Some liberals were fuming about the accord, complaining that Obama had been promising to increase taxes on income over $250,000 a year — a much lower threshold — since he ran for the White House in 2008.
Sen. Tom Harkin (D-Iowa) said: “If you make $250,000 a year, you’re not middle class. You’re in the top 2 percent of income earners in America... No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up.”
Other Democrats were upset about the administration’s decision to maintain a big exemption for inherited estates that allows those worth as much as $5 million — $10 million for couples — to go untaxed.
Although the White House won an agreement to raise the tax rates on larger estates from 35 percent to 40 percent, Republicans successfully insisted that the exemption should be adjusted annually for inflation, a provision that would increase the exemption amount to $7.5 million for individuals and $15 million for couples by 2020, said Rep. Chris Van Hollen (Md.), the ranking Democrat on the House Budget Committee.
He called the final agreement a “sweetheart giveaway to the wealthiest 7,200 estates in the country.”
Republicans, too, were anxious about the accord, especially in the House, which two weeks ago rejected a proposal that would let taxes rise only on income over $1 million a year. GOP lawmakers — who have not voted for a broad tax increase since 1990 — were particularly incensed about the lack of new spending cuts.
Rep. Patrick T. McHenry (N.C.), a staunch conservative, said he was “gravely disappointed” and that House passage of the measure was not guaranteed.
Under the agreement, the top income tax rate would rise from 35 percent to 39.6 percent for married couples earning more than $450,000 a year and single people earning more than $400,000 a year. Those households also would pay higher rates on investment profits, with rates on dividends and capital gains rising from 15 percent to 20 percent.
Combined with a 3.8 percent surcharge on investment income adopted as part of Obama’s health-care initiative — a tax that also takes effect in January — the top rate on investment income would rise to 23.8 percent for high-income households.
Nor would taxpayers earning less than $450,000 entirely escape. The deal would restore limits on personal exemptions and itemized deductions that existed during the Clinton administration, with those benefits phasing out for couples earning more than $250,000 a year and single people earning more than $200,000.
That would keep Obama’s campaign pledge to raise taxes on the top 2 percent of earners, essentially households over $250,000. A Democrat familiar with the talks said the president hopes to gain additional revenue from those households by seeking to limit their tax breaks when the battle to reduce record deficits continues in the new year.