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Obama's economic advisors divided on Bush-era tax cuts

Two members of an advisory board advocate a two-year extension to shore up demand. But two others back Obama, who wants to keep the cuts only for households earning less than $250,000 a year.

October 05, 2010|By Jim Puzzanghera, Los Angeles Times

Reporting from Washington — Two members of President Obama's economic advisory board pressed him Monday to extend the Bush-era tax cuts for two years, triggering an unexpected debate at the White House about an issue that will play a major role in the mid-term elections.

Obama did not give on his position that the tax cuts, which expire at year's end, should be extended only for households earning less than $250,000 annually.

The back-and-forth took place during a meeting of the 16-member President's Economic Recovery Advisory Board, streamed live on the White House website. The agenda focused on training and education of the U.S. workforce.

But when Harvard economist Martin Feldstein was asked to discuss how to increase economic demand, he said all the tax cuts should be extended.

"A two-year extension would help to keep demand alive at a time when the economy is weak," said Feldstein, who was a top economic aide to President Reagan. "This doesn't seem like the time to pull back demand."

Feldstein's view was echoed by William Donaldson, a former corporate executive who headed the Securities and Exchange Commission during the Bush administration. He said uncertainty about next year's tax rates was "suppressing demand."

"You have within your power … to put a pin in that uncertainty," Donaldson told Obama, whom he endorsed in the 2008 election.

But Obama pushed back.

He said a two-year extension of tax cuts for those earning more than $250,000 probably would turn into a permanent extension, increasing the budget deficit with little increase in demand.

He rejected the premise that those earning above that level — including himself — needed a tax cut "to induce us to play ball because otherwise we're going to take the ball and go home."

"This is something we're going to have to wrestle with as a society," Obama said of balancing tax cuts and reducing the soaring budget deficit.

Obama's position was backed up by the board's chairman, former Federal Reserve Chairman Paul Volcker, and UC Berkeley economist Laura Tyson.

Tyson, who has been mentioned as a possible successor to outgoing Obama economic aide Lawrence Summers, said businesses are more worried about the corporate tax rate than the individual income tax brackets.

jim.puzzanghera@latimes.com

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