a sarah palin. she is really moving elections and raising money, and actually has the visible enthusiasm i think you need around you. there is excitement there. we will see what happens. she is doing pretty well for herself course not. you probably >> b will have a large pool to choose from. i want to see candidates speak on college campuses. that is one thing that obama did well. i appreciate congressmen and senators and politicians who come to events like this is that they are engaging young audiences and that is very, very important to reach out to the next generation. i grew up in a minority part of

brooklyn, new york and height see how they are socially conservative, very conservative and they continue to vote for a political party that is only setting up mousetraps for them for continual failure. that has been a phenomenon of only the last 40 years. since lbj, we have spent more than the last two world wars combined. it will be very difficult to remember a young black men have the highest unemployment rate and minorities in general have a high unemployment rate and we need to continue to have out reach for them. we have to tell the and that it is conservative ideas that will

lift them out of poverty and not these government programs that create a generation of perpetual cycle of dependency. >> thank you. >> thank you, guys. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> in a few moments, secretary of the treasury tim geithner on fiscal policy and taxes. "washington journal" is at 7:00. we'll talk about how medicare recipients will be affected. retired admiral thad alan will be with us who is overseeing the gulf oil spill. also, a report on u.s. manufacturing. couple of live events to tell you about this morning -- a senate banking subcommittee looked at u.s. manufacturing. witnesses include

representatives of the department of commerce and the federal reserve at 10:30 eastern. on c-span 3 at 11:00 eastern, it is the treasury department news coverage on the latest report from the social security and medicare trustees. participants include secretary of the treasury tim geithner, kathleen civilians, and labor secretary bill the solis. -- secretaryhilda solis. >> this marks the 20th anniversary of the first gulf war and you can look at the players in what became desert storm. you can watch what you want when you want on the cspan video library. >> the osprey has become as close to a religious issue as much as an a.

>> we look at the decades-long battle for marines and politicians to build or killed the v-22 aircraft. that is on c-span 2 and you can fire the entire weekend schedule on book-tv.org. >> cspan programming -- politics, books, history, is available anytime on cspan radio in the washington baltimore area at 90.1 we are also on sirius xm radio and as an application on your iphone. cspan radio is available anytime. free but check with your phone service provider for any additional charges. cspan radio is more available on your phone.

>> now a discussion on taxes and fiscal policy with secretary of the treasury tim geithner. and for congressional budget office director. from the center for american progress, this is a little less than one hour. >> good afternoon and welcome, >> just a few minutes, we will hear from secretary of the treasury tim geithner who i would like to thank very much to take time to speak here today. i am also pleased that we have done something a little unorthodox and brought a divergent view on today's topic, the impending expiration of the bush tax cuts.

this is our second joint advent with the american action forum. i would say that given the tax it partisan climate in d.c. right now, both sides can claim credit for not trying to kill each other, at least yet. the leadership believe it is critical for our country to reestablish a serious and respectful dialogue from the center-left at the center right. thank you all for joining us. in my view, congress has a golden opportunity to kill two birds with one stone. they could make a dent in the long term structural deficit by letting the bush tax cuts for those at the top expire. progressives and conservatives are shaping up for a fight as to whether these high end tax cuts which affect the wealthiest 2% of households should stop as

scheduled by the end of the year. we wholeheartedly say yes as progressives. we will take a meaningful $700 million -- $700 billion bite out of the u.s. budget deficit. i think doug will argue that extending high income tax cuts will be critical for creating jobs and sustaining economic recovery. in my view, neither economic arguments bear that out. the council of economic advisers found that 1/3 of the money saved would create twice as many jobs it were invested in preventing layoffs from teachers, police officers, and firefighters.

i am glad the senate finally mustered a 61 vote they put up on bob board today that is necessary to provide needed relief to states. one other factor weighs heavily on our side of the argument and it is called history. we provided you with a pamphlet that we produce here that goes through some of the numbers about what progress of economic policy produces. i will not go through that in the interest of time, but i would say that we have eight years of history of the progress of economics policy that produced strong job growth and wage growth and did so with tax rates we are talking about moving back to paris i would like to turn it over to doug holtz seakin. he serves as the president of the american action form.

