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A deal to extend tax cuts, jobless benefits

Brushing past Democratic opposition, President Barack Obama announced agreement with Republicans last night 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 only be extended at incomes up to $200,000 for individuals and $250,000 for couples. He explained his about-face by saying 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.

Even so, 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 Sen. Mitch McConnell of Kentucky, the GOP leader.

Democrats also objected to an extension of the estate tax that tilted toward the Republican position.

For months, Democrats have repeatedly raised objections to including the upper-income in any plan to extend tax cuts enacted in 2001 and 2003 when George W. Bush was president. The Democratic-controlled House recently passed legislation to let the cuts lapse on incomes over $200,000 for individuals and $250,000 for couples. On Saturday, Republicans blocked an attempt by Senate Democrats to do the same.

Obama said there were elements of the deal he personally opposed, including an extension of expiring income tax cuts at upper income levels and the more generous deal on estates.

But he said he decided that an agreement with Republicans was more important than a stalemate that would have resulted in higher income taxes at all levels on Jan. 1.

"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," he said.

Obama said the continued political stalemate over taxes amounted to a "chilling prospect for the American people whose taxes are currently scheduled to go up on Jan. 1."

In his announcement, Obama said he had agreed on a bipartisan framework, and said he wanted Congress to approve it before lawmakers adjourn for the year later this month.

In a telling sign that the White House recognizes the extent of Democratic opposition, officials said they would prefer the Senate vote first.

Highlights of the deal

President Obama and congressional Republicans have agreed to a tentative deal that would extend for two years all the tax breaks set to expire on Dec. 31. Here are other provisions:

CONTINUE

unemployment benefits for an additional 13 months.

CUT

employee payroll taxes by 2 percent for one year.

CAP

estate tax at 35 percent on inheritances above $5 million for individuals and $10 million for couples.

ALLOW

businesses a full deduction for equipment purchases that currently must be deducted over time.

RENEW

the Earned Income Tax Credit, Child Credit, and American Opportunity Tax Credit increases from the stimulus bill.

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