Treasury: We're Not Backing Down on Bush Tax Cuts

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On Wednesday afternoon, I attended a small meeting at the Treasury Department with a group of center-left bloggers (Tim Fernholz, Mike Allen, Felix Salmon, Shahien Nasiripour, Nick Baumann, Ezra Klein) to hold a deep background discussion about the U.S. recovery and the world economy.

Felix has a super write up on Treasury's position on housing, on unemployment, on world trade, on global banking rules, on bond bubbles, and more. I don't have much to add to those subjects, but here are my additional takeaways from the small meeting with Treasury:

Overall attitude: Realistic, and realistically dire. How could it possibly be otherwise? The economy is crawling forward, emphasis on the crawling. GDP growth in Q3 could be as low as 1.7 percent by some estimates. Democrats can't pass anything larger than a thimble through Congress, because Republicans won't sign a bill unless it permanently cuts tax rates. Anything more sanguine than the acknowledgment that Congress is frozen and the recovery is slow would be just spin.

Social Security reform: Treasury said the deficit commission set up by the president was close to agreeing on a package to reform Social Security. No details on what's in there, but I've heard from other people that it's going to focus on benefit reductions for the wealthy rather than tax increases. Read more about how that would work here.

2011 economic policy: Do you like reading about $20 billion targeted stimulus bills? Then you're going to love this blog in 2011! Treasury was vague about what it wanted to do for the economy next year, but the message seemed to be that Congress only had an appetite for appetizer-portioned stimulus measures.

The Bush tax cuts: Some tension here. On the one hand, moderate Democrats like Conrad, Nelson and Bayh have said they want to extend the entire Bush tax cut. On the other hand, Treasury's rhetoric couldn't have been clearer: they want higher taxes for the top two percent, period. Treasury said it saw no upside in seeking a two-year extension of the full 2001/03 tax cuts. Furthermore, they expect Democrats to vote together, the summer defections notwithstanding. It's going to be an interesting September.

Tax reform: Tax lobbyists I've spoken to in DC expect something like utter tax Armageddon in 2011, but Treasury pretty much shot down the idea that major tax reform on par with 1986 is on the table for next year.

Welcome to the Recovery!: Treasury hated the headline of Geithner's NYT op-ed.  They wanted to make the point that the recovery was real, if slow, and the headline made it sound like gloating.

Credibility: There was a lot of talk about the issue of credibility -- especially in reference to the bond market and the American people. Judging by interest rates, international investors trust the U.S. government to manage the economy. Judging by national polls, Americans don't.

Questions I wish I asked but didn't: (1) Do you wish you opened the stimulus debate with a higher bid, something like $1.2 trillion? (2) Do you think the administration lacks credibility with Americans on fixing the economy? (3) If you really loved America and cared about the deficit and taxpayer dollars, why didn't you lie down on the runway to stop Michelle Obama from flying to Spain?
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Apropos of this, I didn't think Mike Allen dragged the conversation away from substance. He's a political reporter, and he asked political reporter questions that seemed appropriate, since much of Treasury's language harped on political frustrations.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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