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Now it’s the ‘Obama’ tax cut

Senate Majority Leader Harry Reid of Nev., holds a copy of the Constitution and Declaration of Independence during a news conference on Capitol Hill in Washington Thursday, Dec. 16, 2010. (AP Photo/Alex Brandon)

Displaying a new style of compromising, President Barack Obama invited Democrats and Republicans alike to the White House on Friday for the signing of 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 the capital.

The package retains Bush-era tax rates for all taxpayers, offers 13 months of extended unemployment benefits to the jobless and attempts to stimulate the economy with a payroll tax cut for all workers.

The agreement, struck 10 days ago between the White House and Senate Republican leader Mitch McConnell, was more bipartisan than the signing ceremony, however. Only five Republicans, including McConnell, were scheduled to be at the White House, compared to 19 Democrats.

At a cost of $858 billion over two years, the deal contains provisions for both Democrats and Republicans. It represents the most money that Obama is likely to be able to dedicate over the next year to a slowly recovering economy, but it also increases the deficit at a time when the country is growing increasingly anxious about the red ink.

Dramatic both as an economic and a political accomplishment, the agreement sets the stage for Obama’s new relationship with Congress and for his re-election campaign. With the benefits of the package expiring at the end of 2011 and 2012, it places taxes at the center of the coming political debate.

To strike the bargain, Obama had to set aside his vow to extend tax cuts only for the middle class and lower wage earners. The measure also enacts an estate tax that is more generous to the wealthy than Obama initially sought.

The extended tax cuts include lower rates than would have gone into effect Jan. 1 for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. The bill also extends through 2011, a series of business tax breaks designed to encourage investment that expired at the end of 2009.

Social Security taxes would be cut by nearly a third, from 6.2 percent to 4.2 percent, for 2011. A worker making $50,000 in wages would save $1,000; one making $100,000 would save $2,000.

But the payroll tax cut also means that workers would face an increase in 2012 if the full 6.2 percent rate is restored. And by scheduling President George W. Bush‘s 2001 and 2003 tax rates to expire in two years, the law ensures that taxes will be a top issue in the 2012 presidential election.

The White House praised the deal. “I think it was a big win for the president,” spokesman Robert Gibbs said. “We got a better deal on this than the other side did.”

But Republicans boasted that their success in extending tax cuts for all was a sign of things to come.

“The American people are seeing change here in Washington,” McConnell said. “They can expect more in the new year.”

Liberals, unable to alter the plan, seethed. They argued Obama should have bargained harder, and they especially objected to the new estate tax, which will allow the first $10 million of a couple’s estate to pass to heirs without taxation. The balance would be subject to a 35 percent tax rate.

Rep. Anthony Weiner, D-N.Y., a critic of the bill, said Obama and lawmakers will face enormous election-year pressure in 2012 to extend the cuts again or make them permanent. Weiner said the Republicans turned out to be “better poker players” than Obama.

Obama struck the compromise with the GOP after November election results that wrested control of the House from Democrats. Though Republicans won’t take over until January, their new influence was evident immediately after the election.

The White House, while celebrating the bipartisan outreach represented by the tax bill, cautioned Republicans that Obama was not going to abandon Democrats in every case. “There will be times when we will draw the line and have big fights,” Gibbs said.

Copyright © 2010 The Associated Press

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