Nancy Pelosi, President Obama and Harry Reid are all hanging tough. | AP Photos The Democrats play hardball

President Barack Obama and congressional Democratic leaders enter the final stretch of the legislative year prepared to play hardball: They refuse to budge on the looming defense cuts and expiring Bush-era tax cuts.

The Democratic hard line — asserted by Obama at a private Oval Office meeting with senior party leaders last week — is based squarely on the belief that Republicans will cave on taxes because the GOP has far less leverage than it did after its resounding success in the 2010 elections.


Obama told Democratic leaders he would refuse to entertain any talk about separating $550 billion in defense cuts from the overall $1.2 trillion in across-the-board spending reductions set by law to kick in next year — despite repeated demands from GOP leaders and the Pentagon to do so. The president reiterated there will be no compromising on extending Bush-era tax breaks for U.S. families that earn more than $250,000 annually.

And Democrats are confident that voters will punish Republicans for the economy-shaking consequences if no deal is reached.

( Also on POLITICO: HHS: Sequester to hit children, poor)

The tough tactics, embraced by Senate Majority Leader Harry Reid (D-Nev.), House Minority Leader Nancy Pelosi (D-Calif.) and their top lieutenants, reflect the Democrats’ desire to stiffen their negotiating position with Republicans and quash speculation that they will cave — as they did when they extended the Bush tax cuts for two years after being routed two years ago.

In line with the White House stance, Reid and Senate Democratic leaders circulated a one-year, $272 billion tax cut plan late last week that would keep the current rate for individuals earning up to $200,000 annually and families earning up to $250,000. If Reid can line up support for the proposal — which the Nevada Democrat is confident he can do — the Senate could vote on it as early as next week. The House is set to vote on a full extension of the Bush tax cuts the following week.

“Let’s skip the unnecessary drama, the needless delays and all the partisan posturing, and let’s just do the right thing for the people who sent us here to serve,” Obama said in his weekly radio address on Saturday.

But the Democrats’ stated refusal to bend comes at a huge risk. If neither side blinks, the resulting blow to the economy next year could be enormous. And Democrats could face just as much — if not more — blame from voters.

What ultimately happens on the year-end “fiscal cliff” will be dictated by which party wins the November election. And in the lame-duck session of Congress, the election-year posturing could very well give way to post-election deal making.

Still, with less than six months away until that deadline, the White House and Democratic congressional leaders believe Republicans must reverse their steadfast opposition to new taxes in order to get a deal. Obama told Democrats that if he wins in November, he’d expect Republicans to deal on his party’s terms, sources say.

The tougher negotiating posture on extending Bush tax cuts is being greeted warmly by Democrats in both chambers. Yet, there are also mixed feelings about the defense cuts, particularly among House Democrats sensitive to defense industry concerns. Defense Secretary Leon Panetta has also said such drastic cuts would be “devastating” to national defense.

“Defense contractors are starting to make employment decisions and send layoff notices to people now, which is very destructive,” said New Jersey Rep. Rob Andrews. “I would hope we could do something about this in September. … I think waiting until December is not very smart.”

Sen. John McCain (R-Ariz.) is leading talks in the Senate to try to find a bipartisan resolution to head off the defense cuts and said senators must make significant progress before the August recess or the effort could be in serious jeopardy. McCain downplayed Obama’s threat to veto any attempt to “decouple” the defense cuts from reductions in domestic spending.

“I really do believe that the president understands that he can’t do what his own secretary of defense says would be ‘devastating,’” McCain said in an interview.

Sen. John Cornyn (R-Texas) faulted Reid and Obama for using the impending Pentagon cuts as leverage in the tax cut fight, though Republicans used similar tactics during last summer’s mega-fight over boosting the U.S. debt limit.

“This is the most predictable crisis one can imagine,” Cornyn said.

But Obama and Democratic leaders say they’d be willing to consider altering the defense cuts if Republican leaders strike a deal to replace the cuts with some tax increases.

Privately, White House officials have suggested that delaying the sequester could be an option for congressional Democrats, but they made clear they do not want to pursue that approach, sources say.

House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) — along with their top GOP lieutenants — made clear Friday that they oppose delaying the sequester and prefer to replace it with cuts to other domestic spending programs.

Still, the message that Obama sent privately is being echoed loud and clear on Capitol Hill, particularly by Reid. He reiterated in a letter to Republicans on the House Armed Services Committee last week that GOP leaders have to “stand up to rigid ideologies” and compromise on taxes before he will consider rolling back the defense cuts.

As part of the 2011 Budget Control Act, roughly $55 billion will be slashed from defense programs every year over the next decade. In addition, across-the-board domestic spending cuts will be triggered, though Social Security and Medicaid will be spared. And Medicare cuts are capped at 2 percent with cuts aimed squarely at the providers rather than the health benefits for the elderly.

Because the budget law spares some programs backed by Democrats and hits a major Republican priority — defense — Democrats believe they have far more leverage on the matter. And the same holds true on the tax issue. Democrats believe times have changed since 2010: The economy isn’t in as bad shape, and public sentiment has shifted in their favor — against continued tax breaks for the top 2 percent of wealthiest Americans.

“That was 2010; we aren’t going to do that again,” said Michigan Rep. Sander Levin, the top Democrat on the tax-writing Ways and Means Committee.

Asked if that meant the Bush tax cuts could expire for all income groups and for capital gains and dividends, Levin said: “If [Republicans] continue to have their feet in cement instead of open minds, I think that’s where we’re headed.”

Oregon Sen. Jeff Merkley said Democrats should “stick to our guns” and not buckle on the tax issue.

Andrews added: “If [Republicans] want to explain to their base why they permitted a $3 trillion income tax increase and a $500 billion defense cut, let them do it.”

But with so much at stake, some Democrats think their leadership — along with Republicans — will be forced to give in ahead of the year-end fiscal cliff given the risks to the U.S. economy.

“As we get closer,” said Senate Budget Chairman Kent Conrad (D-N.D.), “I think pressure is going to build.”