By Kim Dixon and Donna Smith
WASHINGTON (Reuters) - The 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 elections.
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 nothing.
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 December 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, expire 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 deficits.
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 November 6 election as they are defending 23 seats in the 100-mbmer Senate, compared with 10 being defended by Republicans.
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 January 2. Continued...