What the $950 billion agreement would mean for you

JUST LIKE Ronald Reagan before him, President Obama hoped to score big political points yesterday with the release of hostages. In the Gipper's case, the captives freed on his 1981 Inauguration Day were American Embassy staffers held hostage in Iran. Obama's task was a political one but no less tricky: liberating some seven million citizens collecting extended unemployment benefits, whose fate had been tied by Republican senators to a demand to extend tax cuts for the wealthiest 2 percent of the nation.

Like any hostage deal, some are questioning whether the agreement - which would mean that the jobless could continue to collect the extended, recession-driven emergency benefits through early 2012 - was worth the price.

Yesterday, the president took to his bully pulpit with a televised news conference to explain that the middle class would have paid a heavy price had he not agreed to the GOP's main demand.

"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, noting that two million people would have lost their unemployment checks this month alone. That included an estimated 18,000 people in Philadelphia.

So what's the deal here? The Daily News breaks it down for you.

Q. OK, I'm from Philly - so I want to know who gets what.

A. The GOP - with 42 votes in the lame-duck Senate - has the power to block any bill through a filibuster, despite still being in the minority until the new Congress arrives in January. Leaders had pledged that the party would do exactly that unless there was a vote on extending all the income-tax cuts first enacted in 2001, including the reduction on income exceeding $250,000 - something Obama had promised he would oppose as a candidate in 2008.

The Republicans would get that for two years - when the battle would be fought again - and also a lower tax rate and a higher-income threshold for taxing the estates of multimillionaires who die.

Congressional Democrats and Obama would get a host of concessions aimed at helping mostly the working class and the poor, including not just the unemployment extension but also a one-year "holiday" of 2 percentage points off the weekly payroll tax that funds Social Security and an extension of some other tax breaks and credits.

Q. Jeez, how much would this cost?

A. About $950 billion over the next two years.

Q. Where would that money come from?

A. China. Well, more or less - the money would have to be borrowed. Proponents believe that the tax cuts could create as many as 3 million jobs and that they must weigh the short-term employment crisis with the long-term cost of paying back debt.

Q. So why make a deal now?

A. From Obama's perspective, refusing to approve the tax cuts for the rich would likely have meant that income-tax cuts for all Americans would have expired on Jan. 1, a politically risky gambit. More important, in 2011 he'd be fighting uphill against a new Republican majority in the House and a Senate with six more GOP votes.

The Republicans are poised to gain not only the rich-heavy tax breaks they were seeking but also flexed political muscle by coming into the negotiations with two key demands and getting the White House to buckle quickly - a show of force on the eve of a likely contentious two-year election cycle.

That said, both sides will try to gain some credit from middle-of-the-road voters for a willingness to compromise.

"The president was not going to engage in a chess match with people's lives," said Mayor Nutter, voicing support for the plan.

Q. What is extended unemployment anyway?

A. Good question. Normally, citizens who've been paying taxes for unemployment insurance are eligible for 26 weeks of benefits when they lose their job, but historically, the government has enacted emergency benefits during every major recession.

With national unemployment at 9.8 percent and with five job seekers for every opening, it would be unprecedented for Congress to terminate the program now.

Eligible workers are paid their benefits in a series of "tiers" - in many states, like Pennsylvania, the maximum of all the tiers is 99 weeks. The current extension expired on Dec. 1, and those in the extended program will stop getting paid when their tier expires.

Meanwhile, more than 70,000 Pennsylvanians have already exhausted their 99 weeks of benefits, but those numbers are expected to spike dramatically in early 2011.

Q. I've heard some people say unemployment insurance creates jobs and stimulates the economy. How can that be?

A. It's simple. Jobless people with no other source of income spend all their unemployment checks on food and other goods and services that create jobs - while tax cuts for the rich are more likely to be invested . . . and not create jobs.

The left-leaning Center for American Progress estimates that the tentative deal to extend benefits would create 520,000 U.S. jobs over two years.

Q. I thought extending benefits encourages people not to look for work?

A. Researchers have found some evidence of that at lower rates of joblessness - but not when the problem is as severe as it is now.

Q. So is this a done deal?

A. Probably - but this is Washington, so you never know. Progressive Democrats are most unhappy with the deal and even talked of their own filibuster, sparked by ultraliberal Sen. Bernie Sanders, of Vermont, who said, "I think we can come up with a much better agreement that is much fairer to the middle class and our kids and grandchildren." But experts doubt he can get 40 other senators to back him.

-Staff writer Catherine Lucey contributed to this report.