Image: Barack Obama, Bill Clinton
J. Scott Applewhite  /  AP
President Barack Obama, accompanied by former President Bill Clinton, speaks briefly in the briefing room of the White House in Washington, Friday, Dec. 10, before giving the microphone to Clinton, where he talked about Obama's urging of the Congress to move on the tax compromise he made with Republican congressional leaders.
updated 12/12/2010 3:05:10 PM ET 2010-12-12T20:05:10

A top adviser to President Barack Obama and a key Democrat in the House of Representatives predicted Sunday that a compromise on extending tax cuts for all Americans will win congressional approval before the year is out.

David Axelrod, a top member of Obama's White House team, said the deal Obama reached with Republicans was a "tremendous win" for middle- and lower-income taxpayers even though the compromise is laden with measures that remain distasteful to the president and the liberal wing of his party.

Rep. Chris Van Hollen, a member of the Democratic leadership in the House, predicted liberals, including Speaker Nancy Pelosi, would not "hold this up" despite roiling anger among progressives.

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A Senate vote is set for Monday on legislation that would avert a Jan. 1 increase in income taxes for nearly all Americans. The package faces a tougher sell in the House of Representatives, where Democrats have voted not to allow it to reach the floor without changes to scale back tax relief for the rich.

At issue is the extension of tax breaks for Americans at all income levels. Those lower rates, that were put in place during the administration of former President George W. Bush, expire at the end of the year. Obama campaigned for the presidency and had routinely vowed during his first two years in office to keep the tax breaks in place for American households earning less than $250,000 a year.

The Republicans have been fighting that, insisting that the cuts remain in place for all income levels. The opposition party vowed to block any extension if the wealthy did not benefit as well.

Obama, realizing the Republicans had the votes to make good on their threat, crafted a compromise a week ago to go along with a renewal of cuts for all income levels for a two-year period. In return Republicans promised to drop their opposition to a separate measure: an extension of unemployment benefits for the long-term unemployed. They said they would agree to a 13-month extension of those payments.

Also included in the deal is a 2 percent reduction in payroll taxes that Americans pay into the Social Security federal pension fund for retired people.

The most explosive part of the deal, the one that Pelosi at one point called "a bridge too far," was a major concession to Republicans on the amount of taxes heirs pay on inheritance. The package Obama negotiated would set the top rate at 35 percent and exempt the first $5 million of an individual's estate. Couples could exempt $10 million. Without the deal, the estate tax was scheduled to return next year to a top rate of 55 percent for estates larger than $1 million for individuals and $2 million for married couples.

"We believe that when it comes back to the House, that we will get a vote, and that we'll prevail there, because at the end of the day, no one wants to see taxes go up on 150 million Americans" on New Year's Day, Axelrod said. "No one wants to see 2 million people lose their unemployment insurance, and everybody understands what it would mean for the economy if we don't get this done."

Axelrod said he does not foresee "major changes" in the House to the compromise and that Pelosi "understands the consequences of inaction" and "urgency in passing it."

The No. 2 Senate Democrat, Dick Durbin of Illinois, said there was a "good cross-section" of fellow Democratic senators who are ready to accept the deal. He said House Democrats, who will become the minority party when the next Congress is seated in January, should go along because they won't be in a position to fight for a better deal in 2011.

Van Hollen said many House Democrats want to scale back the estate tax breaks, but he declined to say whether that will be a deal-breaker and said middle-class families will not see tax increases in January.

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"The president made a deal with Senate Republicans and ... to the credit of Republicans, they did not say this better deal on the estate tax was essential," Van Hollen said. "We're not going to hold this up at the end of the day, but we do think this simple question should be put to test. We're going to ask Republicans and others, are they going to block this entire deal" to protect wealthy estates?

While Obama and his supporters have cast the issue as make it or break it by year's end, the reality of the matter is that Republicans likely would get their way on tax breaks for all income brackets when they take control of the House next year. They become the majority in the lower house and significantly diminished their minority status in the Senate in a landslide election victory last month.

If the tax cut extension has to be passed by the next Congress, the legislation would almost certainly be made retroactive to the first of the year, making the year-end deadline somewhat of a false issue.

Axelrod spoke on CNN, Van Hollen appeared on Fox News.

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

Video: Can unhappy Dems reshape Obama’s tax deal?

  1. Transcript of: Can unhappy Dems reshape Obama’s tax deal?

    JENNA WOLFE, co-host: Now we're switching gears to politics and the big week ahead for President Obama and the fight over tax cuts . David Gregory is the moderator of " Meet the Press ." He joins us this morning. Hey, David.

    DAVID GREGORY reporting: Good morning, Jenna .

    WOLFE: All right, so let's get right to the proposed tax package. The Senate is expected to take a vote tomorrow. The House says they're not ready to vote until things change . Might the House be missing an opportunity to get a little bit at least of what they want before?

    GREGORY: Well, the House Democrats that I speak to in leadership say that they are really going to attempt to try to change this deal somewhat. And the big -- the poison pill here for a lot of House Democrats is the revisions being made on the estate tax that they think are just patently unfair. So Nancy Pelosi and others will try to do that, introducing amendments. How much the bill will actually change, whether it will go back in a different form to the Senate , this is going to be the process that grinds on this week.

    WOLFE: Well, then there's also some in-fighting among Democrats . The president's base says that he compromised too quickly on this issue, that he should have fought harder for what Democrats wanted. Obama , on the other hand , said, 'I did all I could.' In fact, he met with former president Bill Clinton this week, who agreed with Obama on this.

    GREGORY: Right.

    WOLFE: If this deal passes as is because Democrats didn't have the leverage to make those changes, will this sort of vindicate the president in some way?

    GREGORY: Well, look, the president's been clear. This is not the deal he necessarily wanted, but he felt it was that it was a deal that had to happen because the alternative was too potentially costly to the economy. And even President Clinton , who was at the White House on Friday, said, look, you could have had that stand-off that a lot of liberals wanted, which is to try to really push this issue with Republicans . And in the end you could had yet more uncertainty in the economy, more jobs lost, higher unemployment rate. The president felt, and what he articulated was, 'Look, I'm not in a position to do that. The economy is just too precarious right now for that kind of

    political brinksmanship. We can't afford it right now.'

    WOLFE: Then there's also the issue of the deficit, which was a big issue for voters in the elections last month. It's part of the reason the GOP did as well as they did. Here you have the Republicans supporting a deal that would almost add a trillion dollars to the debt. How is that going to sit with Republican voters?

    GREGORY: Well, probably not too well. And there have been some Republican critics who have said that it's going to make it difficult for them to say, 'No, no, really, we get it this time. We're fiscally responsible.' But I'd say a couple of things. One, they got the extension of the tax cuts . That was certainly important. That's something that they campaigned on. Second, it is an important point, whether or not you can have this kind of package that is stimulus -- it's a trillion dollars in new spending in -- you know, there's the tax cuts , but there's other things like payroll tax deductions and extension of unemployment benefits -- how you do that and signal that you're serious about dealing with the long-term debt issue. Because two years from now in an election year, you think any politician's not going to vote to extend the tax cuts yet again? So it becomes a real question about what they're going to do to take on the debt.

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