WASHINGTON — Senate Democrats — holding firm against extending tax cuts for the rich — are proposing a novel way to circumvent the Republican pledge not to vote for any tax increase: Allow all the tax cuts to expire Jan. 1, then vote on a tax cut for the middle class shortly thereafter.
The proposal illustrates the lengths lawmakers are going to in an effort to include new federal revenues in a fix for the “fiscal cliff,” the reckoning in January that would come when all Bush-era tax cuts expire and automatic spending cuts to military and domestic programs kick in.
Virtually every Republican in Congress has taken the pledge, pushed by Grover Norquist’s Americans for Tax Reform, never to vote for a tax increase — a pledge both parties see as a serious impediment to a tax compromise. But if tax rates snap back to the levels of the Clinton presidency Jan. 1, any legislation to reinstate some of those tax cuts — but not all of them — would be considered a tax cut.
“Many Republicans are starting to realize something important: On Jan. 1, if we haven’t gotten to a deal, Grover Norquist and his pledge are no longer relevant to this conversation,” said Senator Patty Murray, a Democrat of Washington . “We will have a new fiscal and political reality.”
The idea inflamed passions on both sides Tuesday, when fiscal issues careening toward Congress roiled hearings and deliberations and spurred political recriminations as Republican leaders accused Democrats of steering the economy back into recession.
‘We will have a new fiscal and political reality.’
“Democrats in Congress are now saying that they would rather see taxes go up on every American at the end of the year than let about a million businesses keep what they earn now,” Senator Mitch McConnell of Kentucky, the Republican leader, said Tuesday. “This isn’t an economic agenda. It’s an ideological crusade.”
Democrats accused Republicans of holding the vast majority of the Bush-era tax cuts hostage to the fraction aimed only at the rich. They praised the tough line adopted by the Democratic leadership, which is aligning with President Obama on the tax issue.
“This is all about leverage being on the side of the Democrats,” said Representative Peter Welch, a Democrat of Vermont. “If Democrats want to use that leverage, we can’t blink.”
Lawmakers on both sides are now lamenting the fiscal train wreck that many of them voted to create, a confluence of spending cuts and tax increases that the Federal Reserve chairman, Ben S. Bernanke, said Tuesday could send the economy into recession.
At the same time, former Vice President Dick Cheney was meeting with Senate and House Republicans, in part to warn them of the dire consequences he sees in $500 billion in automatic military cuts that will begin to hit Jan. 2. Off Capitol Hill, a broad bipartisan coalition of fiscal hawks, led by the co-chairman of Obama’s 2010 fiscal commission, Erskine B. Bowles, restarted efforts to pressure Washington to reach a “grand bargain” on deficit reduction.
But taxes remain a chasm in the Capitol as Senator Harry Reid of Nevada, the majority leader, moved to force votes in the coming days on Democratic tax proposals.
“If you want to join Democrats to protect the middle class and avoid this fiscal cliff that we hear so much about, all you have to do is say yes,” Reid said to Republicans. “Surely you can at least agree that 98 percent of the families in this country shouldn’t see their taxes go up.”
Numerically, Republicans and Democrats are not as far apart as the exchanges would suggest. Obama has proposed allowing tax cuts to lapse on incomes of more than $250,000, raising the top two income tax brackets, allowing capital gains tax rates for affluent families to rise slightly, and letting dividend income be taxed as ordinary income, as it was before 2003. Of the $5 trillion in tax increases that will ensue over 10 years if nothing is done, Obama’s plan would stave off all but $849 billion.
Senator Kent Conrad, a Democrat of North Dakota and chairman of the Budget Committee, said the offer to let all the tax cuts lapse, then reinstate most of them days later, was a legitimate way to free Republicans from their no-new-taxes pledge.
But Norquist, the keeper of the pledge, said the idea ‘‘doesn’t pass the laugh test.”
And Republicans likely to work with Democrats on any deficit deal rejected it out of hand. Senator Lamar Alexander, a Republican of Tennessee, called Murray’s suggestion “a startling comment for a United States senator.”