Obama signs $858B tax bill

WASHINGTON (AP) - President Barack Obama signed into law a huge, holiday-season tax bill extending cuts for all Americans on Friday, saluting a new spirit of political compromise as Republicans applauded and liberals seethed. The benefits range from tax cuts for millionaires and the middle class to longer-term help for the jobless.

The most significant tax legislation in nearly a decade will avert big increases that would have hit millions of people starting in two weeks on New Year's Day. Declared Obama: "We are here with some good news for the American people this holiday season."

"This is progress and that's what they sent us here to achieve," Obama said as a rare bipartisan assembly of lawmakers looked on at the White House.

The package retains Bush-era tax rates for all taxpayers, including the wealthiest Americans, a provision Obama and congressional liberals opposed. It also offers 13 months of extended benefits to the unemployed and attempts to stimulate the economy with a Social Security payroll tax cut for all workers.

At a cost of $858 billion over two years, the deal contains provisions dear to both Democrats and Republicans. It represents the most money that Obama was likely to have been able to dedicate over the next year to the slowly recovering economy. Yet it also increases the federal deficit at a time when the country is growing increasingly anxious about the red ink.

Dramatic both as an economic and a political accomplishment, the agreement sets the stage for Obama's new relationship with Congress in the aftermath of a midterm election wave that devastated Democrats and stripped them of control of the House.

Obama called for maintaining the spirit of cooperation, declaring he was hopeful "that we might refresh the American people's faith in the capability of their leaders to govern in challenging times."

He conceded that the White House and Congress face a difficult challenge when it comes to controlling the deficit and tackling the nation's debt.

"In some ways this was easier than some of the tougher choices we're going to have to make next year," he said.

Conspicuous by their absence at the ceremony were House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, D-Nev., a reflection of the sharply divided sentiment about the bill in the Democratic caucus.

Friday's bill signing marked a remarkably swift conclusion to a bargain struck 11 days ago between the White House and Senate Republican leader Mitch McConnell of Kentucky.

To complete the deal, Obama set aside his vow to extend tax cuts only for the middle class and lower wage earners. The measure also enacts an estate tax that is more generous to the wealthy than Obama had sought.

Since his campaign for president in 2008, Obama has said income tax rates should rise for single taxpayers with gross incomes over $200,000 and married couples with incomes over $250,000. His first budget, submitted a year ago, included plans for those tax hikes.

The extended tax cuts in the negotiated package include rates lower than those that would have gone into effect Jan. 1, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. The bill also extends through 2011, a series of business tax breaks designed to encourage investment that expired at the end of 2009.

Social Security taxes would be cut by nearly a third, from 6.2 percent to 4.2 percent, for this coming year. A worker making $50,000 would save $1,000; one making $100,000 would save $2,000.

But the payroll tax cut also means that workers will face an increase in 2012 if the full 6.2 percent rate is restored. And by scheduling President George W. Bush's 2001 and 2003 tax rates to expire in two years, the law ensures that taxes will be a top issue in the 2012 presidential election.

The tax code is filled with dozens of cuts that expire each year, and not all of them made it into the package. Sen. Max Baucus, D-Mont., tried to include a property tax deduction for people who don't itemize, but it was left out. The provision would have saved taxpayers about $1.5 billion a year.

Liberals, unable to alter the plan, were left bristling. They argued Obama should have bargained harder, and they especially objected to the new estate tax, which will allow the first $10 million of a couple's estate to pass to heirs without taxation. The balance would be subject to a 35 percent tax rate.