Obama reaches deal on tax package


US president Barack Obama signs a tax deal into law in the White House (AP)

US president Barack Obama has signed into law a massive tax package that frayed his relations with liberals, caused him to abandon a pledge not to extend tax cuts to the rich and heralded a new balance of power in Washington.

The agreement sets the stage for Mr Obama’s new relationship with Republicans who, as of January, will have a majority in the House and will have narrowed the Democrats’ majority in the Senate.

With the benefits of the package expiring in two years, the law also places taxes at the centre of the political debate ahead of the 2012 presidential elections.

Displaying a new style of compromise, Mr Obama invited Democrats and Republicans alike to the White House on Friday for the signing of the bill that will cost 858 billion dollars (£552 billion) over two years and that contains provisions to address the concerns of both parties.

“It’s a good deal for the American people; this is progress and that’s what they sent us here to achieve,” Mr Obama said as a rare bipartisan assembly of politicians looked on.

Conspicuously absent from the ceremony were the two top congressional Democrats, House Speaker Nancy Pelosi and Senate majority leader Harry Reid, a reflection of the sharply divided sentiment about the bill within the Democrats.

The bill was the result of a deal hashed out 11 days earlier to avert a scheduled January 1 tax increase and renew jobless benefits. To strike the bargain, Mr Obama had to set aside his vow to extend tax cuts only for middle and working class Americans, and enact an estate tax that is more generous to the wealthy than he initially had sought.

Failure to pass the bill would have resulted in tax hikes for most Americans, as cuts approved under the administration of former president George Bush were set to expire.

On Thursday, liberal House Democrats threatened to torpedo the bill, forcing a delay. The House battled over the measure late into the night before passing the bill 277-148 at about midnight. The Senate on Wednesday passed it by an overwhelming 83-15 margin.

Supporters say the package, which includes additional reductions in payroll taxes, could help stimulate the US economy. But it will also add to a growing deficit that has become a big concern among many voters – with a number of conservative Republicans joined some liberal Democrats in opposing the bill for that reason.

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