Boehner abandons fiscal cliff plan as Republicans balk

1 of 4. House Speaker John Boehner makes a brief statement to the media at the Capitol in Washington December 19, 2012.

Credit: Reuters/Gary Cameron

By Rachelle Younglai and Thomas Ferraro

WASHINGTON | Thu Dec 20, 2012 10:28pm EST

WASHINGTON (Reuters) - Republican lawmakers delivered a stinging rebuke to their leader, House of Representatives Speaker John Boehner, on Thursday when they failed to back an effort designed to extract concessions from President Barack Obama in year-end "fiscal cliff" talks.

The dramatic twist threw into disarray attempts to head off $600 billion worth of indiscriminate tax hikes and spending cuts that could push the U.S. economy into recession next year.

It also cast doubt over Boehner's future as speaker after failing to control unruly conservatives in his caucus.

With only 11 days left for bickering politicians to prevent automatic tax hikes and spending cuts, U.S. stock futures fell sharply on the news of the rebuke to Boehner.

The Ohio congressman had hoped to demonstrate Republican unity by passing a bill through the House, known as "Plan B," that would limit income-tax increases to the wealthiest sliver of the population - those earning $1 million and more, a far smaller slice of taxpayers than Obama wants to pay higher taxes.

But Boehner canceled the vote after failing to round up enough support from his party because many conservative Republicans are opposed to tax hikes on even the richest wage-earning Americans.

"The House did not take up the tax measure today because it did not have sufficient support from our members to pass," Boehner said in a statement after huddling with other Republican leaders.

The White House pledged to work with Congress to reach a deal as quickly as possible.

"We are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy," White House spokesman Jay Carney said in a statement.

The bill, had it passed, would have put Republicans on record as supporting a tax increase on those who earn more than $1 million per year, breaking with decades of orthodoxy. It won the blessing of influential anti-tax activist Grover Norquist, but other conservative groups fiercely opposed it and many rank-and-file members said they would not support it.

Obama wants to raise taxes on families earning more than $400,000, a much lower threshold.

RECESSION THREAT

Obama and Boehner aim to reach a deal before the New Year, when taxes will automatically rise for nearly all Americans and the government will have to scale back spending on domestic and military programs. Economists say the combined $600 billion hit to the economy could push the U.S. economy into recession.

Boehner said Obama now must first pass a bill through the Democratic-controlled Senate before he holds another vote in the House.

Democrats said Boehner should first hammer out a deal with Obama. "The only way to avoid the cliff altogether is for Speaker Boehner to return to negotiations," said Adam Jentleson, a spokesman for Senate Democratic Leader Harry Reid.

With Republicans in chaos, Boehner will almost certainly need support from House Democrats to pass a deal before the end of the year. But he will have to keep an eye on his right flank before he stands for re-election as the top House lawmaker on January 3.

Alternatively, Boehner could wait until the new year to hold a vote. At that point, tax cuts passed in 2001 and 2003 will have expired for all Americans, and it presumably would be easier to pass a bill that would restore tax cuts for most.

Opinion polls show that more Americans would blame Republicans rather than Obama if they don't reach a deal before then.

So far, negotiations appear to be following the dysfunctional pattern set by the 2011 battle over the debt ceiling: fitful progress alternating with public posturing. Boehner also struggled during that showdown to corral the most conservative members of his own party.

Washington narrowly avoided defaulting on the U.S. government's debt in August 2011, but the down-to-the-wire nature of the effort prompted a first-ever debt rating downgrade and spooked investors and consumers.

This time around, concern over the fiscal cliff has weighed on markets but analysts say that investors appear to be assuming that the two sides will avert disaster.

"The markets are likely to interpret this as signaling even tougher negotiations in coming days," Mohamed El-Erian, chief executive of bond giant PIMCO, told Reuters.

S&P 500 stock futures fell 1.6 percent while Dow Jones stock futures and Nasdaq futures both lost 1.5 percent. At one point S&P 500 e-mini futures were down as much as 3.6 percent.

Lawmakers had hoped to wrap up work before the year-end Christmas break, but leaders in both the House and the Senate have indicated that they may call members back to work next week.

"The brinkmanship will continue," said a senior Republican aide. "This isn't the end of the story. More drama to come."

(Additional reporting by Thomas Ferraro, Mark Felsenthal, Richard Cowan, Jennifer Ablan, Dominic Lau and Kim Dixon; Writing by Andy Sullivan; Editing by Philip Barbara)

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Republicans put squeeze on Obama in "fiscal cliff" talks

1 of 3. U.S. House Speaker John Boehner (R-OH) speaks at a news conference after a Republican caucus meeting on Capitol Hill in Washington on December 18, 2012.

Credit: Reuters/Joshua Roberts

By Thomas Ferraro and Richard Cowan

WASHINGTON | Wed Dec 19, 2012 1:34am EST

WASHINGTON (Reuters) - Frustrated by their inability to wring more "fiscal cliff" concessions out of President Barack Obama, Republicans in the U.S. House of Representatives announced Tuesday night that they expect to pass their own tax bill as a backup plan to avert the tax hikes and automatic budget cuts set to occur in January.

No one expects the bill, which would extend low tax rates except on income of $1 million and above, to pass the Democratic-controlled Senate. President Barack Obama's latest position puts the threshold for income tax hikes at $400,000.