um. he was the top economic adviser to the mccain presidential campaign. [applause] >> i want to say thank-you to the center for american progress for being co-host of this event and to all who came today. before turning to secretary of the treasury tim geithner, i want to do some things. the first to introduce the american action form of which i and the president. we are a center-right think tank dedicated to policy education and ideas which are consistent with the principles that we feel have served this country so well respect for individual freedoms, a small and efficient government that is targeted toward its unique abilities. more than anything else, we are dedicated to the debate of the substance of our policy ideas and the idea that there can be a principal discussions about what separates the center-left and

the center-right. that is why we are here today. time will not permit me to disagree fully with mr. podesta but let me briefly outline where we might begin the disagreement. first and foremost, it is essential to recognize that the deficits we face in the next decade and beyond our deficits that are driven by spending problems, not insufficient tax revenues. all the projections done by the administration or the congressional budget office show taxes rising above historic levels of gdp and despite that we face deficits that are $1 trillion. the administration's policies embeds these principles and still winds up with a deficit. this is not a solution to our deficit problem. i think it is imperative to look at this from two perspectives. number one is growth.

in this economy, we have households who are suffering the after shocks of a severe financial shock. the have badly balanced balance sheet grid they are neither positions nor should be expected to power this economy forward in a substantial. at the state, local, and our federal government, they are in a similar position very we need to focus on our business community and net exports. the business community is really important to pay attention to small businesses. if you look at the data from the atp report, they break out employment growth by business. in their numbers, and love and began to rise and 189,000 jobs were created in the private- sector and 90% of them were from small businesses. we need to take care of them, to raise taxes in beltway the

administration is proposing is to tax heavily the 50 -- the $500 billion of business income reported on individual tax returns. this place is 20-30 million jobs at risk. for micro perspective in the near term and from the fundamentals of long-term growth, raising taxes at this point in the way the administration is proposing will not be a step in the right direction. finally, we need to look at this in the perspective of tax reform. we have a tax system that is badly broken. the absence of tax reform is to have a broad base at low rates. ever the should be viewed through the lens of making a step toward this, raised market rates, and raise a broad base. i will disagree in advance with the secretary and the fact of mr. podesta.

we are delighted to have secretary of the treasury tim geithner join us today. he is a graduate of dartmouth and the johns hopkins school of international studies. he is a longtime fixture in the policy-making community. he started in the treasury in 1988 and served under five secretary of the treasury's including an important step and as undersecretary. he has served at the international monetary fund for two years and held an important post with one of the linchpins of our financial institutions as president and ceo of the federal reserve bank of new york where he was a voting member of the open market committee and one of the key figures in the diet effort made to combat the financial crisis we have been through the past couple of years. the main reason he is here today is that on january 26, 2009, he became the 75th secretary of the treasury and i am delighted to invite him to the podium today. [applause]

>> thanks to both of you. i agree to much of what each of you said including use of the word valiant. [laughter] i want to compliment both of you on what you do. you are engaged in this noble upper to raise the quality of economic policy and give people better analysis and idea spread that is important. it will not deliver on its own better judgment by the country's leaders but we raise the probability that we have better choices overtime. my compliments to you for doing that. as you know, we face some important choices as a country in the next several months and we need to make those choices carefully guided by what would be best for the middle class and best for economic growth over the past two decades, washington has given the country a useful

lesson in the consequences of two very different approaches to economic policy and fiscal policy. sound, uprooted, responsible fiscal policies led to large budget surpluses along with significant investments in the middle class which helped contribute to a period of strong economic growth and job creation led by the private sector with broadbased gains in income for all americans. washington then changed course, abandoned those basic disciplines of budgeting, and borrowed to finance very expensive tax cuts skewed toward the most affluent and a substantial expansion of government programs on paid for. the result was a huge increase in our national debt, relatively slow job growth, and stagnation in incomes for the middle class. we are living today with the

