Are More Tax Cuts On The Way?

Democrats want more economic stimulus. Republicans are unlikely to back new spending programs. The middle ground may be temporary tax cuts.

The basic idea would be to target the cuts to encourage businesses to hire more people and people to spend more money.

So it's no surprise to read in this morning's WSJ that the Obama Administration is looking at a number of possible tax cuts, including cutting the payroll taxes businesses have to pay for each employee.

In his NYT column this morning, David Leonhardt lays out tax cuts that might stimulate the economy:

One possibility is an expanded tax credit for new clean energy projects, which is favored by the White House and by at least two Republican senators, Orrin Hatch and Richard Lugar. Another is an expansion of the tax credit for businesses that increase their work force, like the one sponsored by Mr. Hatch and Charles Schumer, the New York Democrat. This time, though, it would not have to be restricted to companies hiring the long-term unemployed.

The disadvantage of these programs is that people have to figure out if they’re eligible and then fill out forms. A simpler approach — but a less targeted one — would temporarily cut the payroll tax, which finances Social Security and Medicare and is paid by both businesses and workers. By suspending the part that applies to businesses for a few months, Washington could lower the cost of keeping or hiring workers.

Of course, the high deficit means that no tax cut will be a slam dunk right now. "Everyone is mindful of the deficit problem, and everyone is mindful of the slack economy. The question is how you thread the needle," Shumer told the WSJ.

Democrats and Republicans already agree that the Bush tax cuts, set to expire at the end of this year, should be extended for people making less than $250,000 a year. Leonhardt suggests it could be politically expedient to tack additional cuts onto the bill extending the Bush cuts.



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