The plan to keep tax cuts for US citizens with lesser means raised discontent on Tuesday on the Democrat side, when investors also started to dump US bonds fearing the plan would bring higher budget deficit on grounds of low taxes.
Analysts have no doubts that the plan being approved by the Congress, Obama antagonized his fellow Democrats who believe that he went into the compromise with the Republicans too easily.
Although Democrats have also been seeking to reduce the taxes, their commitment and support for the measure it still unclear one month before turning control of the House of Representatives over to the Republicans.
President Obama believes that the plan will give a push to the economy, which is in much need of stimulation in order to recover from the harshest economic crisis in seven decades. Some economists estimate that the tax should improve employment rates and boost economic growth next year by 0.5-1.0 percent, while also reducing ambiguity on US tax policy. Some forecast that this tax alone could lead to the creation of some 2.2 million jobs, which no other congressional measure has managed to do so far.
The compromise with the Republican camp will extent the unemployment benefits for 13 more months. However, Obama also agreed to a 35 percent estate tax with a 5 million dollars individual level of exemption.
According to the Congressional Budget Office, the compromise tax would incur costs of 501 billion dollars in lost tax income, while a Republican representative thinks they will be more in the area of 700 billion dollars.
Fearing that keeping the tax cuts will damage the US budget further and that they will push inflation even higher, investors dumped US Treasury bonds. Analysts feel investors are right to be fearful, as the measure, while it has short term benefits, could prove to be disastrous in the long run.
No date has been set for a vote on the deal, and many key Democrats have not made up their mind about it.