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Parties Maneuver for Edge in Fiscal Battle

Republicans and Democrats are jockeying for leverage in their quest to win this fall’s battle over the nation’s “fiscal cliff,” with Republicans trying to get as much as possible done before the elections as a way to diminish Democrats’ negotiating power in the lame-duck session.

Democrats on Monday issued an ultimatum on a taxes, saying they are prepared to let $1.2 trillion in harsh automatic spending cuts go into effect and let tax cuts expire to force Republicans to agree to raise taxes on the wealthy.

But House Republicans hope to take at least one of those issues off the table this week: The House will vote on a measure to make the president prepare a report about the effect of the sequester. Republicans will hammer President Barack Obama for using pending defense spending cuts, which make up half of the sequester, as leverage on taxes.

Additionally, South Carolina Republican Sens. Jim DeMint and Lindsey Graham have asked Speaker John Boehner (R-Ohio) to try to eliminate another possible advantage for Democrats after the elections — the funding of the government for the next year. In a letter to Boehner on Friday, the two asked him to bring up a stopgap spending bill that will fund the government at least through February, to prevent Democrats from playing political games, they said.

This week, House Republicans have scheduled the Sequestration Transparency Act for the floor Wednesday, followed by the Defense appropriations bill. A House Armed Services Committee hearing will also address sequestration that day.

The GOP will seek to drive its message in key battleground states that have significant military facilities such as Virginia, North Carolina and Ohio, which are important to the presidential race.

But without the cooperation of Senate Democrats, neither a stopgap spending bill nor a sequester rollback are likely to see action until at least November.

Democrats have made no secret of trying to use the number of major items with a Jan. 1 deadline, including the start of the sequester and the expiration of the 2001 and 2003 tax cuts, as a way to achieve their policy goals on taxes.

“If Republicans won’t work with us on a balanced approach, we are not going to get a deal,” Sen. Patty Murray (Wash.) said in a Monday speech. “So 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 rather than lock in a long-term deal this year that throws middle-class families under the bus. And I think my party, and the American people, will support that.”

A Senate vote on extending the 2001 and 2003 tax cuts could come as soon as this week, but most likely next week.

This week, Senate Democrats have teed up a bill to give tax breaks to companies that insource jobs from overseas. Republicans are likely to vote to take up the bill, in part to seek a vote on their one-year extension of the Bush-era tax cuts, according to a senior GOP Senate aide.

But Democrats are likely to balk at the prospect of voting this week as they look to keep the issue alive into next week, when they expect to take up their own tax cut plan as a stand-alone bill, a senior Senate Democratic aide said. Democrats want to extend the cuts for households making less than $250,000, a position that President Barack Obama has been pushing in many swing states.

After Murray’s speech Monday, Sen. John Cornyn (R-Texas) said in a speech on the Senate floor, “It simply amazes me and discourages me that some people are willing to play chicken with our economy and national security.”

Democrats say they will stand firm on their position.

A Democratic aide said the sequester and tax issues could be solved “tomorrow” if Republicans break with anti-tax advocate Grover Norquist and “ask millionaires to pay their fair share.” The aide added that Democrats would rather have a bipartisan deal than allow the cuts to go into effect.

“There would be a lot of pain all around,” the aide said. “But, ultimately, it comes down to a choice between the sequester and whatever alternative Republicans will go along with, and if that alternative doesn’t include revenues, it’s probably impossible to craft an alternative that Democrats would support over the sequester as currently composed.” Without revenues, Democrats fear the alternative would likely have to include deep cuts to Medicare and other entitlements.

While Democrats appear to be holding a few trump cards in the lame-duck debate, Republicans may hold the ace if the debt ceiling needs to be increased. The Treasury Department expects to hit the limit before the end of the year; however, the administration typically has the ability to delay a default on the nation’s debts by using creative accounting maneuvers.

“I know there will be very considerable Republican resistance to raising the debt ceiling if we don’t have commensurate measures to get this spending addiction and these structural problems we have under control,” Sen. Pat Toomey (R-Pa.) said.

House Republican and Senate Democratic stances mark a 180-degree turn for each party from the debt ceiling fight that created the sequester in the first place.

Then, Democrats warned Republicans were imperiling the economy to further their policies, while Republicans defended using the debt ceiling vote as leverage to obtain spending cuts.

Now Republicans are arguing the defense cuts in particular could hurt the economy, even as top GOP officials continue to attack Obama’s 2009 stimulus law; in Boehner’s words, “government doesn’t create jobs.”

Republicans have focused on the policy effect of the spending cuts on the national defense and the economic effect of the expiring tax cuts.

House Armed Services Chairman Buck McKeon (R-Calif.) recently warned that the defense cuts would result in the loss of 1 million jobs, citing a National Association of Manufacturers study that analyzes the economic effect of the cuts down the supply chain.

Democrats are exploiting the pending deadlines — which they acknowledge could hurt the economy if fully implemented — even though they decried the tactic during the debt ceiling fight.

And while Boehner always maintained that the House would eventually raise the debt ceiling, Democrats are discussing actually going over the “fiscal cliff.”

A Democratic aide said the scenario was set up “by design.”

“We composed a [sequester] deal that we might have to live with a year from when it was devised” given the fact that all previous attempts to compromise on a deficit reduction package that included tax increases and spending cuts had failed to that point, the aide said.

Correction, July 17

An earlier version of this story misstated the nature of the sequester vote the House will take this week. The chamber will vote on a measure that would require the president to prepare a report on the effect of the sequester.

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