–Lawmakers Scramble For Details, Press Admin For Cost Estimates
–President Faces Democratic Unrest; GOP May Sense Presidential Weakness
–Experts Say Package Might Bolster Economy
–Dem Sen. Feinstein: ‘This Is A Big Package … . Does It Work?’
–Dem Sen. Landrieu: Obama Gave Far Too Much For Tax Cut Accord
–Wells Fargo Expecting Slightly Better 2011 GDP Growth Due To Agreement

By John Shaw

WASHINGTON (MNI) – In reaching an agreement with congressional
Republicans on a sweeping tax package, President Obama is taking a huge
risk, but it is a risk that could revive his struggling presidency.

The risks ahead for Obama are clear. Having reached an agreement,
largely with Republican leaders, Obama has angered and dispirited his
political base who passionately believe that his earlier position on
extending only middle class tax cuts was the right one in fiscal, moral
and political terms.

Obama announced Monday evening the “framework of a bipartisan
agreement” with congressional leaders which would extend all of the Bush
era tax cuts for two years and extend unemployment insurance benefits
for 13 months.

In an announcement at the White House, Obama said that it was
important to break the “stalemate” over the fate of the Bush era tax
cuts and put in place policies that will boost the American economy as
it emerges from the recession.

The president said the package would include extending a host of
tax credits, including generous business tax expensing provisions that
should spur growth.

Obama said a centerpiece of the agreement is a 2 percentage point
reduction in the employee share of payroll taxes in 2011. This, he said,
would be “one of the most powerful things we can do to create jobs and
boost economic growth.”

Senior administration officials later said in a conference call
that the payroll tax holiday provision alone would cost $120 billion.

The agreement would also set the estate tax at 35% above a $5
million per person threshold for two years.

Democrats, however, believe Obama accepted an agreement on
Republican terms that is hugely costly and uncertain to have a positive
economic effect.

This view was summarized by the New York Times in its lead
editorial Tuesday: “President Obama’s deal with the Republicans to
extend all Bush-era tax cuts is a win for the Republicans and their
strategy of obstructionism and a disappointing retreat by the White
House.”

In the past week or so Democrats have been more forceful in
describing the Bush era tax cuts as a hugely expensive policy debacle
that generated little economic growth and few jobs over a decade.

“People are choosing to ignore this, if they haven’t forgotten it,”
Democratic senator Dianne Feinstein said Tuesday morning in an interview
with a small group of reporters outside the Senate chamber.

She said the agreement that Obama struck Monday night builds on
Bush’s fiscal policy that largely failed.

“This is a surprising proposal … . This is a big package,” adding
that the cost and effectiveness of the plan are a “big concern.”

“Does it work?” she asked.

Democratic senator Mary Landrieu offered a tough verdict of Obama
as a negotiator. “Why did he feel he had to give so much? Why didn’t he
have confidence in the Democratic caucus to hold the line?” she asked.

Vice President Biden travels to Capitol Hill Tuesday afternoon to
describe the agreement to Democrats and lobby for their acceptance and
support.

With all of the downsides of the accord, the package does hold out
some possible rewards.

The massive package — whose costs are likely to be between $700
billion and $900 billion over two years — will serve as yet another
stimulus package, although the president will certainly avoid calling it
this.

It could be that this package, coupled with aggressive actions by
the Federal Reserve, will strengthen the economy, boosting growth and
cutting unemployment.

And almost all political analysts agree, Obama’s political fate is
closely linked with the strength of the economic recovery in 2011 and
2012.

Economists at Wells Fargo, however, warn in a research note that
the direct effect of the unemployment benefits extension will likely
contribute to continued elevated unemployment; although they add that
this should be offset by the strong incentives to hire resulting from
the continuation of the tax cuts.

“Another unintended consequence that may develop is that state
governments, facing another tough year of budget deficits, may use this
federal fiscal policy decision as leverage to increase their own
state-level taxes to help address budget shortfalls,” they said in a
research note.

These potential risks, however, do not prevent them from viewing
the tax cut agreements overall in a positive light. Wells Fargo’s
economists believe the deal struck between the White House and
Republicans should help to reduce uncertainty within the financial
markets, support greater income and spending on the part of consumers,
and provide investors with a much clearer picture of short-term fiscal
policy.

“The continued reduced tax rate on both firms and consumers should
provide a stronger incentive to hire through increased demand,” they
wrote.

The note concluded that, “Net, the result of this proposal on our
U.S. outlook is that we are now expecting slightly higher GDP growth
over the next year, led by gains in consumer spending and business
investment.”

** Market News International Washington Bureau: (202) 371-2121 **

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