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Federal income tax rates are not going to change after all at the end of this year. At least they will not if Congress approves a deal between President Obama and congressional Republicans. The president agreed to temporarily extend President Bush's tax cuts of a decade ago, even for the wealthiest Americans.
Also as part of the deal, Social Security taxes will drop for a while. And unemployment benefits would be extended.
NPR's Scott Horsley begins our coverage.
SCOTT HORSLEY: President Obama admits no one will be entirely happy with the compromise he's struck with Republicans on Capitol Hill, including him. For years, Mr. Obama has campaigned against extending Bush-era tax cuts on incomes in excess of a quarter-million dollars a year.
But the president reluctantly went along with a temporary two-year extension, once Senate Republicans made it clear, over the weekend, that unless the rich got their tax break, no one else would either.
President BARACK OBAMA: Make no mistake, allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family. And that could cost our economy well over a million jobs.
HORSLEY: So Mr. Obama has agreed to a deal over the strenuous objections of many in his own party. With polls showing many Americans in favor of higher taxes on the rich, some Democrats want to go to the mat, in hopes of isolating Republicans as the party of millionaires.
But with all tax cuts due to expire at month's end, and a more Republican Congress about to be sworn in, Mr. Obama is unwilling to take that chance.
President OBAMA: The American people didn't send us here to wage symbolic battles or win symbolic victories. They would much rather have the comfort of knowing that when they open their first paycheck on January of 2011, it won't be smaller than it was before.
HORSLEY: Senate Republican leader Mitch McConnell said, in a statement last night, he appreciates the president's determined efforts. And he adds, he's optimistic congressional Democrats will be equally open to compromise.
In addition to lower income tax rates on the wealthy, Republicans also won agreement for a lighter tax than Democrats wanted on big inheritances: 35 percent on estates worth more than $5 million. In exchange, President Obama won GOP backing for another 13 months of jobless benefits for the long-term unemployed, as well as a two-year extension of additional tax breaks aimed at working and middle-class families.
President OBAMA: If Republicans truly believe we shouldn't raise taxes on anyone while our economy is still recovering from the recession, then surely we shouldn't cut taxes for wealthy people while letting them rise on parents and students and small businesses.
HORSLEY: The framework agreement does not include the president's signature Making Work Pay tax cut, a part of the stimulus package that provided up to $800 a year for working families. Instead, he's calling for a one-year cut in the portion of payroll taxes that workers contribute to Social Security.
That's less progressive in helping poor families than Making Work Pay, but it puts twice as much money, overall, into workers' pockets: $120 billion next year.
President OBAMA: It's the right thing to do for jobs. It's the right thing to do for the middle class. It is the right thing to do for business. And it's the right thing to do for our economy.
HORSLEY: It should be noted none of these tax cuts is offset with spending reductions. So in the short run at least, they'll add hundreds of billions of dollars to the federal debt. That's less red ink than would have been spilled though, if some or all of the Bush-era tax cuts had been made permanent.
The deal also give Congress a two-year window to consider more fundamental changes in the tax code, as recommended by several deficit watchdog committees in recent days. The president is clearly banking on a change in the political winds during that period.
President OBAMA: As I engage in a conversation with the American people about the hard choices we're going to have to make to secure our future and our children's future and our grandchildren's future, it will become apparent that we cannot afford to extend those tax cuts any longer.
HORSLEY: And because the tax deal the president outlined last night would expire in 2012, we can count on tax cuts being an issue in the next presidential election, just as they were in the last one.
Scott Horsley, NPR News, the White House.
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