President Obama: Tax Cuts for Wealthy Are Republicans' 'Holy Grail'

Dec. 7, 2010— -- President Obama today strongly defended the tax cut deal he struck with Republicans amid criticism from his own party that he caved in too quickly to GOP demands.

"I've said before that I felt that the middle class tax cuts were being held hostage to the high end tax cuts. I think it's tempting not to negotiate with the hostage takers, unless the hostage gets harmed. Then people will question the wisdom of that strategy." Obama said at a press conference today, referring to Republicans' refusal to extend tax cuts for Americans unless it included all income brackets. "In this case, the hostage was the American people and I was not willing to see them get harmed."

As part of the deal, the tax cuts and several other tax credits would be extended for two years, setting the stage for another political fight during the next presidential election.

The president argued that tax cuts for the lower and middle class are crucial for job growth and boosting the economy in the short term, an assessment with which most economists agree.

He added that he doesn't like extending tax cuts for the wealthy, but had to find a compromise to make sure middle-class Americans weren't slapped with tax hikes come 2011.

The White House did get some concessions, including an extension of several tax credits and unemployment benefits for another 13 months that's expected to help about 9 million Americans.

"I have not been able to budge them and I don't think there's any suggestion -- anybody is this room thinks realistically -- that we can budge them right now and in the meantime there are a whole bunch of people being hurt and the economy would be damaged," a staunch Obama said.

"On the Republican side, this is their holy grail. These tax cuts for the wealthy. This seems to be their central economic doctrine," the president said. "And so unless we had 60 votes in the Senate at any given time, it would be very hard for us to move this forward. I have said that I would've liked to see a vote before the election. I thought this was a strong position for us to take into the election."

The hastily-arranged press conference was the president's first since Nov. 3, after Democrats lost the House in the midterm election. Facing a revolt from Capitol Hill, Obama chided his fellow Democrats for not seeing the benefits of his deal.

The president said the criticism reminded him of when liberals attacked the health care bill for not including a publicly funded insurance option to compete with private insurers, for which there were not enough votes in the Senate.

"I know there are some who would've preferred a protracted political fight even if it had meant higher taxes for all Americans, even if it had meant no unemployment benefits for those who are desperately looking for work," the president said. "And I understand the desire for a fight. I am sympathetic to that."

"When they expire in two years, I will fight to end them," he added. "We're going to keep on having this debate. We're going to keep on having this battle, but in the meantime I'm not here to play games with the American people or the health of our economy."

Vice President Joe Biden was on Capitol Hill today to lobby Democrats to support the White House's tax cut deal that has taken much heat from liberals.

Liberal Democrats say the White House should've put up a bigger fight instead of reneging on his campaign promise.

Sen. Tom Harkin, D-Iowa, said he was "disappointed" with the deal and lashed out at Republicans for wanting to extend the tax cuts for the rich but not extend unemployment benefits, calling it a "moral outrage."

Liberal Congressman Rep. Jim McDermott, D-Washington, called this the "president's Gettysburg" in an interview with Politico.

Sen. Mary Landrieu, D-La., denounced an extension of the Bush tax cuts for the wealthy as "unconscionable."

House Democratic leaders today warned that for them, the deal is anything but done, and that they will continue discussions in the coming days.

"We will continue discussions with the president and our caucus in the days ahead," House Speaker Nancy Pelosi said in a statement. "Democratic priorities remain clear: to provide a tax cut for working families, to promote policies that produce jobs and economic growth, and to assist millions of our fellow Americans who have lost their jobs through no fault of their own."

Liberal lawmakers spoke about the tax cuts with cautious tones -- While they blasted the Republican proposal, not many were willing to say they would vote against the tax cut extension.

Republicans meanwhile praised the president for reaching across the aisle.

What the Tax Cuts Agreement Means for You

Extending all of the tax cuts would increase after-tax income for households at all income levels but gains would be greatest for those at the top of the income distribution, according to the non-partisan Tax Policy Center.

Those in the top 1 percent of the income group would see a 5.8 percent change in their after-tax income versus just 0.6 percent for the lowest income tax bracket.

An average U.S. household, with an income of $49,777, would get to keep the tax cut of $2,124 and get an additional $996 from the lower payroll tax that was negotiated in the deal, plus a $1,000 tax credit per child and a partially refundable tax credit of up to $2,500 for college tuition.

It also means that the family of the average Wall Street banker, paid more than $311,000 last year, will keep the $9,318 in tax savings, as opposed to the $8,012 the president wanted them to keep.

Here's a look at what else the deal offers:

Extending unemployment insurance benefits for an additional 13 months for about 9 million Americans. The extension will not be offset by spending cuts, as Republicans had originally demanded.

A one-year payroll tax reduction worth $120 billion for employees -- from 12.4 percent to 10.4 percent. This means every working American will keep an additional 2 percent of the first $106,000 of their income.

This would replace the "Making Work Pay" tax credit in the stimulus bill. An administration official says this will "will have more than twice the economic impact next year as a one-year extension of Making Work Pay." It also will be more noticed than that tax credit, which many Americans didn't realize they had received.

The $1,000 child tax credit will be extended for two years with the $3,000 refundability threshold. Other credits such as the American Opportunity Tax Credit that gives a $2,500 credit for college tuition and the Earned Income Tax Credit will also be extended.

Allow businesses to deduct 100 percent of certain investments in the first year.

The estate tax, which is currently zero, will be set at 35 percent for two years, with a $5 million floor. Had the tax cuts expired, the estate tax would have been set at 53 percent starting next year.

ABC News' Matt Jaffe contributed to this report.