Just a month after angry voters chastised Washington for outlandish spending, President Obama and congressional Republicans appear to have abandoned concerns about a ballooning budget deficit and crafted a compromise on tax cuts and unemployment benefits that would add more than $270 billion to the deficit over the next two years.
That's the cost calculated by the Congressional Budget Office and Treasury officials of extending jobless benefits for a year in addition to a two-year extension of the tax cuts implemented by President Bush in 2001 and 2003 and set to expire Dec. 31. Other elements of the compromise, including a reduction in the payroll tax by 2 percentage points, would add to that cost.
Democrats have been pushing for passage of the unemployment benefits that expired Nov. 30 and would cost $56.4 billion to extend through next year. But congressional Republicans insisted the government pay for those additional benefits with cuts elsewhere in the budget or with unspent money from the 2009 stimulus package. To end the standoff, President Obama struck a deal with the GOP that would extend the unemployment benefits without the offsetting budget cuts in exchange for tying the additional benefits to an extension of tax cuts Republicans sought for all taxpayers.
The Obama deal angered many liberal Democrats, who want the tax cuts to end for anyone making more than $200,000 annually or couples earning more than $250,000.
But Obama portrayed the compromise as the only way to get unemployment checks in the mail in time for the holidays and prevent a January tax increase on every income level.
"There are things in here that I don't like," Obama said in announcing the deal with the GOP Monday. But "this compromise is an essential step on the road to recovery,"
Both Republicans and Democrats have tried to paint each other as fiscally irresponsible, and Democrats on Monday met with Obama in an effort to convince him not to give in to the Republicans on tax cuts for wealthier taxpayers.
If extended until 2013 to every income level, the tax cuts would cost nearly $238 billion, according to the Treasury.
Democrats and Obama have argued that extending the tax cuts to those earning more than $200,000 a year would cost the government $700 billion over the next decade. Republicans point out that including the lower-income earners in that equation brings the total to $4.6 trillion by 2020.
"The upper-income cost is just a small fraction of the lower-income total," said James Sherk, a senior policy analyst in labor economics at the conservative Heritage Foundation.
Like Obama, Republicans also appear ready to abandon their fear of increasing the deficit by agreeing to a plan to pass unemployment benefits without offsetting budget cuts.
Republicans say they disagree with the Democratic argument that the tax cuts should be calculated as a federal expenditure, though Democrats contend the cuts helped fuel the current $1.3 trillion deficit.
"Most of the Republicans want high-end tax breaks a lot more than they don't want non-offset unemployment benefits," said Judith Conti, a lobbyist for the National Employment Law Center.
