Video: Obama defends tax deal, slams left

  1. Transcript of: Obama defends tax deal, slams left

    MEREDITH VIEIRA, co-host: And now to Washington where the fight is on over the tax cut deal ironed out between President Obama and Republicans and the president is finding his biggest battle is with members of his own party. NBC 's White House corespondent Savannah Guthrie has the very latest. Good morning to you, Savannah .

    SAVANNAH GUTHRIE reporting: Good morning, Meredith . As you said, facing a revolt from the left wing of the Democratic Party , the president called a surprise news conference and came loaded for bear, coming down hard on liberal allies he called sanctimonious and pushing back on the suggestion that he'd sold out to get a deal.

    President BARACK OBAMA: This isn't an abstract debate. This is real money for real people.

    GUTHRIE: As the contentious debate over taxes now moves back to Capitol Hill , the president defended his deal with Republicans , and aimed his most potent fire at members of his own party.

    Pres. OBAMA: Take a tally, look at what I promised during the campaign. There's not a single thing that I said that I would do that I have not either done or tried to do.

    GUTHRIE: Liberals are angry at the president's retreat on a promise to roll back tax cuts for the rich, but he argued Tuesday he got the best bargain he could from Republicans .

    Pres. OBAMA: The middle class tax cuts were being held hostage to the high end tax cuts . I think it's tempting not to negotiate with hostage takers. In this case, the hostage was the American people and I was not willing to see them get harmed.

    GUTHRIE: Saying compromise was the only course, the president made it personal.

    Pres. OBAMA: This country was founded on compromise. I couldn't go through the front door of this country's founding and you know, if we were really thinking about ideal positions, we wouldn't have a union.

    GUTHRIE: On Capitol Hill , the fight now is for Democrat support. Vice President Joe Biden trying to sell the deal with Senate Democrats on Tuesday.

    Unidentified Man: Can you make it happen?

    Senator HARRY REID (Democrat, Nevada): This is only a framework. It's up to the Congress to pass it.

    Representative NANCY PELOSI (Democrat, Speaker of the House): There's a certain amount of unease with the proposal.

    GUTHRIE: Republicans were out praising the deal.

    Senator MITCH McCONNELL (Republican, Kentucky): I'm very hopeful and optimistic that a large majority of members of the Republican Conference will find this proposal worth supporting.

    GUTHRIE: But on Tuesday, the president fired back at suggestions he's shown his political opponents he could be outmaneuvered.

    Pres. OBAMA: I will be happy to see the Republicans test whether or not I'm itching for a fight on a whole range of issues. I suspect they will find I am.

    GUTHRIE: Well, senior aides say they don't expect this deal to change substantially in order to win more Democratic support. This is it and Vice President Biden is expected to be on the Hill today trying to make the sell to

Image: President Barack Obama
Mandel Ngan  /  AFP - Getty Images
President Barack Obama delivers a statement to the press on tax cuts and unemployment insurance Monday in the Eisenhower Executive Office Building next to the White House in Washington, D.C.
msnbc.com news services
updated 12/8/2010 8:08:06 AM ET 2010-12-08T13:08:06

Disappointed congressional Democrats Tuesday night continued to blast the White House's tax deal with Republicans despite a spirited argument by President Barack Obama that concessions were preferable to higher taxes for millions of Americans.

"I'm not here to play games with the American people or the health of the economy," Obama said of his day-old deal, which is designed to avert a scheduled Jan. 1 expiration of tax cuts at all income levels.

Live-blogging Obama's tax cuts press conference

In a remarkable political role reversal, Republicans lined up to support the package, while lawmakers of the president's party said they were prepared to oppose it. Liberal Sen. Bernie Sanders, I-Vt., pledged to "do everything I can to defeat this," including a filibuster to prevent a final vote.

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The deal includes an extension of expiring Bush-era tax cuts for all income levels — not just for lower and middle-income taxpayers, as Democrats wanted. It also contains a renewal of jobless benefits due to expire in a few weeks, and a one-year cut in Social Security taxes paid by workers.

