By Jonathan Weisman John D. Mckinnon & Janet Hook
The Wall Street Journal
Grand Bargain Includes One-Year Drop in Wage Levy Estate Tax of 35.
WASHINGTONPresident 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 35the level favored by most Republican lawmakersas 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.
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 didnt 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.
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.
Mr. Obama acknowledged that the agreement marked a significant reversal for him as he has long argued that income tax cuts for couples earning more than $250000 should expire. If the political stalemate continued and led to a broad tax increase Mr. Obama said that could cost our economy well over a million jobs.
The deal would extend a raft of business tax breaks including credit for spending on research. It would extend current tax rates on capital gains and dividends for two years including for higher earners. It would also maintain protection for middle-class families from the alternative minimum tax.
As part of the deal the White House is proposing a provision to encourage more investment in plant and equipment by letting companies claim deductions on 100 of most kinds of investment.
Under the agreement between the White House and congressional Republicans the estate tax rate would be set at 35 for two years and would apply only to estates over $5 million. Under current law the estate tax has lapsed for 2010 and is set to spring next year to 55.
A program of extended benefits for the long-term unemployed which lapsed last month would be revived for 13 months the White House said. The jobless benefits would be financed by federal borrowing rather than by spending cuts.
For Mr. Obama reaching a deal with the GOP on taxes could help him score points with moderates and independents an increasingly important constituency by underscoring his ability to work with newly empowered Republicans. But the discussions have angered some liberal groups who say Democrats should engage the GOP in a showdown even if that risks letting the tax cuts expire for all income levels. In an email to its members the liberal Moveon.org said Theyve given up on this critical issue without a fight.
The payroll-tax reduction under discussion now would cut the 6.2 Social Security tax levied on a workers wages to 4.2. A worker making $40000 a year would save $800 and some economists say that could help stimulate demand at a time when the economy remains relatively weak.
The employers half of the taxalso 6.2wouldnt be affected under the White House proposal and thus the cost of hiring new workers wouldnt be directly affected.
The payroll tax reduction would take the place of a $400-per-worker income-tax break that Mr. Obama included in the 2009 stimulus bill. That break known as Making Work Pay provides a tax credit of 6.2 on the first $6450 of a workers wages. It phases out for workers making more than $75000.
Some Republicans prefer the payroll tax reduction to the Making Work Pay program because it goes to everyone who works regardless of income. A senior administration official said that the payroll tax cut would cost $120 billion twice that of Making Work Pay and would give bigger benefits to some low-income workers.
Versions of a payroll tax cut have been considered before and they enjoy a measure of support in Congress. But some Democrats are wary of any change to the payroll tax which funds the Social Security program.
Corey Boles and Martin Vaughan contributed to this article.
