Ex-budget chief differs with Obama on U.S. tax cuts

Office of Management and Budget (OMB) Director Peter Orszag waits for U.S. President Barack Obama to sign into law the Improper Payments Elimination and Recovery Act in the State Dining Room of the White House in Washington, July 22, 2010.

WASHINGTON (Reuters) - Tax cuts should be extended for all Americans to help spur the economy, but even the middle-class cuts should end in two years, former U.S. budget director Peter Orszag said on Tuesday.

Orszag's views differed from those of his former boss, President Barack Obama.

Orszag, who stepped down in July as Obama's budget chief, said the United States faces a "jobs deficit" near term and fiscal shortfalls that are unsustainable longer term.

"In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether," he wrote in The New York Times.

In the column, Orszag agreed with Obama's long-held position that it would be better to extend President George W. Bush's tax cuts only for the middle class.

But he said it may be necessary for political reasons to also extend cuts on the wealthiest Americans in order to get a deal.

"Ideally, only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it," Orszag said.

Obama supports a permanent extension of the middle-class tax cuts. But Orszag said extending the cuts permanently is not affordable.

"Let's continue the tax cuts for two years but end them for good in 2013," Orszag said.

Ahead of the congressional elections on November 2, Republicans are criticizing Obama's Democrats for opposing an extension to the cuts on wealthier Americans, saying doing so would end up hurting small businesses, whose earnings are often taxed through the income-tax code rather than under the corporate rate.

The Obama administration has advocated maintaining the tax cuts for most Americans, but letting them rise for individuals making more than $200,000 and couples making more than $250,000.

White House spokesman Robert Gibbs said there was not a strong economic argument for extending the tax cuts for the wealthy.

"I think if you're making $250,000 or $400,000 or $600,000 or $800,000 in this economy ... there's not a great crush on or pull-back in your consumer demand," he said. "This economy is not hurting people who make $800,000 a year. It's hurting families that are making $40,000 a year."

(Writing by Caren Bohan; Editing by Leslie Adler)