|The unemployment rate in the US is running at around 10 per cent, while the national debt is at $14 trillion [AFP]
Barack Obama, the US president, has signed into law a bill that will extend Bush-era tax cuts, in what is being seen as risky attempt to stimulate a sluggish job market at the price of deepening the US national debt.
The compromise law is also being interpreted as a sea-change in Obama's relations with Republicans following their gains in November's mid-term elections. With the tax cuts it contains due to expire in two years, it is also expected to place tax policy firmly at the centre of the 2012 presidential election.
In an unusual move, Obama invited both Democrats and Republicans to the White House for the signing of the bill, which he described as a "good deal for the American people".
With the current package of tax cuts due to expire in January, Obama was forced to compromise with Republicans in order to prevent raises that would affect millions of Americans at a time of economic hardship.
Al Jazeera's Patty Culhane, reporting from Washington, noted the benefits of the new bill for Americans across the social spectrum.
"The tax cut law will mean every American pays less tax for the next two years. It extends benefits for the long-term unemployed and cuts inheritance taxes for the wealthiest Americans," she said.
The White House hopes that the new law will help bring down the jobless rate, which is running at nearly 10 per cent.
But many of Obama's fellow Democrats opposed extending the tax cuts, worth $858bn, pointing out that the deal will see some of the wealthiest people in the US receiving tax breaks while the country runs a $14 trillion dollar national debt.
In return for keeping in place income tax cuts for all income levels, Obama won a Republican pledge to vote for a 13-month extension of jobless benefits for the long-term unemployed.
The bill is the second major economic stimulus package passed by the Obama administration in as many years. The first, an $814 billion dollar spending bill, was opposed by many Republicans who complained about its impact on public finances.
By putting more money in people's pockets, Obama hopes they will spend more and thus encourage job growth.
But the bill is a far-cry from the position on tax outlined by Obama earlier this year, when he said he was opposed to renewing tax-breaks for the richest Americans.
With an incoming Republican majority in the House of Representatives, and a reduced Democrat majority in the Senate, analysts said that the administration was forced to act.
"Liberal Democrats felt that giving a tax break to people at the higher end of the income scale does not create jobs," Eleanor Clift, a contributing editor of Newsweek magazine, told Al Jazeera.
But whatever deal is negotiated now is better than what they would get if they waited until the Republicans were in control of the House, so it is the lesser of two evils."
The signing of the bill represents a move to the political centre for Obama, whose party suffered bad losses in November's mid-term elections.
Republicans boasted that the compromise they had forced on the White House was a sign of things to come.
"The American people are seeing change here in Washington,'' Mitch McConnell, the Senate Republican leader said. "They can expect more in the new year.''
Meanwhile, some Democrats said that the Obama administration had not bargained hard enough over the package.
Source: Al Jazeera and agencies