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)

View the original article here

Analysis: Boehner has few options in fiscal cliff mess

U.S. House Speaker John Boehner (R-OH) speaks to the media on a ''fiscal cliff'' on Capitol Hill in Washington, December 20, 2012.

Credit: Reuters/Yuri Gripas

By Richard Cowan

WASHINGTON | Fri Dec 21, 2012 3:34am EST

WASHINGTON (Reuters) - Now that House Speaker John Boehner's "Plan B" for addressing the "fiscal cliff" has crashed and burned, the top U.S. Republican appears to have two remaining options - wash his hands of the entire matter or negotiate a compromise with Democrats that could abandon scores of his fellow Republicans.

The Republican rank and file and Democrats may face an equally stark choice: work together for a change, or plunge together off the cliff.

Boehner tried to ram a "fallback" plan through the House on Thursday - a relatively tiny tax increase on millionaires and billionaires - and failed. His rambunctious Republicans, who see opposition to all tax hikes as a matter of bedrock principle and of political survival, refused to go along.

President Barack Obama and his Democrats who control the Senate take the opposite view - tax hikes on the wealthy are a condition for their support of a fiscal cliff bill. If there is to be a resolution it will largely depend on an improbable scenario - Democrats in the House teaming up with less militant Republicans to back away from the fiscal cliff.

Compromise has been out of style in recent years, and many think it could require some prodding from the markets.

"At this point, I only see one route to avoiding the cliff, a replay of the TARP debacle in 2008," said George Washington University's Sarah Binder, an expert on Congress. In September 2008, the House defeated the bank bailout bill and the market collapsed, prompting a terrified lawmakers to reconsider and pass it.

"In this case, a harsh market and public reaction would be needed to force the hand of the speaker to negotiate a deal that can pass with Democratic votes," she said.

"If the GOP takes a beating in the headlines and the market tanks, I suspect a good number of rank-and-file GOP will demand that the speaker go back to the table. But absent whiplash from the markets and voters, I suspect it's over the cliff we go."

For the time being - or at least the 11 days until the automatic tax hikes and spending cuts are triggered - the House is in disarray and no deal to avert the fiscal cliff is in sight.

While the House in recess for a Christmas break that is likely to last at least until December 27, Boehner must decide whether to move any further in Obama's direction and agree to tax increases much higher than his own proposal that so angered his fellow Republicans on Thursday.

The Ohio Republican also might have to settle for fewer long-term spending cuts than he had hoped for.

WALK ON BY

Boehner's only other apparent option - one that he hinted at late on Thursday following the collapse of his bill - would be to walk away and leave the problem on Democrats' doorstep.

"Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff," Boehner said in a statement referring to Senate Majority Leader Harry Reid.

But in a closed-door session before that statement, Republican lawmakers said Boehner told them that he would at least try to work out something with Obama.

Either way, Boehner faces the possibility of having to battle not only Democrats for the next two years, but also his own membership on major bills.

"We have people (Republican lawmakers) who felt like they had to stand on the principle ... they couldn't vote for anything (that raised any taxes). I don't quite understand it," lamented Representative Buck McKeon, the powerful chairman of the House Armed Services Committee, who oversaw passage of a $633 billion defense spending bill for 2013.

"If you don't have the votes, you can't move forward," McKeon said of the Plan B fiscal cliff bill.

Representative Steven LaTourette, a moderate Republican who is retiring at year's end, told reporters that Thursday's legislative defeat - and public relations failure - will not stop Boehner from being re-elected House Speaker on January 3. "Name one member who opposes him," LaTourette challenged reporters.

Firing Boehner, LaTourette said, would be "like saying the superintendent of the insane asylum should be discharged because he couldn't control the crazy people."

Nonetheless, two years into his stint as Speaker, Boehner still has not found the right formula for corralling his Republican majority, especially the Tea Party conservatives whose victories in 2010 helped Republicans wrest control of the House. However, he has taken steps in recent weeks to punish a handful of uncooperative Republicans.

Since unveiling his plan on Tuesday, several conservative groups, including the Heritage Foundation, waged a spirited effort to kill the measure.

Those groups, LaTourette said, had been "making their phone calls, and they're bombing people" with pressure to vote against the bill. That, he added, "makes people nervous" about primary election challengers being recruited in 2014 by outside groups to defeat Republican lawmakers who vote for any tax increase.

"I doubt his speakership is in trouble," said American Enterprise Institute scholar Norm Ornstein, "The big question is whether, and when, he is willing to bring up a bill that will require more Democrats than Republicans to pass."

(Reporting By Richard Cowan. Editing by Fred Barbash)

View the original article here