Obama Agrees to Extend Bush Tax Cuts for 2 Years
By Mike Dorning and Ryan J. Donmoyer – Dec 6, 2010
President Barack Obama said he’ll agree to a two-year extension of all Bush-era tax cuts in exchange for extending federal unemployment insurance. The plan also would cut the payroll tax by 2 percentage points.
Obama said he would accept a lower rate for the estate tax than Democrats wanted in order to break a stalemate over extending the Bush tax cuts before Congress adjourns. The current tax rates, enacted in 2001 and 2003, are set to expire Dec. 31.
Without the compromise, middle-income families would become “collateral damage for political warfare here in Washington,” Obama said in televised remarks. He said he still believes the nation can’t afford to permanently extend the top tax rates.
“This compromise is an essential step on the road to recovery,” Obama said. He criticized Republicans for insisting on permanent tax cuts for the wealthiest Americans “regardless of the cost of impact on the deficit.”
Obama spoke in Washington after a White House meeting with Democratic congressional leaders. They and the Republican leadership still have to sell the plan to their caucuses. Obama called it a “framework” for a deal.
Representative Dave Camp of Michigan, who will become chairman of the tax-writing House Ways and Means Committee when Republicans take control of the chamber in January, welcomed Obama’s announcement.
“This framework will allow us to extend all current tax rates, and give economic recovery and job creation a chance,” Camp said in a statement.
Lawmakers opposed to extending the tax cuts for the rich criticized the deal.
“This is a very bad agreement,” Vermont Senator Bernie Sanders, an independent who caucuses with the Democrats, told MSNBC television. Sanders vowed to “do what I can” to block Senate passage.
Jim Manley, a spokesman for Senate Majority Leader Harry Reid, was noncommittal.
“Now that the president has outlined his proposal, Senator Reid plans on discussing it with his caucus tomorrow,” Manley said.
In addition to keeping the current tax rates for all Americans, the plan outlined by Obama would extend aid for the long-term unemployed for another 13 months. The payroll tax — which funds Social Security and Medicare — would be cut by 2 percentage points during 2011 to help spur hiring.
The compromise plan would set the estate tax at a top rate of 35 percent, which applies after a $5 million tax-free allowance per individual, according to two people familiar with the discussions. That rate would be the lowest since 1931, not counting 2010, when the rate was zero and replaced with a complicated capital gains tax that applies when inherited assets are sold.
Obama also endorsed allowing a full deduction for equipment purchases that currently must be deducted over time. The proposal would accelerate $200 billion in tax savings for companies in the first year and benefit 1.5 million companies and several million individuals who run businesses, according to White House estimates.
Total revenue lost from the so-called expensing proposal over 10 years would be $30 billion; companies taking the immediate deductions wouldn’t be able to write off their expenses through depreciation in years to come.
December 6, 2010
Pact on Bush Tax Cuts Trims Payroll Levy
By JACKIE CALMES and and DAVID M. HERSZENHORN
WASHINGTON – President Obama said Monday that he had agreed to the main elements of a deal with Congressional Republicans to extend the Bush-era tax cuts at all income levels for two years as part of a package that would also extend jobless aid for long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.
Speaking to reporters at the White House, Mr. Obama said there were elements of the framework that he did not like, but that he had agreed to it in order to avoid having taxes go up on middle class Americans at the end of the year. He said that in return for agreeing to Republican demands that income tax rates not go up on upper-income brackets, he had secured substantial assistance to lower and middle income workers as well as the unemployed.
“It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “ It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”
Congressional Democrats gave the announcement a lukewarm reception. But it generally won praise from Republicans, and suggested that how the White House and the newly empowered Republicans on Capitol Hill might work together.
Some details remain to be worked out, and Mr. Obama could have trouble bringing his party along with him. The package would cost about $900 billion over the next two years, all to be financed by adding to the budget deficit.
It includes reducing the 6.2 percent Social Security payroll tax on employees by two percentage points for a year, putting more money in the paychecks of workers. That tax cut would replace the central tax break for middle and low-income Americans included in last year’s economic stimulus measure, White House officials said.
It also includes continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.
The deal would include a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as 7 million people would potentially lose assistance within the next year, administration officials said.
The White House was also said to have agreed to Republican demands on the estate tax that would result in an exemption of $5 million per person and a maximum rate of 35 percent. Some Democratic aides said that concession alone was reason enough for Democratic lawmakers to oppose the deal when it comes up for votes in the House and Senate.
Administration officials sought to cast the deal in a positive light, saying many of the new provisions would do more to accelerate the economic recovery than the tax cuts at high income levels.
But Congressional Democrats have expressed increasing anger that the payroll tax cut and the jobless aide, which Mr. Obama demanded in exchange for continuing the Bush-era tax rates for the highest-income Americans, were not enough in return for such a big concession.
The payroll tax cut would put about $120 billion back in the pockets of workers and the unemployment benefits would cost about $60 billion, officials said. Continuing the lowered tax rates for the highest-earners, by contrast, would cost the government $700 billion in lost revenue over the next 10 years, according to budget analysts.
Some Democrats expressed wariness about the emerging deal. But it was clear that Republicans were happier with the results.
“Nothing has been finalized yet,” Senator John Barasso, Republican of Wyoming said in a television interview. Still he said, “I am encouraging Democrats to get on board.” He added, “They good news is it doesn’t raise taxes on anyone in this country.”
Democratic Congressional leaders were non-commital. An aide to the House speaker, Nancy Pelosi of California, said that she would meet with rank-and-file lawmakers to discuss the plan. And a spokesman for the Senate majority leader, Harry Reid of Nevada, said similarly that Mr. Reid would discuss the proposal at a lunch meeting with his colleagues on Tuesday, pointedly referring to the plan as Mr. Obama’s.
Representative Dave Camp, Republican of Michigan and the soon-to-be chairman of the tax-writing Ways and Means Committee, issued a statement praising the tentative deal.
“Preventing a massive, job-killing tax increase on families and small businesses is my number one priority,” Mr. Camp said. “This framework will allow us to extend all current tax rates and give economic recovery and job creation a chance. The failure to reach and pass an agreement preventing a tax hike would have been devastating for families, especially those who are still looking for work.”
Among the provisions in the package sure to get intense scrutiny is the temporary payroll tax cut. Under current law, workers in 2011 would pay 6.2 percent in Social Security payroll tax on income up to $106,800, or a maximum of $6,621.60. For a family earning $50,000, the two percentage point cut would mean a savings of $1,000.
For workers paying the maximum, the two percentage point cut would mean a savings of $2,136.
Critics of the proposal said it would undermine the stability of Social Security, which is financed by the payroll tax. Legally, the government wouldbe obligated to continue paying the same benefits levels and would have to make up the short fall from general revenues or borrowing.