damage caused by those choices. as we start a new decade, we have compelling evidence of what works and what does not work for middle-class americans and four main street businesses. the debate we confront is whether to extend tax cuts for the middle-class which are due to expire at the end of this year and whether to allow tax cuts for the top 2% of americans, those with annual household incomes of at least $250,000 to expire as scheduled. this decision is about more than just the impact on our future deficits and debt, although that is critically important. it is a decision that will impact economic growth and the fate of americans and the fairness of our tax policies. the president's commitment is to restore policy that will help the middle class that laid the foundation for better long-term economic growth. the president believes and i believe that extending middle- class tax cuts is an essential

part of that commitment and is essential to continued economic recovery. these tax cuts mean roughly on average $2,000 per year for a typical middle-class family. given the size of our fiscal deficit and debt, those inherited deficits and debt burden, we have to provide that tax relief in a fiscally responsible way. we believe the best way to do that is by allowing the tax rate of the top 2% to go back to levels last seen at the end of the 1990's which was a ton of remarkable economic growth and economic strength. some suggest we should hold the tax cuts of the middle class hostage until congress and extends the tax cuts for the top 2% and permanently repeals the estate tax. that would be a mistake, in my judgment. the middle-class tax cuts are not extended, americans will face a sharp increase in taxes and a sharp fall in disposable income per this would be irresponsible and it would be

unfair especially given the fact that so many americans are still suffering through the effects of what we learned last week in the gdp numbers was the worst recession in postwar history. allowing the tax cuts for 98% of americans would slow recovery. others suggest we led by extending -- we delay by extending the tax cuts for one year or so. the world will view any temporary extension as a prelude to a long-term or permanent extension. that would scare economic recovery by undermining confidence that we're prepared to make a commitment today to bring down our future deficits. fiscal discipline requires hard choices and we have to be prepared to make them. the president has proposed to terminate or reduce government programs that we do not need and cannot afford. he has proposed to freeze the

not-security discretionary spending by 2014, this will break non-security discretionary spending to its lowest level as a share of the economy since the 1960's. this will be difficult choices and painful cuts in government programs, an effort we have undertaken in our last two budgets and secretary gates has been leading at the department of defense. in the context of those efforts to establish discipline on expenditures, asking the top earners in our society to forgo an extension of recent tax cuts has to be part of the compact to restore fiscal responsibility in washington. some on the other side of the aisle to insist on extending a tax cuts for the top 2% of americans as a condition for extending middle-class tax cuts. permanently extending the tax cuts for the top 2% would require us to borrow $700

billion more over the next decade, adding significantly to an already unsustainable level of debt. that would be a mistake. who would benefit from the mistake? only the top 2% of americans who today earn on average roughly $800,000 per year. there are some that have argued against the stimulus who now say that extending the tax cuts for the top 2% is just the form of stimulus that the economy needs today. analysts from the cbo to goldman sachs recently concluded that extending tax cuts for the top 2% would be among the least effective forms of stimulus. that is because the top 2% are the least likely to spend those tax cuts, certainly not in comparison to the 98% of americans that make less than $250,000 per year.

they would welcome extending tax cut, it is not likely to change their spending habits. extending the tax cuts for the top 2% for one-year would require the united states to borrow an additional $30 billion. the top 2% would save most of that increase in after-tax income. if we had an additional $30 billion to spend to reinforce recovery, most economists would agree with the cbo that it would be better to correct that money for tax cuts for the middle class and promote business investment and more effective, to use those resources to bribe of visible -- to provide additional support for states. over the past few weeks, some myhts have surfaced. some politicians argue that tax cuts paid for themselves. that is a long discredited idea. there is absolutely no evidence

to support that. conservative economists are embarrassed by that are given. there is a second myth that by allowing the tax cuts for the top 2% to expire, we will hurt small businesses. this is a political argument masquerading as substance. letting top end tax cuts expire will affect less than 3% of small-business owners. 97% of small businesses in this country would not pay one penny more. some have argued that only a few percent of small business owners make over $250,000 per year of the make up a substantial amount of what is called small business income. this argument counts anyone who receives any type of partnership for business income as if they were a small business.

by this standard, every partner in a major law firm and every principal in a major financial institution would count or could count as a separate small business. an executive was board fees or speech fees would also count as a small-business owner under this overly broad definition. if you actually want to help small businesses get needed tax relief as opposed to supporting tax cuts for the most well off, those people should be supporting senate passage of a small-business jobs at this week before they leave town. this, along with important credit at lending initiatives, calls for the zero capital gains tax for long-term investments in certain small businesses and calls for a certain expansion of the ability of small and medium- sized businesses to write off new investments.

