BBC: Obama compramising (again) on Tax Cuts.

The White House has begun urging sceptical Democrats to support a tax deal forged with Republicans. Some Congressional Democrats are displeased the deal would extend Bush-era tax cuts for wealthy Americans. But President Barack Obama presented the proposal – which must still pass Congress – as a compromise, in which he won a concession on jobless benefits.

Vice-President Joe Biden is to meet Senate Democrats, while Mr Obama was to meet advisers at the White House. The deal, which Mr Obama announced on Monday evening, must be voted on by Congress, where Democrats currently hold the majority in both houses.

“The framework agreement announced by the president secures vital tax relief and investments in our workers that will create jobs and accelerate economic growth,” the White House said on Tuesday morning. But the Democrats whose support is needed for the plan to win congressional approval remained lukewarm.

In Washington, Mr Obama’s two-year tax cut deal with Republicans is being portrayed as more capitulation than compromise.  Anger is fomenting among congressional Democrats and liberal activists sorely disappointed that their president did not fight harder to roll back tax cuts for the richest Americans. After all, repealing these taxes was a key and oft-repeated mantra in his campaign.

Democrats feel justified in their desire to see the Bush tax cuts extended only for lower- and middle-class Americas – polls show a significant majority of Americans support their stance.

But Mr Obama had more at stake than taxes. Republicans vowed to block any legislation until the issue was resolved, meaning that critical administration priorities, including the new Start nuclear weapons treaty and moves to repeal a ban on gays serving openly in the military, would be held hostage.

Now, the White House believes those issues will move forward, and they will fight the tax cut battle another day. Unfortunately for them though, that day will come in 2012, right before the next presidential election.

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 Senator Tom Harkin.

Meanwhile, Senate Republicans, who had held up extension of unemployment insurance and blocked Mr Obama’s preferred path – to limit the extension of tax cuts to middle- and lower-class Americans – praised the deal.

Senate Minority Leader Mitch McConnell on Monday evening thanked the president for “working with Republicans on a bipartisan plan to prevent a tax hike on any American and in creating incentives for economic growth”.

Among the provisions in the deal, tax cuts passed by President George W Bush and the Republicans in 2001 and 2003 would be extended for all levels, whereas Mr Obama and the Democrats had sought to let them expire next month for American households earning more than $250,000 (£158,599).

In addition, unemployment benefits would be renewed for 13 months and payroll taxes would be reduced for a year, putting more money into earners’ pockets. Following November’s mid-term elections, when the new Congress convenes next month Republicans will control the House of Representatives and hold increased power in the Senate.

‘Grave injustice’

Mr Obama said there were elements of the deal that he opposed – including an extension of tax cuts for the wealthiest 2% of Americans. But he said striking a deal with Republicans was more important than allowing the tax cuts to expire on 1 January 2011 amid a political stalemate.  He said it would be a “grave injustice to let taxes increase” for ordinary Americans.

“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. Earlier on Monday, during a trip to North Carolina, Mr Obama had said Congress must “make sure we’re coming up with a solution, even if it’s not 100% what I want or 100% what the Republicans want”.

Provisions of the tax cut compromise

  • A two-year extension of income tax cuts for all Americans enacted in 2001 and 2003 under former President Bush
  • A 13-month extension of unemployment benefits for the long-term unemployed
  • A 35% tax for two years on estates worth more than $5m
  • A one-year payroll tax holiday that would see the rate drop from 6.2% of pay to 4.2%
  • Allowing businesses to write off all their capital investments for tax purposes during 2011
  • Extending the Earned Income Tax Credit, the child tax credit and tuition credits

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