Larry Summers announced in September that he would step down as President Obama's top economic strategist and head of the National Economic Council. Obama named Summers's replacement, Gene Sperling, on Jan. 7, 2011. Summers, who served as Treasury secretary under President Bill Clinton, has been an important mentor to Geithner. (Chip Somodevilla/GETTY IMAGES)

Former White House economic adviser Larry Summers warned Thursday that the nation is at risk of sinking into a “great stagnation” — a period of high unemployment and sluggish growth — and urged policymakers to extend a temporary payroll tax cut.

Given the weakness of the economy, Summers argued that it is far more important to spur economic growth right now than to restrain record budget deficits — so long as policymakers adopt a plan to stabilize rampant government borrowing over the longer term.

“This is not the right moment to repeal the payroll tax cut,” Summers said in a speech at the liberal Center for American Progress. “Even if there was no explicit pay-for today, the extra income growth that would result as long as measures were taken at some point to stabilize the debt would be helpful.”

The statement puts Summers at odds with current administration officials, as well as congressional leaders, who have indicated that they are prepared to let the tax break expire on schedule in January. Enacted in December 2010, the payroll tax holiday cut the 6.2 percent tax that funds Social Security to 4.2 percent, boosting paychecks for virtually every American worker.

Unfortunately, the tax cut is also increasing budget deficits at the rate of about $120 billion a year, making it one of the largest components in the so-called “fiscal cliff,” the accumulation of tax increases and spending cuts that is on track to suck more than $500 billion out of the economy next year.

Summers said it is “extremely important” that policymakers reach an agreement to avoid the cliff. Not only would the nation likely be thrown into recession, he said, but “the path to recovery would not be altogether clear.”

However, simply avoiding the cliff would not be enough to put the economy back on track, Summers said. Neither, he said, would a deal to stabilize borrowing do the trick. Instead, Summers urged policymakers to “act boldly in the name of growth,” offering a five-point agenda that includes major new investments in public infrastructure, a significant increase in exports and a far-reaching overhaul of the nation’s Byzantine tax code.