Video: Axelrod defends ‘temporary’ tax measures (on this page)

Other elements would loosen the estate tax and provide breaks for businesses to spur hiring. Officials said that overall, the proposal could add $900 billion to the federal deficit over two years.

'Framework for a bipartisan agreement' on tax cuts

Dem leader: Compromise is 'not done yet'
Democratic opposition focused chiefly on two parts of the deal that marked concessions to Republicans — the decision to let expiring tax cuts remain in effect for people in upper incomes, and a change in the estate tax that the GOP has long sought.

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Video: Can Obama sell GOP tax deal to Dems? (on this page)

After meeting with other Democratic leaders, House Speaker Nancy Pelosi said that "so far the response has not been very good" to the proposed deal.

She was described to NBC News as having a poker face during a Tuesday night closed-door caucus meeting in which other members said they had problems with Obama's compromise.

House Democratic leader, Rep. Chris Van Hollen of Maryland, said afterward he cannot recommend the package to his colleagues.

"The question is what is the best deal you can get and whether you really needed to have, for example, this provision with respect to the bonanza for the wealthiest estates in the country," he said, according to NBC News.

Pelosi called the estate tax provision "a bridge too far."

Overall, officials said, the proposed compromise deal could increase federal borrowing by $900 billion.

"I don't think that the president should count on Democratic votes to get this deal passed," said Rep. Anthony Weiner of New York. "It's a bad deal that wasn't skillfully negotiated."

Among other caucus members expressing concerns, NBC News said, were Ways and Means Committee Chairman Sander Levin, D-Mich., Rep. Lynn Woolsey, D-Calif., outgoing co-chair of the Progressive Caucus, and Rep. Jim Himes, D-Conn., who called the compromise "just not acceptable to people."

The compromise is "something that's not done yet," said Senate Majority Leader Harry Reid, D-Nev. "We're going to have to do some more work," he said after a closed door meeting with Vice President Joe Biden and members of the Democratic rank-and-file.

At his hastily called news conference, Obama bristled at times, casting himself in the role of compromiser-in-chief with the best interests of the economy and public in mind.

"This isn't an abstract debate. This is real money, It will make a real difference in the lives of people who sent us here," Obama said.

The presidential news conference was part of a full-scale defense of the agreement, which the White House said would pump billions into the economy at a time it is recovering from the worst recession in eight decades and unemployment stands at 9.8 percent.

President critical of both sides of the aisle
The president was critical of Democrats and Republicans, saying that if purely partisan attitudes rule, compromise would be impossible.

At one point, he appeared to liken Republican lawmakers insisting on tax cuts for the wealthy to terrorists.

"I think it's tempting not to negotiate with hostage takers, unless the hostage gets harmed. In this case the hostage is the American people and I was not willing to see them get harmed," he said.

But he also rejected criticism from Democrats. "I know there are some who would have preferred a protracted political fight," he said. But he added he had decided that compromise was preferable to letting taxes rise on Jan. 1.

Video: Can Obama sell GOP tax deal to Dems? (on this page)

The events left Democratic leaders struggling to avoid a major fight with the president, at a moment that they are hoping to complete work on several measures before Republicans take control of the House in January. Most prominently, Obama wants the Senate to ratify a new arms control treaty with Russia.

Sen. Joe Lieberman of Connecticut, a Democrat-turned-independent, urged support for the plan. "This tentative agreement is an example of Washington working across party lines to confront the challenges facing our nation," he said.

But organized labor, the liberal group MoveOn.org and others criticized the deal.

In public and private, Democrats expressed anger that Obama had bowed to Republican demands to extend the expiring tax cuts on the wealthy and make additional concessions to the GOP on estate tax relief.

Some Democrats who met with Biden quoted him as saying the deal was the best the White House could obtain from Republicans, who had staunchly blocked legislation over the weekend to extend tax cuts only on incomes below $200,000 for individuals and $250,000 for couples.

Sen. Tom Harkin, D-Iowa, said he intended to oppose the new proposal barring changes. "It didn't wind up in a good end. The deal as struck is not the best deal for our country," he said.

Others questioned whether the deal would spur the economic growth enough to outweigh the additional damage it would do to the already disastrous debt situation.

