The abrupt turn of events left precious little time for a divided government to prevent across-the-board tax increases and deep spending cuts from taking effect with the new year. Economists say the combination threatened a return to recession for an economy that has been recovering slowly from the last one.
House Speaker John Boehner’s so-called Plan B legislation was drafted unilaterally by Republicans who control the House and faced sure defeat in the Democrat-held Senate.
Tax cuts expiring
It was crafted to protect almost all Americans from the expiration of Bush-era tax cuts on 1 January 2013, but would have let rates increase for people earning more than $1m annually – much higher than Obama’s proposed $400 000 threshold. But Boehner’s offer violated long-standing Republican anti-tax orthodoxy and triggered the opposition of fiscal conservatives.
In a brief statement, Boehner said the bill “did not have sufficient support from our members to pass” and challenged Obama and Democratic Senate majority leader Harry Reid to work on legislation to avert the fiscal cliff.
The White House, in a statement released a short while later, said the president’s “main priority is to ensure that taxes don’t go up on 98% of Americans and 97% of small businesses in just a few short days. The president will work with Congress to get this done and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy”.
Emerging from a hurriedly-called evening meeting of House Republicans, Congressman Steve LaTourette said Boehner had told lawmakers, “He’s going to call the president and he’s going to go down and talk to him and maybe they can hammer something out.”
The House will not meet again until after Christmas, if then, and the Senate is expected to meet briefly on Friday, then not reconvene until next Thursday.
The fiscal cliff has dominated the postelection session of Congress that now seems certain to extend well beyond Christmas. More broadly, it marks the end of a tumultuous two-year period in which dozens of conservative Republicans roared into the House demanding lower taxes, yet now find themselves two years later called on by their own leadership to raise rates on upper incomes.
Earlier in the week, Boehner and Obama had significantly narrowed their differences on a compromise to avoid the fiscal cliff. But Republican officials said that members of the party’s leadership had balked at the terms that were emerging.
Boehner, chastened by Obama’s re-election and facing pressure from some Republicans who want to make a deal, has ignored a quarter-century of conservative dogma by offering to raise income tax rates, even if only the richest Americans would be affected.
Obama, eager for a budget deal that would let him move on to other issues, has in turn made concessions, offering to cut the growth of Social Security pensions, an issue usually off-limits to Democrats. By offering to impose tax increases on those with incomes over $400 000, Obama has retreated from what he campaigned on: the $200 000 income ceiling on individuals and $250 000 on couples.
That means both the president and speaker have angered lawmakers and staunch supporters of their respective parties, just when the need to retain that support is crucial.
Hence Boehner’s Plan B vote, which was meant to rally the Republican troops. Along with preventing tax hikes for 99.81% of Americans, according to Boehner, it avoided cuts to the defence budget, a Republican red line, by cutting social programmes cherished by Democrats, such as food vouchers and the landmark health care law that Obama signed earlier in his term.
“When you walk into a room and represent a group and you have to give ground to get a deal, you have to stay in that room as long as you can and you have to walk out with blood on your brow,” said Joseph Minarik, research director for the Committee for Economic Development and a veteran of gruelling budget talks as a former Clinton White House and House Democratic aide. “Otherwise, the people outside the room don’t believe you’ve fought hard for them.”
Asked at a news conference a few hours before the scheduled vote, Boehner hinted broadly that no matter what became of the legislation he placed before the House, it will not be the end of the attempt to keep the economy from reaching the fiscal cliff.
“I expect that we’ll continue to work together,” he said.
Obama made it clear on Wednesday that he, too, is prepared for further negotiations, and numerous officials in both parties in the Senate predicted that might happen quickly.
Obama wants to raise taxes by about $20bn a year more than Boehner. That’s real money by most measures, but such numbers are barely noticeable compared to the $2.6 trillion the government is projected to collect next year, and to the $3.6 trillion it’s expected to spend.
Despite their differences, the numbers being proposed by Obama and Boehner are so close, and the political risks both men have taken on taxes and Social Security benefits are so stark, that many analysts consider it almost unthinkable that they would not eventually complete a deal.
“Having come out of their trenches, they either have to shake hands or get shot, maybe by their own troops,” said Robert Bixby, executive director of the nonpartisan Concord Coalition, an anti-deficit group.