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Obama signs bill to extend Bush-era tax cuts for two more years
The bipartisan tax talks had another benefit: Unlike the pork-laden, $1.2 trillion annual spending bill that was jettisoned in the Senate late Thursday, the tax bill is virtually free of unrelated add-ons. Negotiators, in fact, excluded more than 70 temporary programs from the bill, including federal subsidies for state and local borrowing known as Build America Bonds, a sales tax deduction for new cars and trucks, a property tax deduction for people who don't itemize on their tax returns and an exemption from taxes for the first $2,400 of unemployment benefits. All those provisions will be allowed to expire.
Although Democrats were unhappy with the deal, Obama negotiated with Republicans only after Democratic lawmakers refused for months to address the issue of the expiring Bush tax cuts, raising alarm at the White House. Economists said a partisan standoff could have wreaked havoc on the economy by increasing withholding in virtually every worker's paycheck, raising taxes by about $3,000 next year on a typical family, according to White House estimates.
The concern was so great that Obama ultimately decided to break his long-standing vow to eliminate the Bush tax cuts for the wealthiest 2 percent of taxpayers. But with unemployment stuck near 10 percent, he was able to negotiate a big new dose of support for the economy, which Republicans had vowed to oppose.
In addition to the payroll tax holiday, Obama won a $57 billion extension of emergency unemployment benefits that will keep the program, which expired last month, alive through the end of next year. Republicans also agreed to support the largest temporary investment incentive in U.S. history, which permits businesses to deduct 100 percent of equipment purchases in the 2011 tax year.
For Democratic lawmakers, the most objectionable provision was a deal to reinstate the estate tax at 35 percent and to exempt estates worth as much as $5 million. Republicans have long argued that what some call the "death tax" is a threat to family farms and small businesses, though the nonpartisan Tax Policy Center estimates that only 100 family farms and small businesses paid the tax in 2009, when a more restrictive $3.5 million exemption was in effect.
The votes Thursday night were likely the final major legislative actions by the House Democratic majority, a low note following the party's landslide losses last month. Rep. Louise M. Slaughter (D-N.Y.) called the estate tax provision "an atrocious giveaway in a nation riddled with debt and unemployment." And Rep. Gene Taylor (D-Miss.), one of the defeated Democrats, delivered an impassioned speech before the vote, ending with the question "How much debt is enough?"