WASHINGTON (Reuters) - President Barack Obama on Friday called on a battle-scarred dealmaker, former President Bill Clinton, to help convince reluctant Democrats to back a compromise tax plan before rates rise for most Americans in January.
As Democrats in the House of Representatives sought to toughen provisions targeted at the wealthiest, Clinton urged them to pass the plan in its current form before they hand over control of the chamber to Republicans next month.
"This is a much, much better agreement than would be reached were we to wait until January," Clinton said at a White House news conference with Obama by his side.
Democrats have closely studied Clinton's 1990s tenure in the White House as they seek to recover from a devastating defeat in November's congressional elections. The voluble former president, legendary for his political skills, remained at the podium even after Obama left for a Christmas party.
Obama's $856 billion tax deal, struck with the Republicans who will soon wield greater clout in Washington, is viewed with alarm by many Democrats who worry that he will give away too much at the bargaining table in the next two years.
"We have got to do a lot better than this agreement provides," said Democratic Senator Bernie Sanders, who inveighed against the deal on the Senate floor for more than six hours on Friday without a bathroom break or a chance to sit down.
The Senate is expected to pass the bill as soon as Tuesday, but its prospects are less certain in the House. Democrats there want to toughen estate-tax provisions that they say are too generous for the wealthiest Americans, but it will be difficult for them to see those changes become law.
Senate Republicans, who have scuttled a wide range of Democratic initiatives this year, will not accept any changes to the estate tax provision, an aide said.
Obama said Congress should simplify the byzantine U.S. tax code next year, but the battle on Capitol Hill illustrated the difficulties involved even in keeping the current system in place.
Taxes will rise in January by an average of $3,000 per household if Congress does not act.
Along with the estate tax, the compromise would keep lower income tax rates in place for another two years for all tax brackets. Democrats had hoped to allow tax rates to rise for the wealthiest 2 percent of U.S. households to avoid increasing the country's record-high debt level.
The measure would also continue unemployment benefits and other tax breaks aimed at lower-income families and extend a wide array of subsidies and breaks for businesses and renewable energy. It does not include the subsidized Build America bonds that have been popular with state and local governments.
Economists say the package, especially a payroll tax cut for workers, could boost the sluggish economy at a time when Congress has no appetite for stimulus spending. Its cost would exceed even the $814 billion stimulus package passed in 2009 to fight the worst recession since the 1930s.
Pacific Investment Management Co, which runs the world's biggest bond fund, said the plan would boost U.S. economic growth by one percentage point next year, to between 3 percent to 3.5 percent in the fourth quarter of 2011. [nN09274613]
The plan prompted a two-day sell-off of U.S. Treasury bonds earlier in the week as investors worried about its impact on the country's finances. By Friday, the market was focused on other economic data.
FUMING OVER ESTATE TAX
Democrats are fuming that Obama agreed to Republican demands that the estate tax be lowered from 45 percent to 35 percent. The president also agreed to boost the exemption to estates of $5 million or less from $3.5 million, meaning fewer estates will be taxed.
Along with a tougher estate tax, some House Democrats also hope to include support for Build America bonds in the bill. But even if those provisions are included many may still vote against the bill, a Democratic aide said. The bill will need substantial Republican support to pass, the aide said.
Only about 40 of the 255 House Democrats would be needed to win passage, if all of the 179 House Republicans back it.
As lawmakers braced for the legislative endgame, Obama said Congress should next consider streamlining the multilayered tax code to lower rates while eliminating tax breaks for favored groups. Any effort would be challenging but if successful could set the stage for more robust growth, he said in an interview with National Public Radio.
"We've got to start that conversation next year. I think we can get some broad bipartisan agreement that it needs to be done. But it's going to require a lot of hard work to actually make it happen," he said.
Tax reform is an idea backed by many in the business community who say the current corporate tax structure is so complex that it impedes investment and puts American firms at a disadvantage.
A presidential budget commission last week said the United States could lower tax rates and raise more revenue by getting rid of specialized deductions and other tax breaks.
But a broad rewrite would set off a frantic lobbying battle on Capitol Hill as every industry and interest group would scramble to protect tax breaks or carve out new advantages.