(Bloomberg News) Democrats delayed a congressional vote on extending Bush-era tax cuts until after the Nov. 2 elections, setting up a showdown with Republicans as the reductions near expiration at year's end.

The two parties are locked in a dispute over who should be covered by a tax-cut extension. Democrats want to continue the lower rates for individual income up to $200,000 and up to $250,000 for couples filing jointly, which accounts for about 97% of taxpayers, according to Internal Revenue Service data.

Republicans want to keep the cuts for those in the higher income brackets as well, saying that would help sustain a U.S. economy still struggling to grow after the longest recession since the end of World War II.

"The reality is we're not going to pass" the tax cuts before the election, Illinois Senator Richard Durbin, the chamber's No. 2 Democrat, said yesterday. Blaming politics, he said, "We are so tightly wound up in this campaign" that Democrats and Republicans won't be able to reach an agreement.

All of the tax cuts enacted in 2001 and 2003 during President George W. Bush's administration, including lower rates on wages and investments for all Americans, are scheduled to expire Dec. 31. Goldman Sachs Group Inc. said in a research note released Sept. 22 that even a temporary failure by Congress to extend the cuts may erase U.S. economic growth in the first half of next year.

Polls have shown Republicans poised to make significant House and Senate gains in this year's election.

'Wavering' Democrats

"I suspect the Democratic leadership thinks that wavering members will feel freer" after the election to support legislation that allowed the tax cuts to lapse for higher income brackets, said Henry Aaron, a senior fellow at the Brookings Institution in Washington who studies congressional tax, health, and economic policy. "The risk in that strategy is that the Democrats will emerge from the election shell-shocked and running for the hills."

Senate Democrats said they hit an impasse on whether to hold a vote before the election during a meeting yesterday.

"There's a divided caucus on the issue," said Connecticut Senator Christopher Dodd, who is retiring. Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said, "It's clear there aren't 60 votes for any proposal, so no proposal is going to pass at this point."

Sixty votes would be needed for a tax-cut extension to advance in the Senate. Durbin and Conrad spoke to reporters as they emerged from a closed-door meeting of Senate Democrats on the issue. "No bill was presented" on the tax cuts, said Senator Byron Dorgan, a North Dakota Democrat.

Holding 'Hostage'