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New Payroll Tax Cut Plan From White House: Let's Extend It 'For A Short Period Of Time'

Payroll Tax Cut Obama

First Posted: 12/15/11 02:12 PM ET Updated: 12/15/11 02:23 PM ET

WASHINGTON -- Faced with (still) intransigent Republicans, the White House on Thursday floated an idea: that Congress extend the payroll tax cuts and long-term unemployment insurance "for a short period of time." Until today, the Obama administration had been arguing for a full-year extension of both.

The compromise idea, floated by a senior administration official at a small meeting with reporters, would constitute a significant concession to Republicans and fits what many Democrats see as an all-too-familiar pattern of the Obama administration caving in to GOP leaders, who are bent on making life as miserable as possible for the president and, some would argue, the economy.

Congress, said the official, "could pass a continuing resolution through to January tied to an extension of the payroll tax and unemployment insurance for a short period of time."

Contacted afterward to confirm and clarify the official's remarks, White House Communications Director Dan Pfeiffer said that the official was "just making the point that the president's principle is, no one goes home until we guarantee taxes won't go up."

Still, "going home" with only a temporary "guarantee" is far different from what the administration and Democrats have publicly championed. It constitutes sticking to "principle," but in a way that would be less costly -- finding ways to pay for the measures would be much easier -- and less confrontational. In the long run, however, it would require another legislative drama sooner rather than later.

Administration officials such as Treasury Secretary Tim Geithner have said repeatedly that failure to fully extent the payroll tax cut and unemployment insurance would not only pose hardships for working people and the middle class, but would cut economic growth by at least 1 percent at a time when the economy needs all the help it can get. A short-term extension of both would at least put off that danger for now, at a moment when Europe is teetering on the brink and the Obama administration (and the world) can't afford another bout of legislative paralysis here.

On Wednesday, Democrats and administration officials privately abandoned their preferred method of paying for extension of the payroll tax holiday: a surtax on millionaires. The tax is popular in the country, but Obama and his allies have decided they aren't willing to risk a confrontation -- including another possible shutdown of the federal government -- to get it.

As for the payroll tax cut itself, some Democrats have suggested that the White House simply let it lapse and pick up the issue after the Christmas recess. It's a popular measure and Republicans would take a political hit for raising taxes. But the senior administration official said that keeping the economy moving along -- it has been performing somewhat better than expected -- is more important, both for its own sake and, ultimately, for the president's.

"You would have the issue, but you would also have the reality" of slower growth, the official said.

As a result, the administration is casting about for alternative ways to pay for extending the payroll tax cut and unemployment insurance, including raising fees paid by Fannie Mae and Freddie Mac and further cuts to mandatory spending.

The administration is also open to negotiating a reduction in the number of weeks that long-term unemployment insurance benefits would be available. The current limit is 99 weeks; the GOP has suggested 55, the Democrats 79. The official said that a compromise of some kind was still possible on that score.

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