President Obama, GOP Reach Tax Cut Extension Deal

President Obama and the GOP have reached a deal on extending the Bush tax cuts that gives the GOP virtually everything it wanted.

Late today, President Obama announced that a deal had been reached with Congressional Republicans that would extend the Bush tax cuts for two years and unemployment benefits for just over a year:

President Obama and congressional Republicans agreed Monday to a tentative deal that would extend for two years all the Bush-era income tax breaks set to expire on Dec. 31, continue unemployment benefits for an additional 13 months and cut payroll taxes for workers to encourage employers to start hiring.

The deal has been in the works for more than a week and represents a concession by Obama to political reality: Democrats don’t have the votes in Congress to extend only the expiring income tax breaks that benefit the middle class. The White House estimates that the proposed agreement would prevent typical families from facing annual tax increases of about $3,000, starting Jan. 1.

Obama was able to extract an agreement from GOP leaders to support an additional 13 months of jobless benefits, a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill.

The deal also would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples. Democrats on Capitol Hill are strongly opposed to setting the cap at that high a level and to the 35 percent rate discussed by Obama and Republicans that would apply to the taxable portion of estates.

As you can expect, the reaction on the progressive left has been something pretty close to outrage and astonishment that the White House has essentially given away the store on an issue that Democrats had been campaigning on virtually since the day that the Bush tax cuts became law and gotten little in return. David Dayen at Firedoglake, for example, is unhappy about the revisions to the estate tax:

The $5 million, 35% estate tax is a crime. That’s LOWER than the lowest rate under the Bush estate tax, outside of 2010, when the estate tax disappeared. So Republicans get that restored at the lowest rate in history. Even in this weekend’s aborted tax bill in the Senate, Max Baucus included what has become the default Democratic policy, a return to 2009 rates, with a $3.5 million dollar exemption and a 45% rate. (Personally, I favor just returning to Clinton levels.)

Pat Garofalo is similarly upset:

In return for continuing the fiscally irresponsible and economically unsuccessful Bush tax policy, Democrats receive an desperately necessary extension of jobless benefits of the sort that used to be completely uncontroversial until this Congress came to town, as well as some helpful tax breaks for the working class that Republicans likely would have supported under any circumstance.


But the most pernicious piece of this deal is the estate tax cut. It will amount to another $7 billion in tax breaks in 2011 that benefit no one but the ultra-wealthy. Under Obama’s plan, just 0.25 percent of estates in the country would conceivably have to pay the estate tax, but Lincoln and Kyl proposed spending billions to lop another 0.11 percent off of that.

Ezra Klein, however, doesn’t think this is that bad of a deal at all:

So is this a good deal? It’s a lot better than I would’ve told you the White House was going to get if you’d asked me a week ago. There’s some new stimulus in the form of the payroll-tax cut and the expensing proposals. The older stimulus programs that are getting extended — notably the unemployment insurance and the tax credits — probably would’ve expired outside of this deal. The tax cuts for income over $250,000 are a bad way to spend $100 billion or so, and the estate tax deal is really noxious.

It’s bad news for the deficit, though the White House and Congress are right to make the deficit less of a priority than economic recovery.


Finally, it’s something of a hopeful sign: The White House sat in a room with Republicans and Democrats and managed to negotiate an actual compromise. The final deal includes some things that Democrats will like and some things they won’t like, and it includes some things Republicans will like and some things they won’t like. But it’s a deal, and a better one than many — myself included — thought they’d reach. These tax cuts were a bit of a special legislative case, as their scheduled expiration forced action, but if you want to be optimistic, this process suggests that the next two years might be a bit more productive than some of us have been predicting.

Frankly, I think Klein is being more than just a little naively optimistic there. As he concedes, and as I noted yesterday, it was inevitable that these tax cuts would be extended in some for all taxpayers simply because of the state of the economy and because the Democrats were never willing to take the political risk of letting the cuts expire at the end of the year. Once the Democrats conceded the first inch of ground and agreed that the cuts should be extended for at least the “middle class” (however one defines that), and then the GOP won the midterms, it was inevitable we would reach the result we did today. Perhaps things would have been different if the Democrats had tried to force a vote on tax cut extensions before the elections, but they didn’t and after the GOP wave hit, the Democrats were in a much weaker bargaining position.

