Democrats open door to letting taxes rise in 2013 to reset debate with GOP

Senate Democrats appear willing to use your paycheck to play political hardball on taxes unless Republicans agree to President Obama's plan to raise taxes on America's top earners.

A top Senate Democrat warned Monday that, if Republicans don't relent, her caucus is willing to let all the Bush-era tax rates expire at the end of the year -- in effect threatening to let the country fall off what many in Washington call the "fiscal cliff."

That cliff is approaching at the start of 2013, when the Bush tax cuts are set to expire and billions of dollars in automatic spending cuts -- spawned by last summer's debt-ceiling debate -- are set to take effect. Lawmakers on both sides of the aisle are hoping to shift around those spending cuts to spare key areas like defense, and to temporarily extend the Bush tax rates for at least some Americans. Some have warned a failure to do so could send the nation back into recession.

But Sen. Patty Murray, D-Wash., indicated Democrats are willing to let the deadline pass in order to better their negotiating position.

"So 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," she said in an address Monday afternoon at the Brookings Institution. Murray is head of the Democratic Senatorial Campaign Committee, the campaign arm for Senate Democrats.

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In the remarks, Murray explained that if all the tax cuts expire, then that will diminish the GOP argument that the Democratic plan is tantamount to a tax hike -- because come 2013, any change to the tax code would be a tax cut.

"We will have a new fiscal and political reality," Murray said. "If the Bush tax cuts expire, every proposal will be a tax cut proposal and the pledge (to not raise taxes) will no longer keep Republicans boxed in and unable to compromise.

"If middle-class families start seeing more money coming out of their paychecks next year -- are Republicans really going to stand up and fight for new tax cuts for the rich? Are they going to continue opposing the Democrats' middle-class tax cut once the slate has been wiped clean? I think they know that that would be an untenable political position. And I hope this pushes them to come to the table with real revenue now before being forced to the table if we don't get a deal before the New Year," she said.

Murray added that she hopes "it doesn't come to that," and that she's seen "encouraging signs" that Republicans are ready to deal.

The political strategy underscores how heated the debate over the Bush tax cuts has become, and how risky it is for the American people. President Obama is pushing for an extension of the rates only for American households making less than $250,000, and a tax hike for those earning more than that.

Obama's Democratic allies in Congress only want to pass that partial, one-year extension. Republicans only want to pass an extension that continues those rates for everyone. Each side is accusing the other of threatening to trigger tax hikes in 2013.

Murray, while openly making that threat in her speech Monday, also preemptively argued that Republicans would be to blame if that happens. She also suggested that if Republicans don't negotiate to her party's liking on the automatic spending cuts -- known in Washington as the "sequestration" -- set to take effect at the start of next year, her party would let those cuts happen, too.

"So anyone who tells you sequestration is going to simply disappear because both sides want to avoid it is either fooling themselves, or trying to fool you. It is going to have to be replaced, and that replacement is going to have to be balanced," Murray said.

Republicans claim Democrats are the ones standing in the way of relief for millions of Americans. In Republicans' weekly radio address, Sen. Rob Portman, R-Ohio, accused Obama of pushing a tax hike that will hurt employment.

"Raising taxes on employers and the middle class, growing government at the expense of free enterprise, piling on new regulations that increase the cost of doing business -- these burdens make it harder, not easier, to create jobs in America," he said. "Today, instead of lifting the burden on job creators, the President is once again calling for a massive tax increase on nearly 1 million small businesses that employ tens of millions of Americans.  I guess he still thinks the private sector is doing just fine. Well, the private sector is not fine. And raising taxes on job creators during a jobs shortage makes about as much sense as cutting off the water supply during a drought."

But Democratic Party leadership is apparently onboard with Murray's plan.

Adam Jentleson, spokesman for Senate Democratic Leader Harry Reid, told Fox Business Network that the majority leader has "always said that we're not changing anything until Republicans compromise and embrace a plan that includes revenues."