In jobs speech, Obama to call for extended payroll tax cut

WASHINGTON — The centerpiece of the job creation package that President Barack Obama plans to announce Thursday — payroll tax relief for workers and likely their employers — is neither his first policy choice nor that of many economists. But it is the one that they figure has the best chance of getting Republicans' support.

Obama has signaled that he will propose to extend for another year a reduction of 2 percentage points in the 6.2 percent Social Security payroll tax that employees pay, which means about $1,000 more for the average household. And he is considering a proposal to expand the tax relief to employers.

In his prime-time address to a joint session of Congress, Obama is expected to call for a package totaling several hundreds of billions of dollars that would also extend other business tax cuts, put federal dollars into building and repairing roads, rails, airports, schools and other infrastructure programs and provide aid to states to avert more layoffs of teachers.

But the single biggest stimulus measure he will propose is likely to be temporary payroll tax relief. If the current tax cut, due to expire at the end of the year, is expanded next year to employers as well as employees, it would pump roughly $200 billion into the economy, with the aim of stimulating much-needed demand for goods and services from consumers and businesses and, additionally, of giving companies an incentive to hire additional employees.

For the White House, its appeal is that it may be the only large stimulus measure that can pass Congress this year given Republicans' preference for tax cuts.

And if Republicans oppose him, the White House figures Obama at least has the better of the political argument because he will be trying to block a tax increase that otherwise would apply to virtually all households on Jan. 1. Republican leaders have said they would support the payroll tax cut's extension only if its cost is offset by equal spending cuts, a condition they did not apply for extending the Bush-era tax cuts on high incomes. Obama has said he will propose long-term deficit savings to offset the short-term costs of his stimulus proposals, although that is not likely to satisfy Republicans.