"If we don't vote for this, what happens — not politically, but economically? If we do vote for it, how sure can we be that it will, in effect, spawn jobs and pump the economy?" said Sen. Dianne Feinstein, D-Calif.

Other parts of the plan
Besides holding current tax rates in place for all, the proposal would extend unemployment benefits and reduce payroll taxes for a year, avoiding a threatened cutoff in checks to two million over the holidays and as many as another five million next year.

The proposed Social Security tax cut would apply to virtually every working American. For one year they would pay 4.2 percent of their income, instead of 6.2 percent, to the government retirement program, fattening U.S. paychecks by $120 billion in 2011.

Someone earning $40,000 a year would receive a $800 benefit, and a $70,000 earner would save $1,400, officials said. More than three-fourths of all Americans pay more in these so-called payroll taxes than in federal income taxes.

The White House said money from other sources would be shifted so the Social Security trust fund loses no revenue.

Obama said he reluctantly made another concession to Republicans, concerning the estate tax. It would tax estates worth more than $5 million at a rate of 35 percent, a GOP goal. Democrats favored a $3.5 million threshold, with a 45 percent tax on anything higher.

Obama's willingness to compromise with Republicans comes a month after the GOP won resounding victories in congressional, gubernatorial and state legislative elections.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Explainer: Breaking down the tax compromise

  • Image: President Barack Obama speaks during a news conference at the White House briefing room on the tax cut deal
    Getty Images

    The tax cuts compromise between the White House and congressional Republicans still must be passed. But here is how it would affect major categories of government, and personal, finance.

  • Income tax rates

    Image: Tax forms
    AP

    By extending the current rates across the board, you’ll see no change in the basic tax you pay on earned income: those rates will top out at 35 percent. The Obama administration had wanted to let the rate rise for wealthy taxpayers, but under the deal struck with Republicans, everyone gets to keep the current rate for two years.

    "If this package does indeed pass, it's going to make a significant difference over the coming year for middle-class taxpayers," said Melissa Labant, a tax manager for the American Institute of Certified Public Accountants.

    Economists expect the combination of maintaining current tax rates, reducing payroll taxes and boosting other tax benefits will induce consumers to spend more and investors to turn more bullish.

  • Capital gains and dividend

    Image: Counting money
    Reuters

    Current tax rates on long-term capital gains will remain in place for two years. The tax applies to profits from the sale of an asset, such as stock, held more than a year. The highest rate of 15 percent was expected to rise to 20 percent next year.

    Investors will also benefit from an extension of the historically low tax rates on dividend income, which top out at 15 percent. Had no action been taken, dividend payments would be taxed as regular income. This would raise the tax rate to as much as 39.6 percent for top earners. The extension means a savings of nearly a quarter on every dollar of dividend income for this group.

    Individuals with dividends paid to taxable accounts can collectively expect to save nearly $75 billion over two years, according to an analysis by Standard & Poor's analyst Howard Silverblatt.

    Cliff Caplan, a financial planner and president of Neponset Valley Financial Partners in Norwood, Mass., said the extension of the lower tax rates could lift prices of dividend-paying stocks as they become more popular with investors who can now avoid the higher tax rates for at least two more years.

  • Estate taxes

    Image: Mount Vernon estate
    AP file

    Wealthy taxpayers also benefit from other provisions of the deal. The estate tax on inherited money, which was eliminated altogether in 2010, was scheduled to return to 2001 levels of taxing estates above $1 million at 55 percent. Under the proposed deal, for the next two years, a new 35 percent estate tax will kick in on estates over $5 million ($10 million for couples).

    Except for the temporary repeal of the estate tax this year, the rate has not been less than 45 percent since 1931.

    Only about 4,000 to 5,000 estates will likely owe the estate tax under the plan, based on last year's tax filings. That compares with roughly 7,000 under Obama's earlier proposal of a 45 percent tax on value exceeding $3.5 million. Although that may not sound like a big difference, House Speaker Nancy Pelosi said the new estate tax proposal will add about $25 billion to the deficit.