the policies of the previous administration have left us with a terrible legacy of challenges. the legacy as millions of unemployed americans, a little factories across the country, and national debt swollen by eight years of deficit spending and growing in come and inequality. we live in one of the richest economies in the world but one in eight americans is on food stamps today. america is a less equal country that was 10 years ago in part because of the tax cuts for the top 2% that were put in place in 2001 and 2003. the most affluent 400 americans in 2007 who earned an average of more than $340 million each year for that year paid only 70% of their income in taxes -- only 17% of their income in taxes. we are in the midst of, for the last 2.5 years, an important

debate about the best way forward for the condi and the proper role of government in the economy. we may disagree about the role of government in promoting better health care or retirement security or public education for our citizens. goals,we share those executi there is no credible argument that the purpose of government is to borrow from future generations of americans to finance an extension of tax cuts for the top 2%. the president and i believe that we should keep taxes as low as possible consistent with funding the essential functions of government. we have to pay for the programs we decide as citizens the government should provide and we have to do it in a way that both promotes economic growth and is fair. we cannot pretend that deficits don't matter. it is encouraging today that we

see more republicans and expressing concern about future deficits. borrowing to finance tax cuts for the top 2% would be a $700 billion fiscal the stay. doemistake. with that, i look forward to having a conversation. thank you. [applause] >> in the interest of being a good host, doug, i will let you have the first question. >> as i am sure you're aware, the cbo looks at the president's budget and their analysis of the president's budget says that for the next 10 years, despite the fact that the budget includes tax increases on those making more than $250,000, we never have a deficit under $750

billion and we and the decade with a deficit of over $2 trillion. we are borrowing $900 billion to pay interest on previous borrowing. how do you reconcile your deep statement about interest in deficit control when your own budgetary plan takes the tax increases and spends them so that we have a larger deficit in 2020 than we do in 2015? >> the cbo numbers and the theomb numbers show that with the president's policies we cut our deficit in half over the next three-five years. the cbo estimates that we will have a deficit slightly higher five years out. they are roughly 1% apart from the president outlook.

by allowing the recovery act to respire and making sure that we contain discretionary spending and supporting this package which is a fair fiscally responsible policy of tax policies, we can make dramatic reductions in reducing our long- term deficits as a share of gdp. future growth depends on confidence from americans that we will bring the deficits down. that is why we think it is a responsible and prudent to end the top 2% tax cuts. if you don't do that, you will add another $700 billion to the deficit and that will risk undermining confidence in our ability as a country to begin to dig our way out of this deep hole. we acknowledge that this program

of tax policies will not solve all the problems of the country. even if congress embraces and adopt the president's policies and submits to the discipline on spending that we propose, we are still going to have unsustainably high long-term deficit. for that reason, the president' has brought togethera bipartisan commission of men and women from congress on both sides of the aisle, national experts in fiscal policy and economics and asked them to step away from politics and try to figure out how to build a political coalition around changes that will get us the assistance of we need to do. i think that is a good reason for why it is a prudent step today to let those top 2% cuts expire on schedule. >> i find it a little bit

ironic that among centrist democrats who have said that the visits are the problem, they have been the quickest to move towards letting these high end tax cuts slide for one year or two. i will not ask you to speculate on their motivation but i will ask you -- what do you say to them about the effect on growth from the policies you laid out in your speech? >> you have to recognize that the central obligation we face now is to make sure we get this economy moving again. we have to reinforce recovery. we're supporting economic growth long-term and short-term. have unlimited

resources. we have to make choices. governing is about recognizing that we have limited resources. i do not believe it is a permit prudent 8 -- a prudent use of resources to borrow huge amounts of money to make possible the extension of those tax cuts for the short term. if people that there is a good taste for more stimulus for the economy than we should have a debate about what the best form of stimulus is. economists across a broad spectrum of the political spectrum in the economic profession would not write those tax cuts of the top 2% and were close to the most powerful forms of stimulus. we have to make sure that every judgment we make that takes a dollar of taxpayer resources, a dollar of limited borrowing authority to support the economy, we are using to support things that have a high return.

