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House Republicans to Seek Spending Cuts in Budget Bill

Photographer: J. Scott Applewhite/AP Photo

Speaker of the House John Boehner, leaves a closed-door GOP caucus meeting at the Capitol in Washington, on Dec. 30, 2012. Close

Speaker of the House John Boehner, leaves a closed-door GOP caucus meeting at the... Read More

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Photographer: J. Scott Applewhite/AP Photo

Speaker of the House John Boehner, leaves a closed-door GOP caucus meeting at the Capitol in Washington, on Dec. 30, 2012.

U.S. House Republicans oppose the Senate’s budget bill and will seek to insert spending cuts, jeopardizing a bipartisan effort to undo $600 billion in automatic tax increases and spending cuts that take effect starting today.

The Democratic-controlled Senate won’t take up a House- amended bill, a Democratic leadership aide said on condition of anonymity. The Senate adjourned until noon tomorrow, and House Republicans were meeting privately today to decide how to proceed.

“I do not support” the Senate bill, House Majority Leader Eric Cantor of Virginia told reporters as he left a private meeting of House Republicans today in Washington.

“We’re all greatly disappointed with the Senate,” said Republican Jack Kingston of Georgia. “This appears to be really heavy on revenues and really light on cuts.”

The Senate’s 89-8 passage of its measure early today shifted the pressure to House Speaker John Boehner of Ohio. In his two years as speaker, Boehner has had to quell rebellions among fellow Republicans backed by the anti-tax Tea Party.

House amendments to the Senate bill would throw into doubt a deal worked out by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, a Kentucky Republican, with fewer than 48 hours until the current Congress expires. Lawmakers would have to begin again when the new session starts Jan. 3.

Income Tax Cuts

The Senate bill would make permanent the income tax cuts for most households that ended at midnight, continue expanded unemployment benefits, and delay automatic spending cuts for two months. It would let a 2 percent payroll tax cut expire.

House Republicans will try to craft spending cuts to add to the Senate bill for passage without a need for votes from the minority Democrats, Ohio Representative Steve LaTourette told reporters.

“I would be shocked if this bill didn’t go back to the Senate,” said Representative Spencer Bachus, an Alabama Republican. House Republicans “are all disappointed that there are no spending cuts,” he said.

Boehner spokesman Brendan Buck said in a statement after the party caucus that a lack of spending cuts “was a universal concern” among Republicans.

Representative Steve Womack, an Arkansas Republican and assistant vote-counter, said Boehner urged caution to party members.

‘Overplay Our Hand’

“The speaker indicated, ‘Guys we do not have a lot of time, let’s not overplay our hand,’” Womack said. He said, “There seemed to be some consensus as putting some real cuts” to finance a two-month delay in federal spending cuts.

LaTourette said the speaker told members that changes “can’t be just nutty.” Boehner cautioned that the House “can’t just invent a bunch of poison pills to make us look like morons,” he said.

The Senate bill isn’t the grand bargain on deficit reduction lawmakers wanted when they created the conjoined tax- and-spending deadlines over the past three years. Instead, if the agreement becomes law, it would avert most of the immediate pain and postpone Congress’ fiscal feud for two months -- until a February fight over raising the $16.4 trillion debt limit.

House Minority Leader Nancy Pelosi, a California Democrat, said the bill deserves “a straight up or down vote.” She told reporters that Democrats are continuing to review the measure.

Fiscal Cliff

If it’s brief, the dive off the so-called fiscal cliff, a term Federal Revenue Chairman Ben Bernanke used when he spoke to the House Financial Services Committee in February, would have relatively minimal effects. It would avoid the recession that a longer lapse would cause.

Still, the payroll tax cut expiration and higher taxes for top earners will probably slow the economy, reducing growth in the first quarter to 1 percent from 3.1 percent in 2012’s third quarter, according to economists at JPMorgan Chase & Co. (JPM)

“Underneath the fiscal drama is an improving economy,” said Ryan Sweet, a senior economist at Moody’s Analytics. “The fiscal drag will take some wind out of it but once there is more clarity, we can expect stronger growth.”

The budget deal would raise taxes on 77 percent of U.S. households, mostly because of the expiration of the payroll tax cut, said the nonpartisan Tax Policy Center in Washington.

Heaviest Burdens

The heaviest new burdens in 2013, compared with 2012, would fall on top earners who face higher rates on income, capital gains, dividends and estates. The top 1 percent of taxpayers, or those with incomes over $506,210, would pay an average of $73,633 more in taxes, the Tax Policy Center said.

Compared with continuing current policies, the agreement would increase taxes by $620 billion and cut spending by $15 billion, according to people familiar with the negotiations.

The Senate bill marked a rare bipartisan agreement for lawmakers who have been trying for more than two years to reach an accord on taxes and spending, hurtling from deadline to deadline. Even this least-common-denominator agreement required brinkmanship and came after weeks of partisan bickering.

In some sense, the real deadline is noon on Jan. 3, when the current Congress leaves office and the new Congress will be sworn in. If a plan isn’t enacted by then, the process would have to be restarted. The new Congress will have dozens of new members, including a stronger Democratic majority in the Senate and a smaller Republican majority in the House.

Tax Rates

The deal passed by the Senate would raise tax rates on income of individuals above $400,000 and married couples above $450,000. That’s double the individual threshold Obama campaigned on and 80 percent higher than his preferred level for married couples.

The top rates on capital gains and dividends would increase to 23.8 percent starting at the same income thresholds, including a 3.8 percent tax that starts today on top earners. Limits on personal exemptions and itemized deductions for top earners that had been phased out will return, for individuals starting at $250,000 and married couples starting at $300,000.

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Heidi Przybyla in Washington at hprzybyla@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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