President Barack Obama reached agreement Monday with congressional Republicans to extend and deepen tax cuts temporarily in hopes of stirring the economy and creating jobs, and also extending unemployment insurance for 13 months.
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 bipartisan agreement,” Obama said Monday evening. “Every American family will keep their tax cuts.”
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. Lowering the estate tax temporarily. Allowing business to write off investments entirely for 2011. Obama reached the agreement with Republicans, but not with the congressional leaders of his own Democratic Party.
Obama said he really doesn’t want to extend the tax cuts for the wealthy, arguing that the $700 billion price tag is too high in a time of deficits and debt.
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.
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.
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. They lost a bid Saturday to limit the extended tax cuts to incomes of less than $1 million a year. With 53 Democrats voting for Schumer’s position Saturday, they have more than enough to launch a filibuster to block the new deal.
Democrats control 58 Senate seats. But Saturday, four Democrats and Sen. Joseph Lieberman, an independent, voted with Republicans against the Democratic position. It takes 60 of the 100 senators to stop extended debate.
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.
Obama always wanted to shift the tax burden back toward wealthier Americans, proposing to extend permanently the expiring Bush tax cuts on all income under $250,000 and letting the tax cuts expire for all income above that threshold.
However, the ability of either party to filibuster any deal with 41 votes in the Senate meant that Obama had to find a middle road to avoid having tax rates rise on all Americans on Jan. 1.
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.
The proposed deal 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.