This isn’t a done deal quite yet, of course, both progressive Democrats and conservative Republicans were hinting earlier today that they might try to block the deal because of one or another element in it. In all likellihood, though, the Democratic and GOP leadership will be able to pull together enough votes in both houses of Congress to get this through. What happens next? That’s anybody’s guess, but now that they’ve won their first big battle, you can bet the Republicans won’t be in much of a mood to compromise.

FILED UNDER: Congress, Taxes, US Politics, , , , , , , , ,
Doug Mataconis
About Doug Mataconis
Doug Mataconis held a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.


  1. Sam Snippel says:

    I’m happy that the tax cut extensions will continue. But c’mon, tax cuts won’t save this country. The GOP and Reagan knew what they were doing in the 80s, and we need some plan to get this together and save this country.

  2. ponce says:

    “that gives the GOP virtually everything it wanted. ”

    Hehe, how biased can you get?

    This deal also gives Obama everything he wanted.

    And the “small government” Tea Pariers are turned into eunuchs before the next Congress even begins…talk about suckers.

  3. Tano says:

    “that gives the GOP virtually everything it wanted. ”

    Haven’t the Republicans been campaigning for decades now to get rid of the estate tax? They seem to have lost that argument in principle – which is where it matters. The details of the rate or exclusion level is trivial.

  4. Richard says:

    I think the President has caved. I am a lawyer of 43 years experience doing personal injury and disability cases. The President does not know how to negotiate. He showed this with health care when he capitulated on the public plan/option out of the gate. Now he is giving the billionaires huge breaks that secure their position as part of the elite 1 or 2% of the population. The president could be described as “a coward” by his progressive supporters. He didn’t even try. He should go back to take a course on negotiation! What a loser! I, we, voted for him and I am a millionaire. But, like Buffet and Gates, I believe that we, who have exceeded our dreams in acquiring wealth, should pay back to this country part of what it provided us, the where-with-all to gain tremendous wealth while living in the greatest country (no longer) in the world! Shame on Obama; shame on the Republicans. I am so disappointed. Our best years are behind us. I truly fear for my children and grandchildren – that American will not have the promise I had and my father had. Richard

  5. Dave says:

    Barack Obama wins a $400 billion worth of Keynesian stimulus and somehow convinces the GOP it’s some huge victory for conservatism. I think we’re underestimating this guy’s political abilities.

  6. Tano

    Under existing law the estate tax that would’ve have gone into effect on 1/1/11 would have had a far wider impact than what Obama and the GOP agreed to. He caved on that too.

  7. Tano says:


    You really have a strange way of looking at these things. Its as if you accept that the Republicans have a certain position, and then you assume, for some bizarre reason, that Obama and the Democrats must have the exact opposite position. And that what then transpires is nothing beyond a political game. You never seem to actually deal with the real positions that the Dems have.

    Neither Obama, nor any Dem I can think of, has EVER advocated a return to the 2000 level of the estate tax. Why do you act as if this was their position, and that they “caved” on it? That has never been their position. As long as I can remember discussions on this issue, the standard Dem position has been that some adjustment to the exclusion level would be appropriate (given that it was never indexed to inflation), and that the tax rate itself (what was it, 55%?) could certainly be adjusted.

    The GOP on the other hand, has always taken as near an absolutist line on this as possible – the famous “death tax”. It was a moral evil. The arguments were grounded deeply in principle.

    This deal is a total cave for the GOP because they have accepted the existence of the tax, as a principle. The details of the rates and exclusion are certainly in line with what I have been expecting for years the ultimate deal would be.

  8. Dustin says:

    2 years, really? 2 years? Does Obama not see they’ll be using this as a “tax-hike” against him for 2012?

  9. Tano says:

    “2 years, really? 2 years? Does Obama not see they’ll be using this as a “tax-hike” against him for 2012?”

    ???? How does that work? 2 years from now, the election will be over. The question of what to do long term with these rates will be campaigned on, for sure, but this deal extends through the election.

  10. michael reynolds says:

    My first thought was that Obama rolled over.

    But my suspicion is he got what he wanted. He kept the stims. He spread the blame for an increased deficit as he can lay some of that on the GOP and its demands for tax breaks for rich folks. And what if we double-dipped after a tax hike? Obama would have eaten that and now he doesn’t have to worry about it.

    Roll ahead a year. Let’s say the economy outperforms. The GOP claims it was the tax cut extension, but Obama gets the benefit. If the economy sinks the GOP will sneer that the stimulus did nothing, but Obama can say look, we compromised and gave you your tax cuts and all we got in exchange was this lousy deficit.

