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President Obama's tax cut compromise shifts some campaign promise rulings

President Barack Obama has sacrificed one of his top campaign promises — raising taxes on high earners — in a compromise with Republicans to extend current tax rates for everyone for another two years.

Though Obama reversed his position on one of his signature campaign pledges and has come under fire from many in his party, he also got Republican support for some of his other initiatives.

As part of the deal, Obama got a major extension of unemployment insurance, a two-year continuation of college tax credits and other credits in the 2009 stimulus, a measure to allow businesses to expense all of their investments in 2011 and a payroll tax reduction in 2011 that will increase take-home pay for workers.

Some of those measures were part of Obama's campaign promises to improve the economic standing of the middle-class. PolitiFact has been tracking more than 500 of Obama's campaign promises since the 2008 election. As the deal moves forward, we'll be changing ratings to Obama's promises to raise taxes on the wealthy as well as on his promises about tax cuts for workers.

One important point about Obama's tax compromise is that it was made in a world different from the one anticipated when he was making promises during the campaign. Obama's economic promises anticipated a mild downturn, not a major economic crisis. But this week's compromise was crafted after unemployment numbers edged up to an unexpected 9.8 percent.

Obama defended the compromise Tuesday as a way of keeping his promises to improve the standing of middle-class Americans.

"A long political fight that carried over into next year might have been good politics, but it would be a bad deal for the economy and it would be a bad deal for the American people," Obama said during a news conference.

Whether the deal makes it through Congress remains to be seen, and staff members are still working out details of the legislation. Here's how the agreement stacks up against some of Obama's major campaign promises.

Tax breaks continue for higher incomes

Obama said he still opposes continuing the current tax rates for higher earners, but has been unable to persuade a majority of the Senate to go along with his position. He said he will continue to argue against making the tax rates permanent. In addition to income taxes, the deal also includes leaving capital gains taxes at their current rates and setting inheritance taxes at levels below what Obama has previously proposed.

Still, the deal does extend for two years the current lower tax rates for individuals who make less than $200,000 or couples who make less than $250,000, the benchmarks for income Obama set during the campaign.

The announcement of a framework indicates clearly that Obama is willing to compromise on his promise, and it appears that this one is about to be broken. But given that it has yet to come to a vote, we move this promise to Stalled, and are watching to see if the legislation passes.

Tax credits for workers

The compromise with Republicans would continue several tax credits that were part of the 2009 stimulus, including a child tax credit, an expanded earned income tax credit and a college tuition credit.

The stimulus also included small decreases in Social Security payroll taxes. The compromise includes a much bigger and unexpected reduction for 2011, knocking back payroll taxes by a full 2 percent. For now, we're changing the ruling on this promise from Compromise and moving it back to In the Works.

This one-year tax break would mean $400 for the year for workers who make $20,000; $800 for workers who make $40,000; and $2,000 for workers who make $100,000.

Social Security taxes only apply to incomes below $106,800, so the measure particularly benefits workers below that threshold. That's significantly more than the $500 maximum tax credit cited in Obama's campaign promise.

The payroll tax holiday could inject $120 billion into the economy, said Gus Faucher, director of macroeconomics at Moody's

"We think it is going to make a substantial difference for job growth compared to what we were expecting just last week," Faucher said.

The forecasting group increased its estimates for job growth in 2011 from 1.3 million new jobs to 2.8 million new jobs, based on the payroll holiday and a few other smaller measures included in the framework.

Extending unemployment insurance

Back in 2008, Obama promised to extend unemployment benefits for 13 weeks, a measure included in the economic stimulus passed in early 2009. At the time, we rated the promise Promise Kept.

But unemployment has been so high for so long that many economists say the further extension supported by Obama is necessary. A telling statistic is that 42 percent of the unemployed have been without a job for 27 weeks or longer, said Daniel Hamermesh, an economist at the University of Texas at Austin.

"That is a much higher percentage than in any previous recession, suggesting that a large number of households have been without at least one income for many, many weeks. So supporting their income for another year makes sense," Hamermesh said.

The deal extends unemployment for over a year — 13 months — and it would go to workers who have exhausted the normal benefits of 26 weeks, but haven't yet hit the legal maximum of 99 weeks. The rating stays at Promise Kept.

No. 38: Repeal the Bush tax cuts for

higher incomes

Repeal the Bush tax cuts for those making more than $250,000 (couples) or $200,000 (single)

President Barack Obama said he was willing to change position and extend the current tax rates for those who make higher incomes as part of a larger compromise. Congress still must approve the deal.

No. 32: Create a tax credit of $500 for workers

Enact a Making Work Pay tax credit that would yield a maximum credit of approximately $500.

As part of the stimulus, Obama won a $400 tax credit for 2009 and 2010. If Congress approves, the new tax compromise would cut Social Security payroll taxes in 2011 by as much as $2,136 per worker, depending on earnings.

President Obama's tax cut compromise shifts some campaign promise rulings 12/07/10 [Last modified: Thursday, December 9, 2010 8:23am]
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