House GOP leaders scrambled to rally their members Wednesday behind a plan to extend tax cuts on income up to $1 million, defying President Obama’s veto threat and setting up a showdown that could send Washington over the year-end “fiscal cliff.” Speaker John A. Boehner (R-Ohio) paced the House aisles as he shook hands, patted shoulders and buttonholed his fellow Republicans in search of support for his plan. The proposal would extend tax rates for the overwhelming majority of workers while deferring action on other austerity measures, such as automatic cuts in domestic and military spending, slated to hit next month.
A House vote on the plan, scheduled for Thursday, poses a major political test for Boehner’s leadership team, which is pitching it as a vote of confidence and a way for Republicans to extract more concessions from Obama in negotiations over government spending and taxes.
After progress over the weekend toward agreement on a broad package of measures to address the federal deficit, Obama on Wednesday blasted Boehner’s decision to temporarily halt negotiations and instead push the alternative plan.
“Take the deal,” Obama said at a midday news conference, suggesting that the main obstacle to an agreement is GOP antipathy for the president himself. “They keep finding ways to say ‘no’ rather than to say ‘yes.’ ”
Before the talks were suspended, the two sides had closed the gap dividing them, but significant differences remained. Obama, for instance, is demanding that tax rates increase on income over $400,000, while Boehner insists that tax hikes be limited to income above $1 million.
In a public statement that lasted less than a minute, Boehner repeated his charge that Obama’s last offer was not “balanced” — because, according to estimates, it raises more than $1.3 trillion in new tax revenue while cutting spending by only $930 billion. Boehner vowed that his plan, extending tax cuts for all but millionaires, would pass the House.
“Then, the president will have a decision to make,” Boehner said. “He can call on Senate Democrats to pass that bill, or he can be responsible for the largest tax increase in history.” If the legislation wins approval, the speaker said he would resume talks with Obama on a broad plan to tame the federal debt.
In a meeting with business leaders at the White House, senior administration officials warned that Boehner’s “Plan B”, as he calls it, could ultimately lead the nation over the fiscal cliff.
Senate Majority Leader Harry M. Reid (D-Nev.) has promised to block the plan if it passes the House, and Obama vowed on Wednesday to veto the legislation if it reaches his desk.
Nor is it certain that Boehner’s proposal can pass his own House. If it fails there, congressional leaders fear it would leave Boehner politically debilitated and possibly unable to rally Republican support for a subsequent bipartisan deal with Obama, perhaps in January.
Democrats are not expected to lend Boehner a single vote, at least not until he shows he can deliver a majority from within his own ranks. Boehner is able to lose up to two dozen Republicans and still pass the measure strictly with GOP votes. But he had already seen more than 10 House conservatives defect by Wednesday evening over their opposition to tax increases. Boehner tried to mollify Republicans concerned that his plan would not avert military cuts by planning a second vote on legislation to shield the Pentagon budget from automatic reductions.
Many rank-and-file House Republicans offered a muted response, suggesting it might be the best of the bad alternatives they face. Its GOP opponents were fewer in number but far more vocal. “We’ve just got to stop the spending in Washington, and having a bill that doesn’t deal with the real problem, which is outrageous spending by both parties, is not the way to go,” said Rep. Paul C. Broun (R-Ga.), who said he was leaning against the plan.
Other Republicans remained publicly uncommitted. “It makes certain tax rates permanent — that’s the best thing about it,” said Rep. Ted Poe (R-Tex). He added that he prefers Boehner’s Plan B to the agreement that appeared to be emerging in negotiations between the speaker and Obama.
In a symbolically important move, the Republicans’ former vice-presidential nominee, Rep. Paul Ryan (R-Wis.), announced his support for the plan.
Party leaders crafted the legislation so Republicans could, on a technicality, argue that it would not actually raise taxes and instead would represent one of the largest tax cuts ever. That is because the 2001 and 2003 tax cuts are set to expire under current law at the end of the year, increasing to their 1990s levels. Therefore, any extension of the current policy gets officially counted by congressional budget experts as reducing future revenue, or a tax cut. The bipartisan Joint Committee on Taxation calculated that the proposal would increase the national debt by $4.1 trillion over the next decade.
This definition created a sharp divide among conservative activists. Grover Norquist, the country’s most visible anti-tax activist, said Wednesday that his Americans for Tax Reform would encourage a vote for Plan B and said it does not violate the anti-tax pledge he has long asked lawmakers to sign.
The Club for Growth, which poured tens of millions of dollars last year into challenging establishment Republicans that it considered not conservative enough, opposed the Boehner proposal as a tax hike. Some groups, including an offshoot of the Heritage Foundation, protested outside the Capitol against the legislation.
In addition to making permanent the George W. Bush-era tax cuts for households making less than $1 million, the Boehner bill would permanently rein in the alternative minimum tax and maintain the tax on inherited estates worth more than $5 million at 35 percent. Income over $1 million would be taxed at a 39.6 percent rate, up from 35 percent, and taxes on dividends and capital gains would spike from 15 percent to 20 percent. But Plan B would not restore limits on exemptions and deductions that were eliminated during the Bush administration.
If no action is taken before the end of the year, taxes will rise for nearly 90 percent of taxpayers in January, potentially sparking a new recession, according to many economists. Among the hardest hit would be more than 30 million households that would be affected by the alternative minimum tax for the 2012 tax year. Because the Internal Revenue Service has been assuming that Congress will prevent a big expansion of the AMT, going over the cliff would throw the coming tax filing season into chaos, acting IRS commissioner Steven T. Miller said in a letter to congressional tax leaders Wednesday.
If Boehner’s limited proposal were to be enacted, the economy would still take a hit: Jobless benefits would begin to expire for the long-term unemployed; physicians with elderly patients would see a sharp drop in Medicare reimbursements; and $100 billion in across-the-board cuts to federal agencies would begin.
Obama said he was upset that the talks with Boehner had halted when the two leaders were making significant progress toward a more comprehensive deal. The president has offered a plan that would raise taxes on more than $400,000 in income, extend unemployment insurance for about 2 million Americans and launch fresh spending on construction projects. Overall, it would curb $2.15 trillion from future federal debt — not far from the $2 trillion plan offered by Boehner.
“What separates us is probably a few hundred-billion dollars,” Obama said. “The idea that we would put our economy at risk because we can’t bridge that gap doesn’t make a lot of sense.”
Zachary A. Goldfarb, Lori Montgomery and Ed O’Keefe contributed to this report.
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