logo
Plus   Neg
Share
Email

U.S. Congress Passes Bush-Era Tax Cut Bill

US-Congress-12172010-1.jpg

U. S. lawmakers have given their approval for a further two-year extension of the Bush tax cuts along with an extension of unemployment benefits. President Barack Obama is expected to sign the bill into law on Friday.

The bill extending the tax-cuts introduced under former President George W Bush's was passed by the House of Representatives Thursday night by a 277-148 vote.

Even though it was already passed by the U.S. Senate, the bill's passage in the House was loaded with political significance, as it symbolizes a bi-partisan approach to an issue of major national interest.

Additionally, this is the first key agreement reached between Obama and Republic leaders buoyed by their triumph in the recent elections.

However, the successful outcome came after several days of high-voltage political debate, with some Democrats voicing strong opposition to the extension of the tax cuts for the wealthy as well as a lower than desired estate tax rate.

The bill was shepherded by Republican Mitch McConnell, who took on the role of a mediator between the Obama administration and opposition Republicans.

Meanwhile, response to the compromise bill has been somewhat muted among analysts, with some terming it too "passive."

According to Elliot Clarke, a Westpac economist, the extended across-the-board tax cuts are indeed a welcome development but are unlikely to have a major impact given the weak state of the U.S. jobs market.

"In sum, while the announced package is a welcome change, there is little reason to expect that it will provide any meaningful boost to growth in 2011 or 2012," he added.

He predicted that the lower taxes would boost disposable household income by 1.8% in 2011 and lead to a corresponding increase in consumer spending of up to $101 billion or 0.7% of GDP.

Nonetheless, he said the advantage provided by the stimulus will be cancelled out by the loss of jobless benefits to the long-term unemployed.

Presently Americans who have been out of work for a long period can access up to 99 weeks of benefits, depending on the unemployment rate in their state and also how many weeks they worked in the year prior to their unemployment.

The new package, while extending the time period in which benefits can be claimed by another year, offers no extension to the number of weeks in which benefits can be accessed.

"As such, the extension will only temper the pace at which the unemployed lose access to benefits, pushing the bulk of the effect into 2012," Clarke said

On Wednesday, Obama backed the compromise deal saying the "tax cut plan, while not perfect, will help grow our economy and create jobs in the private sector."

Under the terms of the proposal that Obama negotiated with Republicans there will be an extension of tax cuts for all Americans, including the richest, until 2012.

It also includes a one-year payroll tax holiday, a lower estate tax and a 13-month extension of jobless benefits to the long-term unemployed.

For comments and feedback contact: editorial@rttnews.com

Follow RTT