WASHINGTON – President Barack Obama reached agreement Monday with congressional Republicans to extend and deep-en 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 to 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 today, 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 2 percent for a year, replacing and doubling the expiring Making Work Pay tax credit. That means employees will pay 4.2 percent to Social Security instead of 6.2 percent.
• 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.
“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,” he said.