President Obama caved in on Monday and agreed with Congressional Republicans on a “framework” for extending the Bush tax cuts which are due to expire at the end of 2010.
In exchange for a two-year extension of all the tax cuts, including those for households making more than $250,000 per year, the deal includes a 13-month extension of unemployment benefits, a two percent cut in the employee side of the payroll tax for one year, and a retention of some of the expanded tax credits included in the 2009 Recovery Act. In an effort to bring on board Republicans, Mr. Obama also agreed to a two-year cut in the estate tax.
According to thinkprogress.org, Mr. Obama’s components of the tax deal (extended unemployment benefits, the payroll tax cut, and the extended credits) will cost $214 billion to aid 156 million people. The Republicans priorities (extending the Bush tax cuts for the rich and cutting the estate tax), meanwhile, will cost $133 billion and only benefit roughly 4.8 million people.
So, in order to get desperately needed help for the long-term unemployed and to provide the middle-class with tax relief in a weak economy, Mr. Obama agreed to tax cuts for a small, wealthy portion of the population that the Republicans were willing to fight for, even if it meant that everyone’s taxes went up upon expiration of the Bush tax cuts.
The total package will cost Americans nearly $900 billion over the next two years and be entirely financed through deficit spending. So much for reducing the $1.3 trillion budget deficit.
