We’ve been talking for months now about whether or not Congress and President Obama would be renewing the Bush tax cuts of 2001 and 2003. We’ve looked at what the 2011 tax rates would be if they weren’t extended, and talked about what some of the problems of not extending the Bush tax cuts would be. In the end I wasn’t sure that the Democrats and Republicans could find enough common ground on the issue to actually come up with a compromise solution. But last night President Obama and Congressional Republicans agreed in principle to a deal to extend the Bush tax cuts for all taxpayers, including high income earners. Not all Democrats are happy about the deal, so it still remains to be seen what they will do. Here is Obama announcing the deal.
In exchange for allowing an extension of the tax cuts, President Obama was able to get some concessions which are detailed below.
Deal On Extending The Bush Tax Cuts
Last night President Obama announced the deal (see the video to the right), and what it would entail.
President Barack Obama reached agreement Monday with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years, reduce worker payroll taxes for one year and give more favorable treatment to business investments.
Other elements of the deal include a temporary reinstatement of the estate tax at 35%—the level favored by most Republican lawmakers—as well as an extension of jobless benefits for the long-term unemployed.
“We have arrived at a framework for a bipartisan agreement,” Mr. Obama said on Monday night, capping weeks of negotiations with leaders in Congress.
The outcome of the negotiations is vital, because the current tax levels signed into law by President George W. Bush expire on Dec. 31. Unless Congress acts, tax rates on virtually all Americans who pay income taxes will rise on Jan. 1. That could affect economic growth and even holiday sales.
What Is In The Deal?
To recap, the following were agreed to by President Obama and Congressional Republicans. (No Democrat nod to this plan as of yet).
- Extend Bush tax cuts for everyone, for 2 years.
- Reduce 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%
- Extension of jobless benefits for another 13 months, beyond current 99 weeks.
- Extend current tax rates on capital gains and dividends for two years, including for higher earners.
- Extend a raft of business tax breaks, including credit for spending on research
Democrats Not On Board… Yet
So far the plan has been panned by Congressional Democrats and the liberal base, and Obama has admitted that there is a tough road to get this deal passed.
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 at this point liberal lawmakers and activists are “left seething” at the deal, and convincing them that his is a good idea isn’t going to be easy. Obama may need to rely on Republicans to help get this passed.
White House officials will now try to persuade Democrats to back the agreement, but anger on the left suggests that Mr. Obama might need to rely heavily on Republican support to move legislation through Congress.
Republican leaders spoke highly of the agreement. In a statement, House Republican Whip Eric Cantor said, “No one gets everything they want in a deal, but our top priority is to restore certainty to the private sector so that businesses small and large can start hiring again.”
Senate Republican Leader Mitch McConnell also praised the deal and asked that Democrats in Congress now “show the same openness to preventing tax hikes the administration has already shown.”
The Republicans admit that they didn’t want to extend unemployment insurance past the current 99 weeks or reinstate the estate tax, but that the political reality was that they would need to in order to come to a compromise.
If Tax Cuts Are Passed, Will It Lead To Growth And More Stability?
Many congressional leaders have stated that in order to get the economy moving again we need to pass something in order to restore a bit of stability for business. They need to know what’s going to be happening next year so that they can adjust payroll, plan expenditures and move forward in their planning for 2011. Hopefully if this can get passed it will be a spark that we need to give business a boost.
What do you think about the deal that President Obama announced last night. Do you think it’s a good thing, and will congressional Democrats get on board? Tell us your thoughts in the comments.