WASHINGTON—Senate Democrats will allow all Bush-era tax cuts to expire and automatic spending cuts to kick in if they cannot reach an agreement with Republicans on extending tax cuts for the wealthy, Sen. Patty Murray (D-Wash.) said Monday.
“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.
Sen. Murray is the head of the Democratic Senatorial Campaign Committee and was Democrat chair of the Super Congress, a supercommittee that failed to reach agreement last year on how to reduce the national debt.
That failure will see ’sequestration‘ or billions of dollars in spending cuts enacted across the board, beginning Jan. 1. The Bush tax cuts are due to expire on the same day, hence the description ’fiscal cliff'.
The Congressional Budget Office (CBO) warned in May this year that the country would fall into recession by mid-2013 if the $607 billion in tax increases and spending cuts went ahead as scheduled.
Speaking at the Brookings Institution in Washington, D.C., Murray blamed the supercommittee stalemate on Senate Republicans and their refusal to allow tax increases in return for cuts in entitlements. “If the Bush tax cuts expire, every proposal will be a tax cut proposal, and the pledge will no longer keep Republicans boxed in and unable to compromise,” she explained.
Republicans say it is the Democrats who are stalling negotiations, and described the proposal as irresponsible. “Make no mistake: What the Democrats are proposing today is an entirely avoidable high-stakes game of chicken with the single-minded goal of taking more money from those who earn it, for government to waste,” U.S. Senate Republican Leader Mitch McConnell said in a statement.
Alice Rivlin, founding director of the Chief Budget Office (CBO) and a former Federal Reserve vice chair, described the Democrat proposal as “a brilliant negotiating tactic,” adding that she hoped they would not have to go through with it. Rivlin was among panelists discussing the proposal at Brookings following Murray’s presentation.
William Gale, a tax policy specialist with Brookings and another panelist, said he believes the Democrat proposal is much more than just a “negotiating tactic.” He said there is a real possibility the standoff will continue over the fiscal cliff, and suggested that may not be so bad. Letting the tax cuts expire and the sequestration take place could provide a more conducive environment for tax reform. More revenue and less spending would take the pressure off, providing not only an opportunity to reach a budget deal, but with both sides forced to give ground, the “incentive” to reach an agreement will be stronger, he said.
Robert Greenstein, founder and president of the Center on Budget and Policy Priorities, said both sides had indicated they were serious about their positions: Republicans were determined to see the tax cuts remain for everyone, and the Democrats were determined that they were retained only for the middle class.
Murray’s proposal is risky but plausible, he said. An initial period of “market volatility” and “round the clock discussions” would drive Congress to agreement before the end of January and before the CBO’s predicted recession had a chance to kick in, Greenstein said.
“There is a risk going into January, but the bigger risk is not addressing reform,” he said.
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