  • Tax credits

    Image: Child
    AP

    Tuition tax credit
    Families with kids in college can benefit from a tax credit for tuition and fees. A maximum of $2,500 will remain in place for two years. A credit reduces taxes owed, versus a deduction which reduces taxable income.

    Parents familiar with 529 college savings plans may question what to prioritize. A 529 account encourages savings by enabling account holders to make tax-free withdrawals for eligible college expenses.

    Parents should set aside $4,000 per year to maximize the tax credit before contributing to a 529 plan, says Mark Kantrowitz, a college financial aid expert and publisher of FinAid.org. That's because directly lowering their tax bill exceeds the financial benefit of tax-free distributions.

    The extension is welcome assistance: The average annual cost of in-state public four-year schools rose to $7,605 this fall and private college expenses increased to $27,293.

    Child tax credit
    There's more good news if you're a parent: The $1,000 child tax credit is being extended for two years. Taxpayers with income of less than $75,000 — or $110,000 for married couples filing jointly — qualify for the full amount.

    Wealthy taxpayers also benefit from other provisions of the deal. The estate tax on inherited money, which was eliminated altogether in 2010, was scheduled to return to 2001 levels of taxing estates above $1 million at 55 percent. Under the proposed deal, for the next two years, a new 35 percent estate tax will kick in on estates over $5 million ($10 million for couples).

  • Payroll taxes

    Image: Payroll taxes
    AP

    Everyone will also get a break on their payroll taxes, but wealthy taxpayers will get a slightly better break. In exchange for dropping the so-called Making Work Pay tax credit, all taxpayers will get a two percent break on their Social Security payroll taxes for one year. The old tax credit, which maxed out at $400 ($800 for couples), was limited to people who made less than $95,000 (or couples making $190,000.)

    Currently, the government takes 6.2 percent out of your paycheck, up to $106,800, for the Social Security payroll tax. That would drop to 4.2 percent in 2011 and give you an immediate increase in take-home pay. So the more you earn, the more you save.

    If you make $50,000 a year you will pay $1,000 less. If you get paid twice a month, you will have an extra $41.67 in your paycheck starting in January.

    Anyone who makes more than $106,800 a year will receive the maximum savings of $2,136.
    "That certainly provides an added level of dollars to do whatever people were planning on doing, whether that's saving or spending," said Greg Rosica, a tax partner at Ernst & Young LLP.

  • Alternative Minimum Tax

    Image: AMT
    Getty Images file

    Middle class taxpayers get continued protection from a perennial monster called the Alternative Minimum Tax. Under the proposed deal, the existing AMT “patch” will be extended for two more years, saving some 21 million middle class taxpayers from getting hit with these higher rates.

    The AMT was enacted in 1969 to make sure wealthy people couldn't avoid taxes altogether, but it wasn't indexed for inflation. This means Congress has to raise the amount of income exempt from the AMT each year to spare millions from tax increases averaging about $3,900.

    Had no adjustment been made, taxes would have gone up for individuals making as little as $33,750, and married couples making $45,000.

    Similarly, a married couple making $85,000 a year with two college-age children would have had to pay $4,500 more in taxes, according to an analysis by The Tax Institute at H&R Block. A married couple making $100,000 a year with two young children would have faced a tax increase of more than $6,100.

  • Unemployment insurance

    Image: Help Wanted sign
    AFP - Getty Images

    Million of job seekers will benefit from an extension of their benefits at current levels through the end of 2011. The extension applies to workers laid off for more than six months, and less than 99 weeks. Seven million Americans would have lost their benefits through next year without the 13-month extension. Obama's Council of Economic Advisers estimates the provision will create 600,000 jobs next year.

    That's because the unemployed live on the edge, and tend to spend every dollar they get, rather than save. That spending flows to businesses, putting them in better position to hire.

    The average weekly payment for the roughly 8.5 million people receiving unemployment benefits is $302.90. But it varies widely by state, from as little as $119 in Puerto Rico to nearly $420 in Hawaii. Each state sets the amount through a formula meant to replace a portion of an unemployed person's old income.

Vote: How do you feel about the Obama tax compromise?