From msnbc.com's Tom Curry: Despite being billed as a great debate over the Bush tax cuts, the struggle between President Barack Obama and congressional Republicans appears to have ended with an extension of the 2001 and 2003 tax cuts representing only about 37 percent of the total cost of the agreement Obama announced Monday night.
In August, the nonpartisan Congressional Budget Office estimated that that a two-year extension of the Bush tax cuts for 2011 and 2012 would amount to $336 billion. The New York Times estimates the cost of the entire package under consideration at $900 billion.
In its fact sheet on the tax cut framework, the White House provides some numbers on specific provisions:
- A $120 billion Social Security payroll tax cut in 2011, with the rate being cut from 6.2 percent of earned income to 4.2 percent. For a worker making $60,000 a year, this would result in an additional $1,200 in take-home pay.
- $56 billion in additional unemployment insurance benefits for 13 months.
- $40 billion in tax cuts for families and students, including a two-year extension of the American Opportunity tax credit which helps families
pay college tuitions, which was part of last year's stimulus.
The White House fact sheet did not detail the cost of a two-year accord on estate tax (taxing inherited wealth above $5 million at 35 percent).
But House Speaker Nancy Pelosi pegged the cost of that provision as $25 billion in her statement expressing opposition to the Republican parts of the agreement. The estate tax deal would "add insult to injury," Pelosi complained.
The accord which Obama unveiled Monday night must now be transformed into legislative language. It's far from certain what the final package will include and how many Democrats will vote for it.
But what Obama announced Monday turned out to be a blend of Bush tax cuts and Obama tax cuts.
It includes the $120 billion cut in the Social Security payroll tax, but Obama had to jettison the Making Work Pay tax credit for individuals earning less than $75,000 and married couples earning less than $150,000. That credit was part of last year's stimulus bill.
Sen. Orrin Hatch, R-Utah had complained Sunday on CNN that the Make Work Pay tax credit in effect exempted too many middle-income Americans from having to pay income taxes.
One independent Democrat who had said weeks ago that he supported extending all the 2001 and 2003 tax rates temporarily was Sen. Joe Lieberman of Connecticut. On Tuesday in interviews on MSNBC and Fox, Lieberman voiced optimism that the accord Obama announced would be enacted.
"It's a very good agreement, good for our economy and good that finally Republicans and Democrats are agreeing on something," Lieberman said. "I know there's going to be some Democratic opposition to it but I think we've got a real opportunity to get that through quickly."
The renewal of the 2001-2003 tax rates does fulfill the fears expressed by Democrats such as Sen. Jay Rockefeller of West Virginia in 2001 that the lower tax rates would get extended. Rockefeller said on the Senate floor right before the Senate voted to enact the 2001 tax law that it was "ludicrous" to think Congress would impose a huge tax increase "in 2010 when this tax cut proposal expires."
But Democrats such as Senate Finance Committee chairman Max Baucus and others voted for it, with Sen. Diane Feinstein, D-Calif., arguing "the government taxes when it must, and decreases taxes when it can."
The difference between then and now is that by the time senators voted in 2001 the federal government had run four years of budget surpluses, topping out at 2.4 percent of GDP in 2000. In the fiscal year which just ended the deficit amounted to nearly 9 percent of GDP and in FY 2009 it was 10 percent.
Shunted aside for the moment in the flurry of debate over tax cuts were the deficit-cutting recommendations of the president's fiscal commission announced only five days ago.
The commission headed by Erskine Bowles and Alan Simpson called for spending cuts and for raising more revenues through a cleaner tax code and a broader tax base.
"Even after the economy recovers, federal spending is projected to increase faster than revenues, so the government will have to continue borrowing money to spend," the commission noted, warning that the United States might soon face a debt crisis like Greece is undergoing.
The CBO has warned that by 2016 –the end of Obama's second term, if he's re-elected – interest payments on the national debt will exceed defense spending.