* Democrats see winning issue this year
* Votes will test party unity, especially for Democrats
* Fiscal cliff looms after elections
By Kim Dixon and Donna Smith
WASHINGTON, July 23 The U.S. Congress is set to
begin debating this week whether to extend hundreds of billions
of dollars in expiring tax cuts in what amounts to a round of
shadow boxing in advance of the real battle after the November
Both the Democratic-led Senate and Republican-led House of
Representatives will take up the expiring tax rates in coming
days, but the outcomes will be very different and will settle
Still the votes may provide some hints on the prospects for
party cohesion - especially for Democrats - on the tax issue
after the election.
"For Senate Democrats, the primary goal is to avoid the
optics of late 2010 when they couldn't really come together,"
said Helen Fessenden, an investor adviser at Eurasia Group.
"They want to avoid the public message of division."
U.S. lawmakers from both parties fear the blame for pushing
the country over the so-called fiscal cliff of expiring lower
tax rates on Dec. 31, and automatic spending cuts set to kick in
days later unless Congress steps in. The Congressional Budget
Office says failure to act could spur a recession in 2013.
The tax cuts, passed under Republican President George W.
Bush, e xpire at the end of the year unless Congress and
President Barack Obama agree to extend them in one form or
another, as they did after a bitter struggle in December 2010.
Republicans want to extend the tax cuts for at least another
year with an eye toward a broader reform in 2012. They are
playing to small-government Tea Party advocates and voter
worries about the economy and sluggish job growth.
Democrats want to extend the lower rates for the first
$250,000 of an individual's income and allow rates to rise for
income earned above that threshold.
They are making a play for what polls show are a majority of
Americans who believe the rich should pay more to reduce
The risk is highest for Democrats, who split among
themselves in the 2010 vote extending the cuts for all
taxpayers. The Democrats also have more Senate seats at risk in
the Nov. 6 election as they are defending 23 seats in the
100-mbmer Senate, compared with 10 being defended by
In the nearly identical scenario at the end of 2010, with
the same set of tax cuts up for renewal, several
moderate-to-conservative Democrats balked at raising taxes as
the economy emerged from the 2008 financial crisis.
Obama ended up doing an about-face and signed a two-year
extension of all the tax cuts.
Democrats say it is different this time.
"We've made a diligent effort to separate the middle class
from the highest-income people," said Senator Charles Schumer, a
member of the Senate Democratic leadership.
Representative Kevin McCarthy, the third-ranking Republican
in the House, said Republicans planned sessions with small
businesses during the August congressional recess, as they
highlight their opposition to any tax increases at a time of
tepid economic growth.
Obama, in a speech to veterans on Monday, addressed the
other piece of the fiscal cliff puzzle: the roughly $100 billion
in automatic spending cuts that will kick in if Congress fails
to act by Jan. 2.
He said lawmakers ought to agree on a balanced plan to avoid
the widely feared cuts to defense and other areas.
Democratic Congressional Campaign Committee Chairman Steve
Israel attempted to beef up Democrats' unity in an internal memo
"Polling shows that voters - including independents -
support letting the Bush tax cuts expire for the wealthiest
Americans and want to see tax cuts extended for the middle
class," the memo reads.
Senate Majority Leader Harry Reid has expressed confidence
he will have a majority to pass the Democratic proposal. But a
majority is not sufficient where 60 votes are required to
advance legislation. Reid is expected to fall short.
Democratic Senator Claire McCaskill, facing a potentially
tough re-election fight for her seat in Missouri, said she
backed extending tax cuts for the middle class, but added she
was open to a $1 million threshold, rather than $250,000.
A Republican aide said McCaskill and conservative Democratic
Senator Joe Manchin, up for re-election in West Virginia, could
join them in blocking the Democratic plan. Manchin has not
decided how he will vote, an aide said.
House Republicans expect few if any defectors from their
majority w hen they bring a bill up next week to extend all the
tax cuts. A handful of moderate Democrats in tough re-election
fights will likely vote with Republicans.
One analyst said the election was also affecting
"The Democrats are less cohesive than the Republicans on
this issue, but there are probably Republicans who are willing
to compromise as well," said Joanne Thornton, an investor
analyst at Washington Research Group. "But that is not going to
happen until after the election."