The White House said Sunday that using tax law to pry bonuses from bailed-out company executives is "a dangerous way to go" and a Republican senator advised against Congress "grabbing its pitchforks and charging up the hill" in pursuit of the cash.
While acknowledging public outrage over $165 million in bonuses paid by a financial firm that had turned to taxpayers for aid, the administration's economic advisers said President Barack Obama wouldn't "govern out of anger."
In the latest campaign to sway a skeptical public that Washington could right an ailing economy and reassure Wall Street that better days were possible, the advisers expressed optimism that Obama's policies would work. Meanwhile, Sen. Judd Gregg, R-N.H., predicted they would run the country into bankruptcy and that the president's budget proposal was doomed to failure.
"The practical implications of this is bankruptcy for the United States. There's no other way around it," Gregg said. "If we maintain the proposals which are in this budget over the 10-year period that this budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued."
White House Council of Economic Advisers chairwoman Christina Romer defended the stimulus package and financial rescue plan. "I have every expectation, as do private forecasters, that we will bottom out this year and actually be growing again by the end of the year," she said.
Before that, though, Obama's economic team has to deal with a House-backed plan that would tax American International Group Inc. executives 90 percent of bonuses paid this year. The president, they added, didn't embrace the populist legislation.
Rep. Barney Frank, the Massachusetts Democrat who heads the powerful banking committee, supported the legislation but said Washington should consider more steps, including suing AIG to recoup the money. The government has an 80 percent equity stake in the financial giant, a position Frank said should be used "to assert our rights."
The White House and Senate Democrats, including Senate banking chairman Kent Conrad, urged restraint, instead hoping executives would voluntarily return their bonuses.
Vice President Joe Biden's economic adviser, Jared Bernstein, criticized the AIG tax plan as it headed to the Senate, where it was likely to be modified with bipartisan backing.
"I think the president would be concerned that this bill may have some problems in going too far — the House bill may go too far in terms of some — some legal issues, constitutional validity, using the tax code to surgically punish a small group," Bernstein said. "That may be a dangerous way to go."
Not going anywhere: Treasury Secretary Timothy Geithner.
Obama defended his embattled treasury secretary in an interview with CBS' "60 Minutes," saying he still has faith in Geithner and that if Geithner offered to resign, the answer would be, "Sorry buddy, you've still got the job."
Sen. Richard Shelby of Alabama, the Republicans' top lawmaker on the banking committee, said his confidence in Geithner "is waning every day," but he stopped short of calling for Geithner's resignation.
Populist anger came to a head last week when the Obama administration went on the defensive against AIG's bonuses. It was a distraction for the administration as it sought support for Obama's ambitious $3.6 trillion budget and a defense for Geithner, for whom Wall Street's woes have become his chief task.
White House economic adviser Austen Goolsbee said Sunday that Obama understands the anger and that the easiest thing would be for AIG executives to return the bonuses.
"The president's also been clear we don't want to govern out of anger. He's going to look at what comes out of the House, what comes out of the Senate, see what ideas we have," Goolsbee said.
Republicans and Senate Democrats seemed to line up with the president's policy team.
"People are disgusted and outraged, as they should be," said Gregg. "But let's not overreact in a way that basically has the Congress grabbing its pitchforks, and charging up the hill, and abusing what is a core authority of a government, which is the authority to tax its people."
Shelby said Obama would have to scale back his budget, given the nonpartisan Congressional Budget Office reported on Friday the president's budget would produce $9.3 trillion in deficits over the next decade — more than four times the deficits of Republican George W. Bush's presidency.
Shelby predicted that number could reach $20 trillion in coming years as Obama guides the country to "the fast road to financial destruction."
The CBO predicted a deficit of $2.3 trillion worse than the administration's own projections foresaw. Romer downplayed those numbers.
"There is a question whether CBO is right. So we know that forecasts — both of what the economy is going to do and of what the budget deficit are going to do — are highly uncertain," she said.
Obama, in his CBS interview, said ordinary Americans are more concerned about having a paycheck and being able to pay college or medical bills than they are about "the news of the day in Washington."
It was an us-versus-Washington appeal that the president made last week in a two-day trip to California and his supporters repeated during a nationwide door-to-door canvass on Saturday. He planned a prime-time news conference Tuesday to continue bolstering his case to an audience outside of Washington.
Bernstein and Conrad spoke on ABC's "This Week." Goolsbee and Frank appeared on CBS' "Face the Nation." Romer spoke on "Fox News Sunday" and CNN's "Face the Nation." Shelby spoke on "Fox News Sunday." Gregg appeared on CNN's "State of the Union."