- The Washington Times - Tuesday, August 4, 2009

The White House on Monday knocked down the prospect of tax hikes on the middle class to help close the growing federal deficit, walking back comments made by two of President Obama’s top economic advisers.

“The president’s clear commitment is not to raise taxes on those making less than $250,000 a year,” said White House press secretary Robert Gibbs. “He is not raising taxes on those making less than $250,000 a year.”

Treasury Secretary Timothy F. Geithner and National Economic Council Director Lawrence H. Summers ignited the discussion of middle-class taxes during separate appearances on the Sunday talk shows, venues where administration representatives typically carry disciplined and well-planned messages to the public.

By broaching the tax issue, the two men raised inevitable questions about the sanctity of one of Mr. Obama’s most potent campaign promises: his vow to protect the middle class from any increase in their tax bill. Mr. Obama has defined the middle class as a family making less than $250,000 or an individual making less than $200,000.

The National Republican Senatorial Committee called the remarks “drastic backtracking” by the White House.

Several polls released within the past two weeks show the economy and the federal deficit to be the top issue of concern for many Americans. Anxiety about spending also is dragging down support for health care reform, which is roughly estimated to cost about $1 trillion over the next 10 years.

“They will have to raise taxes unless they cut back on their spending plans,” said Martin Feldstein, a Harvard University economics professor and president emeritus of the National Bureau of Economic Research.

Mr. Feldstein said that the “cap and trade plan” passed by the House to limit carbon emissions “acts like a tax but does not produce any revenue.” Estimates of the costs to consumers have varied wildly.

Republicans say the White House already has raised taxes on the middle class, citing a new cigarette tax signed by the president this year that increased the per-pack tax from 39 cents to $1.01. They also pointed to elements of the House health care bill and the House cap and trade bill, neither of which has become law.

The White House press secretary said Mr. Obama reminded his advisers of the promise he made while running for president during Monday’s daily economic briefing. Mr. Geithner and Mr. Summers were present.

“We talked about it as an issue. This wasn’t a ‘school is in’ sort of thing,” Mr. Gibbs said. “The president was clear. He made a commitment during the campaign. That commitment stands. … He’s going to keep it.”

Asked why Mr. Geithner and Mr. Summers did not make that clear, Mr. Gibbs said they “left it to me.”

Mr. Gibbs said that the two advisers “allowed themselves to get into a hypothetical back and forth” when discussing how Mr. Obama plans to reduce the federal deficit while trying to expand health care entitlements and spend money on education and energy reform.

As the federal government’s emergency spending to address the economic crisis has escalated over the last year - starting with the Bush administration and continuing with Mr. Obama - that has combined with the president’s ambitious reform efforts to focus the nation on its growing debt and deficit.

Furthermore, the U.S. deficit of roughly $1.8 trillion and national debt - which is fast approaching $12 trillion, nearly the size of the entire U.S. economy and the limit imposed by Congress - have prompted the Chinese government to raise concerns over the value of their holdings in U.S. bonds and treasuries. There is fear among those who hold U.S. debt that American policymakers may try to inflate its way out of its debts by allowing the dollar to lose value.

If the U.S. does not pacify these fears, it may become more difficult to raise the money needed for federal expenditures through bond issuances, said Jim Rickards, a financial-security business executive with Omnis.

“The foreign creditors are going to stop buying our bonds if we don’t do something about the deficit,” said Mr. Rickards, who said that a value-added tax is an option for the Obama administration that would raise billions of dollars in revenue without levying a fee on incomes directly.

The Treasury Department announced Monday a reduction in the amount of borrowing required in the third quarter, from $515 billion to $406 billion.

c Matt Mosk contributed to this report.

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