Over the past year or so we've been talking on this site quite a bit about the 2001 and 2003 Bush tax cuts, and whether or not they would be renewed in some form before they expire on December 31st. We looked at what would happen to the tax rates if they weren't renewed, and explored some of the alternative plans that were floated by members of congress.
While I've thought for some time that Congress would probably act to get something done on the tax cuts, as we get closer and closer to the end of the year I've started to have my doubts. Last night, however, President Obama announced that a deal with Congressional Republicans had been reached to extend the tax cuts for everyone. In return the Obama got concessions on extending unemployment insurance for another 13 months. Here is Obama announcing the deal.
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Bush Tax Cuts Extended If Deal Is Approved
So President Obama and Congressional Republicans have come to agreement in principal on extending the tax cuts.
President Obama and congressional Republicans agreed Monday to a tentative deal that would extend for two years all the Bush-era income tax breaks set to expire on Dec. 31, continue unemployment benefits for an additional 13 months and cut payroll taxes for workers to encourage employers to start hiring.
Obama was able to extract an agreement from GOP leaders to support an additional 13 months of jobless benefits, a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill.
The deal has been in the works for more than a week and represents a concession by Obama to political reality: Democrats don't have the votes in Congress to extend only the expiring income tax breaks that benefit the middle class. The White House estimates that the proposed agreement would prevent typical families from facing annual tax increases of about $3,000, starting Jan. 1.
What's In The Deal To Extend The Tax Cuts
So what exactly is in this deal that was approved by Obama and Congressional Republicans?
- Extension of Bush tax cuts for everyone, for 2 years.
- Reduction of Social Security tax levied on a worker’s wages from 6.2% to 4.2% for one year.
- Reinstatement of the estate tax at 35%. First $5 million for individuals and $10 million for couples is exempt.
- Extension of jobless benefits for another 13 months, beyond current 99 weeks.
- Extension current tax rates on capital gains and dividends for two years, including for higher earners.
- Extension of business tax breaks, including credit for spending on research.
Not Everyone Happy With The Deal
By coming to agreement on extending unemployment benefits and extending the tax cuts Obama hopes to be seen as someone who can work with the other side, and make concessions when the political reality forces him to. Many congressional democrats aren't happy with the deal, however.
In reaching the deal, whose details still need to be worked out, Mr. Obama brushed past the demands of many in his own party to curb tax cuts for the wealthy. Some liberal lawmakers and activists were left seething, particularly over last-minute concessions to Republicans on the estate tax. Democratic leaders didn’t agree to the deal during meetings on Monday with Mr. Obama and Vice President Joe Biden, according to a House aide.
“I can tell you with certainty that legislative blackmail of this kind by the Republicans will be vehemently opposed by many, if not most, Democrats,” said Rep. John Conyers (D., Mich.).
In the Senate, Tom Harkin (D., Iowa) called it “an understatement” to say he was disappointed.
So what else was approved by Obama and Republicans as part of the deal? The estate tax would be reinstated for certain folks.
The deal also would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples. Democrats on Capitol Hill are strongly opposed to setting the cap at that high a level and to the 35 percent rate discussed by Obama and Republicans that would apply to the taxable portion of estates.
Will The Deal Be Passed By Congress?
Obama expressed that it was important that a deal get done, and the White House will be sending Vice President Biden to discuss the deal with Senate Democrats today.
In brief remarks Monday evening, Obama said he was disappointed that the deal would extend breaks for the wealthiest households, but he warned Democrats not to make good on threats to allow all the cuts to expire, as an expression of the party's opposition to preserving the top-rate cuts. “Sympathetic as I am to those who would prefer a fight to compromise, it would be the wrong thing to do,” the president said. “The American people didn't send us here to wage symbolic battles.”
The White House is preparing for significant opposition from Democrats and will send Vice President Biden to meet with Senate Democrats on Tuesday. Later on Tuesday, House Democrats are scheduled to discuss the proposed deal.
Both the President and Republicans have ok'd the deal, so will Congressional Democrats fall in line as well? Indications are that they don't want to, but my guess is that they will agree to this deal in some form. They don't want to be the ones to hold up tax cuts for the middle class, and President Obama agreeing to this deal has put them in a bind in regards to that.
What do you think will happen with the Bush tax cuts? Will this deal be passed? Do you think that both sides compromising on issues that they previously said they wouldn't mean that this deal is the best of bad options? Tell us your thoughts in the comments.