Larry Summers Calls For More Economic Stimulus, Payroll Tax Cuts

WASHINGTON (REUTERS/Jeff Mason) - U.S. policy makers should reduce payroll taxes employers pay on workers' wages and focus on near-term economic growth along with deficit cutting, former White House economic adviser Lawrence Summers said.

In an opinion piece published by Reuters on Sunday, Summers -- a Harvard professor and former Treasury secretary under President Bill Clinton -- argued that it would be "premature'' to withdraw fiscal support for the economy at the end of 2011.

Summers' comments come as Republican and Democratic lawmakers debate ways to reduce the U.S. deficit and as his former colleagues in President Barack Obama's administration mull a temporary cut in payroll taxes for employers.

Summers said the United States might have faced a double-dip recession if Obama had not agreed to a deal last year with congressional Republicans to extend unemployment insurance benefits and payroll tax cuts for workers.

The deal was part of a wider package that included an extension of Bush-era tax cuts for the wealthiest Americans.

"Fiscal support should be continued and indeed expanded by providing the payroll tax cut to employers as well as employees,'' Summers wrote.

"Raising the share of the payroll tax cut from 2 percent to 3 percent would be desirable as well.''

He said such moves could cost a little over $200 billion.

"These measures offer the prospect of significant improvement in economic performance over the next few years translating into significant increases in the tax base and reductions in necessary government outlays,'' he said.

Summers, who was one of Obama's top economic advisers for the first two years of the president's administration, said that the "greatest threat'' to U.S. creditworthiness was a sustained period of slow growth.

"This means that essential discussions about medium-term measures to restrain spending and raise revenues need to be coupled with a focus on near-term growth,'' Summers wrote.

"Substantial withdrawal of fiscal support for demand at the end of 2011 would be premature.''

He also said the Obama administration could do more to promote tourism with changes to U.S. visa policy, and he pressed for recent directives to relax regulatory burdens be ''rigorously implemented to boost confidence.''

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[EdCorner]

09:06 PM on 06/14/2011

He's so full of it. He didn't want O to extend unemployment and why do these authors mention Harvard but never mention how Harvard was bankrupted by him and how he almost went to jail?

I'm curious, is that his "I'm a cute little pixie" pose?

[Whittier S]

01:21 AM on 06/14/2011

What, Larry, you smelled the coffee, then woke up?? You're about 2 years late.

[JM80NY]

08:00 PM on 06/13/2011

Don't listen to him!!! It's a trap!!

[lily]

06:45 PM on 06/13/2011

Big business's best friend and the worker's enemy. Typical Obama buddy.

[wayne the pain]

05:41 PM on 06/13/2011

Forget Larry "women can't do math" Summers and listen to Paul Krugman and Robert Reich. Correct me if I am wrong but wasn't Summers the archiect of the present economic recovery program. What does he mean by stimulus, billions more for Wall Street executives, billions for Wall Street firms, billions more for banks to hoard and not loan? Create jobs for people who will spend it immediately on the necessities of life. Obama talks like Franklin Rosevelt and act like Herbert Hover and listens to the likes of Summers.

[Charlene Estes]

03:59 PM on 06/13/2011

Halleluja! Someone says the obvious. We need a stimulus package. Fix roads, bridges, schools, high speed rail. Put people to work. The economy will rebound.

The republian arguements are nothing more than a chance to further damage the economy for political purposes only.

[Whittier S]

01:26 AM on 06/14/2011

I hope there're enough of us that realize your 2nd para in Nov 2012!

[oldsquare]

03:58 PM on 06/13/2011

Summers is correct in that additional money in the pockets of consumers will help improve the economy, but his suggestion that it come from payroll tax vacations is short-term and fails to address the underlying cause of our problem. There are three main impediments to solving the economic problems. First is the fact that american business is sitting on unprecedented amounts of cash but refuses to invest it in american jobs. Second is the fact that the non-two percenters are pretty much tapped out financially with only mediocre prospects for relief until something is done about good paying jobs here in the US. Third is the fact that major american businesses have said that they expect 70% of their revenues to come from overseas. So we have business which benefits from overseas cheap labor, growing overseas markets, and the indirect effect of government relieving them of responsibility for pensions, healthcare and even dislocations due to layoffs having no incentive to do anything differently than they are now. We need incentives for business to create good paying american jobs, disincentives for business which sends jobs overseas, strong unions to balance corporate power to regulate wages and benefits, and tighter regulations to insure the rules are followed. As to cutting expenditures, frugality is always good, but keep in mind that the goal of the GOP in this current round of deficit reduction is the destruction of social security, medicare and medicaid, not the economy.