    Meanwhile a bunch of people get their unemployment benefits.

  11. anjin-san says:

    This seems like a pretty reasonable compromise to me. No doubt the right will be crowing about a great victory, but I see it as a push.

  12. TG Chicago says:

    Richard, you forgot that Obama one day decided to open areas for offshore drilling even though that was a bargaining chip that Kerry, Lieberman and Graham were planning on using in the cap-and-trade negotiations. It was a big part of the reason the bill died.

    Also he added tax cuts to the stimulus package when he theoretically might have held them out to barter for Republican votes.

    Here’s Ta-Nehisi Coates on this subject:

  13. Zelsdorf Ragshaft III says:

    Something missed here was Obama’s campaign promise to eliminate Bush era tax rates for those making in excess of 200K-250K yearly. It is not the extremely rich who would be hurt as we know they don’t pay taxes that they feel. Lawyers see to that. It is the small business which would have been hurt. But most of the lefties who post here are only capable of repeating the party line. The Communist party.

  14. Wow. What a cluster f*ck. All this debate over whether or not Obama got a good deal or not is pretty far off the point. What about the American public, or the American public 20 years from now?

    This deal does not do anything to address:

    1. the unemployment problem (which is worse than govt statisticians say)
    2. the massive federal debt

    Obama promised not to “keep kicking the can down the road” when it comes to hard problems. Well, that’s exactly what he did here. After all the maneuvering, politicking, horse-trading, and public posturing, NOTHING got solved, except for an extension of unemployment benefits.

    Cold comfort when the real problem is lack of jobs..

    Way to go democrats! You just keep caving and caving, and I’m sure things will get better.

    And to “liberals” and “progressives” – if you keep voting these clowns in, it’s your damn fault too.

  15. john personna says:

    A 13 month extension of unemployment is much bigger that what I’d heard knocked around (2 or 3 months).

    And, in terms of what Republicans got, the tax cuts are still “temporary,” aren’t they?

    I agree with Daryl that this is pretty much can-kicking all around. By both parties.

  16. john personna says:

    So … pulling together a few threads that have appeared in the last 24 hours … the Republicans got everything they wanted, adding $900B to the deficit?

    Can that be right?

  17. floyd says:

    “As you can expect, the reaction on the progressive left has been something pretty close to outrage and astonishment that the White House has essentially given away the store ”
    Of course…. they, and he, had fully intended to increase the taxes on the lowest bracket taxpayers by 50% starting Jan 1,and more up the line![ they do call themselves “progressives” afterall! [lol] The midterm election foiled their plan to their great consternation and frustration.
    The resultant half-stepping has been an hilarious spectacle!

  18. Tano says:

    “Way to go democrats! You just keep caving and caving, and I’m sure things will get better. ”

    Could you make an effort to get beyond the ranting and try to make a coherent point?
    You are criticizing the Dems for “caving”, and for kicking the can down the road. And you seem to be concerned about the unemployed and the national debt. What does that all add up to?

    What should Obama have held out for – not caved on? What, given the political realities, could he have won if only he had been more…….fill in the blank….

    You want a solution to the national debt? What does that mean – should he have refused to extend any of the cuts, so that we could boost revenues? What would be the implications for unemployment if he did that?

    You want him to address unemployment? How exactly? What would have been the outcome on this issue that would have satisfied you on that score?

    What are the solutions that you are criticizing him for not achieving?

  19. matt says:

    michael reynolds : A large portion of the original stimulus consisted of tax cuts and you can see how well that conversation went for democrats. I just don’t see Obama or the democrats as being capable of taking the argument that “look, we compromised and gave you your tax cuts and all we got in exchange was this lousy deficit.” effectively to the public..

  20. sam says:

    “I just don’t see Obama or the democrats as being capable of taking the argument that “look, we compromised and gave you your tax cuts and all we got in exchange was this lousy deficit.” effectively to the public..”

    I had the thought last night that this won’t hurt him at all with independents, or at least very much. The base, for all its gnashing of teeth, will, in the end, be with him. The Republicans, eh, who really cares? My reading is that independents, who swing elections now, will be more sympathetic to a president who shows that he’s trying to work his way through this morass. He said something that I think will resonate with independents: “Not everybody will like everything in the compromise. I don’t, but…” It’s the willingness to compromise that I think independents will respond to. The more he’s attacked by the left and the right, the higher his stock moves with the independents. Of course, much (all) depends on where we are in 2012, but I don’t in any way see this compromise as the beginning of the end.