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Congress / TAXES

Obama Cuts a Deal with GOP on Taxes

Republicans get two more years for all Bush-era rates. The president gets a mixed bag, including an extension of unemployment benefits and one angry Democratic base.

President Obama announced the outline of a deal struck with Republicans on tax cuts on Monday night.(MANDEL NGAN/AFP/Getty Images)

December 6, 2010

President Obama on Monday announced a “framework for a bipartisan agreement” with congressional Republicans that would extend all Bush-era income tax cuts for two years in exchange for a grab bag of tax cuts and incentives favored by the White House. The proposal must now overcome the ire of incensed Democrats in both chambers.

Facing the likelihood that the agreement will cause political problems with his own base, Obama noted it would remove the specter of a tax hike in January for American workers.

“In exchange for a temporary tax cut for the wealthiest Americans, we will be able to protect tax cuts for working Americans,” Obama said in a speech describing the agreement on Monday night.

 

“These are not abstract fights,” Obama said. “My singular focus over the next year is going to be on how to continue the momentum of the recovery and how to grow more jobs.”

As proposed, the plan would amount to a major win for congressional Republicans and a bitter pill for Democrats. It could create the sharpest break yet between Obama and Democratic allies on Capitol Hill—and might mean that the most opposition to the president’s proposal will comes from his fellow Democrats.

House and Senate aides said the proposal would infuriate parts of their caucuses, and that leaders may face problems heading off liberal opposition.

“This is a very, very bad agreement,” said Sen. Bernie Sanders, I-Vt. “I will do whatever I can to make sure we don’t get to 60 [votes].”

Republicans agreed in principle to a host of items—a payroll-tax cut in 2011, extending unemployment insurance 13 months, a two-year patch for the alternative minimum tax, and an expanded schedule for business expensing—in exchange for a two-year extension of all reduced income tax rates and lower rates on capital gains and dividends, White House officials said.

The estate tax would temporarily be reinstated at 35 percent, with a $5 million exemption, sources said. That result on its face would be a stunning victory for Senate Republicans—and in particular Senate Minority Whip Jon Kyl of Arizona, who has been urging for those levels.

Obama said the estate-tax level is “more generous” than he thinks is “wise or warranted,” but noted that level is only temporary.

In addition to the extension of unemployment benefits, the payroll-tax holiday is a key for Democrats. The White House said the holiday would cost about $120 billion.

However, the package did not include an extension of the Making Work Pay tax credit.

Officials cautioned that there is no formal agreement yet. Democrats might send a counterproposal after Speaker Nancy Pelosi, D-Calif., presents the outline to her caucus on Tuesday. 

“There won’t be a deal unless Democrats in the House think that they’re getting enough for extending the tax cuts for the rich,” a senior administration official said.

Obama addressed Democratic concerns in his speech tonight. “People in my own party who would rather prolong this battle" should realize that a drawn-out fight “would be the wrong thing to do," he said.

“Americans didn’t send us here to fight symbolic battles and get symbolic victories,” he said.

Administration officials defended the proposal, saying that it forestalls a January 1 tax increase of $3,000 for the typical working family and saves two million Americans from losing unemployment benefits in Decemember alone.

“We’ve got UI for 13 months, a payroll tax credit, an expansion of the Earned Income Tax Credit. All things that leaders like,” a senior White House official told reporters. “If the president had his druthers, he would just do the middle- class [tax-rate extension]. But that’s not the scenario. And if we didn’t act, it would hurt the economy.”

White House officials noted the proposal would help businesses by allowing them to fully write off investments next year, and would amount to the largest-ever temporary investment incentive in American history.

“If the votes had been there for a middle-class tax extension only, he would have signed it in a second,” the White House official said of Obama. “When the Senate failed to act on making middle-class tax cuts permanent, he was faced with two choices: let taxes go up or compromise. There wasn’t just this fantasy option. If we waited, then we would be in a far worse bargaining position next year.”

Senate Majority Leader Harry Reid, D-Nev., Sen. Majority Whip Dick Durbin, D-Ill., and Pelosi, and Majority Leader Steny Hoyer, D-Md. Senate Finance Chairman Max Baucus, D-Mont., also attended, aides said.

The meeting followed one between Vice President Joe Biden and House Democratic leaders aimed at assuring needed House Democratic votes.

Senate aides said that Biden will defend the plan tomorrow at a Senate Democratic Caucus meeting.

Reid declined to comment on the deal as he returned to the Senate on Monday.

“Now that the president has outlined his proposal, Senator Reid plans on discussing it with his caucus tomorrow,” spokesman Jim Manley said.

 

 

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