You know that the White House is serious about letting those high-end tax cuts expire when they’ve got Larry Summers out there talking about it.

Maintaining tax cuts for top wage-earners should take a back seat to other more pressing measures, White House economic advisor Larry Summers said, in a signal the administration could be digging in its heels on the issue [...]

“With deficits looming as seriously as they are, why is now the right moment to lock in several hundred billion dollars of tax cuts for 2 percent of the population when we could be using those revenues to strengthen incentives for investment in the country’s future?” Summers said.

“I think the case is pretty clear, if you look at what the vast majority of economists are saying, (that) what will stimulate economy more are measures that are targeted at investments, it’s measures that are targeted at research and development,” he continued. “So I think those are the right steps forward.”

The problem is that this is not at all what the White House has proposed. All of their ideas for economic growth which they put out last week – the permanent extension of the R&D tax credit, the business tax credit for capital investment, and the front-loaded infrastructure investment – are paid for in other ways. Nobody is suggesting that the $700 billion in savings from letting the tax cuts for the wealthy expire get paid for in any way whatsoever other than paying down the deficit.

Maybe that’s as it should be; at least that’s the view of the deficit hawks. But Nouriel Roubini has another idea. What if we plowed that money from the tax cuts for the rich into a payroll tax cut for everyone, a “people’s tax cut,” if you will? I wouldn’t expect that to continue for more than a year or so, but it would certainly stimulate demand, and in the long-term, the increase in the top bracket’s marginal tax rates would reduce the structural deficit (though more work needs to be done there).

A much better option is for the administration to reduce the payroll tax for two years. The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years).

Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. That has the problem backward. In the second quarter, capital spending reached an annual growth rate of 25 percent. The argument that increased demand for capital leads to greater demand for labor (i.e., if you buy more machines you need workers to run them) has not held up. Firms are investing in capital goods, equipment and offshore offices that allow them to produce the same amount of goods with less — and lower labor costs. To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor — achieving job creation — rather than making it cheaper to buy capital, as investment and other tax credits would do.

President Obama could fully fund the reduction in payroll tax by allowing the Bush tax cuts for people making more than $250,000 a year to expire. Meanwhile, the Bush-era cuts affecting middle- and low-income earners — the vast majority of Americans — would remain in place for the time being.

That makes operational the rhetoric that Summers and others in the Administration have used, that the money on tax cuts for millionaires could be better spent. Roubini’s figured out a way to spend it. I don’t think it’s the perfect idea; I worry about the effect of cutting the payroll tax at this time when Social Security, funded by that tax, is under attack. But that only requires an administrative fix on the funding. I also think that direct job creation would be a better solution, but that’s probably less likely given the current Congress.

Roubini makes a pretty solid case.