Image: Nancy Pelosi
Alex Brandon  /  AP
House Speaker Nancy Pelosi, D-Calif., speaks to the media after House democratic caucus meeting on Capitol Hill in Washington on Tuesday.
updated 12/8/2010 8:33:11 PM ET 2010-12-09T01:33:11

Raising the direst alarm yet, the Obama administration warned fellow Democrats on Wednesday that if they defeat the big tax-cut compromise detested by many liberals, they could jolt the nation back into recession.

President Barack Obama appealed anew for Congress to "get this done" and insisted that more congressional Democrats would climb aboard as they studied details of the $900 billion year-end measure. Several did announce support on Wednesday, but at least one said there still was "a mood to resist."

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One Democratic opponent, Rep. Barney Frank of Massachusetts, forecast a result that would abruptly reverse Congress' voting pattern of the first two years of Obama's term: "It will be passed by virtually all the Republicans and a minority of Democrats." He said he would vote against it.

Larry Summers, Obama's chief economic adviser, told reporters that if the measure isn't passed soon, it will "materially increase the risk the economy would stall out and we would have a double-dip" recession. That put the White House in the unusual position of warning its own party's lawmakers they could be to blame for calamitous consequences if they go against the president.

With many House and Senate Republicans signaling their approval of the tax cut plan, the White House's comments were aimed mainly at House Democrats who feel Obama went too far in yielding to Republicans' demands for continued income tax cuts and lower estate taxes for the wealthy.

Video: Can Obama sell GOP tax deal to Dems?

Obama says the compromise was necessary because Republicans were prepared to let everyone's taxes rise and to block the extension of unemployment benefits for jobless Americans if they didn't get much of what they wanted.

Economists say the recent recession officially ended in June 2009. But with unemployment at 9.8 percent, millions remain out of work or fearful of losing ground economically, and the notion of the nation falling back into a recession would strike many as chilling. It also could rattle markets and investors.

Obama staunchly defends tax deal with GOP

The deal Obama crafted with Senate Republican leaders would prevent the scheduled Dec. 31 expiration of all the Bush administration's tax cuts enacted in 2001 and 2003, even though Obama had often promised to end the cuts for the highest earners.

Summers' remarks contrasted with Obama's comments at a news conference Tuesday. "We don't have the danger of a double-dip recession," the president said then, noting the impact of the 2009 stimulus bill and other measures meant to steady the economy.

Barack Obama
Pablo Martinez Monsivais  /  AP
President Barack Obama gestures during his news conference at the White House in Washington on Tuesday.

Obama again urged unhappy Democrats to swallow the compromise, and denied that he went overboard to appease Republicans. "I think it is inaccurate to characterize Democrats, writ large, as quote-unquote betrayed," he said Wednesday.

He said a number of Democrats "have said this makes sense. And I think the more they look at it, the more of them are going to say this makes sense."

Three straight days of multi-pronged White House efforts to weaken Democrats' resistance did appear to start having the desired effect.

"In my opinion, a strong leader is one who knows when to compromise," said Rep. Michael E. McMahon, D-N.Y., in announcing his support for the plan.

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Frank, still an opponent, said Democrats under House Speaker Nancy Pelosi do not subscribe to former GOP Speaker Dennis Hastert's policy of passing major bills only if most of his party's members supported them. Such a stance, which essentially renders the minority party irrelevant, "is very antidemocratic, hyperpartisan," Frank said.

House Democrats, who will lose their majority in January, still hold a 255-179 edge in the current Congress. To pass a big bill with mostly Republican votes would mark a dramatic departure from recent battles, such as the health care overhaul, which was enacted with virtually no GOP support in either chamber.

Pelosi and other House Democratic leaders continued to remain outwardly neutral to the tax cut compromise, criticizing some aspects but stopping short of urging or predicting its demise.

'Framework for a bipartisan agreement' on tax cuts

For a second straight day Wednesday, Vice President Joe Biden traveled to the Capitol to meet privately with Democrats — this time in the House, after visiting senators on Tuesday. Aides distributed a color-coded chart labeled "what we got," and "what they got," indicating that Democrats won more concessions in the tax deal than did Republicans.

House Majority Leader Steny Hoyer, D-Md., said he still had reservations about the package, indicating he hopes changes are made before the Senate acts.

"We'll see what the Senate passes," Hoyer said.

Biden took a tough stance, warning that any changes might unravel the compromise plan, said several House Democrats who attended the meeting. "The vice president said, 'this is the deal, take it or leave it,'" said Rep. Henry Waxman, D-Calif.

The White House ballyhooed almost any elected Democrat who endorsed the tax plan, with no state or city too small to justify a press release. Vermont Gov. Jim Douglas and Charlotte, N.C., Mayor Anthony Foxx were among those praising the plan, the White House announced.

But many House Democrats were unmoved. They particularly criticized Obama's proposed estate tax rates, which are far more generous than most Democrats had expected. The concession seemed gratuitous, said Rep. David Price, D-N.C. For now, he said, "there's a mood to resist" the overall package.

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Also, a co-leader of Obama's deficit-reduction commission said he was deeply disappointed that the tax agreement includes no firm commitment for long-term federal fiscal restraint. Erskine Bowles, a chief of staff in the Clinton White House, made the remarks at a Wyoming event.

Live-blogging Obama's tax cuts press conference

Passage of Obama's plan seems more assured in the Senate, where numerous Democrats have agreed that the president had little choice in making the compromise with Republicans. Still, Majority Leader Harry Reid, D-Nev., said he and colleagues are considering possible changes, and action could come within days.

Changes designed to ease some Democrats' concerns might include a provision for bonds to help state and local governments pay for construction projects, tax breaks for wind power and clean-energy subsidies, lawmakers said.

___

Associated Press writers David Espo, Julie Hirschfeld Davis, Ben Feller, Stephen Ohlemacher and Erica Werner contributed to this report.

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

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

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?