White House considers idea of new tax cut

The economy is still weak enough that it may need another stimulus, officials have concluded.

Posted: October 28, 2012

The White House is weighing the idea of a tax cut that it believes would lift Americans' take-home pay and boost a still-struggling economy, according to people familiar with the administration's thinking, as the presidential candidates continue battling over whose tax policies would do more for the country.

Obama administration officials have concluded that the economy, while improved, is still fragile enough that it may need another bout of stimulus. The tax cut could replace the payroll tax cut championed by President Obama in 2011 and 2012, which was designed as a buffer against economic shocks such as the financial crisis in Europe and high oil prices. It expires at year's end.

The new tax cut could provide hundreds of dollars or more a year to workers and show up in every paycheck. It may be similar to a tax cut Americans received in 2009 and 2010, which provided up to $400 for individuals and $800 for married couples, sources close to the administration said.

The administration's work on the proposal comes as each presidential candidate is under intense pressure to demonstrate that he has the better tax plan. During the campaign, Obama has insisted that he wants to keep taxes from rising for the middle class while increasing them on the wealthy as a way of shoring up the country's finances. Mitt Romney has sharply criticized Obama's approach, saying any new taxes would crimp economic growth, while also calling the White House's earlier stimulus efforts a failure.

The Romney campaign and top Republican lawmakers declined Friday to comment specifically about the tax cut being considered by the White House.

Any new tax cut would require congressional approval after the election. Administration officials have said in the past that the payroll tax cut should be allowed to expire at the end of the year, and the White House has not said publicly whether it is considering an alternative.

A growing number of voices have been calling on the White House and Congress to extend the payroll tax cut, which has meant about $1,000 in extra take-home pay annually for the average family. These supporters include Harvard professor Lawrence H. Summers, formerly Obama's top economic adviser, and Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee.

"If we're going to look at anything, we should be looking at a payroll tax cut or other measures that have a similar effect," Van Hollen said in an interview.

The White House declined to confirm whether it was exploring a new policy, with an official saying late Friday only that "there's no specific new proposal such as this one at this time."

The payroll tax cut, which reduced people's payroll tax rate from 6.2 percent to 4.2 percent, is considered particularly effective by economists because it shows up in every paycheck. Economists say it may have boosted economic growth each year by about 1 percent, helping create hundreds of thousands of jobs.

The administration may be looking at alternatives to the payroll tax cut because some lawmakers, particularly Democrats, don't like the idea of using a tax that ordinarily goes to fund Social Security.

Powerful interest groups such as AARP have criticized using the payroll tax cut as a short-term stimulus.

The administration is looking to replicate the effect of the payroll tax cut without relying on Social Security revenue, sources said.

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