Democrats could scuttle Obama-GOP tax cut deal

McClatchy NewspapersDecember 6, 2010 

WASHINGTON — President Barack Obama reached agreement Monday with congressional Republicans to extend and deepen tax cuts temporarily — and extend unemployment insurance — in hopes of stirring the economy and creating jobs.

Obama pointedly refused to drag out the debate any longer over his quest to let taxes increase for wealthier Americans, bowing to the political reality that he couldn't get the Republicans to agree to extend middle class tax cuts or jobless benefits unless he also agreed for extend tax breaks for everyone.

In the bargain, he risked rebellion from his own party. Congressional Democrats refused to jump onboard immediately, continuing to question tax cuts for wealthy Americans. They planned to discuss the tax deal at closed-door meetings on Tuesday, and still could kill the plan.

Obama acknowledged that many in his own party wanted him to fight rather than compromise. He said, however, that it's critical to settle the tax debate now to help the economy. He also stressed that it would last only two years, opening the way for an intense tax debate in 2012 — the year he and Congress face re-election.

"We have arrived at a framework for a bipartisan agreement. For the next two years, every American family will keep their tax cuts," he said Monday evening.

"Not just the Bush tax cuts, but those that have been put in place over the last couple of years that are helping parents and students and other folks manage their bills."

The key elements:

  • Extending for two years all of the Bush-era tax cuts set to expire on Dec. 31. They will be extended for all incomes.
  • Cutting the payroll tax paid by all workers from 6.2 percent to 4.2 percent for a year, replacing and doubling the expiring Making Work Pay tax credit.
  • Extending Obama-era tax cuts from last year's stimulus bill, including the Earned Income Tax Credit, Child Credit, and American Opportunity Tax Credit increases from the Recovery Act.
  • Extending recently expired unemployment insurance benefits for 13 months.
  • A 35 percent tax on estates of more than $5 million.
  • Allowing business to write off investments entirely for 2011.
  • Keeping the middle class from paying the Alternative Minimum Tax — designed to keep the wealthy from escaping taxes — through 2011.

The plan would total about $900 billion over two years — adding that to the projected federal deficit and the federal debt. Extending the Bush-era tax cuts would cost the Treasury $3.7 trillion over 10 years, including $3 trillion in taxes on annual incomes below $250,000 and $700 billion on incomes higher than that.

Obama said he really doesn't want to extend the tax cuts for the wealthy, arguing that the price tag is too high. But he said a temporary extension is the political price he has to pay to win Republican agreement to extend the lower income tax cuts, as well as to extend unemployment compensation.

"I know there's some people in my own party and in the other party who would rather prolong this battle, even if we can't reach a compromise," he said.

"But I'm not willing to let working families across this country become collateral damage for political warfare here in Washington. And I'm not willing to let our economy slip backwards just as we're pulling ourselves out of this devastating recession."

Republican leaders welcomed the deal.

"I appreciate the determined efforts of the president and vice president in working with Republicans on a bipartisan plan to prevent a tax hike on any American and in creating incentives for economic growth," said Sen. Mitch McConnell, R-Ky., the GOP leader in the Senate.

"It's encouraging that the White House is now willing to stop all of the job-killing tax hikes scheduled for January 1. We look forward to discussing this proposal with House Republican Members and the American people," said Michael Steel, a spokesman for Rep. John Boehner, R-Ohio, who will become House speaker in January.

"This framework will allow us to extend all current tax rates and give economic recovery and job creation a chance," said Rep. Dave Camp , R-Mich., the top Republican on the tax-writing House Ways and Means Committee.

Although congressional aides said their Democratic leaders like much of the proposed package, they still weren't sure they could sell it to their members Tuesday. Among their objections: extending the tax cuts for incomes of more than $250,000 a year and letting the estate tax revert to a lower rate, aides said.

Sen. Harry Reid, D-Nev., his party's leader in the Senate, reacted coolly to the plan.

"Now that the President has outlined his proposal, Senator Reid plans on discussing it with his caucus tomorrow," his spokesman said in a statement.

In the Senate, liberals led by Sen. Charles Schumer, D-N.Y., have been adamant that they don't want to extend tax cuts for the rich. Though they fell short of blocking such an extension Saturday, they have more than enough votes to launch a filibuster to block the new deal.

The numbers are easier in the House — Democrats control 255 of the 435 seats. But the House tends to be a more liberal-dominated chamber, and House Speaker Nancy Pelosi, D-Calif., has been adamant that she doesn't want cuts extended for the wealthy.

The proposed deal also would restore checks to out-of-work people whose benefits ran out on Dec. 1.

White House aides said the plan would extend the benefits for 13 months, covering the 2 million out-of-work Americans whose checks run out this month and another 7 million who would run out of benefits over the next year.

They also predicted that the extended benefits would create 600,000 jobs as the out-of-work quickly spend their checks, sending that cash percolating through the economy.

The average family receives $290 a week in unemployment benefits. Normally, benefits can last up to 99 weeks, depending on state's jobless rate.

On the estate tax, the Bush tax cuts had cut the tax, then eliminated it altogether for this year.

As that law expired, the tax would have returned to 55 percent of all estates of more than $1 million. Under Republican pressure, it will be set for two years at 35 percent on estates of more than $5 million.

At least one prominent liberal said he doesn't like the deal, but called it the best that Obama could get now.

"The Republicans got tax cuts for the best-off 2 percent and lower estate taxes for the very wealthiest families, neither of which will do much if anything to create jobs," said Lawrence Mishel, the president of the Economic Policy Institute. "President Obama won policies that will put or keep money in the pockets of the families of the unemployed and middle and low-income families, which will increase spending and create jobs."

(Kevin G. Hall contributed to this article.)


For more McClatchy politics coverage visit Planet Washington

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McClatchy Newspapers 2010

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