Treasury Secretary Timothy Geithner blamed a “broken” tax system as one of the chief causes of the U.S. budget deficit.

In a speech Thursday hosted by the Detroit Economic Club, Geithner talked about the renewed growth of the U.S. automotive industry and the tax incentives that have helped the economy, but also the lingering problems.

“The tax incentives we put in place at the end of last year are providing a very powerful near-term catalyst for business spending on capital equipment, and they are now giving American families an average of $1,000 in tax relief this year through the payroll tax cut, which is helping them grapple with today’s higher gas prices,” he said.

One of the main challenges he cited is the budget deficit, which has become a growing concern in Congress as lawmakers also consider an overhaul of the Tax Code.

“Americans have to understand that our capacity as a country to finance investments in education and to fund protections for seniors, the disabled, and the poor require that we find savings that allow us to live within our means,” said Geithner. “And Americans have to understand that deficits matter, that deficits are not just the result of spending choices, but also of an unfair and broken tax system, that we cannot meet our national security challenges without restoring fiscal sustainability, and that the private sector cannot thrive without better education, public infrastructure, and investments in innovation.”

Geithner noted that President Obama’s plan for curbing the budget deficit involved a combination of spending cuts and tax reform. “The challenge in fiscal reform is not just an accounting challenge, it's not simply a math challenge, it's not just deciding on the level of cuts,” he said. “The fundamental policy challenge is designing budget reforms that leave us with the room to do the essential things, that preserve incentives for economic growth, with a balanced approach that is judged fair by the bulk of the citizens of the country.”

Geithner added that the President’s plan includes $3 in spending cuts for every $1 in revenues achieved through tax reform. He emphasized that the spending cuts and tax reforms need to be phased in over time to avoid damaging the economic expansion. “The biggest mistake countries make in financial crises—apart from waiting too long to act in the face of the gathering storm—is they put on the brakes too early,” he said. “They shift too prematurely to abrupt strategies that put at risk the incipient expansion. So you have to lock these reforms in—but you have to phase them in to reduce that risk to the economy as a whole.”

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