Long before the midterm ballots had been counted, White House aides had begun to mull the coming agony of divided government. As the Obama team worked out its options, one priority kept coming to the top: However, the next two years shook out, they told themselves, Barack Obama needed to convince the great middle of the American electorate once again that he was fighting for them.
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In exchange, Obama said he had secured an extension of unemployment benefits for 13 months and a number of tax cuts, for education expenses, families with children and the low income from the 2009 Recovery Act that were set to expire. One of those tax cuts, which had long been criticized by Republicans, the Making Work Pay Tax Credit, would be traded for a similarly generous 2 percent decrease in the payroll tax for workers. There was also a deal to extend certain business incentives.
A cynic could read the deal, which still needs to be accepted by rank and file members of Congress, as a classic Washington giveaway. In order to gain acceptance for budget-busting benefits that Republicans wanted, Obama had negotiated budget-busting benefits that Democrats wanted. The White House offered no estimates for the costs of the two-year deal Monday night, but it is likely to cost as much as $200 or $300 billion $900 billion (it's hard to know without a proper score of the proposal), money that will simply be borrowed with expectation that another generation can foot the bill.
But at the White House, where there is much anxiety about the staggering performance of the economy, this is considered a victory. In crafting the compromise, Obama may be able to effectively able to sneak another stimulus bill through Congress, by capitalizing on the Republican habit of refusing to acknowledge the deficit impact of tax cuts.
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http://swampland.blogs.time.com/2010/12/06/why-barack-obama-compromised-on-tax-cuts