you know the economic arguments. i don't think there is a good argument to make that the best use of those resources is to extend those tax cuts for the high end. we think there are a good alternative resources. the small business act is a good one. we are trying to find things that have a very high return and will spark a private investment and will have the highest contribution to raising employment at the lowest possible cost to the taxpayer. >> let's go to that debate. this policy of raising marginal tax rates and raising taxes on dividends will spur private investment. >> we are proposing to say that ford 98% of americans and for 97% of small-business owners,

that we leave their existing tax rate in place. we're also propose a to make sure -- we are also proposing that dividends and capital gains don't rise beyond 20%. we're also proposing to extend a variety of important tax cuts for businesses for investment. we're also proposing to make sure that we use tax resources to help make it easier for people to complete college in a difficult economic environment. that mix of tax programs is more protest growth and fiscally responsible. thank you for giving me the opportunity to make that case against them a we're not talking that at cutting any taxes. whose taxes will we raise and for how long? >> it has been framed as a stimulus issue when i believe deeply it should be framed as a

group. issue we are a pass the point where the economy is falling. it is growing unacceptably slowly. it is passed the time for short- term sugar high stimulus part . changing stimulus is about stuffing money into households. a big chunk of the stimulus is to give it to state governments who are not likely to spend. why not raise any taxes on the business community? why is it being framed as stimulus when a we should bepast that and a primer doesn't match? >> this is about how you balance was best for growth, what is

fiscally responsible, what is there. those are the things you have to balance the choice is how to balance those objectives. i do not believe that given the fact that we live with limited resources, we don't have unlimited choices, that to take $30 billion and the prospect of $700 billion over 10 years and use that to extend a tax cut that only go to 2% of the top earners in the country is likely to have probably the weakest impact on activity as almost any alternative uses including the tax code for those limited resources. that is the case. i think it is hard to make the argument that we can afford to add that additional debt burden over the 10-year.

eriod. i don't think to get much positive impact on growth. >> you know i am not a fan of the deficit outlook. >> and i commend you for that. >> i never thought i would say congress outspend and we have and that is where the problem is. >> it is worth pointing out that the deficit we started with which is $1.30 trillion which is a function of many things. it is the consequence of two recessions. it is also the consequence of a bunch of choices about how to govern. there were choices on how to suspend an abandon basic disciplines p paygo and fund

other programs. i am confident that we would have had much worse growth and higher unemployment and business failure and much was damaged or long-term fiscal position if we had not instituted stimulus. i think we have done the best mix available of policies to break the back of the financial panic recognizing that those had to be temporary and we need to start the process of digging out of a long-term hold. >> we will get to questions from the audience in a second. the polkas i think is on growth. -- the focus i think is on growth. the bush tax cuts produced 2.3

million jobs before the recession. it was nearly double that mandate which were lost before he left office. we had growth that was half as strong as it was in the 1990's. the median household income declined for the first time since the 1960's. it was a whopping $2,100. wage growth only inched up. expected growth of these tight end tax cuts, i think we have a proven record on that. why would anyone want to embrace extending that record? there is an issue embedded in all of this which is that we have talked a lot about the wage gap that began growing again in

the last decade that continued to expand. is there now every coverage gap of people at the high end? we have seen the stock market bounced back from its bottom. we have seen bonuses come back, at least the ones that get reported in the newspapers. corporate profits are up 35%. the people at the top seem to have begun to experience the recovery as opposed to the middle class and at the long- term unemployed. does the tax policy embedded in your approach get to this gap? >> absolutely, financial crises are brittle because -- are brutal because the cause more pain on average american. they will live with the

consequences of much longer than the overall economy. the economy has been growing for one year and the averages show an increase in private-sector job creation, those averages mask and economy that has parts that are quite strong like you see and high-tech and exports and private investment. they are growing at a strong rate. business investment in the second quarter was growing at a rate of roughly 17%. large parts of the economy that were hit hardest by the crisis facing probably the toughest economic environment americans have seen in generations. anybody in construction, real estate, and of course lots of small businesses across the country still are facing a difficult environment.

