Sept. 2 (Bloomberg) -- The Obama administration, concerned about the weakening U.S. recovery, is pushing Congress to approve proposals to stimulate growth in the final two months before congressional elections.
“The only surefire ways for policy makers to substantially increase aggregate demand in the short run are for the government to spend more and tax less,” Christina Romer, the departing White House chief economist, said in a speech in Washington yesterday. “We should be moving forward on both fronts.”
Romer’s comments as she leaves her post tomorrow as chair of the Council of Economic Advisers highlight the Obama administration’s worries about slowing growth and a jobless rate forecast to remain above 9 percent through midterm elections in November. She warned that a failure by Congress to do more to bolster hiring risked “making high unemployment permanent” as idled workers’ skills deteriorate.
Obama said this week his advisers are looking at “additional measures” to boost the economy. White House economic and policy aides are conferring with allies in Congress to see what moves might attract enough votes to pass, said an administration official who declined to be identified because no decisions have been reached.
Those discussions have included consideration of payroll tax relief to encourage new hires and more infrastructure spending, said a congressional aide who declined to be identified because the discussions are still going on.
Among the ideas are extending or expanding the scope of the Hiring Incentives to Restore Employment Act, which provides payroll tax credits through the end of the year for hiring new employees who have previously been unemployed at least 60 days, the aide said.
Additional spending on infrastructure would face challenges in the Senate from Republicans and some Democrats concerned about increasing the size of the deficit, said three congressional aides who declined to be identified because the talks are preliminary.
The administration also is considering other business tax breaks and new tax breaks for small businesses beyond those contained in Obama-backed legislation the Senate is due to take up this month, said a person familiar with the discussions. Those would be easier than spending measures to get approved in Congress, and the size of such an initiative is still under debate, the person said.
“The key is that we need to take action and we need to do it quickly,” Romer said in her speech at the National Press Club. “No one should be blocking essential actions for partisan reasons.”
Romer, 51, an architect of the $814 billion stimulus program, leaves the White House to return to teaching at the University of California in Berkeley.
Across-the-board tax cuts, which went into effect in 2001 and 2003, are due to expire Dec. 31. The Obama administration wants to let tax cuts continue for households earning less than $250,000 a year or individuals earning less than $200,000.
Renewing tax cuts for wealthy Americans would be a “bad bargain” that wouldn’t give the economy much of a boost, Romer said.
Many Republicans including Senate Minority Leader Mitch McConnell and House Minority Leader John Boehner contend that tax cuts should remain for all and any attempt to target the wealthy -- the top 2 percent earners in the country -- could hurt growth and investment.
‘Dead on Arrival’
The administration will have a difficult time “coming up with something that’s not dead on arrival” in Congress, said Chad Stone, who was chief economist at Council of Economic Advisers during the Clinton administration. “That’s a really serious problem.”
Answering questions after her speech, Romer said the odds that the U.S. economy would fall back into recession are “very small,” and she predicted it would emerge from the current period of “turbulence.”
Obama plans a speech on the economy Sept. 6, the Labor Day holiday, in Milwaukee when he appears at an event organized by the Milwaukee Area Labor Council.
Details about the administration’s economic plans will be revealed “over the course of the next several weeks” and before the Nov. 2 elections, White House press secretary Robert Gibbs said earlier this week.
Private economists say there are other steps the administration could take in the short term. They include tax rebates, direct hiring by government of low-income unemployed, enlarging the current program of tax credits for employers hiring the jobless, renewing the “Making Work Pay” tax-credit program of 2009 and another extension of unemployment benefits that expire in November.
“If you want to get something into the economic pipeline before November you’ve got to do it quickly,” and tax rebate checks are the best option, said Catherine Mann, an economics professor at Brandeis University in Waltham, Massachusetts.
Economist Michelle Girard said the administration should instead cut payroll taxes and extend Bush tax cuts across the board. “Lowering tax rates and encouraging firms to both hire and invest by reducing the cost of doing so I think is likely to produce lasting effects,” said Girard, a senior economist at RBS Securities Inc. in Stamford, Connecticut.
Without supplying specifics, Romer said additional measures are needed because two earlier drivers of the economic recovery -- business investment in equipment and software, and exports -- have “taken a hit” in recent months.
“The result of these powerful headwinds and recent developments is that the United States still faces a substantial shortfall of aggregate demand,” she said. “The pressing question, then, is what can be done to increase demand and bring unemployment down more quickly. Failing to do so would cause millions of workers to suffer unnecessarily.”
A Labor Department report scheduled to be released tomorrow may show private U.S. employers added 42,000 jobs in August and the unemployment rate rose to 9.6 percent from 9.5 percent in July, according to the median of estimates in Bloomberg News surveys of economists. Total nonfarm payrolls are forecast to fall by 100,000, a third straight drop in job growth after gains in each of the first five months of the year, a survey of economists showed.
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