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‘Never before in our history has a tax cut taken effect faster,’ he says

Vice President Joe Biden looks on as President Barack Obama speaks to mayors from across the country, Friday, Feb. 20, 2009, in the East Room of the White House.

WASHINGTON – The notoriously slow Congress passed the $787 billion economic stimulus package in a matter of weeks. President Barack Obama signed it into law less than one month into his presidency. So, just how soon will Americans start reaping the benefits of tax cuts in it? By April 1, according to the president.

“Never before in our history has a tax cut taken effect faster or gone to so many hardworking Americans,” Obama said Saturday in his weekly radio and Internet address.  He said the Treasury Department has begun directing employers to reduce the amount of taxes withheld from people’s paychecks in accordance with the new law, and that in six weeks, a typical family will start taking home at least $65 more every month.

Obama says his signature “Making Work Pay” tax break will affect 95 percent of working families.

The $400 credit for individuals is to be doled out through the rest of the year. Couples are slated to get up to $800. Most workers are to see about a $13 per week increase in their take-home pay. In 2010, the credit would be about $7.70 a week, if it is spread over the entire year.

People who do not earn enough money to owe income taxes are eligible for the credit, an attempt to offset the payroll taxes they pay.

High hopes, big cost
Obama’s expensive and ambitious package of federal spending and tax cuts is designed to revive the economy and save or create 3.5 million or more jobs. It will inject a sudden boost of cash into transportation, education, energy and health care, while aiming to help recession victims through tax cuts, extended unemployment benefits and short-term health insurance assistance. It also will add to a rapidly growing national debt.

Attorney General Eric Holder, left, and Sacramento, Calif. Mayor Kevin Johnson listen to President Barack Obama as he spoke to mayors in the East Room of the White House in Washington, Friday, Feb. 20, 2009.

The president signed the measure into law Tuesday. In his weekly address, Obama said he was grateful to Congress, governors, mayors and everyday people who supported the measure.

Still, he added: “It is only a first step on the road to economic recovery. And we cannot fail to complete the journey.” He said the country also must stem foreclosures, repair the banking system, get credit flowing again and revamp financial industry regulations.

And, even as he promoted the record-breaking spending plan, he called for doing what’s necessary to control “exploding” deficits as the economy begins to improve.  Obama is holding a bipartisan “fiscal responsibility summit” at the White House on Monday to talk about ways to control the trillion-dollar budget deficit.

The next day, he is to address a joint session of Congress, a speech expected to focus heavily on the economy. On Thursday, Obama will send a budget request to Congress “that’s sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don’t and restoring fiscal discipline.”

Republicans are certain to hold him to that.

In the GOP’s weekly address, Rep. Dave Camp of Michigan, the top Republican on the House Ways and Means Committee, said his party wants to work with Obama to solve the country’s economic problems “in a responsible way that does not burden our children and grandchildren with a mountain of debt.”

“We can’t borrow and spend our way back to prosperity,” Camp said. “If he is serious about dealing with the tough issues and getting spending under control, his budget will show it.”

As President Barack Obama finalizes his long-range budget road map for release next week, he is finding it increasingly difficult to translate some campaign promises into policy in the face of a complex economic crisis.

Mr. Obama spent Thursday reassuring Canadians that his campaign talk of reopening the North American Free Trade Agreement would not actually impede free trade. His budget writers are struggling to square promises of rolling back George W. Bush’s tax cuts with combating the recession. One campaign applause line — about ending tax quirks that he said encourage U.S. corporations to move jobs overseas — is facing a wall of opposition from companies pleading for relief in a global downturn.

Deputy Secretary of State James Steinberg, speaking to reporters aboard Air Force One returning from Canada, said that “little issues” have fallen by the wayside as the economy rises in importance. NAFTA didn’t even come up in the talks he saw in Ottawa.

“There was not a kind of narrow focus on little issues,” Mr. Steinberg said. “It was a very strategic discussion…heavily focused on the economy.”

The economy has become the prism through which almost all policies are now being viewed. When the president asked Canadian Prime Minister Stephen Harper where his focus was, “he said it’s the economy, the economy, the economy,” Mr. Steinberg recalled.

In Mr. Obama’s budget blueprint, set for release Thursday, he is almost certain to wait until 2011 to allow tax rates to go up on families earning at least $250,000, according to congressional aides and lobbyists discussing budget matters with the administration. That decision would come despite the urgings of prominent allies, such as House Speaker Nancy Pelosi (D., Calif.), who say an immediate rollback of some Bush tax cuts would show resolve on a deficit heading toward $2 trillion.

In his speech to a joint session of Congress Tuesday night, Mr. Obama will stress the decisions that must be made “collectively to get ourselves back on a path toward some sustainable fiscal track,” White House spokesman Robert Gibbs said Friday.

But some tax proposals from the campaign, such as immediately taxing the overseas earnings of U.S. companies, are drawing resistance from business. The offshore tax proposal alone could raise about $50 billion over 10 years.

“That will be the largest fight they have ever had with the business community,” warned Kenneth Kies, a top Washington business-tax lobbyist. “And they will probably lose.”

Mr. Obama took an uncompromising stand on such issues during the campaign, appealing to angry voters with his pledges to repeal tax breaks that he said rewarded corporations that retain earnings overseas.

Other proposals are more likely to make their way into Mr. Obama’s fiscal plan, according to congressional and business sources, though they could still face big fights on Capitol Hill. The upcoming budget is likely to call for the elimination of subsidies to private managed-care companies offering Medicare plans, a savings of as much as $7 billion a year. He is also expected to make good on a promise to propose allowing the federal government to negotiate for lower drug prices for Medicare.

The president will likely embrace candidate Obama’s pledge to force hedge-fund and private-equity managers to pay income-tax rates on the slice they take of their clients’ investment earnings. Those earnings are now taxed as capital gains, at 15%, rather than at the 35% top income-tax bracket most would otherwise pay. The nonpartisan Joint Committee on Taxation estimated in 2007 that such a change would net the government $25.6 billion over 10 years, although the collapse of Wall Street since then is likely to greatly diminish the government’s take.

A tax on Superfund polluters could also be revived, according to a half-dozen lobbyists, congressional aides and tax experts familiar with the White House’s thinking.

“Ultimately, it’s not going to be enough, but it’s a start” toward reducing the deficit, said Steve Wamhoff, legislative director of Citizens for Tax Justice, a liberal advocacy group.

Advocates, such as Sen. Byron Dorgan (D., N.D.), are still pushing Mr. Obama to make good on his tax promises. But with the economy reeling, businesses are bracing for a fight. Mr. Kies said most of the recent significant tax increases came during recessions.

The front line of the battle may be with the high-technology industry, which largely backed Mr. Obama’s economic-stimulus plan, and which has parked billions of dollars in profits in low-tax countries where much of their growth and manufacturing take place.

“While Europe and Asia are lowering rates to attract investment, we should not be making it harder for our companies to compete globally,” said Ralph Hellman, a senior lobbyist for the Information Technology Industry Council.