New Tax-Cut Proposals Could Be Problem for President Obama
By Cheryl Bolen, Heather M. Rothman, and Aaron Lorenzo
Publication Date: 09/07/2010
Tax experts and economists offered mixed reviews about the feasibility of the Obama administration's attempt to pass additional tax cuts now with the legislative year winding down, even as the president declined Sept. 3 to specify what proposals his administration will advance.
On Aug. 30, the president announced that he will propose a series of targeted tax cuts and infrastructure investments in the coming days and weeks, some of which will be new.
“I will be addressing a broader package of ideas next week,” the president told reporters at the White House Sept. 3. “We are confident that we are moving in the right direction, but we want to keep this recovery moving stronger and accelerate the job growth that's needed so desperately all across the country.”
White House deputy press secretary Amy Brundage cautioned that many proposals were still under discussion by the president's economic team. “There have been a lot of reports and rumors on different options being considered—many of which are incorrect,” she wrote in an e-mail to BNA.
“The options under consideration build on measures the president has previously proposed, and we are not considering a second stimulus package. The president and his team are discussing several options, as they have been for months, and no final decisions have been made,” Brundage wrote.
The administration's economic team has been tasked with exploring further options to aid the economy and improve the unemployment situation.
“We're looking for responsible policies that will ensure that the recovery, particularly in the job market, continues,” said Alan Krueger, the Treasury Department's chief economist and assistant secretary for economic policy. “And we're looking for programs that are going to deliver bang for the buck, that are a good use of taxpayer dollars, and that are going to be effective.”
But Krueger declined to estimate the number of jobs that could be gained by enacting such proposals, calling the overall exercise an ongoing process about which he would provide no specifics.
Also Sept. 3, the White House announced that the president would travel Sept. 8 to Cleveland, Ohio, where he will speak about the economy and unveil targeted proposals to keep the economy growing.
Advisability of Tax Cuts
Tax experts contacted by BNA offered diverse recommendations.
While the administration may be talking about smaller-scale items like a payroll tax holiday and making permanent the research and development tax credit, business representatives believe immediately extending all of the Bush-era tax rates and providing certainty to businesses is the best thing the government could do to get the economy moving.
A payroll tax holiday and making R&D permanent have been two popular ideas with the Obama administration. Obama included R&D permanency is his fiscal year 2011 budget submission, a proposal that would cost $82 billion over 10 years.
“Obviously, the main problem in the economy is jobs so any proposal that will help encourage job creation should be welcomed,” said Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer.
“We support all ideas to strengthen the economy, including making R&D permanent and a payroll tax holiday. These ideas are short-term measures, however,” said Scott Talbott, the senior vice president of government affairs at the Financial Service Roundtable. “The best way to achieve long-term economic growth is to extend the low tax rates.”
Haste Makes Waste
Bill Frenzel, guest scholar in economic studies at the Brookings Institution, said that he did not know what the administration will propose, but that it has been struggling with various proposals.
“I guess the general rule of thumb is, that if you are struggling for something just before an election, it is often best left alone,” Frenzel said. Frenzel served in Congress for 20 years and advised the Bush administration on tax reform.
Any kind of fiscal stimulus is probably going to help, and economists can better weigh the relative merits of different stimuli, Frenzel said. On the other hand, any stimulus costs money and the country is in a perilous condition with its debt ratio and deficit. “And so there's the trade-off there,” he said.
“I just say, be really careful because whatever you do you're going to increase the debt. And you may be stretching or you may be forced into some compromise that doesn't do for you what you really wanted it to do,” Frenzel said.
The complete text of this article can be found in the BNA Daily Tax Report, September 7, 2010. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2010, The Bureau of National Affairs, Inc.
