WASHINGTON – Henry Paulson, President Bush’s pick for Treasury secretary, said the American budget deficit can be reduced through spending cuts and faster economic growth.

Mr. Paulson said tax increases to help close the fiscal gap would be a “big mistake,” and that Mr. Bush’s temporary reductions should be made permanent. He acknowledged cuts don’t typically pay for themselves, while praising the role they played in lifting the American economy out of recession early in the decade.

“I can remember very clearly what it was like running a Wall Street firm in 2001” after terrorist attacks and amid a shrinking economy, Mr. Paulson said during his confirmation hearing at the Senate Finance Committee yesterday. “I watched the tax cuts add to consumer confidence, business confidence.”

In almost three hours of mostly friendly questioning, Mr. Paulson, 60, echoed the president’s views on taxes and spending, and adopted outgoing Treasury Secretary John Snow’s views on the need for China to make its currency flexible. He wasn’t asked about the dollar and demurred on questions about Treasury’s scrutiny of international financial transactions to prevent terrorism, saying he wasn’t briefed on the issue.

Lawmakers from both parties made it clear they intend to confirm approve Mr. Paulson’s appointment as soon as June 27. Senator Schumer assured the chairman of the Finance Committee, Senator Grassley of Iowa, that his party is on board.

“You’re going to be confirmed quickly,” the committee’s ranking Democrat, Senator Baucus, told Mr. Paulson.

Mr. Paulson, the outgoing chief executive of Goldman Sachs Group Inc., was quizzed by Democrats and Republicans about his views on the deficit and the national debt.

When pressed by Senator Snowe, a Republican of Maine, he said that “deficits do matter. They clearly matter.”

In other remarks, Mr. Paulson said China needs to move faster in making the yuan more flexible, and he said fixing the Social Security and Medicare programs are key to a stronger economy.

Mr. Paulson, who says he’s made more than 70 visits to China, said he believed its government wants to adopt a floating currency over the “intermediate” term. To get there, China must strengthen its financial system by allowing international banks to compete with domestic institutions, Mr. Paulson said.

“We need to encourage them to move quicker,” he said. “They are not going to be as successful as they want to be until they open the banking system to competition.”