Calling it a “grave injustice” to let middle-class tax cuts expire, President Obama outlined a deal he struck with Republicans on Monday to extend all tax cuts for two years in exchange for a 13-month extension in jobless benefits.
Making no secret of his profound distaste for a compromise that forced him to accept an extension of Bush-era tax cuts for the wealthy, Obama touted other elements of the package that would cut payroll taxes next year and extend tax breaks for families and college students.
“I know there's some people in my own party and in the other party who would rather prolong this battle, even if we can't reach a compromise,” Obama said at the White House. “But I'm not willing to let working families across this country become collateral damage for political warfare here in Washington.”
As described by the White House, the package would cut the 6.2 percent Social Security payroll tax by 2 percentage points next year so that someone earning $40,000 a year would get an $800 tax break and a worker making $70,000 a year would get $1,400 in tax relief.
The deal would preserve a bundle of tax credits aimed at middle-class taxpayers and set to expire at the end of the year, including the earned income tax credit, the child tax credit and a tax credit that helps pay college tuition.
It would allow businesses to retain a research and development tax credit and take a full write-off next year for all new investments. The plan would also reinstate the estate tax at no more than 35 percent, a level recommended by Republican negotiators.
The Congressional Budget Office estimated the unemployment benefits extension and the two-year tax cut extension alone would cost $270 billion over two years.
White House officials had no price tag for the total package. However, they said funds would be diverted to cover the loss in Social Security tax revenue from the payroll tax break, without specifying where the money would come from.
Democratic leaders in Congress signaled their displeasure with the deal, saying the proposals would be discussed in regular Tuesday caucus sessions.
Republicans, having forced Obama to concede on tax cuts for the wealthy after he campaigned on a promise to reject such an extension, were notably more enthusiastic.
“I appreciate the determined efforts of the president and vice president in working with Republicans,” said Senate Minority Leader Mitch McConnell, R-Ky. “Their efforts reflect a growing bipartisan belief that a new direction is needed.”
White House officials played up the job creation aspects of the deal. But in doing so, they set another marker for measuring the success of Obama's economic policies — which so far have failed to show significant results.
Aubrey Jewett, a political scientist at the University of Central Florida, said Obama sets a dangerous political precedent by capitulating to Republicans on a “cornerstone issue.”
“It is possible that he is about to start a pattern where he is going to make the Republicans a lot bolder, and leave himself without a good bargaining position,” Jewett said. “No question it makes him look weak.”