CQ TODAY ONLINE NEWS
June 10, 2011 – 9:50 p.m.

Lawmakers Talking Job Creation, But Want to Steer Clear of Stimulus

Lawmakers Talking Job Creation, But Want to Steer Clear of Stimulus

Somewhere between new deficit spending and a major rollback of regulations lie several other proposals to foster economic growth that have elicited some measure of bipartisan interest but still lack a critical mass of support.

Most notably, President Obama suggested that lawmakers explore the possibility of continuing policies that were enacted or renewed in last year’s tax deal (PL 111-312) but are scheduled to expire at the end of this year.

Those policies include a tax break for businesses that invest in new equipment and a 2-percentage-point reduction in payroll taxes for employees. In addition, the White House reportedly is considering a new payroll tax cut that would apply to employers.

Theoretically, at least, extending or expanding temporary tax breaks could appeal to Democrats who are concerned that government could harm the recovery by pulling back from the economy too quickly, as well as Republicans who generally favor low taxes.

At the moment, Democrats seem to be split on whether to follow Obama’s lead.

“I’m strongly in favor of policies that are going to create jobs,” Sen. Benjamin L. Cardin, D-Md., said, adding that he was confident that “there are things that could be done on the tax side that could help.”

But Sen. Dianne Feinstein, D-Calif., said she “has seen no evidence that the [current] payroll tax holiday has worked” and expressed reluctance about supporting another.

More than Democrats, Republicans have been supportive of payroll tax reductions in the past. In early 2009, a payroll tax cut for employers was a major component of the GOP alternative to the administration’s stimulus proposal.

Last year, the Congressional Budget Office projected that a payroll tax cut for employers would have roughly twice the effect on job creation as a payroll tax cut for employees because it would give businesses an incentive to hire new workers.

Still, even on its own, the one-year payroll tax cut for employees is expected to cost the Treasury more than $100 billion, and Republicans, as well as Democrats, are wary about adding further to the deficit.

Some Republicans have a different idea about how tax policy could be used to help the recovery, having proposed a temporary reduction in the taxes that multinational corporations must pay when they bring their foreign earnings into this country.

A “repatriation tax holiday” was tried once before, in 2004, and is now being peddled by some powerful lawmakers, including House Majority Leader Eric Cantor, R-Va. But it also has powerful opponents, including Ways and Means Chairman Dave Camp, R-Mich., and most Democrats in the House and Senate.

Although proponents of a repatriation tax holiday argue that it could amount to a “no-cost stimulus” by tapping into billions of dollars that currently are being held free from U.S. tax overseas, its price tag could also be a drawback for lawmakers.

Lawmakers Talking Job Creation, But Want to Steer Clear of Stimulus

Asked recently how much it would cost to replicate the tax holiday of 2004 (PL 108-357), the Joint Committee on Taxation came up with the figure $79 billion, noting that a tax holiday could give businesses an incentive to move more of their operations overseas within the 10-year budget window.

Potential for an Agreement

Currently, the economic initiative that has perhaps the best legislative prospects pertains to trade policy. There are more than enough votes in Congress to pass pending trade agreements with South Korea, Colombia and Panama.

But even those three trade deals are stalled because the Obama administration, against the wishes of GOP lawmakers, insists that they be paired with an extension of the Trade Adjustment Assistance (TAA) program, which provides benefits to workers affected by foreign competition.

Just as Republicans are demanding spending cuts in return for raising the debt limit, Obama could use the debt ceiling as leverage to get Republicans to accept the worker assistance program or any other policy, such as a new payroll tax cut.

So far, though, there is no sign of the administration explicitly linking short-term economic stimulus with longer-term budget cuts. One House aide close to the debt limit working group led by Vice President Joseph R. Biden Jr. said that the group had discussed eliminating tax breaks, but not creating or extending tax cuts, at its most recent meeting, on June 9.

Paul M. Krawzak and Joseph J. Schatz contributed to this story.