Lawmakers from both parties expressed concern about spiraling deficits, and whether proposed tax hikes would hurt the economy.
Mr. Geithner pitched Obama's plan as a three-prong approach: First get the economy growing again. Then impose fiscal discipline with spending restraints and tax hikes. Finally, create a bipartisan commission to make tougher decisions on how to curb federal deficits.
Judging by the questions Geithner faced, lawmakers aren't sold on any of those steps. The Treasury secretary said the administration is ready to work with Congress on the details, and tried to cast the mood of skepticism in a positive light.
"Even though it’s a deeply political moment," Congress shows a healthy realism, Geithner said. "People don’t say any more, 'deficits don’t matter,' " he said. "They don’t say any more, 'tax cuts are free.' "
Obama to cut some taxes, hike others
Obama has pledged not to raise taxes on 95 percent of American families. He also pitches new 10-year tax cuts valued at $143 billion for households and at least $93 billion for businesses.
At the same time, his budget also includes a number of tax hikes:
• Letting the Bush tax cuts for the top two income-tax brackets (households earning over $250,000) expire, which will reap $365 billion over the next decade.
• Limiting tax deductions by high earners, to raise $208 billion.
• Boosting the top capital-gains tax rate to 20 percent for high earners, to raise an estimated $105 billion.
• Imposing a "financial crisis responsibility fee" on large financial institutions, to raise $90 billion.
• Raising $122 billion from revising the tax system for global companies and investors, and $39 billion in new taxes on oil and coal companies.
The Obama budget also counts on letting the estate tax rebound to 2009 levels after the current one-year sunset created by former President Bush.
Several lawmakers seemed skeptical about whether a $5,000-per-job tax credit for firms that hire this year will really create jobs. Geithner acknowledged that the key incentive for hiring will be a revival in consumer demand. But he said the $33 billion tax credit could provide some additional "spark" to the job market.
Concern about federal deficits
The Obama budget also seeks to provide permanent relief for middle-class families from the Alternative Minimum Tax, or AMT. But Rep. Bill Pascrell (D) of New Jersey cited the large deficits in the Obama forecast and asked, "How are you paying for it?"
Obama's planned budget deficit next year would be $1.267 trillion, not far below the current year's record level. For the coming decade, the deficit would never fall to 3 percent of the nation's gross domestic product (GDP) – a target advocated by economists and by the administration.
Rep. Paul Ryan (R) of Wisconsin warned that other nations – with an eye on rising US debts and with other options for their money – may not remain willing to finance Treasury borrowing at low interest rates for much longer. "The vigilantes in the bond market are going to get us" and hurt the economy, he said.
Geithner said both parties must find a way to work together for the budget gap to be solved, so that debt is growing no faster than GDP.
Signs of such bipartisan dealmaking were in short supply at the House Ways and Means Committee meeting where he spoke. Republicans complain that the White House wants to stack the composition of a bipartisan fiscal commission against them.
Both sides sought to score points in an election-year blame game. Geithner and congressional Democrats repeatedly cited the Bush presidency as a major source of today's high deficits. Republicans countered by seeking credit for budget surpluses during the Clinton presidency, when they controlled Congress during key years.
"That’s kind of like a new TARP every single year, for which the taxpayers get zero in return," she complained, referring to the $700 billion bank-rescue program of 2008.
Still, even relatively modest efforts to raise federal revenue drew concern. Several lawmakers worried that a proposed repeal of so-called LIFO accounting (last-in, first-out) for business inventories would hurt firms in industries ranging from aerospace to alcoholic beverages.
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