Stimulus bill tax cuts considered

President-elect Barack Obama’s economic stimulus plan could include a permanent tax cut, senior adviser David Axelrod said.

The recovery package will include a portion of a tax cut that will become a part of the permanent tax cut he’ll have in his upcoming budget, Axelrod said on Meet the Press Sunday.

A permanent tax cut has the psychological advantage of prompting more spending, as workers would not feel compelled to hoard or save as they would with a temporary or one-time break. Further, the break could be given through a reduction in payroll deductions, which would reach consumers quickly.

Although details have not been released and Congress has yet to debate the issue, a tax break of $500 per year for workers would mean a boost of $19.23 in take home pay for those paid every two weeks, CNNMoney.com said.

The Tax Policy Center estimates the cost of the tax break could be $49 billion in 2009 and $66 billion in 2010. The total economic stimulus package, including spending on infrastructure, is expected to reach $800 billion.