The Bush administration's "misguided" policies are to blame for huge U.S. fiscal deficits and tax cuts for the wealthiest Americans must end, U.S. Treasury Secretary Timothy Geithner said on Wednesday.

Striking a note of austerity in prepared remarks to a conference, Geithner said extending tax cuts for those making over $250,000 a year will only add to deficits.

"Borrowing to finance tax cuts for the top two percent would be a $700 billion fiscal mistake," he said in speech, excerpts of which were released by the U.S. Treasury ahead of the event sponsored by the Center for American Progress and the American Action Forum.

"It's not the prescription the economy needs now, and the country can't afford it."

Ahead of November's U.S. congressional elections, President Barack Obama's Democratic party is struggling to maintain its support as the economic recovery slows and unemployment remains high.

Tax cuts enacted during the Bush administration are scheduled to expire at the end of this year and are a hot-button political issue. Republicans have ramped up their rhetoric in recent days. They accuse Democrats of jeopardizing the economy if all the tax cuts are not extended.

Obama and most Democrats want to extend them for individuals making less than $200,000, or families earning less than $250,000 — about 97 percent of all Americans.

Republicans and a sprinkling of Democrats have been making a case for extending them on grounds that not doing so would effectively mean a tax increase that might further hobble a soft recovery from recession.

"We look forward to the debate about raising taxes in the middle of a recession," Senate Republican leader Mitch McConnell said on Tuesday.

Congress must take action to extend any part of the tax cuts. Dividend rates will rise from 15 percent to 40 percent with no action, a key source of stress among investors.

Separately, a top Treasury official said the department is assuming that Congress will let tax cuts for the wealthiest Americans expire at year-end and that it will take in billions of dollars more.

Mary Miller, assistant secretary for financial markets, told a news conference that current borrowing plans anticipate the Bush administration's cuts for those earning over $250,000 will end.

Geithner harked back to the former Clinton administration's record of posting surpluses in the late 1990s, contrasting it with the succeeding Bush administration that he said ran up huge debts, and caused Americans' incomes to stagnate with few jobs created.

"We are living today with the damage that misguided policy caused," Geithner said, adding that country needed to choose a new course.

"Rather than recreating a false prosperity fueled by debt and passing the bills on to the next generation, we need to restore America to a pro-growth tax and fiscal policy," he said.

It was Geithner's second major address of the week. On Monday he urged Wall Street's big banks to step up and make more loans and pledging not to pile new rules on top of old during the implementation of a financial regulatory overhaul.

Global investors are closely monitoring U.S. efforts to rein in budget deficits for fear that failing to do so might hurt the country's ability to keep borrowing and to expand output.

Geithner said on Tuesday in a New York Times editorial that the U.S. economy was healing but conceded it "has a long way to go before reaching its full potential."

He also said the effects of the deep recession that followed the 2007-2009 financial crisis were a lingering burden that needed to be dealt with in order to spur more vigorous growth.

"We have a long way to go to address the fiscal trauma and damage across the country, and we will need to monitor the ups and downs in the economy month by month," Geithner wrote.