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Obama announces proposed deal on taxes, jobless benefits

From Ed Henry, CNN Senior White House Correspondent
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Obama agrees to extend Bush tax cuts
  • NEW:Vice President Biden to meet Tuesday with Senate Democrats
  • President Obama says the compromise is necessary for the American people
  • The proposed deal extends tax cuts for two years, jobless benefits for 13 months
  • A Democratic source warns House Democrats may not go along with a deal

Washington (CNN) -- President Barack Obama on Monday announced a deal with Republican leaders that would extend Bush-era tax cuts for two years and unemployment benefits for 13 months while also lowering the payroll tax by two percentage points for a year.

The compromise, worked out in negotiations involving the White House, the Treasury and congressional leaders from both parties, includes provisions that each side doesn't like, Obama said in a hastily arranged statement to reporters after discussing the proposed deal with Democratic leaders.

"It's not perfect," Obama said of the plan, which also would continue tax breaks for students and families contained in the 2009 stimulus bill and allow businesses to write off all investments they make next year. "We cannot play politics at a time when the American people are looking for us to solve problems."

As outlined by Obama and sources, the deal would add up to hundreds of billions of dollars in more federal spending or lower revenue in coming years at a time when the president, Republican leaders and a federal deficit commission appointed by the president all say that the growing federal debt must be brought under control.

Democrats in Congress expressed initial concern with the deal, saying it conceded too much to Republican demands.

"I'm not at all happy with this. I want to see all the details before I make some kind of commitment," Democratic Sen. Sherrod Brown of Ohio told CNN. Asked if Obama "caved" to Republicans, Brown said: "I don't know if he caved. I think he could have gotten a better agreement."

Vice President Joe Biden will attend the weekly Senate Democratic policy lunch Tuesday in the Capitol to "defend the deal," according to a Senate Democratic leadership aide.

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A revolt by liberal Democrats, particularly in the House, would imperil the chances for the plan to win approval before the end of current lame-duck session of Congress. With the Bush-era tax cuts set to expire at the end of the year, Obama said it was more important to act now than to continue waging a political fight.

"I know there are some people in my own party and in the other party who are willing to let this fight continue," Obama said. "I'm not willing to let us slip backwards just as we're recovering form this devastating recession."

Republican leaders expressed initial support for the plan because it would extend the current tax rates for everyone.

"I am optimistic that Democrats in Congress will show the same openness to preventing tax hikes the administration has already shown," Senate Minority Leader Mitch McConnell, R-Kentucky, said in a statement.

However, retiring Republican Sen. George Voinovich of Ohio indicated he would oppose the deal because the higher spending it calls for would add to the federal debt.

The deal includes the temporary two percentage-point reduction in the payroll tax to replace Obama's "making work pay" tax credit from the 2009 economic stimulus package for lower-income Americans. An administration source familiar with the talks said the one-year reduction of the payroll tax would bring savings of about $1,000 for someone making $50,000.

In a concession to Republicans, it sets the estate tax at 35% for two years on inheritances worth more than $5 million. That rate is a compromise between Democratic and Republican positions on the estate tax, which previously had been expected to be higher and apply to estates of $3.5 million or greater, a senior administration official told reporters.

House Democrats, who have approved a measure extending the Bush-era tax cuts for family incomes up to $250,000 a year, indicated earlier Monday they were unhappy with the negotiations that the White House was conducting with congressional Republicans.

"We won't rubber stamp a deal between the White House and (Senate Minority Leader) Mitch McConnell," one Democratic congressional source told CNN. "We want to make it clear. Don't take our support for granted."

House Speaker Nancy Pelosi, D-California, and Majority Leader Steny Hoyer, D-Maryland, were among Democratic leaders who attended a White House meeting with Obama and Biden to discuss the proposed deal.

According to the senior Democratic source, Obama and Biden told the congressional Democrats that the proposed deal was the best they could expect.

Liberal House Democrats are believed to be among the most reluctant in Congress to agree to a deal extending all of the 2001 and 2003 tax cuts.

The House measure, which was blocked from consideration in the Senate by a Republican filibuster, would cause tax rates to increase to 1990s levels for individuals making more than $200,000 a year and families earning more than $250,000. Senate Republicans blocked a similar proposal that set the income threshold for higher tax rates at anything over $1 million.

Obama noted that Republicans opposed to the Democratic plan to allow tax rates for the wealth to increase showed they would undermine any extension of current tax rates.

"Without a willingness to give on both sides, there's no reason to believe that this stalemate won't continue well into next year," Obama said. "This would be a chilling prospect for the American people whose taxes are currently scheduled to go up on January 1st because of arrangements that were made back in 2001 and 2003 under the Bush tax cuts. I am not willing to let that happen."

Senior administration officials who briefed reporters after the announcement said the extended unemployment benefits and tax credits in the deal justified the agreement to extend the Bush-era tax cuts for everyone for another two years. In particular, they cited the payroll tax cut for 2011 that would benefit directly benefit workers.

"We felt that if there was an opportunity to get significant tax relief to working families in 2011, that would be the most compelling thing to the economy," one of the senior administration officials said.

Top senators from both parties had indicated Sunday that a deal linking the extension of lower tax rates for everyone with extended unemployment benefits was likely. Congress would continue working on a long-term plan to reduce the nation's debt.

Democrats contend the nation must prevent working-class Americans from facing higher taxes, as promised by Obama in his 2008 election campaign, but can't afford the extra hundreds of billions of dollars it would cost to maintain the tax cuts for the wealthy. Republicans argue that the economy remains too weak to allow anyone's taxes to increase.

Earlier Monday, Obama reiterated his position that extending the cuts for the wealthiest Americans would be fiscally irresponsible, and stressed the opinion of Democratic leaders that an extension of unemployment benefits needs to be part of any agreement with the GOP.

"We have got to find consensus here because a middle-class tax hike would be very tough, not only on working families, it would also be a drag on our economy at this moment," Obama told an audience in Winston-Salem, North Carolina.

"We've got to make sure that we are coming up with a solution even if it is not 100% of what I want or what the Republicans want," he said.

CNN's Alan Silverleib, Tom Cohen, John King and Brianna Keilar contributed to this report