House Speaker John A. Boehner (R-Ohio) veered off the bipartisan course he had been charting toward a broad tax-and-entitlement deal with President Obama and instead Tuesday pushed a GOP package to extend tax cuts for income up to $1 million.
The move shook the Capitol after several days of significant progress between Obama and Boehner, who had moved closer to a pact raising taxes on the wealthy and curbing government spending, including on Social Security.
Boehner and his aides stressed that he was not giving up on talks with Obama over a broader deal. But the speaker said that the White House had failed to make an acceptable offer and that, as a result, he needed to move ahead with a more limited “Plan B.” He said that time is running out before the end of the year, when more than $500 billion in tax hikes and spending cuts are set to take effect, and that he had to proceed with his fallback plan to ensure that most Americans do not see their taxes rise.
It was unclear Tuesday whether Boehner was in large part using the plan to extract more concessions from Obama and perhaps to secure more support from House Republicans later for a big deal with the White House.
Obama’s deputies rejected Boehner’s unilateral move as unacceptable but said they continued to have hope that a broader, bipartisan agreement could be reached.
The speaker laid out his fallback plan just as rank-and-file lawmakers in the House and the Senate were beginning to digest the latest proposals to emerge from the negotiations between Obama and Boehner. The president dispatched his top congressional negotiator, Rob Nabors, on Tuesday to quell uprisings among House and Senate liberals upset that the White House had made a key concession by agreeing to apply a less generous calculation of inflation for federal programs, including Social Security.
Conservatives, meanwhile, voiced skepticism about Boehner’s Plan B, saying it would violate their principle of opposing any tax increases while failing to spare the Pentagon from deep budget cuts starting next year.
At an evening meeting with House Republicans, Boehner made an urgent pitch for his new plan, saying it would lock in tax cuts permanently for more than 99 percent of taxpayers, even if millionaires’ tax rates increased. He said his approach would buy time so he could reach a final deal with Obama early next year to address the remaining portions of the “fiscal cliff,” which includes automatic cuts in government spending and tax hikes.
“I believe it’s important that we protect as many American taxpayers as we can. And our Plan B would protect American taxpayers who make a million dollars or less and have all of their current rates extended,” Boehner told reporters after one of two closed-door meetings of the GOP caucus Tuesday. Republican leaders were planning a Thursday vote in the House.
Plan B legislation was still being drafted Tuesday, but leadership aides were arguing to rank-and-file Republicans that they should view the proposal as akin to voting for a tax cut. Rather than allowing rates to spike for almost everyone, this proposal keeps more than $4 trillion over the next decade in taxpayers’ pockets — increasing record budget deficits by the same amount. In addition to permanently extending the George W. Bush-era tax cuts for households making less than $1 million, it would permanently rein in the alternative minimum tax and maintain the tax on inherited estates worth more than $5 million at 35 percent.
Millionaires, however, would not be subject to the full panoply of tax increases set to hit in January if all the Bush-era tax cuts were allowed to expire. The bill would permit the top income tax rate to rise from 35 percent to 39.6 percent on income over $1 million and restore limits on exemptions and itemized deductions. But the tax on dividends would be held to 20 percent rather than rising to 39.6 percent, as under current law.
Senate Majority Leader Harry M. Reid (D-Nev.) called Plan B an example of how conservatives are “pulling the strings in the Republican caucus.” Reid vowed that the measure would not pass the Senate, because it falls well short of Obama’s latest offer to extend tax breaks for income up to $400,000 while increasing rates on higher income from 35 percent to 39.6 percent.
White House officials, meanwhile, were less critical of Boehner’s strategy and suggested that the negotiations could ultimately bear fruit.
“There is a historic opportunity here to do something that has been set as a goal for a long time in Washington, which is reach a bipartisan compromise on significant deficit reduction on the order of $4 trillion when you take all the pieces of it and put them together,” said White House press secretary Jay Carney.
Senior Republican advisers said the shift to Plan B is a means to jump-start talks that, in Boehner’s view, had hit an impasse. Boehner has offered concessions on tax rates and reduced his overall demand on spending cuts. But the speaker remains committed, senior Republican aides said, to a deal that includes parity between tax hikes and spending cuts.
Boehner has proposed $1 trillion in tax hikes for $1 trillion in spending cuts over the next decade. While Obama’s latest offer, made earlier this week, also makes significant concessions on taxes and spending, it is still tilted toward tax increases, pairing $1.3 trillion in tax hikes with about $930 billion in spending cuts.
White House accounting shows a larger savings target — just over $1.2 trillion. But that includes $290 billion in interest payments that would never have to be made, because the national debt would be smaller under the proposal. House Republicans argue that interest savings are a byproduct of other policies and therefore should not be counted toward the deal.
Some Republicans see Plan B — in addition to spurring the White House to give more ground — as a necessary fallback. They doubt the gap between Obama and Boehner can be bridged before the end of the year. If talks were to collapse, the House would have acted to avert the worst effects of the fiscal cliff, putting the responsibility on the Democratic-controlled Senate for whatever happens next.
The Senate in July approved legislation extending the Bush tax cuts for taxpayers earning less than $1 million a year, with 53 Democrats for the proposal. But after an election in which Obama campaigned on letting rates rise for a much broader swath of taxpayers, Reid and other Democratic leaders say they are now adamantly opposed to the move.
Some Republicans said this proposal would also drive home the point to conservatives that Obama has the upper hand in demanding higher tax rates on the wealthy and that the ultimate goal should be reaching a deal with him that also includes entitlement changes and other spending cuts.
“We only have two choices: Successful deal with the White House, which is preferable. Or, come up with a bill that we can send to the White House that will spare as many people as possible,” said Rep. Steven C. LaTourette (R-Ohio).
Rep. John Fleming (R-La.), a staunch conservative opposed to the measure, predicted that the plan is likely to pass. “With enough arm-twisting, he can force this through,” Fleming said.
Rosalind S. Helderman and Ed O’Keefe contributed to this report.
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