Brushing aside calls from his own political base to take a stand, President Obama last night announced a deal with congressional Republicans that will extend expiring Bush-era tax cuts — even those for the wealthiest filers — for two years in exchange for a 13-month extension of unemployment benefits.
The fate of the tax cuts, due to expire Jan. 1, has dominated the lame-duck session of Congress and posed a difficult political challenge for Mr. Obama, who has long favored extending only the lower rates for "middle-class" households making $250,000 a year or less and individual filers earning less than $200,000.
In another victory for Republicans, negotiators agreed to revive the expired federal estate tax, but only for two years at a rate of 35 percent and only for estates worth more than $5 million. Republicans did agree to a White House demand for a one-year reduction in the Social Security payroll tax from the current 6.2 percent to 4.2 percent, a move designed to boost worker paychecks and stimulate the still-struggling economy.
The president, in a brief, somber address to reporters Monday evening in which he took no questions, frankly acknowledged that he was unhappy with parts of the compromise, but argued that an extended partisan stalemate would have hurt American workers and struggling families even more.
"I have no doubt that everyone will find something in this compromise that they don't like," the president said in a televised address from the White House. "In fact, there are things in here that I don't like. ... But, sympathetic as I am to those who would prefer a fight over compromise, it would be the wrong thing to do.
"I am not willing to let working families become collateral damage for Washington's political warfare," Mr. Obama added.
Democratic reaction to news of the deal ranged from cool to hostile. Senior Republicans praised the decision to preserve all the Bush tax cuts, at least temporarily.
The pact still must be ratified by Congress.
House Republican leader John A. Boehner of Ohio said it was "encouraging that the White House is now willing to stop all of the job-killing tax hikes scheduled for Jan. 1."
Rep. Dave Camp, the Michigan Republican in line to take over as chairman of the House Ways and Means Committee next year, added, "This framework will allow us to extend all current tax rates and give economic recovery and job creation a chance."
Senate Majority Leader Harry Reid, Nevada Democrat, issued a terse statement saying he would be bringing the plan to the Senate Democratic caucus for consideration Tuesday. Like Mr. Obama, he had strongly opposed a tax-cut extension for upper-income filers.
The temporary extension of the Bush-era tax cuts sets up what could be another fight over government spending and taxes in two years — in the middle of what is expected to be Mr. Obama's re-election campaign.
The deal was reached just hours after Mr. Obama launched a pointed defense of the need for more government education and infrastructure spending, telling an audience at a community college in North Carolina that the country must be able to respond to a "new Sputnik moment."
"Cutting the deficit by cutting investments in areas like education, areas like innovation, that's like trying to reduce the weight of an overloaded aircraft by removing the engine," Mr. Obama said. "It's not a good idea."
Republicans, coming off huge gains in the November midterms, have insisted that all the tax cuts be extended permanently, while Mr. Obama's liberal supporters have criticized the emerging compromise and argued that the tax cuts for the wealthy would raise deficits over the long term.
In a hastily called meeting Monday afternoon, Mr. Obama huddled with unhappy House Democrats at the White House as the tax-cut negotiations continued.
But even before the meeting, Rep. Anthony Weiner, New York Democrat and one of Capitol Hill's more outspoken liberals, said Mr. Obama was unable to see "the value of being on offense."
Middle-class Americans, Mr. Weiner said, "see [the deal] as punting on third down."
At the North Carolina community college, Mr. Obama made an explicit defense of the need for more public spending in at least some strategic areas.
"The hard truth is this: In the race for the future, America is in danger of falling behind," he said.
The president urged congressional lawmakers to put aside short-term political wrangling. "There should not be any inherent ideological differences to making our economy more competitive."
Recalling that the 1957 launch of the Soviet satellite served as a "wake-up call" for Americans, the president told the crowd of students, professors and guests at Forsyth Technical Community College that responding to a modern-day "Sputnik moment" will require investment.
But breaking the political impasse over taxes proved to be difficult, and threatened to hold up other Democratic priorities for the brief lame-duck session.
Even as Senate Democrats failed to overcome a Republican filibuster on the issue over the weekend in a rare Saturday session, many of the president's political allies were urging him to take a hard line on the tax cuts.
Earlier Monday, after touring the Winston-Salem, N.C., community college, the president gave an upbeat speech loaded with patriotic references to Abraham Lincoln, John F. Kennedy and critical national accomplishments such as the Transcontinental Railroad, framing the spending battle in Washington as a pivotal moment in American history.
"The most important contest we face is not between Democrats and Republicans; it's between America and our economic competitors around the world," Mr. Obama said.
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