Fiscal cliff: Will liberals jump? - The Star-Ledger - NJ.com

Call them the cliff jumpers.

A growing bloc of emboldened liberals say they're not afraid to watch defense spending get gouged and taxes go up on every American if a budget deal doesn't satisfy their priorities.

(PHOTOS: Fiscal cliff's key players)

Here's what these progressives fear: an agreement that keeps lower tax rates for the wealthy, hits the social safety net with unpalatable cuts and leaves Pentagon spending unscathed. In other words, they'd rather walk the country off the cliff than watch President Barack Obama cave on long-held liberal priorities.

"If the Republicans can't see their way to significant additional revenues targeted toward the people who are best off and targeted toward passive income and other things like that, then we're better off going over the cliff and readdressing this with a better Congress in January," Rep. Peter DeFazio (D-Ore.) said. "And we would have plenty of time to fix it."

Bolstering the Democrats' strategy is the belief that the "fiscal cliff" is actually shaped more like a "slope" where the economic effects will be felt gradually, not immediately. That theory gives Congress some time at the beginning of 2013 to set tax rates and configure budget cuts in a different political environment and with a new class of lawmakers.

But underlying the tough talk is also a sense of liberal angst -- the left feels like it was burned by the last extension of the Bush tax rates and didn't get much of what it wanted in the 2011 debt-limit deal.

If tax rates snap back to the higher levels from the 1990s and painful budget cuts start to hit the Pentagon, these Democrats -- led by Washington Sen. Patty Murray -- believe they would wield more leverage over the GOP to enact a budget compromise on their terms. And with a January deal, Republicans would technically avoid violating the no-new-taxes pledge that most of them have signed because they would then be voting to cut taxes.

Republicans would most likely bear most of the public blame if policymakers deadlock. The Pew Research Center found that 53 percent of Americans would fault GOP lawmakers if Washington fails to avert the fiscal cliff; only 29 percent would point the finger at Obama.

"This is very, very important that we hang in there to essentially get the revenue component," said Rep. Peter Welch (D-Vt.). "I favor an agreement before Jan. 1, but I'm skeptical that our leadership may be able to reach one. If it's necessary to wait to get a good deal, let's do that."

Murray declared in a speech this summer that she would push budget negotiations into 2013 if Republicans don't cave on taxes for the rich. The fourth-ranking Senate Democrat repeated the threat in a Nov. 11 interview on "This Week."

"If the Republicans will not agree with that, we will reach a point at the end of this year where all the tax cuts expire, and we'll start over next year," Murray said. "And whatever we do will be a tax cut for whatever package we put together. That may be the way to get past this."

The fiscal cliff is a $503 billion mix of tax increases and spending cuts that experts predict will shock the economy in 2013 unless Washington devises a solution to avert it before the end of the year. The cliff includes not only the Bush-era tax cuts and the automatic budget cuts known as the "sequester" but also the payroll tax cut, jobless benefits and reimbursement rates for doctors who serve Medicare patients.

The White House wants to end the Bush-era tax rates on income above $250,000, but Republicans say all rates should be extended because doing otherwise would harm the economy.

The brunt of the cliff could be delayed, however.

For instance, the Treasury Department and the Internal Revenue Service could wait to adjust withholding tax tables, which determine how much money is taken out of paychecks. Tax rates could also be fixed retroactively. And the spending cuts to defense and domestic programs may be phased in over time rather than crashing down all at once at the beginning of January.

The Center on Budget and Policy Priorities, one of the earliest espousers of the fiscal slope theory, said in April that entering 2013 without a budget deal would "not produce an economic calamity" as long as lawmakers reach an agreement within the first few weeks of the new year.

With the bad taste of recent budget deals still lingering in their mouths, liberals have particular reason to be concerned. Obama infuriated progressives in 2010 when he struck a deal with Republicans to extend all Bush-era tax rates for two more years, and last year's agreement to raise the debt ceiling contained no new revenues, angering them again.

But this time, Democrats believe voters handed them a clear directive on taxes. Obama centered his campaign on ending tax breaks for the rich and was reelected, while Democrats strengthened the party's majority in the Senate and boosted its numbers in the House.

Liberals on Capitol Hill are already drawing their line. For instance, West Virginia Sen. Jay Rockefeller and Iowa Sen. Tom Harkin have circulated a letter urging Obama to shield entitlement programs from benefit cuts and demand $1 in revenue for every $1 in spending cuts.

"The worry is that Democrats will continue the failed strategy of the past, which is refusing to fight," said Adam Green, co-founder of the Progressive Change Campaign Committee. "To do so after the huge mandate of 2012 is absurd."

But that tough stance has led Republicans to claim Democrats are all too eager to trigger a recession. With a poster of a scene from the 1991 film "Thelma and Louise" behind him, Utah Sen. Orrin Hatch said in a floor speech this summer that -- much like the movie's title characters -- Democrats were planning to drive the economy straight over the edge to get tax increases.

"Rather than stop the country from going over the fiscal cliff and preventing the expiration of the 2001 and 2003 tax relief, they are prepared to Thelma and Louise the American economy right over the cliff," said Hatch, the top Republican on the Finance Committee. "That is an astonishing admission."

And other Democrats aren't so keen on pushing the showdown past 2012. When asked whether he could let the year-end deadline lapse without a deal under any circumstances, Michigan Rep. Sander Levin, the House's top Democratic tax-writer, said: "It's such a bad idea that we ought to do it now."

"As long as people on the left and the right believe that there's not going to be any consequences of the intransigent positions, this is not going to be resolved," said Rep. Charles Rangel (D-N.Y.), former chairman of the Ways and Means Committee.

Some Democrats off Capitol Hill are also skeptically eyeing the strategy.

"Markets are going to go into an absolute tailspin, and I don't think we want to risk that, especially with leadership right now trying to find a deal," said Gabriel Horwitz, director of the economic program for Third Way, a centrist think tank. "I think the market reaction is going to happen immediately."

Top negotiators won't explicitly endorse the tip-off-the-cliff method. The White House has repeatedly said an agreement must be reached, though it has drawn its own hard line: Obama will veto any bill that keeps the Bush-era tax rates for the highest earners. When asked about Murray's tactic in July, Senate Majority Leader Harry Reid (D-Nev.) told reporters: "Patty Murray knows what she's talking about."

"I don't think it's my role to go to the table with a threat," House Minority Leader Nancy Pelosi (D-Calif.) said in an interview with ABC. "I think it's my role to go to the table with some ideas, to be receptive to what we can come to agreement on."

But rank-and-file Democrats calling for a so-called balanced deal are getting ready for that alternative.

"If there's a better opportunity to deal with that in January," said Arizona Rep. Raul Grijalva (D-Ariz.), "then that last option is something that Democrats need to prepare for."

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