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Obama signs bill to extend Bush-era tax cuts for two more years

By Lori Montgomery, Shailagh Murray and William Branigin
Washington Post Staff Writers
Friday, December 17, 2010; 5:05 PM

President Obama signed into law the most significant tax bill in nearly a decade Friday, a day after overcoming liberal resistance in Congress to continue for two more years tax breaks enacted under president George W. Bush and to provide a fresh federal boost for the tepid economic recovery.

In remarks before signing the bill, Obama called it "a substantial victory for middle-class families across the country." He added: "They're the ones hardest hit by the recession we've endured. They're the ones who need relief right now."

Obama described the bill as "a package of tax relief that will protect the middle class, that will grow our economy and will create jobs for the American people."

The package, brokered by Obama and Republican leaders in the wake of the November elections, angered many Democrats, who have long argued that the Bush tax cuts were skewed to benefit the wealthy. But their last-minute campaign to scale back the bill's benefits for taxpayers at the highest income levels failed, and the House passed the measure 277 to 148 Thursday night, with 112 Democrats and 36 Republicans voting "no."

Friday's signing ceremony at the Eisenhower Executive Office Building next to the White House was attended by the Senate Republican leader, Mitch McConnell (Ky.), and the No. 2 Senate Democrat, Richard J. Durbin (Ill.). But notably absent were the top Democratic leaders of the House and Senate.

The $858 billion package prevents taxes from rising on New Year's Day for virtually every American household. The measure also will guarantee unemployed workers in hard-hit states up to 99 weeks of jobless benefits through the end of next year. And it will create major new incentives for business and consumer spending in 2011, including a two-percentage-point reduction in the Social Security payroll tax that would let workers keep as much as $2,136.

At the signing ceremony, Obama said passage of the law was propelled "by the fact that tax rates for every American were poised to automatically increase on January 1st." If that had happened, "the average middle-class family would have had to pay an extra $3,000 in taxes next year," he said. "That wouldn't have just been a blow to them; it would have been a blow to our economy, just as we're climbing out of a devastating recession."

Obama declared: "I refused to let that happen. And because we acted, it's not going to. In fact, not only will middle-class Americans avoid a tax increase, but tens of millions of Americans will start the new year off right by opening their first paycheck to see that it's actually larger than the one they get right now."

He said he would not have signed the bill if it did not include "other extensions of relief that were also set to expire." Among other provisions, he cited the extensions of unemployment benefits and tuition tax credits, as well as new tax incentives for businesses.

Obama acknowledged that "there are some elements of this legislation that I don't like," and some that congressional Republicans and Democrats don't like. "That's the nature of compromise, yielding on something each of us cares about to move forward on what all of us care about," he said. "And right now, what all of us care about is growing the American economy and creating jobs for the American people."

Asserting that the package would do just that, Obama said: "It's a good deal for the American people. This is progress. And that's what they sent us here to achieve. "

Earlier, the incoming speaker of the House, Rep. John A. Boehner (R-Ohio), called the bill "a good first step" but emphasized the GOP view that major spending cuts are needed. "If we want to . . . begin creating jobs, we need to end the job-killing spending binges" by the federal government and "provide more certainty to business," he told reporters Friday on Capitol Hill.

Boehner hailed the "strong bipartisan vote" in favor of the package but argued that extending the Bush tax cuts for two years "will not end the uncertainty." He also vowed that the new Republican majority in the House next year would soon turn its attention to "killing the job-killing health-care law" that Obama signed in March.

Speaking on the House floor Thursday night before voting on the tax-cut package, Majority Leader Steny H. Hoyer (D-Md.) said, "This bill, the president of the United States believes and I believe, will have a positive effect on the economy." He said he was voting for it "because I don't want to see middle-income working people in America get a tax increase, because I think that will be a depressant on an economy that needs to be lifted up."

The package breezed through the Senate earlier this week on a vote of 81 to 19, giving Obama his strongest bipartisan victory on a major initiative since he took office. Opposition in the House crumpled in the face of that overwhelming showing, though House liberals insisted on offering an alternative that would levy a higher tax on estates than the Obama-GOP compromise will impose. That effort failed shortly before midnight, 194 to 233.

Obama administration officials Thursday night hailed the bill's passage. "We had a responsibility to protect middle class families from a tax increase that would have hit their paychecks and harmed the recovery," Treasury Secretary Timothy F. Geithner said in a statement. "And while we do not agree on everything in this legislation . . . this legislation is good for growth, good for jobs, good for working and middle class families, and good for businesses looking to invest and expand their workforce."

Liberals opposed the deal in part because they believe the temporary extension of the Bush breaks would eventually become permanent, setting lower tax rates far into the future. That would increase pressure on lawmakers to cut spending as a way of reducing record federal budget deficits, placing a host of cherished social programs in jeopardy.

But for Obama, the two-year window represents an opportunity to tackle the ambitious task of overhauling the federal tax code. By sunsetting current policies immediately after the 2012 presidential election, lawmakers in both parties said the measure sets a natural timetable for developing a tax-reform plan - an essential step toward reining in the rising national debt.

Obama placed numerous calls to House Democrats this week to urge their support for the deal, and got an earful in return. Rep. Elijah Cummings (D-Md.) said he told the president that one of his concerns was that "these tax cuts would not end in 2012, because in an election year, I think it's very, very difficult" to raise taxes.

Obama replied that the fate of the Bush tax cuts "would be part of his platform when he ran," Cummings said. "So it should be very interesting."

Republicans, too, have been pressing for a temporary extension of the Bush tax cuts as a bridge to tax reform. Like the last major tax overhaul in 1986, a new rewrite is likely to take years to draft and push through Congress. But White House officials have been encouraged by the level of engagement from Republicans, who will hold 47 seats in the Senate and take control of the House in January.

Key lawmakers in both parties have embraced a deficit-reduction plan produced by Obama's fiscal commission, which includes a tax overhaul that would lower rates across the board but raise additional revenue by closing dozens of long-standing loopholes, such as the mortgage-interest deduction claimed by many homeowners. Meanwhile, the relative ease with which Obama and the GOP were able to strike a deal over the Bush cuts has raised hopes on both sides for productive talks in the future.

"This is consensus on a very intractable issue: What do we do about expiring tax policy?" said Rep. Dave Camp (R-Mich.), the incoming chairman of the tax-writing House Ways and Means Committee, who was party to the tax negotiations. Camp, who has made comprehensive tax reform a top priority, said the talks were significant not only because of the policy that emerged "but also because of the process of coming together and reaching an agreement."

"I am very encouraged by what the president has been saying publicly. They do want to begin," Camp said. "And that is a big thing."

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?"

montgomeryl@washpost.com murrays@washpost.com

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