Lapse in Tax Cuts Would Strengthen Democrats, Murray Says

Democrats will be in a stronger negotiating position in January if Congress doesn’t reach a deal before year’s end on the expiring 2001 and 2003 tax cuts, Senator Patty Murray of Washington said today.

The public will rally behind Democrats’ push to reinstate tax reductions for married couples earning less than $250,000 a year after they see the effects of letting the cuts lapse, Murray, the Senate’s fourth-ranking Democrat, said in a speech at the Brookings Institution in Washington. Republicans want to continue the tax breaks for all income levels.

“If middle-class families start seeing some money coming out of their paychecks next year, are Republicans really going to stand up and fight for new tax cuts for the rich?” she said. ‘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.’’

Murray’s comments are the latest sign that Democrats are willing to go over the so-called fiscal cliff of automatic tax increases and spending cuts at the end of the year if Republicans continue to oppose higher taxes for top earners.

House Speaker John Boehner, an Ohio Republican, responded to Murray’s comments in a statement today, saying that “Democrats are willing to hurt jobs and tank our economy for the sake of a small-business tax hike that would also have disastrous consequences.”

$1.2 Trillion

The $1.2 trillion in automatic spending cuts, known as sequestration, are scheduled to begin in January if lawmakers don’t agree on a plan to replace them.

The nonpartisan Congressional Budget Office said May 22 that allowing the scheduled spending cuts and tax increases to take effect may tip the economy back into a recession.

The CBO estimated that the spending cuts and tax increases would total $607 billion, or 4 percent of the U.S. gross domestic product, in the fiscal year starting Oct. 1. The shortfall this fiscal year is projected to be $1.2 trillion.

Murray said she “absolutely” would prefer to “continue this debate into 2013 rather than lock in a long-term deal this year” that doesn’t include revenue increases Republicans have rejected so far.

“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,” she said. “It is going to have to be replaced, and that replacement is going to have to be a balanced plan.”

Deficit Supercommittee

Murray was the Democratic co-chairwoman of the congressional supercommittee created last year to craft a plan to reduce the deficit by $1.2 trillion over a decade.

The 12-member panel of Republicans and Democrats, established by the August 2011 law raising the federal debt ceiling, was unable to reach an agreement. That set the stage for the $1.2 trillion in across-the-board spending cuts.

Supercommittee Democrats “jumped right into the middle of the ring” during the negotiations and embraced Republican- proposed spending cuts, Murray said.

“Republicans refused to move an inch in our direction on revenue,” she said. “They actually tried to use a deficit- reduction committee to cut taxes for the rich even further.”

Senator Pat Toomey, a Pennsylvania Republican, offered a proposal during the panel’s talks that included revenue increases that Democrats called insufficient, and Boehner last summer came close to negotiating a “grand bargain” with President Barack Obama that would have included $800 billion in new revenue.

Defense Programs

The House in May passed legislation that would replace automatic cuts to defense programs, which amount to half of the $1.2 trillion, with reductions to domestic programs, including food stamps. Republicans on the Senate Armed Services Committee proposed a plan to delay the automatic cuts for one year by reducing the number of federal employees.

“We are also not going to allow just the defense cuts to be replaced without addressing the domestic spending cuts that would be devastating to the middle class,” Murray said.

Obama’s push for a tax-cut extension for all except the highest-income families is a central theme in his presidential campaign.

The Democratic-controlled Senate plans to vote as soon as next week on legislation, based on Obama’s proposal, that would extend the tax cuts through 2013 for 98 percent of U.S. households while letting them expire for income exceeding $200,000 for individuals and $250,000 for married couples.

Congressional Republicans want to extend the cuts for all income levels for one year and set up a framework for a broader tax-code overhaul in 2013. The Republican-majority House plans to vote later this month on that plan.

‘No Reason’

“There is absolutely no reason, not one, that we need to extend the tax cuts for the rich as a precondition for reforming the tax code,” Murray said.

Continuing a Democratic line of attack, Murray blamed Republican opposition to any revenue increases on the influence of the Tea Party base and anti-tax advocate Grover Norquist’s pledge not to raise taxes.

All except six House Republicans and seven Senate Republicans have signed the pledge promoted by Norquist, the president of the Washington-based advocacy group Americans for Tax Reform.

In an opinion article published in today’s New York Times, Senator Tom Coburn, an Oklahoma Republican, said that Norquist was the Democrats’ “favorite boogeyman” and that Republican lawmakers “repeatedly rejected Mr. Norquist’s strict interpretation of his own pledge.”

“While most Republicans do, of course, oppose tax increases, they are hardly the mindless robots Democrats say they are,” Coburn wrote. All but six Senate Republicans last year supported eliminating an ethanol production tax credit, he said.

To contact the reporter on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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