[Larry Andre]

03:15 PM on 06/13/2011

Mr. Obama is spinning mightily to try to distract attention from two damning facts: The unemployment rate today is much higher than it was when he took office (in January of 2009, it was 7.6 percent), and is higher than what his chief economic adviser at the time said it might be if his stimulus package were not passed.

The stimulus bill, the auto bailouts and schemes to prop up housing have taken great gobs of money from taxpayers and transferred a fair amount of it to the president's political cronies. But the massive debt they've incurred is crippling the economy rather than helping it. Our national debt was $10.7 trillion when Mr. Obama took office. It's $14.29 trillion now.

Jack Kelly of Real Clear Politics wrote today. "Still, the president is intent upon heaping additional burdens on the private sector. He held a meeting with House Republicans June 1 to discuss raising the ceiling on the national debt so the government can borrow more money. Republicans insist federal spending be cut by $1 for each dollar the debt ceiling is raised. Mr. Obama wants to reduce the deficit in part by raising taxes." http://www.realclearpolitics.com/articles/2011/06/12/obama_is_spinning_mightily_110176.html

[TheScarletPimpernel]

04:46 PM on 06/13/2011

There is no burden on the private sector ? Jack Kelly who is he ? Manufacturing wants to be in China and India they dont want to employ Americans. They only want to be American companies os they can get low tax rates, live here and have the American military protect their overseas interest all of which they want to pay ZERO...I think American CEO's who have moved their companies offshore to China need to live in China or India.BTW 750000 were layed off in january follwed by 600000 in February.

[AyeChart]

03:04 PM on 06/13/2011

Reality having proved too much for him, Larry Summers returns to ivory tower theorizing.  Unfortunately, his sojourn into reality did not teach him anything.

[Larry Andre]

03:30 PM on 06/13/2011

But the old saying "those who can't teach" Maybe Summers will go back to teaching and telling us how it is done although he has no direct experience in creating one job.

[EllaMai]

02:58 PM on 06/13/2011

This guy was one of the people who helped lead the U.S. into disaster by advocating de-regulation and letting the banks police themselves. We all saw how well that worked out. His word is not to be trusted.

Watch "The Inside Job" documentary, to get a better understanding of how this guy helped dupe Americans into letting the rich still their cash (in the form of bailouts).

[Quinxy von Besiex]

02:33 PM on 06/13/2011

Who else here blames the unchecked greed of corporations as much as I do for this whole financial mess we're in? Most people I know in the real world seem so frustratingly apathetic, as though this just happens from time to time.

[AyeChart]

03:06 PM on 06/13/2011

Sorry, I'm not that delusional.  I blame Jimmy Carter, Clinton, Anthony Cuomo, Chris Dodd, Barney Frank, Franklin Raines, a smattering of Republicans here and there, Nancy Pelosi, Harry Reid, and Obama.  I prefer to deal with reality rather than just play the class warfare video games.

[Sean Laney]

12:51 PM on 06/14/2011

It sounds more like you are playing partisan politics. "A smattering of Republicans" indeed.

[RuhRoh]

11:45 AM on 06/16/2011

Partisan much?

[Larry Andre]

03:20 PM on 06/13/2011

Remember Quinxy the check and balances for corporate greed are the very people they purchased in Congress, and Obama and the Dems were bought and paid for, look at the bailout, it went to those same greedy corporations you decry, and to the big labor unions where the leadership got rich and payoffs to political cronies (donors of Obama). The Stimulus package was nothing but supply side economics from a liberal slant, rather than tax cuts for Americans and business, it was tax Americans, bail out banks, unions, and cronies and hope the money trickles down to the serfs. What trickled down was 100 years of debt.

[Quinxy von Besiex]

09:10 PM on 06/14/2011

You make a good point. I'm not ready to see it as quite that quid pro quo, but that's not based on hard knowledge. I certainly agree that a lot of money went to corporations and people whose greed harmed our nation, and that those same corporations and people have not been held accountable, and have instead apparently become richer as a result of their rescue.

