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Democrats Take Their Turn Playing Fiscal-Cliff "Chicken"

18 July 2012 in Trading Ideas

Amid the midsummer positioning for the fall election battle, Democrats have brought forth their own take-it-or-leave-it strategy regarding $600 billion worth of tax hikes and spending cuts that are scheduled to take place in January.

The Washington Post has reported that Democrats are threatening to take the country over the “fiscal cliff” in 2013 if Republicans continue to oppose higher taxes for the nation’s richest households.

That cliff ride refers to the government’s fiscal contraction that is scheduled to occur at year’s end if Congress does nothing to change it.  By far, the largest dollar component would be the expiration of the Bush tax cuts, which would result in raised taxes for virtually every US household, the Post said.

Last summer, it was House Republicans who forced a debt-limit showdown that ended in a plan to implement $110 billion in automatic spending cuts next year.

In a speech Monday to the Brookings Institution, Sen. Patty Murray (D-Wash.) said,  “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.”

The broader implication from Murray – and other Democrats – is that their party is willing to take a “let’s see” approach to what a fiscal cliff would mean in the near term for the US economy – and which party would shoulder the subsequent blame.

“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?,” Murray asked. “Are they going to continue opposing the Democrats’ middle-class tax cut once the slate has been wiped clean? I think they know this would be an untenable political position.”

According to the Post, Democrats are becoming increasingly emboldened that Republicans will ultimately surrender their pursuit of tax cuts for households with income over $250,000 and agree to restore a tax cut to the middle class.