Mixed Message From Administration on Taxes

As deficit soars, economic officials open doors to middle-class taxes.

August 3, 2009, 5:47 PM

Aug. 3, 2009— -- At President Obama's daily economic briefing this morning, the president took the time to re-educate two of his administration's top economic officials on his campaign promise that he would not raise taxes on the middle class.

Over the weekend, when pressed on whether the president would raise taxes on middle-class Americans to bring down the record-breaking deficit, two of his closest economic advisers dodged the question.

"We're going to have to do what's necessary," Treasury Secretary Timothy Geithner said, when asked directly in an exclusive interview on ABC's "This Week."

"We will not get this economy back on track, recovery will not be strong and sustained, unless we convince the American people that we are going to have the will to bring these deficits down once recovery is firmly established," he said.

And when asked on CBS's "Face the Nation," National Economic Council director Lawrence Summers said, "There's a lot that could happen over time."

"It's never a good idea to absolutely rule things ... out no matter what," he said.

Yet today, the White House tried to quell concerns that the president would go back on his campaign pledge not to raise taxes on Americans making less than $250,000 a year.

"The president was clear. He made a commitment in the campaign. That commitment stands," press secretary Robert Gibbs said. "I want to just state again clearly here that the president has made a very clear commitment to not raise taxes on middle-class families."

Gibbs said that Geithner and Summers "allowed themselves to get into a little bit of a hypothetical back-and-forth."

"The president was clear during the campaign about his commitment on not raising taxes on middle-class families," Gibbs said. "And I don't think any economist would believe that in the environment that we're in, raising taxes on middle-class families would make any sense. And the president agrees."

Gibbs said there was a discussion about Geithner's and Summers' comments at this morning's economic daily briefing, attended by him, Obama, Geithner, Summers, Office of Management and Budget director Peter Orszag, Chief of Staff Rahm Emanuel and White House Communications Director Anita Dunn.

"We talked about it as an issue, but we didn't -- it wasn't sort of an -- this wasn't a 'school-is-in' type of thing," Gibbs said.

During the presidential campaign, Obama had repeatedly pledged that he would cut taxes for 95 percent of all working families.

But with an ambitious agenda that includes government spending on economic recovery and health care reform, the president's goal of deficit reduction could make that pledge impossible to keep, say some economists.

Former deputy treasury secretary under President Clinton Roger Altman says new taxes on the middle class are inevitable to reduce the deficit -- and if the deficit is not reduced, he cautioned, high interest rates will stifle economic growth.

"The size of the deficit and the impact of the national debt on that deficit is unstainable no matter how you define it, and is going to have to be confronted," Altman said, in an interview with ABC News.

"The size of the problem is so large, that it will only be able to be solved through a combination of spending restraints and new revenues, and of course, new revenues means taxes," he said.

An Associated Press study released today indicates that tax receipts are on pace to drop 18 percent this year -- the biggest drop since the Great Depression. Individual income tax receipts are down 22 percent and corporate income taxes down 57 percent from last year.

And while Obama repeatedly talks about raising taxes on top wage-earners, Altman suggests that wont be enough. "The size of the problem is so big, you can't address it by just addressing a tiny slice at the top," Altman said.

"The deficits we are facing could cause much higher interest rates and those interest rates in turn will stifile economic growth, so you would end up with fewer jobs and lesser personal income that you would have without the deficit," Altman said. "In the long run, they reduce standards of living."

One thing the president's economic team agrees on is that the economy has a long way to go before full recovery. White House Council of Economic Advisers chairwoman Christine Romer said on CNN's "State of the Union" that it was going to be a "long, hard slog."

With new unemployment numbers expected to show an increase later this week, and debate on health care reform expected to continue well into the year, increasing middle-class taxes could be a tough sell.

But for now, the president continues to argue that the way to revitalize the economy is to control health care costs and to let the stimulus package run its course.

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