Obama agrees to tax-cut extension, lower payroll tax

President Barack Obama said he would agree to sustain Bush-era tax cuts for high-income taxpayers in exchange for extending federal unemployment insurance and cutting the payroll tax by $120 billion for one year.

Obama said he would accept lower rates on high earners’ income, dividends, capital gains and multimillion-dollar estates for the next two years to break a stalemate over extending the Bush administration’s tax cuts for middle-class taxpayers before Congress adjourns. The current tax rates, enacted in 2001 and 2003, are set to increase on December 31.

Without the compromise, middle-income families would become “collateral damage for political warfare here in Washington,” Obama said in televised remarks yesterday. He said he still believes that the nation can’t afford to permanently extend the reduced top tax rates.

“This compromise is an essential step on the road to recovery,” said Obama, who criticised Republicans for insisting on permanent tax cuts for the wealthiest Americans “regardless of the cost of impact on the deficit.”

Obama spoke in Washington after a White House meeting with Democratic congressional leaders. They and the Republican leadership still have to sell the plan to their caucuses. Obama called it a “framework” for a deal.

In addition to preserving the status quo on Bush policies, the proposal creates more than $300 billion in new tax cuts for wage-earners, wealthy families, and corporations.

Obama won his biggest prize: a 13-month extension of unemployment insurance, the official said, speaking on condition of anonymity. The White House also counted as a win an agreement from Republicans to renew a refundable child-care tax credit, the earned income tax credit, tuition tax credits and a 2 per cent reduction in payroll taxes.