Geithner: Deficit Must Be Cut to 3% of GDP

The federal deficit must be cut to 3% of gross domestic product so debt growth doesn’t outpace economic growth, Treasury Secretary Tim Geithner told the House Ways and Means Committee yesterday.

The current $1.3 trillion federal budget deficit is equal to nearly 10% of GDP —the largest that the nation has faced since World War II, Geithner said, according to prepared text of his testimony released by the Federal Reserve Board.

“The president is determined to cut this $1.3 trillion deficit by at least half in four years,” he said. “This would bring the deficit down to $533 billion by fiscal year 2013. More importantly, it would reduce the deficit to about 3% of GDP.”

He warned that failure to reduce the deficits to this level would push up borrowing costs, “leading to slower growth and lower living standards for Americans.”

Geithner also called for health care reform that will reduce costs. He said that such a plan should go beyond keeping Medicare and Medicaid costs in check. Experts agree, he said, that “this is not a long-term solution for containing health care spending.”

Slowing the growth of Medicare and Medicaid costs “requires slowing down the costs of the overall system and that, in turn, is helped by substantially expanding access to care. To do otherwise would result in economically distorting cost shifts, where those who are covered end up paying higher prices to pick up the medical tabs of those who are not,” Geithner said.

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