WASHINGTON (AP) — President Barack Obama and opposition Republicans agreed to extend expiring tax cuts for all Americans and to renew benefits for the long-term unemployed — a compromise that was distasteful to the American leader and angered many in his liberal base.
Obama campaigned for the presidency on the promise that he would leave lower tax rates in place for middle- and lower-income Americans while canceling cuts for families earning more than $250,000. The reductions were put in place during the administration of former President George W. Bush and were set to expire at year’s end.
In announcing the compromise at the White House Monday night, Obama said he did not like the deal but had little choice. Republicans were refusing to go along with reinstating higher rates for high income earners, forcing Obama to capitulate or see taxes go up dramatically for hard-pressed middle- and lower-income Americans in a period of economic malaise and high unemployment.
“Make no mistake, allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family and that could cost our economy well over a million jobs,” he said.
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In return for the tax deal, Obama won Republican agreement to drop opposition to continued benefits for the long-term unemployed, which ran out last week. Those payments now will last 13 additional months.
House and Senate Democratic leaders were noncommittal on the proposal, saying they would discuss it in closed caucus meetings Tuesday. Vice President Joe Biden, a key player in seeking a compromise, scheduled a rare visit to the Senate Democrats’ weekly luncheon the same day.
The compromise foreshadowed American politics for the coming two years at least, after Republicans won a landslide victory in last month’s election that put them in control of the House of Representatives and significantly diminished the Democratic majority in the Senate.
Obama’s announcement marked a dramatic reversal of his long-held insistence that the nation could not afford continued tax breaks for the wealthy. He sought to put a good face on the deal, however, noting the agreement was temporary, not the permanent renewal that Republicans had long sought.
The tax compromise will now move through both houses of Congress in the so-called lame duck session of Congress, the few weeks of legislative activity between the Nov. 2 elections and the end of the year. Republicans newly elected to both chambers will take their seats at the beginning of next year, making it even harder for Obama to win passage of items remaining on his legislative agenda.
One of those is Senate ratification of a new nuclear arms treaty with Russia. He wanted to wrap up a deal on the tax cuts quickly to leave time for the Senate to debate and vote on the arms treaty, which the president has made a top year-end priority. Senate Republicans have seemed more willing to hold a ratification debate in recent days as the negotiations over taxes intensified, suggesting at least an implicit link between the two issues in the talks.
Both parties have been under pressure from their bases of support not to compromise on the tax cut issue. Republicans insist that it makes no sense to raise taxes on anyone in a weak economy. Democrats argue that extending tax cuts for the richest Americans would contribute to rising deficits and force deeper cuts in social welfare programs.
Democrats also objected to the part of the deal that extended lower estate tax rates that tilted toward the Republican position.
Obama found himself under fire from liberal Democrats who accused him of being too quick to cave in to Republican demands, but Obama said he rejects “symbolic victories” that hurt average Americans.
The president had barely stopped speaking before top Republicans applauded his proposals, while most Democrats kept a sullen silence.
Senate Minority Leader Mitch McConnell thanked Obama for “working with Republicans on a bipartisan plan to prevent a tax hike on any American and in creating incentives for economic growth.”
Because they still hold solid majorities in both chambers, Democrats must provide many votes for the tax package to become law, even if Republicans overwhelmingly support it.
Some Democrats quickly denounced the plan. “Senate Republicans have successfully used the fragile economic security of our middle class and the hardship of millions of jobless Americans as bargaining chips to secure tax breaks for the very wealthiest among us,” said Democratic Sen. Tom Harkin of Iowa.
For months, Democrats have repeatedly raised objections to including upper-income Americans in any plan to extend tax cuts enacted in 2001 and 2003 when Bush was president. The Democratic-controlled House recently passed legislation to let the cuts lapse on incomes over $200,000 for individuals and $250,000 for couples. On Saturday, Republicans blocked an attempt by Senate Democrats to do the same.
But both parties realize they faced a potential political backlash if no deal was reached by the end of the year and taxes went up for all Americans.
Obama said the continued political stalemate over taxes amounted to a “chilling prospect for the American people.”
While displeased with having to compromise, Obama said an agreement with Republicans was more important than a stalemate that would have resulted in higher income taxes at all levels on Jan. 1.
Under the plan, officials said, unemployment benefits would remain in effect through the end of next year for workers who have been laid off for more than 26 weeks and less than 99 weeks. Without an extension, two million individuals would have lost their benefits over the holidays, the White House said, and seven million would have done so by the end of next year.
In an effort to stimulate the economy, the emerging agreement cuts Social Security payroll taxes by 2 percentage points for one year. Those funds go to the government pension plan for older Americans.
The White House said the result would be to fatten take-home pay by $120 billion over the course of the year, and money from other sources would be shifted so the Social Security trust fund loses no revenue.
In addition, administration officials emphasized that the agreement would extend a variety of other tax breaks for lower and middle-income families.
The estate tax provision under discussion would mean the first $5 million would pass tax-free to heirs. Anything over that would be taxed at a rate of 35 percent. Democrats favored a $3.5 million threshold, with a 45 percent tax on anything higher.
Copyright 2010 The Associated Press.