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President Obama pushes for payroll tax extension

U.S. President Barack Obama makes his way off the stage after speaking on payroll tax cuts December 2011 in Washington, DC.

Jeremy Hobson: Today President Obama will be in Kansas, where he's expected to make another push for the extension of the payroll tax cut, which expires at the end of the year. So far, Democrats and Republicans in Congress can't agree on whether to extend it, and whether to tax the rich to pay for it if they do.

For more, let's bring in Juli Niemann, analyst with Smith Moore and Company. She's with us live from St. Louis as she is every Tuesday. Good morning.

Juli Niemann: Morning, Jeremy.

Hobson: So Juli, the Treasury Department says if they don't extended this thing, the average family will pay a $1,000 more per year in their tax bill. But if Congress can't agree on how to pay for it, can the government really afford to do it?

Niemann: Well, the key thing is that70 percent of our economic growth really comes from consumer spending. Consumer spending has been increasing somewhat, but it’s largely due to higher prices. It’s going into the gas tank, into the furnace, medical and food. Only some buying has been in manufactured or household goods, and that’s what’s required to tow the economy out of the ditch. That kind of buying creates jobs.

So the people who are spending are middle and low income. That directly and efficiently stimulates the economy by putting coins in the jeans of consumers. Now how do you pay for it? Well, the ultra-rich with paychecks of over $1 million a year will have a tiny 1.9 percent additional tax to be levied, and of course Fanny and Freddy Mac will have fee increases. So they’re counterbalancing with yes, an increase -- in some areas.

Hobson: But Juli, if they do that, aren't we then just shifting what would be consumer debt over to the federal government at a time of huge deficits?

Niemann: Well, the key thing here is we have to get back to our normal growth rate -- 3 to 3.5 percent gross domestic product. If we eliminate senseless Bush tax cuts that only help the rich, make a start on reform of the tax code... combine those three things and we can grow our way out of this. Europe by contrast doesn’t have the ability to really grow their way out. The Club Med countries produce olive oil, lemons, and slow vacation spots for Northerners. But they have to have a huge draconian budget cut to deal their crushing debt; we can actually grow our way out.

Hobson: Juli Niemann, analyst with Smith Moore and Company, thanks as always.

Niemann: You bet.

About the author

Juli Niemann is executive vice-president for research and portfolio management with Smith, Moore and Company.

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