To the surprise of no one, two attempts by Senate Democrats to raise taxes in the middle of economic stagnation failed to clear procedural votes this morning.  As the AP noted before the votes took place, everyone knew the votes would fail.  However, Senate Democrats looking nervously at a potentially difficult 2012 election wanted to get some populist credibility in place now:

Their defeat on the Senate floor is predictable and the speeches have the ring of the recent campaign season.

But Democrats are already eyeing the 2012 elections and eager to engineer a showdown over tax cuts in an attempt to depict Republicans as guardians of the rich.

“Do we want to extend those tax breaks for millionaires and billionaires at a time of huge deficits? I would argue vociferously we shouldnt,” Sen. Chuck Schumer, D-N.Y., said Saturday shortly before scheduled votes.

Republicans countered that no one’s taxes should be raised at a time the economy is still recovering from the a recession. “It is the most astounding theory I have ever seen, raise taxes to create jobs,” said Sen. John Thune of South Dakota.

Democrats needed 60 votes to proceed to a floor vote, but couldn’t get more than 53 on either measure.  The bill that would have hiked taxes on incomes above $250,000 failed 53-36, while the bill that would have hiked taxes on incomes of more than $1 million failed 53-37.

What next?  The Washington Post reported last night that the White House and the GOP have begun bargaining to keep all of the tax cuts — but it will cost $150 billion in further stimulus spending to buy them:

Republicans are demanding that Democrats extend Bush-era tax cuts at all income levels at least temporarily, not just those that primarily benefit the middle class. They are also pressing Democrats to approve a measure to keep the government funded through September, a move aimed at avoiding a fight with the White House over spending that could provoke a government shutdown.

In return, Obama is seeking Republican support for as much as $150 billion in new spending on the economy, including an additional 13 months of emergency jobless benefits and another year of his signature “Making Work Pay” tax cut for working families.

The latest round of jobless benefits expired Tuesday night, leaving 2 million people facing the holidays without income support. New U.S. Bureau of Labor Statistics figures out Friday showed the unemployment rate climbed two percentage points last month to 9.8 percent, dashing hopes that the economic recovery was picking up. Failure to renew the benefits could do widespread harm to jobless families and, according to a White House economic report released Thursday, destroy 600,000 jobs over the next year as those families curb spending.

Obama made that point Thursday in remarks to a gathering of newly elected governors at Blair House. “Our hope and expectation is that unemployment insurance – something that traditionally has had bipartisan support – is something that once again will be dealt with as part of a broader package,” he said.

Republicans have so far resisted, arguing that if jobless benefits are extended, the cost should be covered by cutting spending elsewhere.

That used to be called Pay-Go, at least when Democrats backed that notion.  They passed the Pay-Go rule in February and have spent the entire year ignoring and waiving it since.  The GOP doesn’t want to go on record backing yet another round of borrowing to pay for jobless benefits which have already been extended to two years.

The move to get a continuing resolution is intriguing, and somewhat counterintuitive.  If Democrats wind up punting on the FY2011 budget, they’ll lose control of spending immediately, which would give Republicans an opening to begin reductions now instead of over the summer.  On the other hand, CRs more or less freeze spending in place, which both parties have supported at least in concept.  It gives the GOP some breathing room to carefully peruse the budget and make plans to propose cuts and perhaps even eliminate some agencies during the spring and summer.  It also would remove the temptation by the White House to simply refuse to work with the GOP and have their first days and weeks in control of the House marred by a shutdown in hopes of pinning the blame on John Boehner.

Now that the political theater has concluded, perhaps a deal will be forthcoming that will at least give small business owners and investors a little more clarity on 2011 and 2012.