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Evoking Teddy Roosevelt, Obama urges payroll tax cut extension

One hundred and one years after Teddy Roosevelt delivered a 6500 word speech from Osawatomie, Kansas President Obama returned to the same town, where he channeled his version of TR's "New Nationalism" and said this was a "make or break moment for the middle class." Obama provided a broad economic history, which stressed how income inequality has blown out in the last two decades and how the tax code needs to return to more balanced level. In other words, he thinks taxes should rise for the wealthiest Americans, who currently pay "the lowest taxes in over half a century."

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The President tried to draw a line between the Republican vision of America, based on small government and trickle-down economics and the Democratic vision that sees enhanced government involvement as a way to restore middle class economic opportunities. He said that while trickle down makes for a good slogan, he believes that it has contributed to lopsided income distribution.

"In the last few decades, the average income of the top one percent has gone up by more than 50%, to $1.2 million per year. For the top one hundredth of one percent, the average income is now $27 million per year. The typical CEO who used to earn about 30 times more than his or her workers now earns 110 times more. And yet, over the last decade, the incomes of most Americans have actually fallen by about six percent."

Although these kinds of stats are music to the ears of Occupy Wall Street, the President was short on concrete solutions to help close the gap between the wealthiest Americans and the middle. The one exception was his call for the extension of the payroll tax cut, which is due to expire at the end of this year.

The one-year deal, which was enacted during last year's lame-duck Congressional session, reduced the employer portion of payroll taxes from 6.2 percent to 4.2 percent. For employees who earn $50,000 per year, it amounts to an extra $1,000 ($19.23 per week) per year and for those who earn more than $106,800 (the Social Security wage base), the cut meant an $2,136 ($41.08/week) this year.

Payroll tax cut is just chicken soup for the economy

The potential expiration of this tax break has many economists on edge because without the extra money sloshing around the economy, they predict the U.S. could see GDP growth decline by 0.5 - 1 percent in 2012. Considering that the economy is only expected to rise by 2-2.5 percent, the return to 6.2 percent payroll tax could change the short-term economic outlook.

A notable omission in the speech was any discussion of extending benefits for the long-term unemployed, also due to expire at year-end. The government currently supplements the 26 weeks of state unemployment benefits and extends the period to 99 weeks. Without an extension, an estimated 1.8 million people will lose benefits in January alone and more than 5 million will lose them over the course of 2012.