Republicans, who won last month’s elections, were given a boost as President Barack Obama announced that all Bush-era tax cuts will continue for two years.
Obama said that the tax cuts would be implemented not only on the middle class but also on the wealthier people, as the Republicans proposed. But the Democrats’ plan was not implemented.
Tough resistance is expected from the Liberal Democrats on the plan, who said the President was bending too much to the republican demands. He will need the help of the Republicans if his legislators go against him.
Uneasy for the Democrats, the plan includes 2 percent payroll tax cut and a 13 month extension of unemployment benefits, it is also expected to broaden break on dividends and capital gains.
The 35 percent tax with 5million dollars individual exemption level was agreed on by Obama, but defined it as being too generous.
Obama told reporters that it was the time for solutions and not for politics. He said he was confident that the Congress will do the right thing.
The Bush era taxes expire on December 31, and the Congress adjourns, which is why Obama said he had to make some concessions to protect the middle class from higher taxes.
Obama said everyone will not like certain aspects of the deal, like he himself didn’t like the tax cuts for the wealthy, but, he said, that the cuts would expire in two years.
Having a budget deficit of 1.3 trillion dollars already, the new tax cuts will cost 501 billion dollars more, putting Obama under more pressure. But the CBO said that the new cuts will boost the economy for a short period but hamper it in the long one.
Obama’s shaky handling of the economy was reflected in the Nov 2 elections in which Republicans gained the majority, which also had an effect on the concessions.
The plan is expected to be passed before the end of the legislative session, despite expected resistance from the Democrats.
Republicans support tax cuts for people with higher incomes, whereas the Democrats demand cuts for families earning up to 200,000 dollars.
The plan was called fiscally irresponsible and unfair by Peter Welch, a Vermont Democrat. He said in a letter to the Democratic House Speaker Nancy Pelosi that the Democrats supported the initial plan of cuts to 98 percent of the taxpayers and they will not back down from it.
The officials defended the President’s approach saying the extension will expire in 2012 when he is seeking re-election, so he will be in a stronger position to make the point clear to the public.
Larry Reid’s spokesman Jim Manley said the Senate Majority leader will take up the matter with the Democrats on Tuesday.
The reaction from the Republican camp was positive. House and Senate Majority leaders, both republicans, called the step encouraging and an opening to prevent tax hikes.
Obama’s leniency in the tax plans was criticized by the Liberals. While New York Times columnist Paul Krugman wrote that it would have been better if Obama would have let the tax rise for all Americans, rather than cutting it for the wealthy.
The unemployment payments, which had already been extended to 99 weeks from 26 weeks, runs out this month, with nearly two million Americans’ benefits at stake. Obama has called for another extension.
The deal includes two year extension of tax breaks for individuals as well as businesses.
No immediate plan was highlighted on the “Build America Bonds” debt which was included in last year’s stimulus and is going to expire this December. An official said the details were still being worked out.