Policymakers are well aware of the looming tax deadline: on Dec. 31, all Bush-era tax rates expire at the same time, returning the nation to Clinton-era tax rates. President Obama wants an extension for those making less than $250,000, while asking the top 2% to pay the higher rates on income above $250,000.
The Republican line, not surprisingly, is that this is unacceptable – they won’t allow the breaks for the middle class to continue unless Democrats agree to also protect benefits for the wealthy “job creators.”
The GOP, however, is slowly starting to realize something: Democrats have some leverage here. Not only do polls show the public opposing the GOP line, but Dems don’t seem especially afraid of the Republican threat.
Democrats are making increasingly explicit threats about their willingness to let nearly $600 billion worth of tax hikes and spending cuts take effect in January unless Republicans drop their opposition to higher taxes for the nation’s wealthiest households.
Emboldened by signs that GOP resistance to new taxes may be weakening, senior Democrats say they are prepared to weather a fiscal event that could plunge the nation back into recession if the new year arrives without an acceptable compromise.
Sen. Patty Murray (D-Wash.), a member of the caucus leadership, is set to argue at Brookings today, “If we can’t get a good deal, a balanced deal that calls on the wealthy to pay their fair share, then I will absolutely continue this debate into 2013.”
In most respects, this is the opposite of the debt-ceiling crisis. In that situation, Republicans clearly had leverage – if Democrats failed to make the GOP happy, Republicans would crash the economy on purpose. Dems were confident their rivals weren’t bluffing, so they felt compelled to find a ransom they could tolerate paying to the hostage-takers.
This time, however, Democrats aren’t terrified of the consequences of failure.
If Clinton-era rates returned on Jan. 31, 2013, that’d be a shame, but it wouldn’t be catastrophic. Indeed, Democratic leaders believe they’d have even more leverage in the new year, at which point they could again push the middle-class tax breaks and dare the GOP to reject them.
The larger point is important: Democrats feel like they’re playing the stronger hand, and don’t much care whether Republicans are bluffing. We’ll see if they maintain this posture at the fight intensifies, but for now, the party appears to be aware of their advantage.