Orszag column blindsides White House

The White House was blindsided Tuesday by former budget director Peter Orszag’s dramatic break with President Obama on tax policy.

Orszag, in a column in The New York Times, called for all of the Bush-era tax cuts to be extended for two years, including rates for the wealthiest taxpayers, which the administration wants to phase-out for deficit reduction.

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The defection from someone who closely advised Obama on fiscal policy just six weeks ago left spokesman Robert Gibbs in an awkward spot at his daily press briefing. He made it clear the administration was surprised by Orszag, saying the White House did not see the column in advance and did not know Orszag’s opinion on the matter.

“I did not hear him making this argument,” said Gibbs, who acknowledged he hadn’t been present for every meeting with Orszag. “He may have been making this argument in some meetings.”

Obama wants to phase-out tax cuts on individuals making more than $200,000 and families making above $250,000, something Republicans argue would stifle economic growth. In his inaugural column for the Times, where he’s a contributing columnist, Orszag appeared to agree with the GOP.

“Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt,” he wrote.

In response, Gibbs argued taxpayers making more than $400,000 are unlikely to change their shopping habits because of a tax hike. The White House also pointed to a Congressional Budget Office report that argued extending the upper-income tax cuts was not an effective way of growing the economy.

In a further break with Obama, Orszag said all of the tax cuts should be allowed to expire in two years for the sake of the nation’s budget.

“Although hardly anyone wants to admit it, we’re not going to solve our budget problems over the next decade unless revenue is part of the equation,” Orszag wrote.

He said allowing all of the tax cuts to be extended would cost the budget $3 trillion over 10 years, and also warned the U.S. risked losing the confidence of the bond market if it did not get its long-term fiscal problems in order.

Gibbs said the White House’s position remains that Congress must pass legislation to extend the middle-class tax cuts. “Our viewpoint on this is that we should and must pass legislation that extends the tax cuts for middle-class families,” he said.

It’s hardly unusual for former cabinet members and White House aides to criticize their former bosses after leaving the job. David Stockman, President Reagan’s budget director, famously broke with the president and the GOP, which he criticized for cutting taxes while continuing wasteful spending.

Still, the last thing the White House, already under siege from a rebounding GOP and its disappointed liberal base, wants to deal with this week are additional attacks from its former advisers.

Orszag’s assault followed former Council of Economic Advisors Chairwoman Christina Romer’s comments — offered Thursday in her last major address for the administration — that the government should “spend more and tax less” in helping the economy.

That advice sounded like a call for a stimulus, something the administration seems to be plotting with its proposals for targeted business tax cuts and infrastructure spending. Given the last stimulus’s ugly connotations, however, it’s a word choice Gibbs is trying to avoid.

Asked Friday about Romer’s remarks, Gibbs fought to offer a clear response. “I don’t think that is — I don’t think that is — I think — I would against, I would point you to what the president said is — as ideas that are being looked at. And as I said here on Monday, some big new stimulus plan is not in the offing.”

Pressed again Tuesday on why the administration was not calling its proposals a stimulus, Gibbs avoided a direct response and instead offered a list of the administration's accomplishments on the economy.