WASHINGTON — Treasury Secretary Timothy Geithner Tuesday defended the Obama administration's additional financial commitments to AIG and other financial institutions, before skeptical House lawmakers who openly wondered whether the White House is throwing good money after bad.

Geithner said the administration will continue to place "tough conditions" on American International Group as part of the government-led restructuring of the insurance giant. He said given the fragility of the financial system, the administration has little choice but to provide financial assistance to keep AIG afloat.

"That judgment, I'm sure, was the right judgment at the time," Geithner said of the initial Bush administration bailout of AIG last fall. Even today, "the most effective thing to do is to restructure over a period of time, so we can get through this," Geithner said.

Geithner faced questioning from lawmakers in both parties, at a House Ways and Means Committee hearing Tuesday, clearly dismayed by the continued market dive and credit market paralysis.

"Americans are frightened," said Rep. Ginny Brown-Waite, R-Fla. "Where is the bottom, and why is the government throwing so much money at what some would consider zombie banks?"

Rep. Jim McDermott, D-Wash., compared the Treasury to a medic on the battlefield trying to administer triage to a bleeding soldier, and questioned whether it was time to "take the patient back to the hospital" by nationalizing the banks.

Geithner repeatedly underlined the dire economic conditions facing the nation, even while attempting to reassure them that government assistance over the long-term will bear fruit.

"There's a lot of strength in our financial system," Geithner said. "There's pockets of the system that are ultimately going to have to be shrunk and closed down, and that's happening now."

Geithner appeared before the panel to tout the Obama administration's ten-year budget plan, in particular proposals to reduce the deficit over time.

"We have set an ambitious, but economically crucial, goal for bringing our deficits down dramatically once the recovery is firmly established and financial stability has returned," Geithner said in prepared remarks to the House Ways and Means Committee.

The Obama budget plan envisions reducing the annual federal deficit to $533 billion by 2013. Geithner said that would cut in half the $1.3 trillion portion of the deficit for 2009 that he said the administration has "inherited," or budgetary factors that were in place as a result of decisions made during the previous administration.

The Obama administration estimates the total deficit for 2009 at $1.75 trillion, taking into account the cost of economic-stimulus legislation signed by the president last month.

Geithner warned of consequences if Congress and the administration fail to reduce the deficit to about the $533 billion level, which is roughly 3% of GDP.

"Failure to reduce deficits to this level would result in higher interest rates as government borrowing crowds out private investment, leading to slower growth and lower living standards for Americans," he said.

House Republicans at the hearing said Obama's proposals to combat climate change would raise energy costs for all Americans, more than offsetting any tax cuts in the budget.

Geithner said revenue from the trading of carbon credits would be used to make tax credits permanent for lower- and middle-income workers. He also said it is up to individuals to change their energy consumption habits, in order to cut energy costs.

"If people don't change how they use energy, then they will face higher costs for energy," Geithner said.

But Rep. David Camp, R-Mich., said retirees, students and the unemployed don't benefit from the worker tax credit. Even for those who do, "20 cents an hour will not offset the higher energy costs in this proposal," said Camp.

Geithner said tax-increase proposals in the budget plan were borne of a "deep moral imperative to make our society more just." That would be accomplished in part by taxing the gains of Wall Street fund managers at ordinary income rates, instead of lower capital-gains rates.

Under questioning from Rep. Sander Levin, D-Mich., Geithner said the administration is proposing to tax all partnerships that have "carried interest" at ordinary income tax rates. House and Senate lawmakers have disagreed in the past on the extent to which real estate partnerships, for example, would be affected by the change.

Geithner also said the Obama administration has tried to mitigate the impact of tax increases on small businesses, now threatened by the economic recession, by delaying increases to the top two individual tax brackets until 2011.

In addition, the marginal tax rate increases would take effect only for married couples with income above $250,000, which excludes about 97% of small businesses, Geithner said.

The Obama administration will propose a series of measures "over the next several months" to reform taxes on the foreign profits of multinational companies, and to crack down on abusive offshore tax shelters used by companies and wealthy individuals, Geithner said.

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