our challenge is to make sure we're providing support to the parts of the economy still in crisis. we are using our limited resources as carefully as we can to make sure we're getting the maximum impact and getting a job creation back. support for small businesses and state and local government is a very essential policy. we are fighting hard for that but we have to do all that and recognize we have some basic obligations to restore fiscal prudence and responsibility. we cannot do everything. one thing we have learned is that deficits do matter, it is and is important to balance those things. >> there are many companies sitting on cash. what will it take for them --

what will it take to get them to hire people? willoughby on the demand side with a middle-class tax -- will it be on the demand side of the middle class? >> yes, we need to pull that investment off the sidelines. why are firms sitting on those large shares of cash? bacon into this crisis with very strong balance sheets. -- they came into this crisis with very strong balance sheets. that is the strength of the economy. the other reason is that the best way to planet is that the scars of this recession are very deep. until they see growth and sustained basis, they are still being careful about how they put those investments to work. private investment is growing at

a very rapid rate now. we hope we can sustain that. it will probably not be at the same rate but that is encouraging. can i make one more point? is important to recognize -- is important to recognize that the policies the president is proposing fori --t -- it is important to recognize that the policies the president is proposing would leave taxes at a remarkably low level. it has been lower than it's been since the 1960's. we do not believe in proposing a set of policies that do not

recognize our responsibility and burden for showing we are willing to cut things that don't work and hold things -- restore things to a much more modest share of gdp as a whole. >> the couple comments -- -- a couple of comments -- there was a president other than president obama who said he would cut his deficit in half and do it by freezing non-security spend it and we have seen that movie before. that is why people are skeptical. the track record on that front is not very good. the goals exactly that the bush administration laid out. >> our deficits today like when we came into office are roughly

10% of gdp. half of that is a combination of the temporary recovery act stuff that will wreck -- expired and the effect on the deficit of the recessions. . even if nothing happened in washington for the next four years, >> nothing is happening in washington. >> if we suspend it, you would see the sharp reduction as a share of the economy. most people look at america over the last decade or so and they are not particularly confident that washington will be able to show and deliver the kind of choices on how you deliver resources that average american

families can do today. that is a burden on all of us. the president can't force that. we're proposing a but we will live by -- >> can i make one comment? > i think it would be fair for everyone to recognize that the 1990's had adotcom bauble that led to the recession and the economy in this decade has suffered from 9/11, corporate government scandals, two wars so it is not there to make that comparison. >> i tried to be careful not to say -- >> you were good.

in 2008, we sent out checks from the federal government which is identical to extending temporarily middle-class tax cut for those checks did nothing to stimulate consumption or spending. why are you confident that this approach will work? >> are you saying we should let the middle class tax cut expired? act which came alongside very powerful programs by the federal reserve to restore liquidity as will the -- as well as the efforts we made to restore the financial system have very substantial tax cuts. it had support for states. these were things that mattered for long-term growth.

that package of measures spread over two years were very powerful they were incredibly powerful in stopping the free falling. look at the growth or equity prices or concern about the future of the world. that turned when people saw congress legislate that package and the things we did to help fix the financial system. those were very effective. we are proposing to lead americans understand that we will extend those tax cuts for 98% of americans. in the president's first two budgets we proposed to do that over that 10-year window in a way that was responsible consistent with the obligations we have to bring down the deficit substantially. i think it is good policy but you have to judge these things

against the alternative. the alternative path is to borrow from the future and to benefit the top 2%, i don't think would be a good use of resources. >> we will take the question. >> you just mentioned that the economy has been suffering for a variety of reasons and u.s. excluded trade. october 1 you have an opportunity to label china as a currency manipulator. what would be the advantage of doing that? >> that is an important question. china is very important to the united states.

