With the job market stuck in neutral, the Obama administration is moving toward using the revenue from expiring tax cuts for the wealthy to finance about $35 billion of tax cuts for small businesses and workers, administration and congressional officials said Friday.
The employment report for August, which showed a slight uptick in unemployment and anemic private-sector job creation, put new impetus on the White House to produce a labor-policy response. President Barack Obama said he would be proposing additional economic measures next week, when he speaks Monday at a union picnic in Milwaukee and in a Wednesday address in Cleveland.
"We need to take further steps to create jobs and keep the economy growing, including extending tax cuts for the middle class and investing in the areas of our economy where the potential for job growth is greatest," the president said in the Rose Garden Friday, flanked by his economic team.
But Democrats are split into three camps. A small but vocal group wants to temporarily extend all the tax cuts passed by George W. Bush, which expire Jan. 1. A larger camp wants to let tax cuts for those earning $250,000 or more expire and use the proceeds for measures such as a payroll-tax holiday or other small-business breaks. And the third contingent wants to end those top-tier cuts and use the revenue to pay down the deficit.
"Everybody's got an idea on this," said a Democratic leadership aide in the Senate.
The White House is ready to redirect the tax cuts, arguing that most of the tax increases would hit households with incomes topping $1 million.
"If the Republicans are bent on spending an additional $35 billion [next year]…extending the tax cuts for the wealthiest, those that are making that million dollars, is the least stimulative way to impact our economy," White House press secretary Robert Gibbs said. Wealthy people would likely save rather than spend the money, say economists opposed to extending cuts for the most affluent.
The administration has been arguing that Republicans are hypocritical for blaming the growing U.S. budget deficit on Democratic leadership while pushing to extend all the Bush-era tax cuts. But many Democrats acknowledge that isn't resonating with voters. Instead, they want to give Republicans a choice between tax cuts for the rich and tax cuts for workers and small businesses.
Sen. Russ Feingold (D., Wis.), who is in a tough re-election fight, is urging an extension and expansion of a payroll tax cut for small firms hiring new workers. The White House is examining that idea, as well as a proposal to extend the payroll tax cut to those who are hired. It also wants to extend the research-and-development tax credit.