President Obama just announced a tentative deal with Republicans on extending the sweeping tax cuts signed by President George W. Bush nearly a decade ago.Here are the details of the deal:
The deal extends all the tax cuts for two years, including those on upper-income Americans that Obama wanted to end. As a result, the debate over the tax cuts will have to be joined again during the 2012 presidential campaign.
Obama won a 13-month extension of unemployment insurance, a reduction in employee payroll taxes next year, and the continuation of a variety of tax credits aimed at lower- and middle-income Americans.
The payroll tax cut would save a worker with $40,000 in income $800 next year. For someone making $100,000, the tax break would be $2,000.
The payroll tax cut and unemployment insurance extension should provide at least $176 billion in economic stimulus next year, the White House said.
Republicans won a cut in the estate tax to 35% and a higher $5 million exemption on assets.
- Extends unemployment insurance for 13 months. Two million workers in December, and 7 million over the next year, would have lost benefits otherwise.
- Provides a one-year, 2 percentage point reduction in employees' Social Security payroll taxes, lowering the rate from 6.2% to 4.2%, at a cost of $120 billion.
- Keeps the Earned Income Tax Credit and American Opportunity Tax Credit increases from last year's economic stimulus law, for another $40 billion in tax cuts for families and students.
- Allows businesses to write off 100% of their capital purchases next year.
- Sets the estate tax at 35% for two years, with a $5 million exemption on assets that's higher than last year's $3.5 million. The rate came down under Bush's policy from 55% before 2001 to 45% in 2009 before expiring this year. It was set to return at 55% next year.
- Protects millions of taxpayers from seeing their taxes raised in 2010 and 2011 under the Alternative Minimum Tax.
The Democrats should have pushed for the middle class tax cuts and only the middle class tax cuts. If the Republicans weren't willing to compromise, then the tax cuts in their entirity should have been allowed to expire and Democrats sould have attacked Republicans for their obstruction. Democrats could have then taken full credit for the windfalls from the increased tax revenue over the next two years.