With the US economy speeding toward a year-end fiscal cliff of some $560 billion in higher taxes and draconian spending cuts, Sen. Patty Murray (D) of Washington bluntly laid out her party’s position on how Congress should handle the nation’s coming fiscal travails: Go big or go over the ledge.
“Millions of jobs could be lost through the automatic cuts, programs families depend on would be slashed irresponsibly across the board, and middle-class tax cuts would expire. And once again, if Republicans won’t work with us on a balanced approach, we are not going to get a deal,” said Senator Murray, the Senate’s No. 4 Democrat, in a speech at the Brookings Institution on Monday.
“[I]f 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,” she said.
The chair of the party committee charged with electing Democrats to the Senate laid out the broadest, most full-throated explanation of the party’s views on negotiating the fiscal cliff while outlining Democrat’s strategy for attacking Republicans at the polls in November.
While optimistic “that we can get a good deal,” Murray said Democrats would not, for example, sign on to a plan that would offset the $55 billion defense portion of the $109 billion in automatic spending cuts mandated by the “sequester,” the budget-slashing mechanism agreed to as part of 2011’s debt-ceiling showdown. The remainder of the reductions come from discretionary spending, home to Democratic priorities like social welfare programs, and reductions in payments to Medicare providers.
“None of the automatic cuts are good policy. They were packaged together in a bipartisan fashion to get both sides to the table, and they will be replaced, or not, as a package,” Murray said. “Here in D.C. the defense cuts get most of the attention – but across America, all the automatic cuts would be deeply damaging to families and communities.”
Several Republican senators have been pushing for legislation that offsets defense spending with cuts and even the potential for new taxes in recent weeks.
On taxes, Murray perhaps presaged how taxes may come to a vote in the Senate before the August recess. She prefers a bill authorizing an extension of the the tax cuts up to $250,000 in household income coupled with an amendment extending all the Bush-era tax cuts.
Thus, “[a]ny senator who supports extending tax cuts for the middle class – they can vote for our bill. Any senator who supports extending tax cuts for the rich – they can vote for the Republican amendment. And any senator who supports extending all the tax cuts – well, they can vote for them both,” Murray said.
Republicans, who have ripped a $250,000-and-under extension alone as a massive hike on taxes for small businesses who file taxes through the income tax code, are left in the unappetizing position of killing off all the tax-extension measures. That’s because they want to avoid giving Democrats a political victory and protect small businesses, in their view.
By putting Senate Republicans through this tax wringer, Democrats get to paint their foes as defenders of special interests and millionaires at the expense of the middle class ahead of the November elections.
“Holding the middle-class tax cuts hostage may be a smart tactical move if the goal is to protect the rich. But it’s not good policy, it’s not good politics, and Democrats are going to keep reminding the American people why middle-class tax cuts aren’t being extended immediately – even though both sides say they want them to be,” Murray said.
Democrats appear to have learned from Republican tactics from the debt-ceiling fight, said Alice Rivlin, a former director of two federal budget agencies who has been a leading figure in the public debate over a large-scale deficit reduction plan.
“If you remember back when the negotiating tactic of the Republicans was let’s default, let’s let the debt ceiling rip, that was clearly scary to those of us who thought default was an unacceptable option,” said Ms. Rivlin at a panel after Murray’s speech. “I’m not for going off the cliff, but I think as a negotiating tactic it makes a lot of sense,” to bring Republicans toward Democrats’ position.
That – with no small dose of irony – casts Republicans in the role held by President Obama and congressional Democrats last summer, decrying their opponents on the left with playing politics in the face of financial doom.
“In their near-fanatical crusade to inflict even more pain on American businesses, Democrats are now openly admitting that they plan to wait until this debate reaches full throttle and Americans are panicked about the outcome to do anything, because they think it will make it likelier they’ll get their way,” said Senate minority leader Mitch McConnell (R) of Kentucky in a statement.
And that financial peril is real. Congress’s nonpartisan budget scorekeeper, the Congressional Budget Office, estimates that allowing all of the provisions of the fiscal cliff to take effect could put the US economy into a recession during the first half of 2013. Several defense contractors have loudly announced that defense cuts could cost thousands of jobs, and many economists believe that as uncertainty around taxes and spending for next year amps up as the year-end deadline nears, the economy may begin to slow even further.
“This fiscal cliff is unlike previous Washington confrontations and that it will be very difficult to avoid damage to the markets and to the economy this fall, even if this impasse ultimately gets resolved in December's lame duck session of Congress,” wrote Pete Davis of Davis Capital Investment Ideas in an analysis. “That damage will get a lot worse if the resolution occurs next January or February.”
In addition to the economic risks, Murray’s plan of action is not without political risk for Democrats. It would expose vulnerable incumbents such as Sen. Claire McCaskill (D) of Missouri and Sen. Jon Tester (D) of Montana to charges that they’re raising taxes, if only for 2 percent of Americans, during an economic downturn.
For now, Democrats appear to like the wager from a political perspective.
“Ninety-eight percent of the American people will get a tax cut. The vast majority of Americans, including about 60 percent of Republicans, support what we're doing. They believe the 2 percent should contribute a little more,” said Senate majority leader Harry Reid (D) of Nevada on Thursday in a press briefing with reporters adding that “My senators are going to be doing just fine” pushing back on Republican claims.
That comfort is in part because Democrats seem content to blame stalemate and economic pain emanating from Washington on what they call the GOP’s insistence on not raising a single new dollar in tax revenue. More than 90 percent of congressional Republicans have signed the Taxpayer Protection Pledge, championed by anti-tax stalwart Grover Norquist, president of Americans for Tax Reform, that forbids new tax increases.
“Unless Republicans end their commitment to protecting the rich above all else,” Murray said, “our country is going to have to face the consequences of Republican intransigence.”