Tax deal may give Obama lift

WASHINGTON — With the Senate poised to hold a key vote Monday on the tax-cut deal between President Obama and Republicans, the political jousting has focused on what the agreement does for the wealthy — extending all Bush-era tax rates — and for the unemployed, extending jobless aid.

But in addition to continued lower income-tax rates for everyone, the $858 billion deal allocates hundreds of billions of dollars more to benefit middle- and upper-middle-income Americans — precisely the demographic group that felt neglected over the past two years as the White House and the Democratic Congress focused on the major health-care law and on helping the unemployed and Americans facing foreclosure.

It is a bid to stimulate the economy that could pay big political dividends to Obama in 2012 — a point that the president and some senior advisers are counting on, and one reason they were willing to give in to Republican demands to extend all Bush-era tax rates temporarily.

Austan Goolsbee, chairman of the White House Council of Economic Advisers, appearing Sunday on NBC's "Meet the Press," said Obama still was convinced there was no economic benefit to continuing lower tax rates for the highest earners.

"That's a bitter pill to have to deal with," Goolsbee said. "But it's a compromise, and by giving that one piece we were able to get a series of things that I think make a big difference to the middle class and working families."

The full scope of those goodies is discernible only by poring through the bill and its head-spinning array of provisions.

The single most expensive component of the package — other than the continuation of all marginal rates — is a two-year adjustment of the alternative minimum tax (AMT), to prevent it from hitting millions more households. This would insulate couples with income up to $72,450 in 2010 and $74,450 in 2011 at a cost of $137 billion, according to a detailed cost analysis by the Congressional Joint Committee on Taxation.

Middle- and upper-middle-income Americans also would benefit most from the one-year payroll tax cut, which would reduce the Social Security tax on income up to $106,800 to 4.2 percent from 6.2 percent. The tax savings would be $4,272 for couples who have two members who make at least the maximum. That provision would cost $112 billion.

The extension of jobless benefits, by contrast, would cost less than $57 billion, according to the joint tax committee.

And other provisions that benefit the middle class have received virtually no attention, including a temporary repeal of a limit on itemized deductions and repeal of the phaseout for personal exemptions. Together, those tax breaks would cost nearly $21 billion.

Goolsbee said the White House was betting that, after a two-year extension of tax policies of President George W. Bush, it would be far harder for Republicans to defend the tax cuts for the wealthy in 2012, when the economy is expected to be stronger and they cannot argue that allowing tax rates to rise for the rich would hamper the recovery.

While the full political ramifications will not be known for months or longer, it was increasingly clear Sunday that the tax deal would move forward.

Reluctant House Democrats predicted the package would be approved before Congress adjourns this year, as days of rage and frustration began giving way to resignation and acceptance.

Maryland Rep. Chris Van Hollen, who represented House Democrats in the formal negotiations during the tax debate, said his caucus still would push to change the tax plan, particularly a provision granting a generous tax exclusion to wealthy estates. But he conceded Democrats were not prepared to stop the entire package.

"We're not going to hold this thing up at the end of the day," Van Hollen said on "Fox News Sunday." Still, he said House Democrats were intent on testing Republicans' willingness to insist on keeping the estate-tax provision, with its exemption of $5 million per person, and maximum rate of 35 percent for the next two years.

But, while the effort to change the estate-tax language could force an extra round of votes in Congress, Republicans have said they will not accept any major adjustment to the deal negotiated with the White House. Appearing on the same show, Rep. Paul Ryan, R-Wis., said he viewed Van Hollen's remarks as a flag of surrender.

Van Hollen said later Sunday that he had not intended to signal any change in strategy or position. "In its current form it is not acceptable to the Democratic caucus," he said.

And he would not predict what would happen if House Democrats changed the provision. "That's a question for another day," he said. But he added, "We do want to get this resolved by the end of the year."

The Senate is expected to hold a procedural vote Monday and is likely to give final approval Tuesday. Van Hollen's remarks suggested the entire debate could be completed by the end of this week, when the 111th Congress is expected to complete business.

Senate Democrats were quicker to accept that Obama's trade-off could help reverse the party's political misfortune, in which important swing voters, especially independents and women, turned toward Republicans.

Some Senate Democrats, particularly those who, like Obama, are up for re-election in 2012, have called for a laserlike focus on the middle class in coming months. Some undoubtedly will vote against the tax, but others like Sen. Jim Webb, D-Va., have become vociferous proponents. Webb, up for re-election in 2012, has called the package "the ultimate stimulus plan."