US tax cuts: White House urges Congress to pass deal

Mr Obama said he had not been able to "budge" Republicans over tax cuts

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US President Barack Obama has defended a proposed deal with Republicans to extend tax breaks for the wealthy, as well as middle class Americans, as the best option for the country.

Mr Obama said he had compromised because a long political fight would harm the economy and US families.

He accused Republicans of holding middle class Americans hostage.

The White House is working to get Democrats to back the plan, which also extends jobless benefits.

Speaking at the White House, Mr Obama pledged to fight the Republicans over tax cuts for the wealthy when the benefits expire in 2012 - when he will be up for re-election - but he said he was unwilling to risk "collateral damage" to ordinary Americans just to make a political point.

"I've said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts," he said. "It's tempting not to negotiate with hostage-takers, unless the hostage gets harmed. Then people will question the wisdom of that strategy. In this case, the hostage was the American people and I was not willing to see them get harmed."

Republican 'holy grail'

Mr Obama's remarks came less than a day after he struck a deal with congressional Republicans to maintain for another two years a package of tax cuts enacted in 2001 and 2003 under President George W Bush.

Mr Obama said he had extracted compromises on a host of tax benefits for middle class Americans, including a child tax credit, college tuition credits and a payroll tax holiday.

Analysis

In Washington, Mr Obama's two-year tax cut deal with Republicans is being portrayed as more capitulation than compromise.

Anger is fomenting among congressional Democrats and liberal activists sorely disappointed that their president did not fight harder to roll back tax cuts for the richest Americans. After all, repealing these taxes was a key and oft-repeated mantra in his campaign.

Democrats feel justified in their desire to see the Bush tax cuts extended only for lower- and middle-class Americas - polls show a significant majority of Americans support their stance.

But Mr Obama had more at stake than taxes. Republicans vowed to block any legislation until the issue was resolved, meaning that critical administration priorities, including the new Start nuclear weapons treaty and moves to repeal a ban on gays serving openly in the military, would be held hostage.

Now, the White House believes those issues will move forward, and they will fight the tax cut battle another day. Unfortunately for them though, that day will come in 2012, right before the next presidential election.

Having failed to get his preferred deal - which would have limited the extension of tax cuts to middle- and lower-class Americans - Mr Obama described keeping taxes low for wealthy Americans as the "holy grail" for the Republican Party. He said voters sided with him, but said the Republicans refused to budge.

And he dismissed criticism from allies on the left that he had not shown a willingness to fight.

"A long political fight that carried over into next year might have been good politics, but it would be a bad deal for the economy and it would be a bad deal for the American people," he said.

But he said the Republicans can expect a fight "on a whole range of issues" in the coming two years.

The deal must be voted on by Congress, where Democrats currently hold the majority in both houses.

But some Democrats remained lukewarm on the proposals.

"Senate Republicans have successfully used the fragile economic security of our middle class and the hardship of millions of jobless Americans as bargaining chips to secure tax breaks for the very wealthiest among us," said Democratic Senator Tom Harkin.

Deal 'essentially final'

In the House, Speaker Nancy Pelosi declined to commit to the plan, pledging to continue negotiations with the White House.

Meanwhile, Senate Republicans, who had held up extension of unemployment insurance and blocked Mr Obama's preferred path, praised the deal.

"The right thing for our country is to support the tax agreement that makes it easier and cheaper to create jobs," Senator Lamar Alexander of Tennessee said on Tuesday.

Despite Democratic misgivings, Senate Republican Leader Mitch McConnell described the deal as "essentially final".

Republicans "feel this is a step in the right direction", he told reporters. "The vast majority of my members will be supporting it."

Among the provisions in the deal, tax cuts passed by President George W Bush and the Republicans in 2001 and 2003 would be extended for all levels, whereas Mr Obama and the Democrats had sought to let them expire next month for American households earning more than $250,000 (£158,599).

Provisions of the tax cut compromise

  • A two-year extension of income tax cuts for all Americans enacted in 2001 and 2003 under former President Bush
  • A 13-month extension of unemployment benefits for the long-term unemployed
  • A 35% tax for two years on estates worth more than $5m
  • A one-year payroll tax holiday that would see the rate drop from 6.2% of pay to 4.2%
  • Allowing businesses to write off all their capital investments for tax purposes during 2011
  • Extending the Earned Income Tax Credit, the child tax credit and tuition credits

In addition, unemployment benefits would be renewed for 13 months and payroll taxes would be reduced for a year, putting more money into earners' pockets.

When the new Congress convenes next month, Republicans will control the House of Representatives and have increased power in the Senate, following gains in November's mid-term elections.

The announcement came a week after the government reported that joblessness in the US had risen in November to 9.8%.

With a proposal on tax cuts drawn up, analysts say Congress may now focus its attention on holding a debate over whether to ratify the New Start treaty, which seeks to reduce the nuclear arsenals of both the US and Russia and allow each to inspect the other's facilities.

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