Unemployment Extension Vs. Tax Cuts for the Rich: Republicans Get Their Way

WASHINGTON — Brushing past Democratic opposition, President Barack Obama announced agreement with Republicans Monday night to extend expiring tax cuts for all Americans, renew jobless benefits and grant a one-year reduction in Social Security taxes for millions.  The Skanner News Video: AFL-CIO on Unemployment impact

The emerging agreement also includes tax breaks for businesses that the president said would contribute to the economy's recovery from the worst recession in eight decades.

Obama said there were elements of the deal he personally opposed, including an extension of expiring income tax cuts at upper income levels and a more generous deal on estates. But he said he decided that an agreement with Republicans was more important that a stalemate that would have resulted in higher income taxes at all income levels on Jan. 1.

"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 at the White House.

Top Democrats traveled to the White House earlier Monday and left later without discussing the details of their discussions with Obama and Vice President Joe Biden. Several officials said there was discontent over tax cut provisions that Republicans had demanded from the president, apparently successfully.

The White House meeting occurred after Obama returned to Washington from a trip to North Carolina, where he said he and Congress must "make sure we're coming up with a solution, even if it's not 100 percent what I want or 100 percent what the Republicans want."

Democrats have repeatedly raised objections to including the upper-income in any plan to extend tax cuts enacted in 2001 and 2003 when George W. 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.

Despite the grumbling, White House officials underscored the benefits of the overall proposal for lower and middle class workers.

They noted that without the proposed extension of long-term unemployment benefits, 2 million workers would lose their assistance in December, and 7 million by the end of 2011.

They said the payroll tax holiday under consideration would be for one year, and mean an extra $120 billion would remain in worker paychecks. The proposal would supplant an earlier White House demand to extend a tax cut for lower-income and middle-income families.

They also said there were tax breaks for businesses that would encourage them to expand operations, thus stimulating an economy that is struggling to recover from the worst recession in 80 years.

But White House officials were far more reticent about claiming economic benefit from a planned extension in the estate tax. Officials said in discussions with Republicans, the White House was willing to entertain a two-year extension in which estates totaling $5 million and less would pass to heirs tax-free. Anything over that level would be taxed at 35 percent.

Many Democrats favor a far less generous proposal, under which the first $3.5 million would be tax-free, and anything above that level taxed at 45 percent.

Obama pushes middle class tax cuts, investment

The grumbling among Democrats underscored a dramatic shift in political power in the month since midterm elections, in which Republicans won control of the House and strengthened their hand in the Senate.

The newly elected lawmakers have yet to take their seats, but the White House has been quick to reach out in search of compromises.

In contrast, Obama spent his first two years in office generally bargaining with Democrats as he labored to pass key legislation such as an economic stimulus in 2009 and his health care overhaul earlier this year.

Momentum for a year-end deal picked up after Obama met at the White House last week with Republican leaders for the first time since his party's dispiriting election losses, and accelerated again when the government reported last week that joblessness had risen in November, to 9.8 percent.

The flurry of negotiations is taking place with lawmakers eager to wrap up their work for the year and adjourn for the holidays.

Obama, Senate Majority Leader Harry Reid, D-Nev., and Republican Leader Mitch McConnell of Kentucky have all said in recent days they believe a deal on tax cuts and unemployment benefits is possible by midweek. If so, that would leave time for the Senate to hold a ratification debate on a new arms control treaty with Russia, which Obama 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.

Few details of the negotiations were available, including the length of a payroll tax holiday under discussion.

But it appeared increasingly likely that any extension of the Bush-era income tax cuts would be for two years.

Obama and Democrats have long insisted that tax cuts be allowed to lapse for incomes over $200,000 for individuals and $250,000 for couples, saying that would cushion the impact on the deficit.

On the other hand, Republicans want all tax cuts extended permanently, arguing it made no economic sense to raise taxes with the economy still recovering from the recession.

Questions remained about how many concessions Obama could extract from Republicans in exchange for extending current tax rates for high earners, a proposal he opposed. But without action, lawmakers face the prospect of delivering a tax hike to all taxpayers at the end of the year, when the current rates expire and revert to higher pre-2001 and 2003 levels.

Negotiations between the Obama administration and a bipartisan group of lawmakers centered on a two-year extension of current rates.

At the same time, a jump in the unemployment rate to 9.8 percent is putting pressure on Republicans to accede to Obama's demand that Congress extend unemployment insurance for a year. GOP congressional leaders had opposed an extension of benefits without cuts elsewhere in the federal budget.