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Tax Cuts Exceeding Republican Plans Said Considered by Obama

Hans Nichols and Margaret Talev
Bloomberg News

WASHINGTON – President Barack Obama may press Congress for tax cuts that would exceed his past proposals as well as some of the offerings from House Republicans to strengthen his hand in talks on measures to boost the economy, according to a person familiar with the discussions.

With Obama set to lay out his plans in a Thursday address to Congress, the administration is focusing on cuts targeted at middle-income Americans to spur consumer spending, which accounts for 70 percent of the economy, said the person, who spoke on condition of anonymity to discuss internal deliberations.

In a speech to a union crowd in Detroit Monday, Obama said he would challenge Republicans on taxes.

“You say you’re the party of tax cuts?” Obama said before the annual Metro Detroit Central Labor Council rally. “Well then, prove you’ll fight just as hard for tax cuts for middle- class families as you do for oil companies and the most affluent Americans.”

Obama will unveil his new economic agenda as unemployment remains at 9.1 percent more than two years after the recession’s official end. The jobless rate and the sluggish recovery from the worst recession since the Great Depression will be central issues as Obama runs for re-election next year. Republicans, who control the House, have signaled resistance to new spending that would add to the federal budget deficit.

Without new measures to boost hiring, Obama’s budget office forecast last week that the unemployment rate would be little changed in 2012, averaging 9 percent.

“With the unemployment rate stuck at such a high level, the economy desperately needs help,” said Peter Orszag, former director of Obama’s Office of Management Budget.

Whatever plan Obama settles on “will probably have to lean heavily on tax cuts if it’s going to have a serious chance of being enacted,” Orszag, vice chairman of global banking at Citigroup, said in an email. “They should be coupled with credible deficit reduction that is enacted now but doesn’t take effect for some time.”

Obama also said in Detroit Monday that spending on infrastructure will be a major component of his plans to create jobs.

The discussions about making bigger moves on taxes amount to recognition by Obama’s political advisers that billions of dollars in new infrastructure spending stands little chance of winning approval from the Republican-controlled House, the person said.

The person didn’t give details of what specific tax measures Obama is considering. The president has repeatedly called for an extension of the 2 percent employee payroll tax holiday that Congress passed last year and will expire in December.

His aides have said he is considering a reduction in the employer portion of the payroll tax and proposals to reward businesses for hiring unemployed workers.

House Republicans haven’t embraced the idea of a payroll tax holiday extension, with some lawmakers questioning its impact on long-term economic growth. Brendan Buck, a spokesman for Speaker John Boehner, R-Ohio, said “we’ll wait and see what the president is offering, but we hope it represents a break from the costly, ineffective policies of the last few years.”

House Budget Committee Chairman Paul Ryan, R-Wis., and Ways and Means Committee Chairman Dave Camp, R-Mich., have called for lowering the top individual income tax rate to 25 percent from 35 percent. Neither lawmaker has specified how they would achieve such a reduction. A major reworking of the tax code is unlikely before the end of the year.

Labor groups, a key Democratic Party constituency, are pressing Obama to seek major spending on infrastructure to create jobs. Unions were disappointed in Obama’s agreement with Republicans last December that extended Bush-era tax cuts for all Americans, including the wealthiest, and in the continuing efforts to cut federal spending by $2.4 trillion.

Since World War II, no president has won re-election with a jobless rate above 6 percent, with the exception of Ronald Reagan, who faced 7.2 percent unemployment on Election Day in 1984. The jobless rate under Reagan had come down more than 3 percentage points during the prior two years.

-With assistance from Keith Naughton, David Welch and Tim Higgins in Southfield, Mich., and Mike Dorning, Holly Rosenkrantz and Angela Greiling Keane in Washington.


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