Dec. 10 (Bloomberg) -- President Barack Obama said he’s “confident” that a compromise tax deal he agreed to with Senate Republicans will pass Congress largely intact, overcoming dissent from House Democrats.
“My sense is there are going to be discussions between both House and Senate leadership about all the final elements of the package,” the president told NPR News in an interview broadcast today. “I’m confident that the framework is going to look like the one we put forward.”
Senate Majority Leader Harry Reid introduced the legislation based on the agreement late yesterday. The measure would add $857 billion to the federal debt over 10 years, according to government analysts.
The plan would sustain Bush-era tax rates through 2012, set the estate tax at the lowest rate in 80 years, extend jobless aid to the long-term unemployed and cut payroll taxes by 2 percentage points.
The legislation includes some provisions favored by Democrats such as renewed ethanol and commuter subsidies. Others, such as an extension of the Build America Bonds program, didn’t make the cut.
House Democrats have objected to extending the tax rates for the wealthiest Americans -- which Obama previously opposed - - and the estate-tax provision.
“The issue here is not whether I think that the tax cuts for the wealthy are a good or smart thing to do,” Obama said, according to a transcript released by NPR. “The problem is, is that this is the single issue that the Republicans are willing to scotch the entire deal for.”
Obama said his choice was accepting the two-year extension of the top rates or giving up the extra 13 months of federal aid for people who are unemployed. Otherwise, all taxpayers would be hit with higher rates, he said.
“Nobody -- Democrat or Republican -- wants to see people’s paychecks smaller on Jan. 1 because Congress didn’t act,” he said.
Obama said that while he’s still determined to bring down the budget deficit, adding to the shortfall now is necessary because of the fragile economy.
He cited forecasts by private economists that project an increase of about 1 percent in gross domestic product as a result of the tax package because it would spur consumer spending, which makes up about 70 percent of the economy.
“It actually makes sense for us not do anything that contracts the economy right now because the single most important thing we can do for deficit reduction is actually expand economic growth,” he said.
The U.S. economy is struggling to recover from the worst recession since the Great Depression. The economy expanded at a 2.5 percent annual rate in the third quarter, half the pace in the last three months of 2009.
The jobless rate rose to 9.8 percent in November even as other statistics showed the economy picking up. Sales at retailers rose by the most in eight months in November while manufacturing expanded for a 16th month.
Pacific Investment Management Co., which manages the world’s biggest bond fund, is raising its forecast for U.S. growth next year based on the tax plan.
Pimco sees the economy growing 3 percent to 3.5 percent in the fourth quarter of next year from the same period of this year. That compares with its previous estimate for 2 percent to 2.5 percent growth and the 2.2 percent gain forecast for this year by the International Monetary Fund.
The Standard & Poor’s 500 Index rose 0.4 percent yesterday to 1,233.00, closing at its highest level since September 2008.
Obama said he’s preparing an austere fiscal 2012 budget that he will send to Congress in February. He said spending cuts in foreign aid or earmarks for pet projects won’t be enough to balance the budget. The deficit in fiscal 2010 was $1.3 trillion, the second highest ever.
“We’ve got to look at a whole range of things,” he said, and that includes “entitlements; that includes defense; that includes a whole host of discretionary spending where we can probably do more and do it smarter with less money.”
Obama said the budget debate also will be an opportunity to begin discussions about overhauling the tax code to eliminate deductions and credits while lowering rates.
“We’ve got to start that conversation next year. I think we can get some broad bipartisan agreement that it needs to be done. But it’s going to require a lot of hard work to actually make it happen,” he said.
Obama also said the administration has an agreement with Senate leaders to get a vote on the Strategic Arms Reduction Treaty with Russia after the tax plan vote.
“The START treaty is something that I absolutely think has to get done before Congress leaves for Christmas vacation,” he said. “It is good for our national security.”
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