Though Geithner agreed with the deal, he was deeply concerned that the government had not yet taken substantial steps to reduce the debt. In part, he worried about whether the government would have enough money to invest in long-term economic growth or pay for programs like Medicare and Social Security.
“Unless you put in a place a long-term fiscal framework, you’re not going to be able to defend a level of entitlement benefits that this president would like to be able to support,” Geithner said.
By the start of the year, the economic team had closed ranks around the need for deficit reduction. Gone were Summers, Orszag and Romer. Gene B. Sperling, a Geithner counselor, took over as head of the National Economic Council, and Jacob J. Lew was named budget director. Both had helped turn deficits into surpluses while working in the Clinton administration. Goolsbee became chairman of the Council of Economic Advisers.
Yet there were still divides. Obama’s advisers now disagreed about when the president should roll out a deficit reduction plan and how far it should go. Geithner pushed Obama to “lean forward,” according to several participants, cutting the deficit as much as possible as fast as possible. “Plan beats no plan,” Geithner would say, a phrase he has used in situations ranging from the financial crisis to cutting of the funding of terrorists.
Putting priority on deficit
By contrast, the president’s political advisers thought the president should go slow. They wanted to see what a bipartisan group of senators who were negotiating over the deficit would recommend and wait until Republicans unveiled their own plan.
“Tim was one of those advocating not to wait. You can’t wait. Do something in the State of the Union,” said Daley, the White House chief of staff. But Obama did wait, only briefly mentioning deficit reduction in the address.
Geithner also wanted to work out details of overhauling Medicare and Social Security and urged that the administration propose reducing the deficit by $4 trillion over 10 years.
Other advisers questioned whether that much in deficit reduction was necessary. Aides asked: Would it require too many cuts? Might the economy recover faster, lessening the need for cuts?
By April, Geithner had gotten Obama to sign on to $4 trillion in deficit reduction, but not quite as fast as the Treasury secretary hoped. Obama’s advisers thought it would take too many cuts in government spending — or compromise the president’s pledge to maintain middle-class tax cuts — to achieve the reductions in 10 years. They decided they would announce a framework to chop $4 trillion over 12 years.
Republicans wanted much more. They are now threatening to block an increase in the debt ceiling, leveraging the prospect of a government default in hopes of forcing deeper spending cuts.
Last week, a day after Obama received Republican lawmakers at the White House, Geithner met with Republican freshmen to make the administration’s case. Many were unconvinced.
“After meeting with both President Obama and Treasury Secretary Geithner this week, I and my colleagues are not confident that the Administration has a credible plan to reduce our debt, so it’s time to demand one,” freshman Rep. Diane Black (R-Tenn.) said in a statement. “Clearly a package of significant spending cuts and structural reforms are necessary.”
Geithner has assured lawmakers that the administration recognizes the dangers posed by mounting debt, including possible erosion of investor confidence in the United States, and is taking deficit reduction seriously.
“Because of his experience managing the financial crisis, he brings enormous credibility on market confidence,” Sperling said. “When he warns there is true risk to the economy, he is seen as being almost above politics, and that helps focus people on the task at hand.”