While the move, called "Plan B" by Republicans, may not prompt Obama to give further ground in his negotiations with House Speaker John Boehner, it could allow Republicans to argue they did what they could to stop tax hikes and the full impact of the "fiscal cliff," which the Congressional Budget Office and economists have said could trigger another recession.

"Why not put on the floor something that's what most Americans think the president is talking about, which is protecting from tax increases everybody but truly millionaires and billionaires?," said Republican Representative Pat Tiberi of Ohio.

When it dies in the Senate, he said, "that's not our problem. We can't be held responsible for what the Senate does."

Polls have consistently suggested that the public is likely to blame Republicans for failure to reach a deal ahead of the December 31 deadline for action.

After important concessions in recent days from both Obama and Boehner, Republicans expressed frustration that the president had not moved further.

The White House seemed unconcerned by the Republican tactic, and stressed Obama's willingness to compromise further.

"The president has demonstrated an obvious willingness to compromise and move more than halfway toward the Republicans," White House spokesman Jay Carney told reporters, adding that Obama is making a "good faith" effort to reach a compromise.

Still, the mood on Capitol Hill was guardedly optimistic.

Global stocks advanced to their highest levels since September. Investors shifted funds to stocks and the euro and pulled away from safe-harbor assets such as bonds, gold and the U.S. dollar.

"They've still got a long way to go, but you can't help but say that the odds are better today than they were on Friday that we'll get some sort of agreement," said Oklahoma Republican Representative Tom Cole.

Hopes of an accord rose Monday night after Obama made a concession with his offer to limit tax increases to incomes exceeding $400,000 per household. That is a higher threshold than the $250,000 that the president had sought earlier.

Boehner, the top Republican in Congress, had earlier conceded on Obama's insistence that tax rates rise on the wealthiest Americans, but the two have been unable to agree on what income levels should be included in that category.

Analysts said Obama and Boehner may strike a compromise at $500,000 or close to that, though time was running short.

One House Republican aide, asked about prospects for "Plan B" on the House floor, said: "It wouldn't be surprising ... if a lot of conservatives balk at something like that." The House's second ranking Republican, Eric Cantor, said he was confident his party members in the House would back the bill.

'WE CAN DO BETTER'

Even as he presented the measure, Boehner said he would continue to negotiate with Obama on a broader agreement.

"Plan B is Plan B for a reason. It's a less-than-ideal outcome. I've always believed we can do better," Boehner said.

The expiration of low tax rates enacted under former President George W. Bush is a key component of the "fiscal cliff" that lawmakers are trying to prevent from taking hold next month, along with deep automatic government spending cuts.

Often challenged by the conservative wing of his caucus, Boehner held Republican lawmakers together in support of his efforts to forge a deal with Obama. The speaker emerged largely unscathed from a potentially tough meeting with his fellow House Republicans on Tuesday morning.

Representative Darrell Issa, a key committee chairman, said his fellow House Republicans "were supportive of the speaker. ... I saw no one there get up and say, 'I can't support the speaker.'"

With opinion polls showing broad support in the United States for raising taxes on the wealthiest Americans and Obama still buoyed by his re-election last month, the Republicans' traditional opposition to tax hikes has waned somewhat.

The Obama-Boehner talks have largely overcome stark ideological differences and are focused increasingly on narrower disagreements over numbers.

COST-OF-LIVING INCREASES

Obama also may face unrest from within his party. Liberal Democrats were likely to oppose a key compromise he has offered to permit shrinking cost-of-living increases for all but the most vulnerable beneficiaries of the Social Security retirement program. His proposal calls for using a different formula, known as "chained Consumer Price Index," to determine the regular cost-of-living increases, essentially reducing benefits.

"I am committed to standing against any benefit cuts to programs Americans rely on, and tying Social Security benefits to chained CPI is a benefit cut," Democratic Representative Keith Ellison said in a statement.

Obama also moved closer to Boehner on the proportion of a 10-year deficit reduction package that should come from increased revenue, as opposed to cuts in government spending. Obama is now willing to accept a revenue figure of $1.2 trillion, down from his previous $1.4 trillion proposal.

Boehner's latest proposal calls for $1 trillion in new tax revenue from higher tax rates and the curbing of some tax deductions taken by high-income Americans.

Missing from Obama's latest offer was any extension of the so-called "payroll tax holiday" that ends on January 1, bringing an immediate tax increase on wage earners.

Possible plans to produce cuts in spending for Medicare and Medicaid, the government health insurance programs for seniors and low-income Americans respectively, remained to be discussed.

Boehner and Obama have made headway on the politically explosive question of the president's ability to avoid constant battles over raising the nation's debt ceiling, which controls the level of borrowing by the government. Boehner is ready to give Obama a year of relative immunity from conservative strife over the debt ceiling, while Obama is pushing for two years.

(Additional reporting by Thomas Ferraro, Rachelle Younglai, David Lawder, Richard Cowan, Matt Spetalnick, Roberta Rampton, Jeff Mason and Fred Barbash; Writing by Kevin Drawbaugh; Editing by Alistair Bell, Will Dunham and Paul Simao)

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House Republicans to vote on "fiscal cliff" bill Thursday: Cantor

House Majority Leader Rep. Eric Cantor (R-VA) speaks at a news conference after a Republican caucus meeting on Capitol Hill in Washington on December 18, 2012. U.S. House of Representatives Speaker John Boehner emerged from a meeting with fellow Republicans on Tuesday morning pledging to press forward on talks to avert the ''fiscal cliff,'' as hope of a deal rose.

Credit: Reuters/Joshua Roberts

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