August 3, 2010 -- Treasury Secretary Timothy Geithner acknowledged that it is still a "tough economy" for most Americans, and warned it's possible the unemployment rate will go up for a couple of months before it comes down as more people enter the labor force.
"When they see a little hope that there may be jobs out there, they start to come back in again. And that can cause the measured unemployment rate to go up — temporarily," Geithner told "Good Morning America's" George Stephanopoulos in an exclusive interview. "But what we expect to see, and I think most forecasters expect this…is an economy that's gradually healing, gradually strengthening, businesses starting to add people back."
The economy is not rebounding as quickly as Geithner and the Obama administration would like, he said. Last week's economic report card showed the Gross Domestic Product grew at a rate of 2.4 percent, slower than it had earlier this year. But amid that bad news, Geithner said, were signs of growth in the private sector.
"If you look at the numbers last week that tell you what's happening to the economy as a whole, what they showed is the private sector is getting stronger. So if you'd add together business investment and consumption, that part of the economy, which is what matters for the future, is getting progressively stronger and that's very important," Geithner said.
CLICK HERE for George's Bottom Line on his interview with Sec. Geithner.
Many opponents say President Obama's unwillingness to extend all of the Bush era tax cuts, including to the top earners, will only increase the unemployment rate.
Former Speaker of the House Newt Gingrich said it would be "crazy" to raise taxes in the midst of high unemployment, even on individuals making more than $200,000. Over the weekend Mayor Mike Bloomberg suggested extending all the tax cuts for the next few years while pairing it with "long-term solutions" to reduce debt.
But Secretary Geithner rejected those claims by saying a short extension on all tax cuts could lead to an indefinite one.
"What the President believes is the best strategy for the country is to extend the tax cuts that go to more than 95 percent of Americans, more than 95 percent of small business. Keep taxes on capital income low going to moderate," Geithner said.
Geithner would not go as far as to threaten a presidential veto should Congress pass an extension on all the tax breaks set to expire at the end of the year.
"I know you don't want to give a veto threat right now. That's pretty clear?" Stephanopoulos asked.
"I would be happy to give a veto on so many things, George," Geithner said. "You have no idea."
Treasury Secretary Geithner: Don't Extend Tax Cuts for Wealthy
But when asked why, the Secretary Geithner cautioned against interpreting his statement as a firm stance against a veto.
"Don't interpret it as not a veto threat. I'm just saying we feel very strongly about this," Geithner said. "And we think we have a very good shot of making this happen because, again, we think it's the best thing for the country."
"If you extend all these tax cuts just for two years or so, you're going to leave the vast bulk of Americans…with uncertainty about what the rules of the game are going to be," Geithner said. "What we're proposing is to extend those tax cuts for the middle class. Extend those tax cuts for small businesses. Make clear that we're going to keep dividends and capital gains rates, the taxes that go to business, to capital investment, at a modest rate going forward. That'll give people more certainty."
On Sunday's "This Week with Christiane Amanpour," Speaker Nancy Pelosi called for the middle-class tax cuts to be extended prior to the November elections, but Geithner said most people do not think that will happen, leaving a narrow window to pass the legislation before all the tax cuts expire – something Geithner called a "very irresponsible act for the country."
"It is the responsibility of the Congress to make sure that does not happen," Geithner said. The best way to do that is to go ahead and move and pass the tax cuts that go to middle-class Americans and these extensions of tax cuts for businesses and for capital income. That would be a good strategy."
Geithner: 'The Business Community Always Wants Their Taxes Lower'
Before businesses begin to use the estimated $1.8 trillion they have set aside, they want a commitment that their taxes will not increase over the next two years. Geithner did not make that promise, instead saying "the business community always wants their taxes lower."
"It's understandable. And you could say that's what their job is, to argue for lower taxes. But our job is, again, to make sure we have an economy that is stronger, that a private sector that's going to grow in the future…Our responsibility is looking out for that public interest," Geithner said.
White House vs. Wall Street
Stephanopoulos asked Geithner about the "cold war" that has emerged between the White House and Wall Street. Former Federar Reserve chairman Alan Greenspan said Sunday that he has "never seen the type of animosity between government and Wall Street" before.
The economic crisis left plenty of blame to go around and Geithner said Obama had a "deep obligation" to issue reform. Geithner promised quick action but offered "no apologies" for the new legislation.
"There's nobody here or across the country that would argue that our system worked, that would argue it was not broken," Geithner said. And so our job was to make sure we put reforms in place to prevent a crisis from happening. And we're going to do that quickly as we can to bring clarity to people about what the rules of the game are going to be."