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Obama, GOP reach deal on tax cuts, jobless benefits

WASHINGTON -- President Obama reached agreement Monday with congressional Republicans to extend and deepen tax cuts temporarily in hopes of stirring the economy and creating jobs, and also extending unemployment insurance for 13 months.

President Obama
(File / Associated Press)

WASHINGTON -- President Obama reached agreement Monday with congressional Republicans to extend and deepen tax cuts temporarily in hopes of stirring the economy and creating jobs, and also extending unemployment insurance for 13 months.

Congressional Democrats refused to jump onboard immediately, continuing to question tax cuts for wealthy Americans. They planned to discuss the tax deal at closed-door meetings today, and still could kill the plan.

Obama acknowledged that many in his own party wanted him to fight rather than compromise. He said, however, that it's critical to settle the tax debate now to help the economy. He also stressed that it would last only two years, opening the way for an intense tax debate in 2012 -- the year he and Congress face re-election.

"We have arrived at a framework for bipartisan agreement," Obama said Monday evening. "Every American family will keep their tax cuts."

The key elements:

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  • Extending for two years all of the Bush-era tax cuts set to expire on Dec. 31. They will be extended for all incomes.
  • Cutting the payroll tax paid by all workers from 6.2 percent to 4.2 percent for a year, replacing and doubling the expiring Making Work Pay tax credit.
  • Extending Obama-era tax cuts from last year's stimulus bill, including the Earned Income Tax Credit, Child Credit, and American Opportunity Tax Credit increases.
  • Extending recently expired unemployment insurance benefits for 13 months.
  • Lowering the estate tax temporarily.
  • Allowing business to write off investments entirely for 2011. Obama reached the agreement with Republicans, but not with the congressional leaders of his own Democratic Party.

    In a sign of Democratic discontent, Senate Majority Leader Harry Reid, D-Nev., reacted curtly to the president's announcement.

    "Now that the president has outlined his proposal, Senator Reid plans on discussing it with his caucus tomorrow," his spokesman, Jim Manley, said in a written statement.

    Top Republicans were far more receptive.

    "I appreciate the determined efforts of the president and vice president in working with Republicans on a bipartisan plan to prevent a tax hike on any American and in creating incentives for economic growth," said Sen. Mitch McConnell of Kentucky, the GOP leader. In a jab at Democratic lawmakers, he added, "I am optimistic that Democrats in Congress will show the same openness to preventing tax hikes the administration has already shown."

    Obama said he really doesn't want to extend the tax cuts for the wealthy, arguing that the $700 billion price tag is too high in a time of deficits and debt.

    But he said a temporary extension is the political price he has to pay to win Republican agreement to extend the lower-income tax cuts, as well as to extend unemployment compensation.

    Obama always wanted to shift the tax burden back toward wealthier Americans, proposing to extend permanently the expiring Bush tax cuts on all income under $250,000 and letting the tax cuts expire for all income above that threshold.

    However, the ability of either party to filibuster any deal with 41 votes in the Senate meant that Obama had to find a middle road to avoid having tax rates rise on all Americans on Jan. 1.

    Extending the Bush-era tax cuts would cost the Treasury $3.7 trillion over 10 years, including $3 trillion in taxes on annual incomes below $250,000 and $700 billion on incomes higher than that.

    The proposed deal would restore checks to out-of-work people whose benefits are running out.

    White House aides said the plan would extend the benefits for 13 months, covering the 2 million out-of-work Americans whose checks run out this month and another 7 million who would run out of benefits over the next year.

    They also predicted that the extended benefits would create 600,000 jobs as the out-of-work quickly spend their checks, sending that cash percolating through the economy.

    The average family receives $290 a week in unemployment benefits. Normally, benefits can last up to 99 weeks, depending on a state's jobless rate.

    The Associated Press contributed to this report.

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