Barack Obama Announces Compromise On Bush Tax Cuts

Published: 07th December 2010
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Barack Obama has today announced a compromise deal that will involve extending all Bush-era tax cuts for two years. The move comes as a response to the success of the Republicans in last month’s US congressional elections.

Following a meeting with Democratic leaders, Mr. Obama announced what he called a "framework" agreement with Republicans. The agreement involves renewing tax cuts not just for the middle class- as he and his party first put forward, but also for wealthier Americans. The move echoes what the Republicans originally campaigned for.

The thinking behind the compromise is to draw resistance from some liberal Democrats, who have expressed their disappointment that the president has stuck to his Democratic ideals, and not allowing for any Republican demands following the US congressional elections. Obama may need to depend on help from Republicans to pass the order if enough of his fellow Democrats decide to revolt against the idea.

The tentative tax deal, expected to extend breaks on dividends and capital gains as well, also calls for a two per cent employee payroll tax cut and a 13-month extension of unemployment benefits, which could placate some Democrats.

Mr. Obama however conceded to Republican demands on the estate tax, by proposing a 35 per cent tax with a $5 million individual exemption level, which he admitted was more generous than he felt was "wise or warranted."

"We cannot play politics at a time when the American people are looking for us to solve problems," Obama told reporters. "I am confident ultimately that Congress is going to do the right thing."

Obama has said that the reason behind these concessions is the urgent need to reach a deal before Congress adjourns this month in order to avoid having the entire middle class face higher taxes when all of the Bush-era cuts expire on December 31st.

"I have no doubt that everyone will find something in this compromise that they don't like," Mr. Obama said. "In fact, there are things in here that I don't like – namely the extension of the tax cuts for the wealthiest Americans and the wealthiest estates. But these tax cuts will expire in two years."

According to the congressional budget office, the tax cuts for two years would cost $501 billion. Mr. Obama is currently under intense pressure to cut the $1.3 trillion budget deficit. The CBO also says renewing the rates will boost the economy in the short term but be harmful in the long term.

The tax bill is likely to meet some resistance from Democrats in Congress, but analysts reckon it faces a good chance of ultimately being approved.

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