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Correction to This Article
This article incorrectly described the payroll tax holiday agreed upon by President Obama and Republican congressional leaders. The holiday would cut the Social Security payroll tax for all workers by two percentage points, not by 2 percent, in 2011.

Obama, GOP reach deal to extend tax breaks

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President Barack Obama has announced a bipartisan agreement on year-end legislation to extend expiring tax cuts and renew jobless benefits as part of a sweeping attempt to strengthen the economic recovery. (Dec. 6)

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By Lori Montgomery and Shailagh Murray
Washington Post Staff Writers
Tuesday, December 7, 2010; 2:42 AM

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.

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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.

Still, that victory came at the cost of a painful concession: Obama campaigned on a promise to repeal the Bush-era tax cuts that benefit the wealthiest 2 percent of U.S. households, a stance that many Democrats were unwilling to surrender. But with Republicans insistent on preserving all of the cuts, the president acknowledged that abandoning that long-held Democratic position was the price of preventing a political stalemate that would have caused taxes to rise across the board.

"This would be a chilling prospect for the American people," he said during a White House news conference. "I am not willing to let that happen."

Obama also delivered a sharp rebuke to Democrats who said they would rather let tax rates rise for everyone than continue perks for millionaires.

"I am not willing to let working families across this country become collateral damage for political warfare here in Washington," he said. "The American people didn't send us here to wage symbolic battles or win symbolic victories."

Republicans embraced the agreement. Sen. Olympia J. Snowe (Maine), a key moderate, said she was "encouraged" by the development. Senate Minority Leader Mitch McConnell (Ky.), who took a lead role in talks with the White House, expressed appreciation for "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."

"I am optimistic that Democrats in Congress will show the same openness to preventing tax hikes the administration has already shown," McConnell said in a statement.

That optimism may prove to be misplaced. The agreement has yet to win the support of Democratic leaders in either chamber, and senior aides said the White House will need significant Republican support to push the package through Congress. Democrats said the lenient terms of the estate tax agreement are likely to be particularly problematic, because they would layer another big tax break for the nation's wealthiest families on top of the perks they already get from lower tax rates on income, capital gains and dividends.

"The House Democrats have not signed off on any deal," said Rep. Chris Van Hollen (Md.), who has served as the lead negotiator for House Democrats in talks between the White House and bipartisan representatives from both chambers. Van Hollen said House leaders would review the package and discuss it with their rank and file in a meeting Tuesday night.


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