress from making decisions about tax policy and tax rates. So don't look to that as a solution to this problem.
HUNT: But you do have the authority to tell the IRS -
GEITHNER: Don't over-interpret what that authority gives me. Again, it does not give me the authority to give them - to let them avoid making some decisions on rates and policy.
HUNT: Do you agree with Alan Greenspan we ought to just eliminate the debt ceiling?
GEITHNER: Oh, absolutely.
HUNT: You do. Will you propose that?
GEITHNER: Well, you know, this is only - something only Congress can solve. Congress put it on itself. We've had 100 years of experience with it. And I think only once, last summer, did people decide to use it to threaten default on the American credit for the first time in history as a tool for political advantage. And that's not - that's not a tenable strategy for the country.
HUNT: Is now the time to eliminate it?
GEITHNER: Oh, it would have been time a long time ago to eliminate it. The sooner the better.
HUNT: Let me ask you a final question. You've agreed to stay until January. It may be that things - we're in the middle of things, that the debt ceiling and the fiscal cliff hasn't totally been resolved. If that's the case, then a new - a replacement has not been confirmed, and the president asked you, would you stay until March or April?
GEITHNER: Well, you know, I've agreed to stay until - until mid-January, at that time. And I think the president is going to have a successor in place who can serve him for four years. And I think that's a good thing for him.
HUNT: If he doesn't, would you stay longer?
GEITHNER: Well, you know, I - I will - I'm very confident that we're going to get enough done in these next few weeks and that he's going to have a successor in place so I'll be able to go off and do some other things.