US economy needs `more medicine`: Obama aide

Last Updated: Wednesday, November 30, 2011 - 09:12

Washington: A top advisor to President
Barack Obama has said that the fragile US economy needed "more
medicine," stepping up a campaign for the extension of payroll
tax cuts by a fractious Congress.

Alan Krueger, chairman of Obama`s Council on Economic
Advisors, yesterday said that the cuts in the amount Americans
must pay to finance retirement and medical insurance for the
elderly had provided important support for the economy.

"This is a critical time for the economy, and I think
it`s a time where the economy can use more medicine to
strengthen and sustain the recovery," he said.

Obama signed a two percentage point cut in payroll taxes
last year, and Krueger said the move had bolstered the economy
against outside shocks, including rising gas prices, European
debt turmoil and the Japanese tsunami tragedy.

As part of his USD 447 billion jobs plan, Obama proposed
further cutting the payroll tax for employees to 3.1 per cent
of earnings and to halve the employer contribution from 6.2
per cent to 3.1 per cent in a bid to spur hiring.

The administration says the move would give Americans
earning USD 50,000 a year a USD 1,500 tax cut next year as
compared to a USD 1,000 tax hike if Congress does not extend
the benefit by its expiry date at the end of this year.
"I think the economic argument for these proposals is
quite compelling," Krueger said.

"I think across the spectrum of economists you would find
support for applying this type of medicine to the economy
now."

An initial Senate vote on extending the payroll tax,
likely the first step in a new spate of political
grandstanding, is expected this week.

The issue, the latest bitter row between Obama`s
Democrats and Republicans over taxing the rich, is evolving
into a pre-Christmas showdown on Capitol Hill along with White
House demands for an extension of unemployment insurance (UI).
Some Republicans are opposed to extending the payroll tax
cut because they argue it does not stimulate the economy as
much as an income tax cut would.

Democrats counter that the payroll tax cut is felt most
by low-income earners who tend to immediately spend any extra
cash, maximising the measure`s stimulatory impact.
Congressional Democrats want to pay for the tax cut by
levying a 3.25 per cent surtax on people earning USD 1 million
-- a proposal Republicans reject, arguing it would slow the
economy and hurt small business owners.

But Republicans, who have enough votes to block
Democratic measures in the Senate, plan to offer their own
plan to offset the cost of the payroll tax cut with other
spending reductions.

PTI



First Published: Wednesday, November 30, 2011 - 09:12

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