Barack Obama is bowing to Republican demands to extend a deep tax cut for wealthier Americans, to the fury of some of the president's allies who say he has succumbed to "blackmail".
In a bruising political battle that appears to set the tone for Obama's dealings with the Republicans in Congress following their victories in last month's midterm elections, the president had sought to extend a tax cut for middle-class Americans introduced by the Bush administration seven years ago which expires at the end of this month. But he wanted to see a return to pre-cut rates for households with an income above $250,000 a year, on the grounds that wealthier Americans could afford to pay more. The move would generate trillions of dollars for the financially-strapped treasury over the next decade.
The Democratic leadership believed that provided the middle class was looked after, the Republicans would find it difficult to justify tax cuts for the wealthy. The House of Representatives, still controlled by Democrats until the new Congress is sworn in next month, passed Obama's plan by a clear majority last week. But Republicans blocked the legislation in the Senate at the weekend and said they would rather see everyone's taxes rise than agree to scrapping the cuts for the wealthy.
Some Democrats called on Obama to stand firm and let the Republicans carry the blame for the inevitable middle-class backlash. But leading Democrats say the president is backing down and has agreed to extend tax cuts for everyone. In return, the White House appears to have extracted an agreement to extend benefits for the long-term unemployed.
Today Obama said that his priority is to "prevent the middle-class tax increase" that would have come about if there was no agreement. "There's some serious debates that are still taking place. Republicans want to make permanent the tax cuts for the wealthiest Americans.
"I have argued that we can't afford it right now. But what I've also said, we have to find consensus here because a middle-class tax hike would be very tough not only on working families, it would also be a drag on our economy at this moment," he said. "We've got to make sure we're coming up with a solution, even if it's not 100% of what I want or what the Republicans want."
[12/17/10] WASHINGTON (AP) - President Barack Obama signed into law Friday a massive tax package that frayed his relations with liberals, caused him to abandon a pledge not to extend tax cuts to the rich and heralded a new balance of power in Washington.
Dramatic both as an economic and a political accomplishment, the agreement sets the stage for Obama's new relationship with Republicans, who as of January will have a majority in the House and will have narrowed the Democrats' majority in the Senate.
With the benefits of the package expiring in two years, the law also places taxes at the center of the political debate ahead of the 2012 U.S. presidential elections.
Displaying a new style of compromise, Obama invited Democrats and Republicans alike to the White House for the signing of the bill that will cost $858 billion over two years and that contains provisions to address the concerns of both parties.
"It's a good deal for the American people; this is progress and that's what they sent us here to achieve," Obama said as a rare bipartisan assembly of lawmakers looked on.
The bill was the result of a deal hashed out just 10 days earlier in order to avert a scheduled Jan. 1 tax increase and renew jobless benefits. To strike the bargain, Obama had to set aside his vow to extend tax cuts only for middle and working class Americans, and enact an estate tax that is more generous to the wealthy than he initially had sought.
Failure to pass the bill would have resulted in tax hikes for most Americans as cuts approved under the administration of former President George W. Bush were set to expire.
On Thursday, liberal House Democrats threatened to torpedo the bill forcing a delay and the House battled over the measure late into the night before passing the bill 277-148 at about midnight. The Senate on Wednesday passed it by an overwhelming 83-15 margin.
Supporters say the package, which included additional reductions in payroll taxes, could help stimulate the U.S. economy. But it will also add to a growing deficit that has become a big concern among many voters.
A number of conservative Republicans joined some liberal Democrats in opposing the bill for that reason.