JONATHAN CHAIT JUNE 9, 2011
Yesterday, the Washington Post reported out how Tim Geithner won internal debates within the Obama administration to focus on deficit reduction over additional fiscal stimulus. The story has real potential to strain Obama's relations with his base, whose loudest complaint is that he failed to push harder to stimulate the economy. (I think the complaint is valid but overblown -- the underlying problems of a public that doesn't get Keynesian remedies and an opposition whose success depends upon economic weakness were hard to get around.)
But it's true that Obama underplayed even his weak hand, and that this creates a political problem for him. Now somebody in the administration is leaking a plan to do something:
President Barack Obama’s advisers have discussed seeking a temporary cut in the payroll taxes businesses pay on wages amid economic reports suggesting the recovery is slowing, according to people familiar with the matter.
The idea, in preliminary stages of discussion, is among several being debated in the administration with the aim of boosting hiring, the people said on condition of anonymity to discuss internal deliberations. The unemployment rate in May rose to 9.1 percent, the highest level this year, and the economy is a main focus of the political discussion in Washington.
I think this is smart, and I don't understand why they haven't done this before. I'm skeptical that Republicans will pass it. (I suspect their partisan instincts will win out over their anti-tax instincts.) But even if they oppose it, this gives Obama an issue he can run on and use to demonstrate the culpability of the Republicans. And if they do support it, it's a nice boost:
In an analysis released shortly after the December 2010 tax-cut deal, Deutsche Bank Securities economists Joseph LaVorgna, Carl Riccadonna and Brett Ryan estimated that the employee payroll tax cut would boost gross domestic product this year by an additional 0.7 percentage points.
Targeting the employer side of the payroll tax could both attract Republican support and spur job growth, said Christina Romer, who was the first head of Obama’s Council of Economic Advisers.
“A cut in the employer side of the payroll tax could absolutely help accelerate job creation,” Romer said in an interview. “In addition to the usual beneficial effect on demand, this tax cut would make hiring less expensive.”
Romer happens to be a source in the Post's story.