President Barack Obama's former economic aide, Larry Summers, said on Thursday that the payroll tax break for 160 million Americans should be extended in order to help promote economic growth.
The payroll tax, which funds the federal Social Security retirement program, is set to revert to 6.2 percent from 4.2 percent at the end of the year.
"This is not the right moment to repeal the payroll tax cut," Summers told the Center for American Progress think tank. "It is $120 billion that enables cash-strapped families to spend money on what they need and provides incentives certainly for small businesses and perhaps beyond," he said.
Summers said it was critical to spur growth and increase demand and warned that the country was still at risk of a "lost decade" of the "great stagnation."
Another set of tax breaks for all Americans are set to expire at the end of the year and government spending is expected to shrink - a combination of financial shocks often referred to as the fiscal cliff.
Summers, who was Obama's top economic adviser until November 2010 and a treasury secretary under President Bill Clinton, said if all the fiscal stimulus were to be suddenly withdrawn, the consequences would be dire. Summers, the business community and policymakers have warned that the higher taxes and sharp cuts in government spending will push the U.S. economy back into recession.
"It is essential that we avoid falling over that cliff," Summers said.
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