Democrats are digging in on two controversial points that could reverberate across the economy: The $550 billion in defense cuts kicking in next year and the expiration of the Bush tax cuts for families earning more than $250,000 per year. President Obama, Harry Reid, Nancy Pelosi, and other top congressional Democrats are all on the same page, Politico reports, and discussed their position at a private meeting last week. Though Republican leaders are firmly opposed to both the defense cuts and the tax cut expiration, Obama believes the GOP will ultimately give in because it doesn't have as much leverage as it did in 2010.
If some sort of deal can't be reached, Democrats believe, voters will blame Republicans for a failure to compromise and the resulting economic consequences, which could be dire. The Senate could soon vote on a one-year tax cut plan that would keep the same rate for families earning $250,000 or less, while the House is soon voting on a complete extension of the Bush tax cuts. On the defense front, John McCain is heading up an attempt to put together a bipartisan solution in the Senate, saying, "I really do believe that the president understands that he can’t do what his own secretary of defense says would be ‘devastating.' " Dems have said they'd consider budging on the defense cuts if they were replaced with tax increases. (Read more Bush tax cuts stories.)