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Obama and GOP make deal on taxes

Would extend cuts, jobless benefits; Liberal Democrats rip break for wealthy

President Obama President Obama
By Matt Viser
Globe Staff / December 7, 2010

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WASHINGTON — President Obama struck a tentative deal with congressional Republicans yesterday to extend all of the Bush-era tax cuts in exchange for an extension of unemployment benefits, a move the president said would avoid a damaging stalemate but which infuriated liberal Democrats and left unclear whether the plan could be passed by Congress.

The agreement would extend tax cuts at all income levels for the next two years, while most Democrats, including the president, had wanted the cuts to extend only to households earning less than $250,000 a year.

“I know there’s some people in my own party, and in the other party, who would rather prolong this battle. . .’’ Obama said in a brief address. “But I’m not willing to let working families across this country become collateral damage for political warfare here in Washington.’’

Obama’s move represented a major victory for Republicans, who still lack the majority in either chamber of Congress but whose hand was strengthened by a strong showing in midterm elections. They will assume control of the House next year.

With the clock ticking toward a Jan. 1 deadline, when taxes on all Ameri cans would rise without a deal, Obama was running out of options. The Senate failed over the weekend to approve Democratic proposals that would have allowed taxes to rise only on the wealthy while preserving tax cuts for people in the lower- and middle-income brackets.

The president suggested in his remarks last night that he chose the pragmatic course over an ideological fight that Democrats would probably not win. If Congress doesn’t act, Obama said, the typical American family would see their taxes go up by $3,000 next year and it could result in “well over a million jobs’’ lost.

In exchange for his concession on the tax cut, Obama won GOP backing to extend for 13 months the unemployment benefits paid to jobless workers — benefits that expired earlier this month. In addition, the payroll tax would be reduced from 6.2 percent to 4.2 percent to put $800 more into the pocket of a worker making $40,000 a year.

A variety of other tax breaks would also be extended, including an expansion of the earned income tax credit and the continuation of a college-tuition tax credit and a child-tax credit. In a concession to Republicans, Obama also agreed to a two-year extension of the estate tax, allowing $5 million to be passed to heirs tax-free; anything above that level would be subject to a 35 percent federal tax.

But liberal Democrats, including a number from Massachusetts, objected to the deal as details began to emerge.

Representative Michael Capuano, a Somerville Democrat, called the president “naive.’’

“It sounds like a total capitulation to the Republicans,’’ Capuano said in an interview. “Right now it doesn’t feel like we’re going into battle with a desire as a group to stand up. If you want to go to battle with me and you have a history of caving . . . that discourages me.’’

“I’m not happy about where this debate seems to be headed,’’ Representative James P. McGovern, a Worcester Democrat, said in a statement. “I’ll reserve final judgment until I see the final package, but from what I’ve seen so far, I can’t be supportive.’’

Republicans were much more enthusiastic. Senate Minority Leader Mitch McConnell, a Kentucky Republican with whom Obama rarely interacted until the past week, praised the negotiations as reflecting “a growing bipartisan belief that a new direction is needed if we are to revive the economy and help put millions of Americans back to work. Members of the Senate and House will review this bipartisan agreement, but I am optimistic that Democrats in Congress will show the same openness to preventing tax hikes the administration has already shown.’’

Senator John McCain, the Arizona Republican and Obama’s rival for the presidency, put a message on Twitter after Obama’s press conference: “I applaud the framework agreement just announced by the president. Now we need [to] make it happen.’’

The negotiations illustrate the new, postelection dynamic in Washington, one in which Republicans are calling some of the shots and dictating their own terms of debate, even as Democrats still control the White House and, in a lame-duck session ending this month, both chambers of Congress.

During the months leading up to the midterm elections, Obama railed against the Republican stance that even upper-income families should have their tax cuts extended during the fragile economy. But following the “shellacking’’ he and his party were dealt in the elections, Obama began to signal a willingness to compromise.

It was unclear last night whether Obama could muster enough support within his own party to win passage of the proposed deal. A number of liberal groups urged Democrats to reject the plan.

MoveOn.org said recently on its website, “We want Obama back.’’ Another liberal group, Democracy for America, warned that any Democrat who goes along with the president on a proposed plan to extend tax cuts for the wealthiest Americans could face a tough primary fight in the next election.

A central part of the deal was the extension of unemployment benefits; as many as 60,000 Massachusetts residents lost such payments this month.

Senate Democrats have tried to extend the benefits, but have been thwarted by Republicans because they wanted the cost of the extension to be offset with revenue from other areas. The current proposal does not offset the cost of the benefit extension, which could lead some Republicans to oppose the plan.

Recognizing it has work to do to quell dissent in its own party, the White House is dispatching Vice President Joe Biden to Capitol Hill today to discuss the compromise with Democrats. The package will not include any amendments, forcing Congress to hold up-or-down votes.

The plan is expected to be voted on in the House and Senate later this week, clearing the way for votes on several other issues, including a nuclear arms control treaty that Obama has pegged as a top priority.

“As of right now the Democrats control the White House, the Senate, and the House. Why we would compromise with ourselves makes zero sense to me,’’ Senator Bernard Sanders, a independent from Vermont, said in an interview. “The president looks weak when he is negotiating with himself rather than rallying the American people to stand up against this outrageous policy being pushed by the Republicans.’’

“I will try to make sure he doesn’t get the 60 votes needed in the Senate to approve that agreement,’’ Sanders added.

But Obama said he had to face political reality.

“As much as the political wisdom may dictate fighting over solving problems, it would be the wrong thing to do,’’ he said. “The American people didn’t send us here to wage symbolic battles or win symbolic victories.’’

Mark Arsenault of the Globe staff contributed to this report. Matt Viser can be reached at maviser@globe.com.

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