Boehner Drops ‘Plan B’ as Budget Effort Turns to Disarray

U.S. Budget Talks Dragging Into Final Week of Year or Beyond
House Speaker John Boehner takes a question during a news conference in Washington. Boehner and Jay Carney, the White House spokesman, both left open the possibility that high-level budget talks could resume and that a broader agreement is possible. Photographer: Andrew Harrer/Bloomberg

House Speaker John Boehner scrapped a plan to allow higher tax rates on annual income above $1 million, yielding to anti-tax resistance within his own party and throwing already-stalled budget talks deeper into turmoil.

He will hold a news conference today at 10 a.m. Washington time, his office said in a statement.

Boehner said last night that President Barack Obama and Senate Majority Leader Harry Reid should come up with legislation to avoid more than $600 billion in tax-and-spending changes that would probably cause a recession in the first half of 2013 if left in place. Until Dec. 17, Obama and Boehner had been edging closer to a deal that would have included $1 trillion each in tax increases and spending cuts.

Now that Boehner has pulled his plan, House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach agreement to avert tax increases and spending cuts set to take effect in January. The partisan divide hardened yesterday, making the path to a deal more uncertain.

“The odds go up that we go over the fiscal cliff,” said Representative Rob Bishop of Utah, a Republican.

Stocks sank. The Standard & Poor’s 500 Index retreated 1.1 percent to 1,428.85 at 9:33 a.m. in New York. The Dow Jones Industrial Average slid 62.51 points, or 0.5 percent, to 13,249.21. Treasuries rose, as the U.S. 10-year yield dropped five basis points, or 0.05 percentage point, to 1.75 percent at 8:44 a.m. New York time. It slid the most since Nov. 7.

Boehner’s Future

In a message to Treasury Department employees, Deputy Secretary Neal Wolin said day-to-day operations wouldn’t change dramatically in January if the automatic cuts take effect. Furloughs may be possible later if the issue is unresolved for an extended period of time, he wrote.

The failure cast doubt on Boehner’s ability to navigate the competing political and legislative forces bearing down on him. To get a tax-and-spending deal, Boehner must gain enough support from Republicans to keep control of his party while relying on Democrats for the votes needed to send any measure to President Barack Obama.

“It weakens the entire Republican party, the Republican majority,” said Representative Steven LaTourette, a nine-term Ohio Republican who is retiring after this session. “If you’re not a governing majority, you’re not going to be a majority very long.”

ABC/Post Poll

That view was underscored by the results of an ABC/Washington Post poll released this morning, in which 53 percent of Americans said the Republican Party needs less conservative policies that are more focused on middle-income and lower-income Americans, while 38 percent said the party needs better leaders to sell its policies. The telephone poll of 1,002 adults, conducted Dec. 13-16, has a margin of error of plus or minus 3.5 percentage points.

Obama wants Boehner, 63, to allow a House vote on a Senate-passed bill that would extend tax cuts on income up to $250,000. That bill doesn’t address several parts of the so-called fiscal cliff, including the payroll tax, unemployment insurance, estate tax, spending cuts, expanded unemployment insurance and miscellaneous tax breaks.

A House leadership announcement said the chamber will hold no more votes until after the Christmas holiday and will return “when needed.” Reid said yesterday that the Senate won’t address the end-of-year budget issues until Dec. 27.

“The president’s main priority is to ensure that taxes don’t go up on 98 percent of Americans and 97 percent of small businesses in just a few short days,” White House spokesman Jay Carney said in an e-mailed statement. “We are hopeful that we will be able to find a bipartisan solution quickly.”

‘Tough Votes’

The failure of what Boehner called Plan B demonstrated the clout of anti-tax Republicans and made it less clear what budget legislation Congress could pass. The White House had said it would veto the tax bill and Reid said it would be dead on arrival in the Senate.

“I’ve seen lots of tough votes before,” said Representative Jack Kingston, a Georgia Republican. “And it’s a birthing process if you will, with lots of labor pains.”

Many Republicans, including Mick Mulvaney of South Carolina, John Fleming of Louisiana and Tim Huelskamp of Kansas, said they opposed the bill because it included tax increases.

“We just couldn’t get enough consensus,” Fleming said. “Raising taxes on any American, to me, is not the right message.”

Bigger Problems

The vote’s cancellation “didn’t solve the problem but it avoids creating bigger problems, Republicans caving on core principles,” Huelskamp told reporters.

Republican leaders spent the day trying to build support for their legislation, using votes on unrelated bills to bring members to the floor and asking Republican senators to call House members.

Just after 7 p.m. in Washington, instead of starting debate on the bill, leaders began a recess. Boehner conferred with his leadership and then called a 7:45 p.m. meeting.

That session lasted fewer than 15 minutes as Boehner told colleagues he didn’t have enough votes to bring the bill to the floor. Republicans have 241 members of the 435-member House.

Boehner started the meeting with a prayer for serenity and told Republicans he didn’t have the votes and was sending them home for Christmas, LaTourette said.

Hill to Climb

“It was just too big a hill to climb,” said Texas Republican Joe Barton.

Democrats said they saw the failed attempt as proof that Boehner can’t control his own members.

“Speaker Boehner’s partisan approach wasted an entire week and pushed middle-class families closer to the edge,” Adam Jentleson, a spokesman for Reid, said in a statement. “The only way to avoid the cliff altogether is for Speaker Boehner to return to negotiations, and work with President Obama and the Senate to forge a bipartisan deal.”

Representative Chris Van Hollen, a Maryland Democrat, said on Bloomberg Television that the House should vote on Obama’s proposal to allow higher tax rates for households earning $250,000 or more, even if it undermines Boehner’s support among Republicans.

“That’s the risk he takes,” Van Hollen said. “I would hope he would put the country before Republican caucus politics.”

Economic Effects

Fewer than two weeks remain to avert the tax-and-spending changes, though many of the economic effects could be reversed with an agreement in early 2013.

If Congress doesn’t act, tax rates for income at all levels would rise next month, along with taxes on estates, capital gains and dividends. More than $100 billion of spending cuts would go into effect, half in defense programs.

Earlier yesterday, Republicans barely got enough votes to pass a spending-cut measure they brought up in a bid to gain support for Boehner’s Plan B among lawmakers wary of increasing tax rates without also reducing federal program costs.

That bill passed 215-209 with one member voting present. It would eliminate most of the automatic cuts scheduled for 2013 and replace them with $314.5 billion worth of other cuts to food stamps, federal workers’ benefits and other programs.

Republicans have held a firm anti-tax stance for 22 years.

Republicans tried to sell Boehner’s bill to their members as the best deal they could hope for with Obama in office.

99 Percent

Before the bill was pulled from the floor, Oklahoma Representative Tom Cole, a member of the leadership whip team, said it offered “a chance to make 85 percent or 90 percent of the Bush tax cuts permanent for 99 percent of the American people.”

They had scheduled the vote over the objections of anti-tax groups such as the Club for Growth and the Heritage Foundation.

Under Boehner’s bill, on incomes above $1 million, the tax rate on ordinary income would go to 39.6 percent from 35 percent, and the top rate on capital gains and dividends would go to 23.8 percent from 15 percent, including a 3.8 percent tax from the 2010 health care law that starts in January.

Some lawmakers expressed uncertainty about the path ahead, even before Boehner’s decision. “Don’t make me lie to you,” said Representative Charles Rangel, a New York Democrat first elected to Congress in 1970. “I have no idea what the hell is happening.”

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