Both parties dig in for looming end-of-year fiscal battle

House Speaker John Boehner (left) and Senate Majority Leader Harry Reid (right). Getty

John Boehner, left, and Harry Reid, right.
Getty

Updated: 5:55 p.m. ET

(CBS News) As Congress prepares to tackle a series of controversial tax and budget issues this fall, Senate Majority Leader Harry Reid is making it clear to his Republican colleagues that Democrats have no plans to cave over extending the Bush-era tax cuts for the wealthy.

In a Tuesday letter, Reid hammered Senate Republicans for allegedly abandoning "common-sense approaches to the fiscal challenges" due to a "fear of retribution from Tea Party extremists."

"The American people want a balanced approach to fiscal policy that combines smart spending cuts with revenue measures that ask millionaires and big corporations to pay their fair share," Reid said in the letter. "Yet a strict adherence to Tea Party ideology among Republicans in both the House and the Senate has so far put that balanced, common-sense solution out of reach."

In his letter, Reid argued that thanks to Tea Party "extremism," a tax deal would be "impossible" before the election - leaving just a few weeks during the lame duck session between the November 6 election and the end of the year to resolve the issue.

"Once Republicans are willing to abandon their commitment to more tax breaks for multi-millionaires and special interests and their plans to end Medicare, I am confident that we can reach an agreement," he added. "Unfortunately, it appears that Republicans' blind adherence to Tea Party extremism is making it impossible to reach this sort of balanced agreement before the election."

If the Bush-era tax cuts are allowed to expire at the end of the year, taxes will go up for all Americans. Mr. Obama favors letting those tax cuts expire for the wealthiest Americans while extending them them for everyone else; Republicans want to extend the Bush-era tax cuts for everyone.

Reid's note was in response to a note from Sen. Orrin Hatch, R-Utah, who wrote Reid on May 17 to protest "the failure of Democrats in Congress and the President to support aggressive policies that will facilitate long-term economic growth and job creation."

The Hatch letter, co-signed by 40 of his fellow Senate Republicans, accuses the Obama administration of a lack of interest in pursuing economic growth, arguing that "Obama and Congress have spent much of the past year advancing misguided redistributionist policies in the name of fairness" rather than addressing the fiscal issues at hand.

"There seems to be little urgency on the part of the Administration to enact pro-growth policies," the Republican letter reads. "Nowhere is the lack of attention to this economic and jobs crisis more evident than with the Administration's cavalier attitude toward the coming fiscal cliff that the Washington Post has termed 'Taxmaggedon.'"

In addition to the expiration of the Bush-era tax cuts, January 1, 2013 also marks the day when $1.2 trillion worth of budget cuts spread across domestic programs and the Pentagon begin to go into effect unless Congress can reach a deal to offset them. Those automatic "sequester" cuts spread over 10 years are the result of the failure of the congressional "super committee" to reach an agreement to reduce the deficit as mandated by the deal last August to raise the debt ceiling. Also set to expire January 1 are some unemployment benefits and a deferment of payment cuts to Medicare physicians.

According to a report released Tuesday by the nonpartisan Congressional Budget Office (CBO), if Congress were to let all Bush-era tax cuts expire and allow the sequester cuts to be enacted, unemployment would rise and "the first half of 2013 would probably be judged to be a recession."

Removing the "fiscal restraint" measures would boost economic growth in 2013, the report says. But it added that "adopting such a policy without imposing comparable restraint in future years would have substantial economic costs over the longer run."

Meanwhile, House Republicans and Democrats appear poised to embark anew on a battle over increasing the nation's debt limit. House Speaker John Boehner has suggested that Republicans won't sign off on a deal unless the increase is matched dollar for dollar with spending cuts - a position that Democrats will almost certainly oppose. Treasury Secretary Timothy Geithner has said that the country will likely hit the borrowing limit at the end of this year, potentially adding more fuel to the fire in the face of an end-of-year fiscal standoff.

In a USA Today op-ed on Tuesday, Boehner reaffirmed his position, accusing Democrats of "inaction" with regard to the nation's debt, and saying the issue is one Congress "cannot ignore."

"[Democrats] went into a state of panic recently when I said we should talk about -- and yes, actually solve -- the debt problem that's hurting our economy," Boehner said in the op-ed. "There have even been suggestions that these calls for action to heal our economy are somehow designed to do it harm."

Pinning America's credit rating downgrade last August on Mr. Obama, Boehner contended that "until we get a grip on our debt, our economy will continue to suffer and we run the risk of another downgrade."

Both sides hope to avoid the disruption that would result from a partisan stalemate in Congress over tax and budget issues at the end of the year. But ahead of November, neither Democrats nor Republicans appear eager to compromise.

Commenting on the CBO report Tuesday evening, Reid said, "We could avoid the so-called fiscal cliff tomorrow if Republicans would agree to extend the middle class tax cuts, which would provide certainty to millions of families and give us ample time to deal with the other challenges facing Congress at the end of the year."

"If Republicans want to walk away from the bipartisan spending cuts agreed to last August, they will have to work with Democrats to replace them with a balanced deficit reduction package that asks millionaires to pay their fair share," he added.

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