President Barack Obama will challenge the US Congress to preserve an expiring payroll tax cut on Tuesday as he travels to New Hampshire to seize the initiative in the wake of a collapsed effort to reduce the nation’s budget deficit.
With the wreckage of a deficit-cutting effort by a bipartisan congressional committee still smoldering, politicians are scrambling to limit the damage.
Investors worry that the next few months could provide more evidence that Republicans and Democrats are too divided to help the sluggish economy and rein in the ballooning national debt.
Obama’s Democrats aim to extend a tax break for workers and other economy-boosting measures due to expire at the end of the year. Democrats had hoped to roll those elements into any deal that would have emerged from the 12-member congressional “super committee.”
With the collapse of the panel, Republicans and Democrats will be less inclined to hammer out difficult compromises on taxes and spending.
Analysts warn that economic growth could slow by up to 1.5 percentage points in 2012 if the tax cut and enhanced jobless benefits are allowed to lapse.
Obama will meet with a local family to highlight the cost of allowing the tax cuts to lapse. The White House estimates that a typical family earning $50,000 would see its taxes rise by $1,000 if Congress fails to act.
Republicans have not ruled out extending the tax cut and jobless benefits, but they are likely to insist on additional spending cuts to offset their $168 billion cost.