[TheScarletPimpernel]

01:07 PM on 06/13/2011

Seems folks on the right were all asllep during economics. Our economic problems did not start with a CREDIT CRUNCH due to over spending by GOVT or borrowing it had zero to do with it.
Our economic problems started with the bursting of a housing buble and the fact nobody had the amount of money leveraged against US Housing and the loss of confidence by investors in these holdings.
It was not because the Govt could not pay its bill it was because private COMPANIES could not pay.
Investors did not want to invest in PRIVATE INDUSTRY, Private industry could not raise capital so they layed people off thus the lack of demand....nothing what so ever to do with GOVT borrowing or DEBT ZERO.
Now the right scream about "crowding out " crowding out " WHO ? form WHAT WHERE and WHEN

Just so you get it righties when 30 yr home mortgages are at 4.75% there aint no crowding out.

The reason our economy sux's is that PRIVATE CORPS have been shipping your job overseas that GIANT SUCKING SOUND remember..?

When all of a sudden you get 2 billion Chineese and 1 billion Indians on the job market to compete with you have a problem

[AyeChart]

03:08 PM on 06/13/2011

I'm not sure what you are talking about.  I have been explaining how the liquidity in the financial markets dried up for the past 3 years.  You are correct that it was the bad loans and housing bubble, fueled DELIBERATELY by government policies, you might wish to add, that triggered the problem. However, it is the massive deficit spending pushed by Obama that has prevented recovery and made things worse.

Now what were you talking about?

[carolina919]

08:34 PM on 06/14/2011

The housing bubble might have been aided by less than competent regulation by the government but it was entirely fueled and created by the banksters and "financial services" sector who innovated fraud, deception, predatory lending and scams to a whole new level.

And as to who is prevented a recovery I'd nominate all those businesses who are sitting on their billions in order to bring down this President and are the ones who want to further wreck this economy with even more wealth transfers from the working class........

[carolina919]

08:31 PM on 06/14/2011

Precisely. Our corporations are busy chasing "emerging markets" and have no intention or desire to be a part of a mature economy re-invigorating itself. They only know how to do business in a climate of exponential "growth" and the velocity of trading typical of "emerging" economies. They aren't really "business" people....they're hacks. They've done their damage here and the Paulson/Bush engineered "last run on the treasury" when they realized they weren't going to get the Presidency was their "swan song". They're awfully good at chasing the next big thing but, SCOTUS decisions notwithstanding, they are very good at that whole "citizenship" thing either.

[Tanstaafl42]

12:38 PM on 06/13/2011

If even Larry Summers thinks stimulus is needed, the country must be in a dire state.

[AyeChart]

03:09 PM on 06/13/2011

It is much the same as when a sick patient went to a physician in 1780 and the doctor recommended bleeding.  Deficit "stimulus" spending is a major part of the disease, not part of the cure. It doesn't work!  We tried it.  It doesn't work!

[TheScarletPimpernel]

04:40 PM on 06/13/2011

Everything you have said is incorrect.

[sienaa]

12:32 PM on 06/13/2011

He is absolutely right in this case.

[AyeChart]

03:10 PM on 06/13/2011

No, he's not.  The graph of delta-GDP versus delta-Debt shows that the spending of 2009 DAMPENED the economy by about 45 cents for each dollar spent.  We have reached debt saturation.  More spending will WORSEN the economy, not improve it.

[LeftCoastEng]

12:25 PM on 06/13/2011

Stimulus is all fine and good. The problem is, with our failed trade policies, we stimulate the economy in China more than ours. Let's reform our trade policy and use targeted stimulus to bring the economy back.

I know they will kick you out of the Economists Club and change the secret handshake on you, but have some courage.

[AyeChart]

03:11 PM on 06/13/2011

Stimulus is good if it stimulates.  Deficit spending is not a stimulus and does not stimulate.

[Larry Andre]

03:22 PM on 06/13/2011

The problem is not our failed trade policies which are part of the problem it is an overspending Govt that uses your and my money as their personal campaign accounts buying votes.

[carolina919]

08:35 PM on 06/14/2011

How about ascribing a bit of repsonsibility to the scofflaws at the top who haven't paid their equitable share of taxes for the last 30 years......