Former White House economic adviser Larry Summers warned on Thursday against letting the payroll tax cut expire at the end of the year, a view at odds with that of many Democrats on Capitol Hill and within the Obama administration.
"This is not the right moment to repeal the payroll tax cut," said Summers, who served as director of the White House National Economic Council in the first two years of President Obama's administration. "It is $120 billion that enables strapped families to spend money on what they need."
The White House and congressional leaders have all signaled a lack of interest in extending the payroll tax cut, which was enacted in 2010 as a one-year measure and was extended for another year at the end of 2011. It was always intended to be a short-term tax break aimed at giving the struggling economy an extra lift by putting more money in the pockets of middle-class Americans. Some Democrats worry that continued extensions of the cut in the payroll tax could undermine financing for Social Security.
"The payroll-tax cut originally and through its extension was a temporary measure," White House spokesman Jay Carney said in early September. "I would hope that we would not extend it," House Minority Leader Nancy Pelosi said later in the month.
Summers, a proponent of further economic stimulus, told a forum at the Center for American Progress that if a long-term plan were put in place to align federal debt and income, an extension of the payroll tax cut would pay for itself.
That "$120 billion put in the hands of middle-income families is $120 billion dollars injected into the economy," said Summers, who is a professor at Harvard.
Summers also warned of the dangers of failing to address the twin threats of across-the-board spending cuts and expiring tax cuts scheduled to go into effect at the start of 2013 and known as the "fiscal cliff."
"It is essential that we avoid falling over that cliff," he said. "Equally, it is essential that at some point before too long the nation put in place a long-term plan in which our debts are measured with our incomes."