Washington — President Barack Obama vigorously defended his agreement with Republicans to extend all of the Bush-era tax cuts on Tuesday, arguing that it was a price that had to be paid to spare the middle class from crippling tax hikes.
The president promised disheartened Democrats that the fight over the cuts for the highest-income Americans would continue over the next two years. He also urged them to take a long-term view of the bitter policy fights now taking place in Washington.
My “number one priority is to do what’s right for the American people,” he said at a hastily scheduled news conference at the White House. “Because of this agreement, middle class Americans won’t see their taxes go up on January 1.”
Obama blasted the Republicans for clinging to a rigid ideology that, in his opinion, has blinded the GOP to the needs and concerns of average Americans.
“I’ve said before that I felt that the middle class tax cuts were being held hostage to the high-end tax cuts,” he said. “I think it’s tempting not to negotiate with hostage takers, unless the hostage gets harmed. … In this case, the hostage was the American people. And I was not willing to see them get harmed.”
“If there was not collateral damage, if this was just a matter of my politics or being able to persuade the American people to my side, then I would just stick to my guns,” he insisted. But “the issue is how do I persuade the Republicans in the Senate. … I have not been able to budge them.”
Extending tax cuts for the wealthy is the “holy grail” for Republicans, Obama said. It “seems to be their central economic doctrine,” and, he noted, one they can defend by using the Senate filibuster.
Democrats need to “make sure we understand this is a long game, not a short one,” he concluded, promising to take the fight to the GOP on the campaign trail in 2012.
It was not immediately clear if Obama’s defense of the deal — as well as Vice President Joe Biden’s one-on-one efforts behind closed doors on Capitol Hill — would sway more liberal Democrats. The overall cost to the U.S. treasury of the controversial compromise will be between $600 billion and $800 billion over two years, according to CNN estimates.
Biden will head to Capitol Hill again on Wednesday to meet with House Democrats, who indicated Tuesday that they have problems with the agreement.
House Speaker Nancy Pelosi said the reaction by her caucus to the deal “has not been too good,” and Rep. Bill Pascrell of New Jersey said Obama made a mistake by agreeing so quickly with Republicans, adding that “if this is the playbook for the next two years, we want out because the Democrats in the House have obviously become irrelevant.”
It was unclear, however, if the Democratic anger would become a revolt that could sink the agreement or bring attempts to change it in the final weeks of the current lame-duck session of Congress that ends in early January. Republicans say they won’t accept any changes to the deal.
At the heart of the deal is an extension of the Bush-era tax cuts for two more years, which would keep income tax rates at their current levels for everyone, as Republicans have advocated. Obama and other Democrats had argued that tax rates should stay the same for most people but rise for people earning more than $200,000 a year and families making $250,000 or more a year.
The deal Obama and Republicans have struck also includes a one-year cut in payroll taxes, from 6.2% to 4.2%. The tax is applied to a worker’s first $106,800 of wages. If implemented, it would mean that someone earning $50,000 a year would pay $1,000 less in Social Security contributions next year. Someone earning $100,000 would pay $2,000 less. The payroll tax rate would go back up to 6.2% in 2012.
The estate tax — currently scheduled to return in 2011 to a top rate of 55% along with a $1 million exemption — would instead come back with a lower top rate of 35% along with a $5 million exemption.
Agreeing to extend the Bush-era tax cuts for the wealthiest Americans represented a major concession for Obama. In a concession to Democrats, Republican negotiators agreed to leave in place for 13 months the option to file for extended federal unemployment benefits. That will not, however, affect how long someone can collect unemployment benefits — the maximum will remain 99 weeks in states hardest hit by job loss.
The plan also would continue tax breaks for students and families contained in the 2009 stimulus bill and allow businesses to write off all investments they make next year.
Republicans appeared quick to rally behind the deal.
“The right thing for our country is to support the tax agreement,” Tennessee GOP Sen. Lamar Alexander said before Obama spoke. “It makes it easier and cheaper to create private sector jobs.”
Senate Minority Leader Mitch McConnell, R-Kentucky, predicted the “vast majority” of Senate Republicans will back the deal.
Several Democrats said they have reservations about the agreement. One key reason is the cost of extending benefits for wealthier Americans.
Extending the Bush-era tax cuts for two years would cost $458 billion, the Treasury Department has estimated — $383 billion for lower and middle income Americans plus $75 billion for individuals making more than $200,000 a year and families making $250,000 or more. The White House has estimated that lowering the payroll tax would cost $120 billion. Extending unemployment benefits for 13 months comes with a $62 billion price tag, according to CNN estimates.
Lowering the top estate tax rate to 35% — combined with the $5 million exemption — costs $88 billion over two years, according to the Tax Policy Center.
The deal doesn’t say anything about raising money to pay for the changes. That suggests that the federal deficit will continue to rise despite rising pressure to curb spending and lower the deficit. Just last week, a bipartisan presidential panel voted 11-8 in favor of spending cuts and tax changes that would cut $4 trillion from the projected deficits between now and 2020. That majority, however, was not big enough to send the proposal on to Congress.
The 2010 federal budget deficit was $1.3 trillion; it’s projected to be somewhat smaller in 2011. That projection doesn’t take the proposed tax deal into account.
Defenders of the deal contend that it is possible to be fiscally responsible while adding to the deficit in the short-term. The package, they argue, could help stimulate economic growth necessary to create new jobs and generate new tax revenue.
“One of the critical things for what our fiscal situation is going to be in 2014 and 2015 is not only the tougher policies that the president will talk about in his (upcoming) State of the Union (address), but ensuring that we get growth going in 2011 and 2012,” a senior administration official said Monday.
If Congress doesn’t pass some kind of tax deal by the end of the year, taxes will go up for everyone, since the current rates set under President George W. Bush expire automatically at the end of 2010. Democrats control both houses of Congress, but the Republicans will take control of the House of Representatives in January, and the Democratic majority in the Senate will be smaller than it is now.
Some Democrats, speaking to reporters before Obama’s news conference, said the president had conceded too much to Republican demands.
“I still seem puzzled at the president’s enthusiasm, and the Republicans giving an income tax break for people making over $1 million. We’re borrowing $46 billion to do so,” said Louisiana Sen. Mary Landrieu, a moderate Democrat.
Liberal Sen. Frank Lautenberg, D-New Jersey, accused the president of “capitulation under pressure.”
“What do I think of it? Not much,” said Sen. Patrick Leahy, D-Vermont.
Pelosi, D-California, said Tuesday the agreement “clearly presents the differences between Democrats and Republicans.”
“Republicans have held the middle class hostage for provisions that benefit only the wealthiest 3%, do not create jobs, and add tens of billions of dollars to the deficit,” she said. “We will continue discussions with the president and our caucus in the days ahead.”
Maryland Rep. Chris Van Hollen, a member of the House Democratic leadership, said he has “serious reservations” about the deal, particularly as it relates to the estate tax.
House Majority Leader Steny Hoyer, D-Maryland, said he has not decided whether he’ll ultimately vote for the proposal.