TAX BILL UPDATE: HOUSE DEMS TELL OBAMA "NOT SO FAST"

Washington, D.C.-- House Democrats today passed a verbal resolution rejecting President Obama's tax cut deal with Republicans.

Vice President Biden went to Capitol Hill today to sell the plan to uneasy Democrats, especially liberals who are angry that the deal would extend Bush-era tax cuts to households making more than $250,000.

Biden's pleas were apparently ignored. The House Democratic Caucus' resolution says members will vote against Obama's tax deal in its current form. Biden had been saying that the deal could not be tweaked.

House Speaker Nancy Pelosi, D-Calif., issued a statement saying House Democrats will continue to work with Obama and the GOP "to improve the proposal before it comes to the House floor for a vote." The White House played down the House Democratic action.

A group of 54 House Democrats, led by Vermont's Peter Welch sent a letter to Pelosi and urged her to hold their ground against the White House. The letter called the deal "fiscally irresponsible" and "grossly unfair."

Obama had pledged during his campaign that he would only support tax cuts for the middle class. However, in a suprise move, he cut a deal with congressional Republicans in recent days to extend the tax cuts at all income levels, and agreed to other provisions sought by the GOP.

The GOP, for example, won an agreement from Obama on revising the estate or inheritance tax. The deal calls for estates worth as much as $10 million to be exempt from the tax.

Obama said he did not want to hold Americans "hostage" and that the deal will stimulate the economy, even though it will add to the deficit in the short term.

The proposal does not include an extension of Mr. Obama’s signature tax cut, the Making Work Pay credit, which provided a credit of up to $400 for individuals and $800 for families of low and moderate income. Instead, the plan creates a one-year reduction in Social Security payroll taxes, which are generally levied on the first $106,800 of income.

Ezra Klein:  the smartest
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For an individual earning $110,000, that provision would reduce payroll taxes by $2,136. Although the $120 billion payroll tax reduction offers nearly twice the tax savings of the credit it replaces, it will nonetheless lead to higher tax bills for individuals with incomes below $20,000 and families that make less than $40,000. That is because their payroll tax savings are less than the $400 or $800 they will lose from the Making Work Pay credit.

"The White House cut a pretty good deal -- but lost its base," writes Washington Post blogger Ezra Klein. He went on to say, "If you look at the numbers alone, the tax cut deal looks to have robbed Republicans blind. The GOP got around $95 billion in tax cuts for wealthy Americans and $30 billion in estate tax cuts. Democrats got $120 billion in payroll-tax cuts, $40 billion in refundable tax credits (Earned Income Tax Credit, Child Tax Credit and education tax credits), $56 billion in unemployment insurance, and, depending on how you count it, about $180 billion (two-year cost) or $30 billion (10-year cost) in new tax incentives for businesses to invest."

Obama's tax deal should be viewed as his second stimulus package. Tellingly, economists and Democratic policy experts were largely pleased with the deal and say the poor and working poor will not be harmed in this deal. Once again, that remains to be seen when a bill is signed.  On a somewhat positive note, forecasting firms earlier this week upgraded their estimates for growth and job gains over the next two years.

Economists at Goldman Sachs, who have been more negative and more accurate than most Wall Street forecasters lately, called the deal "significantly more positive" than they had anticipated. And, left-leaning policy experts said the package Obama offered did more to create jobs than they had thought possible after the Republicans’ midterm election victories. Robert Greenstein, Lawrence Mishel and John Podesta -- who run prominent Washington research groups that range from liberal to staunchly liberal -- all offered praise for the package as well.