WASHINGTON (AP) — President Barack Obama signed into law Friday a massive tax package that frayed his relations with liberals, caused him to abandon a pledge not to extend tax cuts to the rich and heralded a new balance of power in Washington.

Dramatic both as an economic and a political accomplishment, the agreement sets the stage for Obama’s new relationship with Republicans having taken a majority in the House and narrowed the Democracts majority in the Senate.

With the benefits of the package expiring in two years, the law also places taxes at the center of the political debate ahead of the 2012 U.S. presidential elections.

[MSNBCMSN video=”http://www.msnbc.msn.com/id/32545640″ w=”592″ h=”346″ launch_id=”40725133^120^124900″ id=”msnbc610522″]

Visit msnbc.com for breaking news, world news, and news about the economy

Displaying a new style of compromise, Obama invited Democrats and Republicans alike to the White House for the signing of the bill the will cost $858 billion over two years and that contains provisions to address the concerns of both parties.

The bill was the result of a deal hashed out just 10 days earlier in order to avert scheduled Jan. 1 tax increases and renew jobless benefits. To strike the bargain, Obama had to set aside his vow to extend tax cuts only for the middle class and lower wage earners and enacts an estate tax that is more generous to the wealthy than he initially sought.

Failure to pass the bill would have resulted in tax hikes for most Americans as cuts approved under George W. Bush’s administration were set to expire.

Copyright 2010 The Associated Press.