Obama, GOP strike deal to extend tax cuts

Can it be true? Will Congress soon take care of some pressing tax legislation?

The president hopes so. He announced last night a deal struck by the bipartisan tax task force he appointed earlier this month that will temporarily extend all Bush-era tax cuts in exchange for continuation of unemployment benefits.

A weary-looking Obama verbally slapped both Republican and Democrat tax hardliners in announcing the the tax deal.

Although the deal is step forward, it's a baby step. More on this in a minute.

Tax breaks, estate tax included: The proposal would not only keep the current six income tax rates (starting at 10 percent and going to 35 percent) for the next two years, but also would extend several other popular tax breaks.

Some of these were part of the Bush programs, others were included in Obama's 2009 stimulus package.

They include the continuation of the $1,000 per child tax credit, enhanced Earned Income Tax Credit provisions and the American Opportunity Tax Credit that expanded federal tax assistance for college costs.

The estate tax would stay, too, despite hope by some that they might be able to keep it in its legislative grave.

But instead of returning on Jan. 1 as scheduled with a tax rate of 55 percent on estates of more than $1 million, the plan calls for it to apply a 35 percent rate to estates exceeding $5 million.

Making Work Pay outta here: Obama did, however, do some horse trading with regard to his signature tax break, the Making Work Pay credit.

It will expire as scheduled on Dec. 31. But for the next two years, workers will see a 2 percent cut in the payroll taxes taken out of they wages.

I suspect most of them will be very pleased with this exchange.

Making Work Pay was designed to offer some relief from the 6.2 percent payroll tax that workers pay on up to $106,800 in earnings to finance Social Security. Withholding tables were redone so that each worker, up to a certain income level, got a credit of up to $400 ($800 for joint filers).

But the whole thing was confusing. Worse, taxpayers had to fill out an extra form that added to the tax break chaos when they filed their returns.

The 2 percent cut in the payroll tax reduction will be much easier for workers. Nothing extra is required of employees. And it's estimated that it will save a household making $50,000 a year around $1,000 annually in payroll taxes.

Now we just wait for Congress to sign off on tax plan and the IRS to tweak the payroll tables and voila!

Will Congress go along? If only it were that simple. The compromise tax plan will not be popular among many on Capitol Hill. As the prez noted:

"I have no doubt that everyone will find something in this compromise that they don’t like.  In fact, there are things in here that I don’t like …."

Both Republican and Democrat hardliners will call the plan a sellout instead of a compromise.

The plan probably will be an easier sell to the GOP. Keeping the top tax rate 35 percent, even temporarily, is a big win for those members since it was their party who set the expiration date.

But many Democrats, having failed last week to end tax cuts for wealthy taxpayers, are not happy to see their party's leader making nice with the opposition, regardless of the deal's benefits for lower-income taxpayers.

So the prez and VP Joe Biden, who has already been dispatched to Capitol Hill to assuage Democratic concerns, still have their work cut out for them.

And once again, we wait.

Related posts:

• House approves extension of middle-class tax cuts in symbolic vote
• Tax cuts task force to hammer out deal
• IRS commissioner chides Congress for its delay
  in dealing with expired taxes
• Fed Chair Bernanke talks tax policy
• Democrats who support Bush tax cuts
• The Making Work Pay credit: The federal tax break
  that nobody knows about
• The economic and political perils of Congressional gridlock

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Comments

[Samuel]

What a hypocrite. Our president said time after time that that those tax breaks will be repealed. So what does he do? how extends them in exchange, to be able to spend more of our money. What a joke.

[Todd]

I am still not comfortable with this being called 'tax cuts' or an extension of cuts. Taxes are at a certain level right now. The government has decided not to raise taxes. I know that it sounds nicer for them to use 'tax cuts' in their speeches but let us be realistic, they wanted to raise taxes but are not doing so at this time.