Obama's Democrats in disarray over expiring tax cuts

WASHINGTON (Reuters) - President Barack Obama's fellow Democrats in the U.S. Congress, many upset with him for election losses, are in disarray over what to do about tax cuts for millions of Americans that are set to expire on December 31.

With time running out and high political and economic stakes, Obama is pushing Democratic leaders to determine if they can win an acceptable extension of the cuts, which he could sign into law.

Resurgent Republicans are demanding that all the tax cuts be renewed, including those for wealthier Americans -- individuals making more than $200,000 and families above$250,000.

Obama favors renewing the tax cuts only for those at or below those level, saying the nation cannot afford to renew them for wealthier Americans.

Despite a number of options -- including renewing all tax cuts or only those for the middle class or tying any extension to a renewal of jobless benefits -- there is no indication a consensus is near.

"How the hell should we know when we will figure this out?" said a senior Senate Democratic aide. "This is the Democratic Party," long known for internal struggles and diverse views.

"It seems like no one is on the same page," said Chris Krueger of MF Global, a private firm that tracks Washington for investors. "It has the potential to be a train wreck."

With some Democrats blaming Obama for their loss of control of the House in the November 2 elections, Obama's ability to rally his troops is being tested on the expiring tax cuts, which were signed into law by Republican President George W. Bush.

"A lot of our guys, the progressives, don't want to extend these tax cuts for anyone," said a senior House Democratic aide. "They never liked them in the first place."

The aide said some Democrats are now wary of Obama, who convinced them to overhaul the U.S. healthcare system -- a landmark achievement that backfired and hurt them with voters.

"Our guys aren't sure what comes next. Will Obama help them in 2012, or will just be focused on getting himself re-elected?" the aide said.

OPEN TO COMPROMISE

Obama and some Democrats have made clear since the election that they are open to compromise. Options include raising the thresholds to $500,000 or even $1 million or extending the tax breaks for only a year or two before a permanent agreement can be put in place.

House and Senate Democratic leaders plan to hold votes in December on extending the tax cuts and -- barring any deal -- it will be only for middle-income Americans.

However, such a move does not now have the votes to pass the Senate where Democrats would need Republican support to clear procedural hurdles in the 100-member chamber.

"There is a reality here that while it might be best to continue the middle-class tax cuts and raise taxes on higher income people, the votes are not there to do that," said Senator Joe Lieberman, an independent who normally votes with the Democrats.

Republicans are more united than the Democrats, arguing that tax hikes, even for the wealthy, will hurt job creation. The party also has the benefit of knowing it will be in the majority in the House of Representatives as of January following this month's election results.

Liberals say Democrats are understating their negotiating power, citing polls that show most Americans favor their position.

"In general the Democrats should have the upper hand in this debate," said Jim Kessler, vice president of Third Way, a moderate Democratic think tank.

"The president ultimately is the person who will decide what he will and will not sign and that is a very strong leverage point." Kessler said.

"At the same time, Republicans have a completely unified position and, from what I can read, there are six different Democratic positions."

(Additional reporting by Donna Smith, Kim Dixon and Caren Bohan; editing by Chris Wilson)