By NBF News

WASHINGTON: United States President Barack Obama, bowing to his Republican foes in their first major battle since the November election, agreed to extend tax breaks for the wealthiest Americans under a sweeping deal aimed at averting a big 2011 tax hike, AFP reported on Tuesday.

Obama yielded in the deal announced late Monday, which extends tax cuts enacted under former president George W. Bush for all income brackets, despite his earlier push to exclude top earners.

In exchange, the president was able to get an extension of unemployment benefits under the deal, along with a restructured estate tax that denied efforts by some conservatives to permanently end what some call the 'death tax.'

Obama, whose power has been weakened by big Republican gains in November polls, said the compromise achieves his goal of avoiding a tax hike on the middle class amid a sputtering economic recovery.

'It would be a grave injustice to let taxes increase for these Americans right now. And it would deal a serious blow to our economic recovery,' he said in brief televised remarks.

The arrangement, which still faces an uphill battle in the United States Congress, would extend massive tax cuts passed in 2001 and 2003 beyond their scheduled expiry on January 1, and would continue jobless benefits for an additional 13 months.

The deal also would include a temporary cut in the payroll social security tax to replace an expiring tax credit for workers.

It would restore the estate tax, which expired in 2010, but was due to resume in 2011. The rate would be 35 per cent, but only for estates above $5m.

Obama acknowledged that the compromise, which saw him drop his once fierce opposition to extending the tax cuts that directly benefit only the richest two percent of US earners, risked leaving many of his Democratic allies cold.

'I have no doubt that everyone will find something in this compromise that they don't like. In fact, there are things in here that I don't like,' Obama said.