Sahil Kapur January 18, 2012, 6:23 PM

For Democrats, the new year has brought a new, tougher negotiating posture — buoyed by their payroll tax cut victory last month, tired of the politics of kowtowing to Republican demands and eager to draw a clear contrast between the values of the two parties.

Instead of starting off by compromising to narrow the divide with Republicans on how to fund the payroll tax package beyond February, Democratic leaders are beginning 2012 by staking out a firm stance on their left flank: fund a full-year extension of the tax cut, unemployment benefits and Medicare “doc fix” with a millionaire surtax and war savings — two offsets they know won’t go over well with Republicans.

“Let’s have a tax cut for the middle class paid for by a surtax on the wealthiest people in our country, those making over $1 million a year. That can also cover the unemployment insurance cost,” House Minority Leader Nancy Pelosi (D-CA) told reporters Wednesday. “As far as the SGR — the ability of seniors to see their doctor under Medicare — we think this can be paid for by OCO, the war savings funds, also known as the Overseas Contingency Operation fund.”

“The fact is the surcharge is the simplest, easiest way to pay for this. If the Republicans have some other suggestions, let them put them forward,” she added. “But Democrats are not going to give with one hand to the middle class, and take away with the other, and that’s what the Republicans want to do… We’ll continue to make that argument.”

Pelosi wasn’t the only top Democrat making that case. Assistant Minority Leader Jim Clyburn (D-SC) told TPM that “a surtax on millionaires or the Overseas Contingency Fund” would “absolutely” be the best way to pay for for the extenders.

Rep. Henry Waxman (D-CA), the ranking Dem on the influential Energy & Commerce Committee and a lead negotiator on the extenders package, said Republicans will have to step outside their comfort zone unless they want to be blamed for ending the tax cut, which affects roughly 160 million working families.

“I’m not going to support something to pay for that by cutting Medicare or cutting the middle class,” Waxman told TPM. “We can reach an agreement on these things, but the Republicans are going to have to move.”

The idea of raising taxes in any way on top earners is anathema to Republicans — something that violates their core values, which they argue would be disastrous for the economy, and which they’re all but guaranteed to reject.

But the new hardball tactics reflect a novel approach for Democrats in the 112th Congress, one in which they’re willing to stake out firm progressive ground as opposed to immediately searching for consensus. Part of the goal, Dem sources say, is to clearly communicate that Democrats are working for the middle class.

Pelosi also pushed back on the House GOP opposition to using war savings as pay-fors.

“It isn’t a gimmick. It’s what the Republicans used in the [Paul] Ryan budget — they used the OCO money for that,” she said. “This is something that even Republicans, some in the Senate, have been inclined to spend some OCO — some war savings — to do, for a partial fix. We’re saying we can do it all right now.”

Pelosi made an impassioned case for eliminating the Sustainable Growth Rate (SGR) formula, which is riddled with steep, triggered cuts to Medicare physician reimbursements that nobody wants to see happen. She said the best thing Congress can do for America’s seniors is to take SGR “off the table, forever.”

The three provisions are set to expire on March 1, and both parties want to extend them.

Nancy Pelosi, Payroll Tax Cut