President Obama has agreed with Congressional Republicans to extend all of the Bush-era tax cuts in exchange for extending unemployment benefits. The package includes some other interesting details:
President Obama and congressional Republicans have reached a tentative accord on a far-reaching economic package that would preserve George W. Bush administration tax breaks for families at all income levels for two years, extend emergency jobless benefits through 2011 and cut payroll taxes by 2 percent for every American worker through the end of next year.
The scope of the agreement, announced by the White House late Monday, was far broader than lawmakers in either party had been expecting. The deal would extend a college tuition tax credit and other breaks for middle-class families that were due to expire New Year’s Eve. And it would revive the inheritance tax after a year-long lapse, imposing a 35 percent rate on estates worth more than $5 million for individuals and $10 million for couples.
The package would add more than $700 billion to the rising national debt, said congressional sources who were briefed on the deal. But with the unemployment rate at 9.8 percent, the White House was focused on winning a compromise that could boost the fragile recovery while preventing the economic damage that could result from letting the expiring tax breaks affect paychecks next month.
The payroll tax holiday, in particular, is striking for its universal application. Unlike most tax breaks, it would be available to taxpayers at every income level, letting consumers keep an extra $120 billion in their pockets next year. For a couple making $70,000 a year, the holiday would provide a tax savings of $1,400.
This description of the payroll tax, which goes for Social Security, is unclear. It doesn’t cut them by a measly 2%, which would hardly mean anything. Rather, it cuts the tax rate from 6% of the paycheck to 4%, so that all workers will get to keep a third of what they used to pay. That’s a pretty significant raise.
Now all the President has to do is persuade the Democrats, many of whom are reportedly livid at the deal, which keeps the tax cuts even for those who make $250,000 and up.