In a break with the White House, Peter Orszag, the former director of the Office of Management and Budget (OMB), recommended Tuesday that Congress extend the expiring Bush tax cuts for two years, then do away with them altogether.
In a column for The New York Times, Orszag argues extending all the cuts would help the struggling jobs market, which he dubs a "painful jobs deficit," but that letting all of them expire in two years would help bring down the federal budget deficit.
Orszag's compromise plan comes as Congress is gearing up to debate the future of the expiring Bush tax cuts when members return from August recess next week.
President Obama has said he wants Congress to extend the cuts for individuals making under $200,000 and families making under $250,000, but wants the upper income tax breaks to expire.
In his final address as OMB director at the Brookings Institution in
July, Orszag said "the administration has been very clear about
what we favor," stating it wants to extend the Bush tax cuts for
the middle class.
Orszag refused to offer his personal recommendation, saying he would be out of the administration by the time the decision is made.
"I’m not going to be in a position to recommend to the president whether he veto or not since I will be a private citizen at the time," Orszag said.
White House spokeswoman Amy Brundage said Obama will continue his push to phase-out the Bush-era tax cuts on the wealthiest taxpayers.
"The president has been clear about his support for extending tax cuts for the middle class and about ending the tax cuts for the wealthiest 2 percent of Americans, which would cost $700 billion over 10 years to extend at a time when we are dealing with a fiscal crisis and the Independent CBO [Congressional Budget Office] has listed it as the least effective form of growing the economy," she said.
The tax cuts have been a sharp point of contention between both parties: Vice President Joe Biden recently said the GOP's arguments for extending all the cuts are "a bunch of malarkey."
Republicans say now is not the time to let any of the cuts expire because doing so would hinder already slow job growth. Unemployment ticked up to 9.6 percent in August, though the private sector created more jobs last month than anticipated.
Orszag gives credence to the GOP argument, but also says a permanent extension of the cuts like many Republicans have recommended would deepen the deficit.
"Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable," Orszag writes. "Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned."
The former budget director's argument also underscores the disagreement about what to do with the cuts within the Democratic Party. Some on the left want to let all the cuts expire while centrist Democrats want to extend all the cuts, at least temporarily. Orszag said compromise is the best option on the table.
"Despite a dire fiscal outlook, many progressives want to make the tax cuts permanent for all but the very highest earners. Many conservatives are even worse: they’d make the tax cuts permanent for the likes of Warren Buffett, even though he’d prefer they didn’t," he writes.
"Senate Democrats and Republicans almost never come together anymore. This month, they should fight the dual deficits rather than each other. Let’s continue the tax cuts for two years but end them for good in 2013," Orszag wrote.
Orszag left the administration at the end of July. The New York Times announced last week he would be a regular contributor to its opinion page, and would write one or two columns a month.
This story was posted at 8:29 a.m. and updated at 11:47 a.m.
Vicki Needham contributed to this story.