Democrats prepare tax-cut bills in case nation goes over 'fiscal cliff'

Leading Democrats are putting together fallback proposals if Washington fails to reach a deal on the “fiscal cliff” that would allow the party to cast itself as seeking to cut taxes. 

“Of course, I’ve got a backup plan in the event that we don’t succeed here,” Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, said Friday. “I’m sure the White House has one too.”

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Tax rates are set to expire on most households in January if Congress does not act to extend some of the rates, something some Democrats have long seen as giving their party an advantage. Once the nation goes over the fiscal cliff, pressure would build on Congress to approve lower rates for taxpayers, most of whom make much less than $250,000 per year. 

Baucus did not provide details on his post-cliff plan, and emphasized that he believes that Congress should find a way to avoid the fiscal cliff before it arrives.

After meeting with President at the White House on Friday, Senate Majority Leader Harry Reid (D-Nev.) and Republican Leader Mitch McConnell (Ky.) are working on a fiscal deal. They plan to show it to colleagues Sunday.

However, the Montana Democrat acknowledged that there may be some advantages that emerge after a cliff dive that could help usher in a deal.

“That’s when the pressure really beings to mount, after the first of the year,” he said. “Some argue it would be easier to do it next year because the pressure’s greater. My view is that we should live up to our responsibilities.”

A common theory is that it would be easier to convince Republicans to vote for a legislative package after the fiscal cliff hits, since it would then entail voting for a tax cut as opposed to choosing which lower rates would be allowed to expire. Sen. Patty Murray (D-Wash.) made such an argument this summer, well before fiscal cliff talks began in earnest.

Sen. Sherrod Brown (D-Ohio) said he believed going over the cliff would put pressure on both sides, but that Democrats would enjoy public support in their efforts to avoid major cuts to entitlement programs.

“I think the public sees even more clearly that the path is not that complicated,” he said. “Ask the wealthy to pay a little bit more, making fair cuts everywhere. The public doesn’t want to see us go after Social Security and Medicare.”

Republicans have been more mum on whether they have some fallback tax plan in the works if the nation goes over the cliff, and have instead trained their focus on the next fiscal standoff: raising the debt ceiling.

Sen. Charles Grassley (R-Iowa) told The Hill that the debt limit is a vital negotiating tool for the GOP in its hunt for spending concessions.

“The whole business of the debt ceiling…that’s the leverage we’ve got,” he said. “See, all of the debates since the election until today, including today, have been about tax increases…we’ve got to start talking about spending too much.”

Treasury Secretary Timothy Geithner told Congress Wednesday that the government will reach its $16.4 trillion borrowing cap on Dec. 31, and the limit will need to be raised sometime in the next few weeks.

Multiple GOP lawmakers indicated that their goal now is to get through the fiscal cliff standoff one way or another, at which point Republicans can regroup and focus their efforts on extracting concessions from the White House in exchange for a debt-limit boost.

“Give the president whatever he wants [on taxes],” Grassley said hypothetically. “All it covers is somewhere between eight and 12 percent of the $1.1 trillion deficit.

“When you get beyond this fiscal cliff deal, the public starts looking at what we’re trying to do to cut down on spending as opposed to increasing taxes, that strengthens our hand,” he added.

A House GOP aide said the debt limit provides a “natural venue” for Republicans to continue to push for preferred fiscal policies, once the fiscal cliff is in the rearview mirror.

A spokeswoman for House Ways and Means Committee Chairman Dave Camp (R-Mich.) said Friday that if 2013 arrives with no fiscal cliff deal in place, the plan from House Republicans will be to continue pushing the Senate to take up two bills already approved by the House. One bill would have extended all of the Bush tax cuts, while the other would have replaced military spending cuts with other cuts to mandatory spending and are viewed as nonstarters by Democrats.

“The House has acted to avert the entire fiscal cliff, both the January 1 tax hikes and the sequester. Our efforts to enact those goals will continue if there is no agreement prior to January 1," the spokeswoman said.

A spokesman for Senate Minority Leader Mitch McConnell (R-Ky.) also pointed to that legislation when asked about potential contingency plans.

With a fiscal cliff deal still very much in doubt, Sens. Lamar Alexander (R-Tenn.) and Bob Corker (R-Tenn.) unveiled a new proposal Friday that would slow entitlement spending by nearly $1 trillion in exchange for a equally sized increase to the debt limit.

The pair said the outcome of fiscal cliff negotiations is apparent in broad strokes — policymakers will strike some deal to avert tax hikes on most Americans, while allowing them to rise for some portion of top earners.

“For almost all Americans, when the dust settles, individual income taxes won’t be going up next year,” said Alexander.

“We know that that’s going to be the outcome,” added Corker. “But we hope that then we will turn to the serious business of reforming our entitlements.

“Unfortunately for America, the next line in the sand is going to be the debt ceiling,” he said.