Republicans Balk at Tax Increases; U.S. Edges Closer to Cliff

Boehner cancels 'Plan B' due to House opposition.

House Speaker John Boehner said some members of the Republican caucus refused to back his tax measure because they didn’t want to be accused of raising taxes.

Boehner spoke to reporters in Washington a day after he scrapped a plan to allow higher tax rates on annual income above $1 million, throwing already-stalled budget talks into turmoil.

It was “not the outcome I wanted, but it was the will of the House,” Boehner said. “They were dealing with the perception that someone might accuse them of raising taxes.”

Until Dec. 17, President Barack 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. That will give them less than a week to reach agreement to avert more than $600 billion in tax increases and spending cuts set to take effect in January.

The speaker said he pushed his alternative tax plan in the House to “basically jump start and try to kick into gear some action by the Senate to avert these tax increases going into effect Jan. 1.”

Boehner said he and Obama had traded “bottom line” offers on spending cuts and taxes. He urged the Senate to take up legislation the House passed Aug. 1 that would extend the current rates on all taxpayers.

“If the Senate wants to act on that bill we’ll certainly take a look at it,” Boehner said.

The Senate voted last year to continue the 2001 and 2003 tax cuts for household income up to $250,000 a year, as Obama has sought. In his most recent tax proposal, Obama said he would be willing to extend tax cuts for households earning as much as $400,000 a year.

Until Boehner made his $1 million threshold offer last week, Republicans had opposed tax rate increases for any income level.

If Congress doesn’t act, the policy changes starting in January include higher income tax rates at all income levels, the end of a 2 percentage point cut in the payroll tax, higher tax rates on capital gains, estates and dividends, and automatic spending cuts, about half in defense programs.

“It looks like to me that obviously this is going to drag on into next year, which is going to hurt our economy,” Republican Senator Bob Corker of Tennessee said in an interview for Bloomberg Television’s “Capitol Gains” program. “So this will just drag on and on. And it really is about just political courage.”

Still, Chad Stone, chief economist at the Center on Budget and Policy Priorities in Washington, said this month that instead of “fiscal cliff,” he prefers the term “fiscal slope” to describe how the effects would accumulate gradually rather than suddenly during 2013. The components also can be reversed if a deal is reached early in 2013, he said.

The speaker said a tax overhaul would help get the economy moving, though he added, “How we get there, God only knows.”

Stocks sank. The Standard & Poor’s 500 Index retreated 1 percent to 1,429.50 at 9:44 a.m. in New York. All 10 groups in the U.S. equity benchmark fell. The Dow Jones Industrial Average slid 133.6 points, or 1 percent, to 13,178.11 today. Treasuries climbed, as the U.S. 10-year yield dropped six basis points, or 0.06 percentage point, to 1.74 percent at 10:12 a.m. New York time.

Treasury Employees

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 of Boehner’s proposal cast doubt on his 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 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.”

That view was underscored by the results of an ABC/Washington Post poll released this morning. In it, 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 the 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.” Senate Majority Leader Harry Reid, a Nevada Democrat, 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.”

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.”

Bloomberg News

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