WASHINGTON - Brushing past Democratic opposition, President Obama last night announced an agreement with Republicans on a plan to extend expiring income-tax cuts for all Americans, renew jobless benefits for the long-term unemployed and grant a one-year reduction in Social Security taxes.
The emerging agreement also includes tax breaks for businesses that the president said would contribute to the economy's recovery from the worst recession in eight decades.
Obama's announcement marked a dramatic reversal of his long-held insistence, originally laid out in his 2008 campaign, that tax cuts should be extended at incomes only up to $200,000 for individuals and $250,000 for couples. He explained his about-face by saying that he still opposed the move, and noted that the agreement called for a temporary, two-year extension of cuts at all income levels, not the permanent renewal that Republicans have long sought.
At the same time, it signaled the arrival of a new era of divided government following midterm elections in which Republicans won control of the House and strengthened their hand in the Senate.
"We cannot allow this moment to pass," Obama said.
Officials said that under the plan, unemployment benefits would remain in effect through the end of next year for workers who have been laid off for more than 26 weeks and fewer than 99 weeks. Without an extension, 2 million people would have lost their benefits over the holidays, the White House said, and 7 million would have done so by the end of next year.
The Social Security tax cut would apply to workers, not employers, and would drop from 6.2 percent of pay to 4.2 percent for one year. The White House said that the result would be to fatten take-home pay by $120 billion over the course of the year.
In addition, administration officials emphasized that the agreement would extend a variety of other tax breaks for lower- and middle-income families, including the earned-income-tax credit and the child-tax credit.
The estate-tax provision under discussion would mean that the first $5 million would pass tax-free to heirs. Anything over that would be taxed at a rate of 35 percent. Democrats favored a $3.5 million threshold, with a 45 percent tax on anything higher.
In a sign of Democratic discontent, Senate Majority Leader Harry Reid, D-Nev., reacted curtly to the president's announcement.
"Now that the president has outlined his proposal, Senator Reid plans on discussing it with his caucus tomorrow," his spokesman, Jim Manley, said in a written statement.
Top Republicans were far more receptive.
"I appreciate the determined efforts of the president and vice president in working with Republicans on a bipartisan plan to prevent a tax hike on any American and in creating incentives for economic growth," said Kentucky Sen. Mitch McConnell, the GOP leader. In a jab at Democratic lawmakers, he added, "I am optimistic that Democrats in Congress will show the same openness to preventing tax hikes the administration has already shown."