Democrats put in tight spot with tax threat

By Mike Lillis and Peter Schroeder - 07/17/12 08:10 PM ET

Democrats battled accusations from Republicans on Tuesday that they are endangering the economy by threatening to end the Bush-era tax rates on the wealthy.

Sen. Jerry Moran (R-Kansas) and other GOP lawmakers hit Democrats as “irresponsible” for threatening to carry the tax debate into 2013 if Republicans do not bend on allowing higher taxes on families with annual income above $250,000.

Their arguments were helped by comments at a Senate hearing by Federal Reserve Chairman Ben Bernanke, who warned Congress to avoid sending the country over a “fiscal cliff” that would result if steep tax hikes and deep spending cuts are allowed to move forward in January.

Adding fuel to the Republicans’ fire, the Business Roundtable also weighed in Tuesday, urging congressional leaders and President Obama to join forces and move quickly to resolve a broad array of fiscal-cliff issues. Failure to do so, the group warned, will cause “uncertainty” in the business world that could cripple the economy.

“The current political paralysis hindering principled compromise has fueled needless economic uncertainty that impedes a more robust economic recovery,” Roundtable Chairman Jim McNerney, who heads Boeing, wrote to the policymakers.

The pressure puts Democrats in a difficult spot, as just this week they threatened to let the “fiscal cliff” issues — including expiration of the George W. Bush-era tax rates, sharp cuts in defense spending and a sheer drop in Medicare payments to doctors — fall into next year if Republicans insist on extending lower tax rates for the wealthiest Americans.

They criticized Republicans last summer when the GOP threatened not to raise the debt ceiling if the White House and Democrats did not agree to deep budget cuts to lower deficits. Democrats — backed by Bernanke and other economic experts — said the GOP was effectively threatening to hurt the U.S. economy if it did not get its way on spending.

Sen. Patty Murray (Wash.), a member of the Democratic leadership team, sparked a firestorm in Washington on Monday when she said Democrats are ready to let the fiscal-cliff issues go unresolved if Republicans don’t compromise on the Bush tax rates.

“Unless Republicans end their commitment to protecting the rich above all else, our country is going to have to face the consequences of Republican intransigence,” Murray said in a speech at the Brookings Institution in D.C. “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 rather than lock in a long-term deal this year that throws middle-class families under the bus.”

Democrats including Rep. Steny Hoyer (Md.), said that threat is decidedly different from the GOP’s threats to allow the country to default.

Last year’s debate over the debt ceiling hinged on clear disputes between the parties over spending cuts, he argued, while this year’s tax-cut debate features agreement from both sides that middle-income Americans should not face a tax hike amid a still-fragile economy.

“They are not analogous situations,” Hoyer, the House Democratic whip, told reporters in the Capitol. “What Sen. Murray is clearly saying is that, ‘Look, we essentially have an agreement. You don’t want taxes to go up on those earning [under] 250 [thousand dollars], and for the most part, we don’t either.’

“And I think we could get an overwhelming vote for that,” Hoyer said.

Still, Republicans were quick to pounce, accusing Democrats of threatening the economy to secure passage of partisan policies and using Bernanke’s comments as ammunition.

“What Bernanke had to say today highlighted the irresponsibility of allowing us to go over the cliff,” Moran told The Hill.

Murray was quick to respond to conservative criticism Tuesday, hammering Republicans for resisting compromise in order to protect the wealthy.

“At this point it shouldn’t be surprising that the Republican response to calls for a balanced approach to replace sequestration has been to reflexively protect the wealthiest from paying a penny more,” she said in a statement. “Every effort we’ve made to get them to face the hard reality of this situation — that it’s going to take a balanced deal to make progress — has been met with the same insistence that the wealthy be spared.”

At issue is the question of how to approach the Bush-era tax rates, which will go up for all income levels on Jan. 1. Behind Obama, Democrats want to extend the lower rates for families with annual taxable income below $250,000, while Republicans want to extend the lower rates for everyone.

The Senate could vote as early as next week on competing Democratic and Republican tax plans. House GOP leaders, meanwhile, are expected to pass the Republican plan before the August recess.