WASHINGTON — President Barack Obama announced a deal with Republicans on Monday to extend Bush-era tax cuts for the wealthiest American households, retreating on a campaign promise and infuriating Democrats in Congress and liberals across the country.
The president's proposal would extend tax cuts for all income brackets, including those over $250,000, for two years, bowing to a GOP demand. In exchange, Republicans agreed in principle to extend jobless aid for 13 months as well as continue tax breaks for middle-class workers, child-care expenses and college costs.
The deal also includes a GOP-backed proposal on the estate tax and would reduce each worker's Social Security tax by 2 percent.
Obama made it clear that he disagreed with the extension of tax cuts for the wealthiest earners and other provisions, but said it was more important to settle the issue so that middle-class tax payers did not incur a tax increase on Jan. 1.
"I have no doubt that everyone will find something in this compromise that they don't like. In fact, there are things in here that I don't like," Obama said. "For now, I believe this bipartisan plan is the right thing to do."
The White House now faces the daunting task of winning congressional support for what White House officials billed as a bipartisan compromise.
House Republicans signaled their agreement with the deal, and Sen. Mitch McConnell, R-Ky., the Senate GOP leader, said Obama's outline marked an acknowledgement by the White House that "a new direction is needed if we are to revive the economy and help put millions of Americans back to work."
However, many Democrats are deeply troubled by the proposal, which gives them more than many might have expected but extends tax breaks for the wealthiest Americans.
Obama moved Monday to quell a rebellion by congressional Democrats, summoning them to a White House session to explain the "framework" of the proposal. Democrats left the afternoon meeting without signing on to the agreement.
Despite additional tax breaks for middle-class households, "Democratic leaders are not completely comfortable with this," said one Democratic aide, speaking to the Tribune Washington Bureau on the condition of anonymity to describe internal discussions.
The White House is dispatching Vice President Joe Biden to meet with Senate Democrats on Tuesday.
"Now that the president has outlined his proposal, Sen. Reid plans on discussing it with his caucus," said a terse statement from the office of Senate Majority Leader Harry Reid, D-Nev.
Underscoring the partisan ambivalence, the president stood alone at the White House in making the announcement of the tentative agreement, which came after tense days of negotiations.
The dispute represents the clearest sign yet of the gaping divide between the White House and congressional Democrats as Obama strives for bipartisan accord to accommodate a Republican Party emboldened by last month's midterm elections.
As a result of the unusual split, many Democratic lawmakers may vote against such a deal, despite the president's blessings.
Underscoring the division, liberal activists pelted the White House and congressional Democrats on Monday, tying up phone lines with a massive call-in campaign to oppose a deal that extends tax breaks on earnings beyond $250,000.
Congress faces a Dec. 31 deadline to resolve the impasse over tax cuts passed during the George W. Bush administration that are set to expire by year's end. Without action, American taxpayers would see their income tax rates rise an average 3 percent in January, an outcome neither party wants.
"There's no reason that ordinary Americans should see their taxes go up next year," Obama said Monday in a talk at a technical college.
Republicans last week blocked Democratic attempts in the Senate to extend tax breaks on earnings up to $250,000. A compromise was increasingly seen as a foregone conclusion, and the White House has been negotiating with Republicans who have held out for an extension of all tax cuts, despite the additional $68 billion annual cost of tax breaks for the wealthy.
Providing a continuation of unemployment insurance through 2011 will cost $56 billion. An estimated 2 million jobless Americans will see their benefits expire during the holidays.
The White House had pressed to include an extension of the expiring "Making Work Pay" tax cut, given to 95 percent of taxpayers in 2009 and 2010 as part of the Recovery Act, also known as the stimulus bill. The tax break provided $400 a year to working singles, $800 to couples, and Democrats argue that allowing it to expire would amount to a tax increase on middle-income Americans.
Republicans have been cool to extending the Recovery Act tax credits, after having almost unanimously opposed the stimulus act of 2009. The GOP wanted a lower estate tax.
By Monday, the White House had dropped its insistence on the Making Work Pay tax break in favor of the 2 percent payroll tax holiday, which is expected to cost $120 billion.
The White House also agreed to a Republican-led proposal on the estate tax, which would exempt estates valued at $5 million for singles and $10 million for couples from a 35 percent tax — a particularly difficult concession for Democrats who had pressed for a lower exemption and higher tax rate.
As Democrats convened at the White House on Monday, they were told this was the best deal they would be able to get in the face of Republican intransigence. House Democrats told Biden that the administration may lose votes from congressional Democrats if any compromise is not paired with other middle-class enhancements.
Senate Democrats, too, have indicated displeasure with being forced to compromise on an issue many believe as a signature difference between Democrats and Republicans.
"I'm just hoping that the president sticks to what he said in Iowa in the campaign … that he was drawing the line at $250,000," Sen. Tom Harkin, D-Iowa, said late last week. "The president ought to stick to what he said and stick to his guns."
In the political calculations of the White House, Democrats will be able to more effectively campaign against tax breaks for the wealthy in 2012, once the economy improves and when the president is up for re-election.