"Fiscal cliff" could save U.S. billions or push weak economy over the edge

(CBS News) WASHINGTON - There could be a fiscal meltdown coming at the end of the year that will affect millions of American taxpayers. That's when the Bush tax cuts are set to expire. Democrats and Republicans can't agree on how to extend the tax cuts or for whom. The Deomcrats want to let the tax cuts expire for the wealthy, and on Monday, they threatened to let the tax cuts expire for everyone if Republicans refuse to compromise.

Top Democrat: We won't budge on Bush-era tax cuts

Democrats chose their top-ranking female senator, Patty Murray of Washington, to lay down their new marker on taxes.

"Unless Republicans end their commitment to protecting the rich above all else, our country is going to have to face the consequences of Republican intransigence," she said in a speech.

The potential combination of all the Bush tax cuts expiring and $110 billion in defense and domestic spending cuts set to kick in at the end of the year has come to be referred to as the "fiscal cliff." Economists have warned that the one-two punch could push the fragile economy back into a recession at the start of 2013.

"What the Democrats are proposing today is an entirely avoidable, high-stakes game of chicken," Republican Senate leader Mitch McConnell argued on the Senate floor Monday.

Democrats and Republicans took this fight to the brink the last time the Bush tax cuts were set to expire, in December of 2010.

"We just don't see why we have to give an extra tax cut to the wealthiest and then an extra, extra estate tax benefit to the top one quarter precent," House Minority Leader Nancy Pelosi argued at that time.

Democrats lost that battle, but this time they sense weakness in the GOP with more than half of the most competitive Republican House candidates declining to sign a pledge that vows never to raise taxes. Freshman Republican Scott Rigell of Virginia signed that pledge two years ago, but recently rejected it.

"I am saying that the expenses must come down sharply to historic levels," he told CBS News. "Revenue too must rise to historic levels."

"Certainly, in my view, the pledge has worked against finding common ground," Rigell added.

Still, the overwhelming majority of Republicans oppose letting the tax cuts expire for anyone. Democrats said allowing the top tax bracket revert from 35 percent to 39.6 percent would save $700 billion over 10 years. But, if the two sides can't work this out, middle class Americans could see their taxes go up by $1,200 next year.

  • Nancy Cordes On Twitter»

    Nancy Cordes is CBS News' congressional correspondent.

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