During the fiscal cliff negotiations, President Obama seemed to have the upper hand on taxes … until now.
House Speaker John Boehner put forward a “Plan B” on Tuesday morning to stop the automatic tax rate increase slated for next year. The maneuver appears designed to prod Obama into a deal that’s closer to their terms – or give GOP lawmakers political cover should talks with the White House sour.
Negotiations to avoid the fiscal cliff are still ongoing. Both sides are laboring to forge an agreement that trims the deficit by $4 trillion over the next decade that would also include cuts to entitlement programs such as Medicare. Over the past several days, the differences between the two sides have narrowed, but the new alternative on taxes gives Republicans a much stronger hand than what they had just hours ago.
In what many conservatives would consider an ideological sacrilege, Boehner announced an upcoming vote to extend the lower tax rates on incomes below $1 million. The move suggests more flexibility on revenues within the Republican caucus and a willingness to defy the anti-tax pledge of political activist Grover Norquist.
“We all know that every income tax filer in America is going to pay higher rates come Jan. 1 unless Congress acts,” Boehner said Tuesday morning. “Our Plan B would protect the American taxpayers who make a million dollars or less and have all of their current rates extended. I continue to have hope that we can reach a broader agreement with the White House that would reduce spending as well as have revenue on the table.”
By yielding on taxes, Boehner outflanked the president who has negotiated in large part from the bully pulpit. At campaign-style events in recent weeks, Obama hammered the GOP for blocking a measure passed by the Democratic majority Senate to continue the rates on incomes below $250,000.
The House Speaker privately relented on taxes during the closed-door talks with the White House. The Ohio congressman offered to raise rates on incomes above $1 million, along with a year-long stay on the debt ceiling, and $1 trillion in spending cuts over the next decade. Obama countered on Monday with a proposal to increase the rates on households making more than $400,000.
But by publicly endorsing a tax increase separate from a deal, Boehner potentially forces the White House into a jam meant to limit the scope of the tax hike. Under Boehner’s “Plan B,” the White House can:
• Approve the rate hike on millionaires passed by the House, but back down on increases at the $400,000 level and have no broader deal on entitlements, the $109 billion sequestered spending cuts next year, or the debt ceiling;
• Reject the rate hike on millionaires and risk getting blamed if the country jumps off the fiscal cliff, or:
• Agree to a final deal that conforms more to Republican demands on the fiscal cliff.
“We remain committed to trying to minimize the impact on hard working families and small businesses in this country as far as tax increases are concerned,” House Majority Leader Eric Cantor, R-Va., said Tuesday morning after Boehner spoke. “We look to find the answer to solve the problem on the spending issue here in Washington. The president is not yet there – he has not come to where he needs to be, in order for us to push through a bill that really does begin to address the problem.”
Democrats instantly resisted the entreaty from the GOP as unfair to the middle class and politically unworkable.
“Speaker Boehner’s ‘Plan B’ is the farthest thing from a balanced approach,” said Senate Majority Leader Harry Reid, D-Nev., in a statement. “It will not protect middle class families because it cannot pass both Houses of Congress. The Senate bill is the only ‘plan B’ that can be signed into law and prevent taxes from rising by $2,200 on the average middle-class family.”
The move comes as something of a surprise because of upbeat reports after a 45-minute session Monday between Boehner and Obama where it became clear that both have made concessions on taxes, spending, and entitlement savings. They still differ on whether to raise the $16.4 trillion borrowing limit for a one-year period (Boehner) or two-year period (Obama).
Obama has signaled a major change to entitlement spending that might help Boehner sell a deal to House Republicans, who want to lower entitlement costs by tweaking the formula for inflation. Using a more realistic measure of inflation known as the Chained CPI, the government could reduce a host of federal programs, including Medicare and Social Security and save $217 billion over a decade.
Jared Bernstein, a former economics adviser to Vice President Joe Biden, told The Fiscal Times Monday that many progressive Democrats would support a chained CPI as long as provisions exist to protect the poorest of Social Security recipients from cuts.
“There’s recognition among some progressives that it’s a more accurate price index, but at the same time it would hurt the most vulnerable beneficiaries,” Bernstein said.