Former Treasury secretaries clash over cliff solution

Two former Treasury secretaries from Democratic and Republican administrations on Sunday disagreed over the path Congress should take in negotiating the so-called fiscal cliff.

Robert Rubin, who served under President Bill Clinton, agreed with President Obama, suggesting that raising rates was the most effective solution in the long term.

“If we're going have the effective deficit reduction program we had before, and if you take the position that we shouldn't increase taxes on the middle-income people and you had a reasonable balance between tax cuts and revenues, I think most of this is going to have to come from increasing rates in the top two brackets,” he said on CNN’s Fareed Zakaria GPS.

Paul O’Neill, who served under President George W. Bush, took a different angle, saying the Obama administration should focus more on tax revenues. However, to get there, O’Neill said the president should explain the tax code to the American people in a better way.

“I think he shouldn't focus at all on the Republicans. I think he ought to focus on the American people,” O’Neil said on the same show. “This is a restart opportunity for President Obama and an opportunity for him to educate the people and lead us in the direction we need to go.”

For O’Neill, tax reform should be the major discussion. He said the president should do a better job of explaining so-called tax gap, meaning the amount of money that is not collected each year. According to a recent Brookings Institution study, that amount adds up to about $400 billion. O'Neill said the current tax system and its inefficiencies cost the U.S. a great deal and should be reformed.

“It doesn't mean we can implement it overnight, but now is an opportunity where he could lead us to throw away the broken things that we've evolved into and set out a new course for the United States,” he said.

Rubin cautioned, however, that in order to address deductions, there needs to be a substantive policy debate over each individual deduction. He agrees, for example, with the deductions related to health care and charitable contributions.

“I think there are a lot of important purposes being served and we’re simply not going to redo the federal budget in any period time that is remotely related to what we need to do now, which is to get on a sound fiscal path,” Rubin said.

Both O’Neill and Rubin said that what’s holding the U.S. economy back is uncertainty in the business community. With a sound tax program and a successful solution to the fiscal cliff, growth will improve, they said.

“If you have a sound fiscal program that dealt with our long-term imperative, then I believe that it would increase business confidence significantly, both because right now there's great uncertainty about future policy and economic conditions, and because there's real concern about whether or government can function,” Rubin said.