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Obama Readying Massive Tax Cut Package?

September 2, 2010 - by Donny Shaw

Remember that in-the-works Obama jobs proposal I wrote about the other day? Given that deficit hawks in the Senate have recently forced the Democrats to pare a $123 billion jobs bill back to a $33 billion unemployment insurance bill (H.R.4213), and that they have been blocking a $30 billion small business jobs bill (H.R. 5297) for over a month, I expected this new proposal to be pretty mild. But according to a report out tonight from Lori Montgomery at the Washington Post, the bill that the White House is preparing to unveil may cost the government as much as $400 billion in lost revenue:

With the recovery faltering less than two months before the November congressional elections, President Obama’s economic team is considering another big dose of stimulus in the form of tax breaks for businesses – potentially worth hundreds of billions of dollars, according to two people familiar with the talks.

Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit, say people familiar with the talks who spoke on the condition of anonymity in order to describe private deliberations.

Permanently extending the research credit would cost roughly $100 billion over the next decade, tax experts said. And depending on its form and duration, a payroll tax holiday could let businesses keep more than $300 billion they would otherwise owe the Treasury.

While significantly less than last year’s $814 billion stimulus package, both ideas would be far more dramatic than anything the White House had been expected to propose.

Annie Lowrey at the Washington Independent points us to a recent CBO report on various stimulus measures and their effects on GDP and employment. And while a payroll tax holiday isn’t as stimulative as spending measures like unemployment insurance and infrastructure investment, as far tax-side measures go, it was found to be the most stimulative form of cut.

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