President Barack Obama and congressional Republicans announced an agreement Monday night to extend multiple tax cuts, lower the payroll tax and extend unemployment benefits, among other simulative measures.
The tax deal would add $900 billion to the deficit over the next two years. The plan calls for a two-year extension of the Bush tax rate for all income levels, in a step back from Obama’s previous insistence that only tax cuts for the middle class be extended.
At a press conference, Obama attempted to explain this, saying that he didn’t like parts of the deal, but he agreed to a plan that would not raise taxes on the upper class in exchange for increased benefits for lower and middle class workers.
“It’s not perfect, but this compromise is an essential step on the road to recovery,” Obama said. “It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”
Most of this stimulus comes in the form of lower taxes. Tax breaks such as the Earned Income Tax Credit and the college-tuition tax credit would see extensions under this plan, and it would allow businesses to write off new investment expenses for the next year.
A new tax cut is part of the plan as well, in the form of a cut in Social Security payroll taxes from 6.2 percent to 4.2 percent. The White House claims that this will increase the amount of wages workers receive by $120 billion in the next year.
The one spending increase comes in the form of a 13-month extension of expiring unemployment benefits, giving more support to those facing long-term unemployment.
The plan was greeted warmly by several key Republicans, but some commentators believe the president may have a harder time convincing his own party.
Particularly controversial to Democrats is a provision that would let the estate tax start at $5 million at a 35 percent rate. Democrats preferred the prior estate tax, which taxed money passed to heirs above $3.5 million at 45 percent rate.
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