Congress averted the largest tax increase in American history by voting in December to extend the Bush-era tax cuts for two years, including for the highest-income households.
The deal Obama cut with Republican lawmakers also includes billions in stimulus spending, including a one-year payroll tax holiday that slashes by one-third what workers pay into Social Security each pay period, effective Jan. 1, 2011. It extends federal unemployment benefits for the long-term unemployed for another 13 months, continues tax credits for college students, expands access to the $1,000 child-tax credit, and protects some 22 million families from the alternative minimum tax, which Congress neglected to index for inflation when it created the AMT in 1982.
The most controversial element of the package, perhaps, exempts inherited property from the estate tax for estates up to $5 million (for individuals) and $10 million (for couples). If Congress had not acted, as of 2011 estates of more than $1 million would have been taxed at a rate of 55 percent. Democrats would have lowered the threshold for taxation, and taxed eligible estates at a higher rate than the final legislation calls for.
Ending the Bush-era tax cuts for high-income taxpayers was important to Democrats, who campaigned in 2006, 2008, and 2010 to do just that. But after much uproar, enough of them backed Obama in the end to allow the compromise package to pass.
Joshua Roberts/Reuters
