Obama signs tax bill, praises bipartisan spirit

WASHINGTON (Reuters) - President Barack Obama on Friday signed into law a bill extending Bush-era tax cuts and said he hoped the bipartisan spirit that had made it possible would help restore Americans' faith in Washington.

"The final product proves when we can put aside the partisanship and the political games, when we can put aside what's good for some of us in favor of what's good for all of us, we can get a lot done," he said at a White House ceremony.

Obama brokered the tax deal with Republicans over the objections of many of his fellow Democrats who said it was too generous to the rich, and U.S. lawmakers passed the $858 billion package of renewed tax cuts and more unemployment benefits near midnight on Thursday.

"This is real money that's going to make a real difference in people's lives," Obama said. "That's how we're going to spark demand, spur hiring, and strengthen our economy in the new year."

The bill was expected to provide at least a short-term boost to the U.S. economy and reduce unemployment, which remains near 10 percent. But it will also add to a $14 trillion national debt that some fear is nearing dangerous levels.

Most Democrats, including Obama, had opposed extending the lowered tax rate for the wealthiest Americans, but Obama agreed to a temporary extension to get a deal with Republicans.

Many Democrats also resisted a provision raising the exemption threshold for the estate tax to $5 million from $3.5 million in 2009 and cutting the estate tax rate to 35 percent from 45 percent.

Obama defended the bill as the right thing to do for the country despite its flaws, and signaled it could be a blueprint for future cooperation that would make ordinary Americans feel better about their government.

"If we can keep doing it, if we can keep that spirit, I'm hopeful that we won't just reinvigorate this economy ... I'm also hopeful that we might refresh the American people's faith in the capability of their leaders to govern," Obama told an audience that included Republican and Democratic leaders.

DEBT DEBATE

Obama's compromise reflects the new political reality that many see pushing him to lead more from the center as he gears up for the 2012 presidential election, after Republicans in November congressional elections won control of the House of Representatives and increased their weight in the Senate.

Among Obama's most pressing challenges when the next Congress begins in January is to fashion a bipartisan consensus on spending cuts and to overhaul the U.S. tax code to tackle the U.S. budget deficit and rising debt.

"We've got to make some difficult choices ahead when it comes to tackling the deficit," Obama said, noting that this could prove a tougher task than agreeing to extend tax cuts.

"But the fact is, I don't believe that either party has cornered the market on good ideas. And I want to draw on the best thinking from both sides," he said.

The president has in hand the recommendations of his bipartisan debt panel that he has said includes some good ideas on closing tax loopholes and lowering rates. But he has not actually endorsed the report's findings.

(Reporting by Alister Bull; Editing by Vicki Allen)