exports to china in the first four or five months of this year were growing roughly double the pace of exports to the rest of the world. the growth you see in china and the reforms you see there as they shift toward an economy more driven by domestic demand are providing very substantial benefits to american workers and american businesses. you can see that just in the cold numbers. about six weeks ago, china took the essential step of restoring flexibility to exchange rates and making it clear they will allow the exchange rate to appreciate over time. they are only at the beginning of that process and what matters is how far and how fast they let it move. we're watching that closely. it is worth remembering that when they last let the exchange rate move between 2006 and 2008,

it moved 20% over a two-year period. fast they willow go. >> we have one more here. >> the administration supports dividend's going from 15%-20%, but are you working with lawmakers on a way to pay for it? budget rules prevent that from happening. forth on the small business issue again? -- could you go back and forth on the small business issue again? >> you are right that to extend the dividend cut from rising beyond 20% requires finding a

way to do that. why is this important? we are trying to find out what is the most pro-growth package of tax measures most responsible for the measures. what we think make sense for the country is that 98% of americans and 97% of small businesses have continuity in their tax rate and we keep rates that are important to capital investment like capital gains and dividends from rising beyond a level we think would help businesses under the rules adopted at the end of last year, we have to find a way to pay for that and we will do that. i want to speak to how we will do that. i think it is important we do that them up for those in the audience who did not get the basis of that question, >> the budget that the congress imposed, they abandon this in

2002, this requires paying for this particular increase to not have that gun -- go back to ordinary income. >> i agree with the estimates but it does not matter how many tax returns go into the treasury. what matters is the economic activity affected by tax policy. we have $1 trillion reported on individual returns. t.at is most important them >> partnership in, and people who have taken a corporate form that allows them to pay personal taxes and that is not ordinary business income. >> i want people to understand

that my point is that there are traditional objects as of tax policy at play. one of them is to integrate the business and personal income tax so that all income is taxed at the appropriate rate for the person who owns that in come. the second is to have a tax that does not discriminate unfairly among alternative forms of business, skills of business, and to set as an objective and draw a line that saves you are large and treat them differently. that is at odds with the immigration issue and the tax policy. i believe we should be ruthlessly focused on tax reform because we will need every ounce of growth we can get. >> do you want to respond? >> the question is -- does that objective of what would be ideal

for the pollution of tax policy over time justify leaving in place tax cuts that still go to a very, very small fraction of american businesses given the fact that we have these competing and very important imperatives of fiscal responsibility. i don't think we can elevate elegance in the near term at the expense of that basic objective. i think it would be an expensive mistake. >> i think we have time for one question and then we are done. >> i have a question on the outlook of the u.s. economy. there has been a growing concern in the international market about the u.s. economy. the japanese yen is getting

stronger. chairman bernanke said the outlook is uncertain. what is your assessment? >> the american economy is growing. it is growing at a moderate pace. it has been growing for 12 months. some parts of the private sector are accelerating as you see in private investment. if you put together spending by households and businesses, you are seeing the rate of growth and spending accelerant -- accelerate moderately. it is very important to recognize that we are still living with scars of a deep financial crisis. it will take us a long time to repair the damage caused by the crisis.

it is our obligation still to do as much as we can to help reinforce that recovery and reenforce growth and make sure you see growth extend to the parts of the economy that are still suffering the worst economic conditions they have seen in generations. that is why we are working so hard to help congress move forward with further incentives for small businesses. economic caseod for doing that. it is worth noting that we have really adjusted with amazing speed and force through this crisis. we have had a huge adjustment in the housing market, in the real- estate market. you have seen a substantial deleveraging necessary to get ourselves back to a stronger financial position.

you have seen households may have made substantial changes already in reducing their debt burden and saving a larger fraction of income. those are very encouraging adjustments. the fact that business cut so savagely in the peak of the panic because they were scared to death has been a devastating for the economic security of so many americans. that will take time to repair. the american economy is in a much stronger position today to manage these headlines because of the actions we took to break the back of the financial crisis. our job is to make sure that we are reinforcing growth and making sure we see growth the extent to the very substantial parts of the economy that are still suffering so much from the crisis. >> please join doug and me in thanking secretary of the treasury tim geithner for his

participation. [applause] >> please remain seated until the secretary has left the room. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> in a few moments, today's headlines and your phone calls live on "washington journal." live at 10:30 a.m. eastern, a senate banking subcommittee hearing on u.s. manufacturing. in 45 minutes, the editor of the national review talk about political leadership. that it o'clock 30 a.m. eastern, the latest on the gulf oil spill. and our