Bloomberg News

Boehner Seeks to Sell Tax Boost to Anti-Tax Republicans

December 18, 2012

House Speaker John Boehner is trying to sell a tax increase for top earners to fellow Republicans whose opposition to tax increases for anyone is a central part of their identity and pitch to voters.

Under Boehner’s “plan B,” tax rates would rise on income of more than $1 million a year, which President Barack Obama’s administration and other Democrats immediately rejected as inadequate. House Rules Committee staffers were working tonight to prepare a text of the measure to set up a Dec. 20 vote.

“It’s important that we protect as many American taxpayers as we can,” Boehner told reporters in Washington today. House Republicans met privately late today to hear details.

Fewer than two weeks remain to avert more than $600 billion in automatic spending cuts and tax increases, known as the fiscal cliff, set to start in January. Boehner’s decision to set up a second legislative track complicates the situation, which had been focused on the intensifying talks between the speaker and the president.

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After the meeting, Minnesota Republican John Kline declined to predict how much support Boehner would get for his plan because that’s “hard to quantify.”

Still, the discussion showed “there is an understanding” that “absent action we are going to be faced with a huge, huge tax hike,” Kline said.

Permanent Extension

The speaker’s proposal would permanently extend current tax rates on incomes below $1 million a year, according to a House Republican aide who requested anonymity to discuss the plans. It would permanently prevent the expansion of the alternative minimum tax, the aide said.

The plan would set the capital gains and dividends rates at 20 percent on income over $1 million. A tax already set to take effect in 2013 would push the total top investment rate to 23.8 percent. The bill would continue current estate tax rules, which set the per-person exemption at $5.12 million, indexed for inflation, with a 35 percent top rate, the aide said.

Arizona Republican Jeff Flake predicted that House leaders will have enough votes to pass the tax increase. Many Republicans think “we would only get serious talk on spending cuts once we aren’t considered the party of the 2 percent,” he said.

Representative Mick Mulvaney of South Carolina and several other Republicans leaving the meeting wouldn’t comment on the proposal. “I’m just tired of talking about it,” Mulvaney said. “I’d rather talk about golf.”

Broader Deal

Boehner said he still hopes to reach a broader budget deal with the president. The speaker said he expects his plan to be on the House floor by the end of the week.

Ohio Representative Jim Jordan, chairman of a House Republican group that supports small government, said earlier today “a lot of members are struggling with” Boehner’s proposal because it would allow some tax rate increases.

“Once you cross that line and say that it’s OK for some people’s taxes to go up, I think it’s a mistake for the Republican Party,” Jordan told reporters.

Boehner and other Republicans insisted for years that they would not raise income taxes. Any new tax revenue must come from economic growth, they contended.

After Obama was re-elected Nov. 6 on a promise to raise tax rates on the top 2 percent of earners, Boehner proposed generating $800 billion by curtailing tax breaks. Late last week, the speaker offered to raise rates on income of more than $1 million a year in exchange for entitlement program cuts.

‘Like Folly’

White House press secretary Jay Carney said Boehner’s latest plan “seems like folly.” The president has sought to find a way to reach an agreement with the speaker, Carney said. “Coming halfway -- that’s the essence of compromise.”

Now, there are at least three possible paths forward: a bipartisan deal between Boehner and Obama, a House tax-cut bill that leaves unresolved how to handle raising the federal debt limit, and no action -- allowing the spending cuts and tax increases to start in January.

The Congressional Budget Office has said a failure to avert the changes would probably lead to a recession in the first half of 2013.

Boehner said the plan to be voted on this week won’t reverse automatic spending cuts set to take effect in January.

After an earlier briefing by Boehner and House Majority Leader Eric Cantor, some Republicans expressed concern about backing off the party’s prior insistence on not raising tax rates for any income level.

Ryan, King

Representative Paul Ryan, a Wisconsin Republican and chairman of the Budget Committee, declined to comment on Boehner’s plan, as did several other anti-tax Republicans, including Steve King of Iowa and Tim Huelskamp of Kansas.

“People are sort of all over the map,” said Representative Steve LaTourette, an Ohio Republican.

Democrats rejected Boehner’s plan out of hand.

“Today House Republicans are threatening to abandon serious negotiations,” said Senate Majority Leader Harry Reid, a Nevada Democrat. Boehner’s plan “can’t pass the Senate,” he said.

House Minority Leader Nancy Pelosi, a California Democrat, said, “I think Democrats would be unified in rejecting” Boehner’s plan. Sander Levin of Michigan, the top Democrat on the tax-writing Ways and Means Committee, called it an “absolute non-starter.”

House Republicans plan votes on two proposals: one to extend tax cuts for income up to $250,000 a year as Democrats propose, and Boehner’s plan to extend tax cuts for income up to $1 million, Idaho Republican Mike Simpson said.

Obama’s Re-election

Sixty-five percent of those polled say Obama’s Nov. 6 election victory gave him a mandate on his proposal to raise tax rates for top earners, according to a Bloomberg National Poll of 1,000 adults conducted Dec. 7-10.

Yesterday, Obama lowered his tax revenue demand by $200 billion and offered to start tax rate increases at $400,000 in income instead of $250,000.

Obama’s revised plan would raise $1.2 trillion in taxes in the next decade and cut $1.22 trillion in spending, said a person familiar with the talks. Obama wants a large enough debt ceiling increase for the next two years and would accept a new inflation yardstick that would reduce Social Security cost-of- living increases, said the person, who sought anonymity.

In exchange, Obama would accept some up-front spending cuts, and other scheduled cuts would be canceled. Congress would pursue broader changes next year against the threat of tax increases and spending cuts in 2014.

The Standard & Poor’s 500 Index (SPX) rose 1.2 percent to 1,446.79 at 4 p.m. in New York. It has gained 15 percent so far in 2012. The Dow Jones Industrial Average added 115.57 points, or 0.9 percent, to 13,350.96. The benchmark 10-year Treasury bond yield touched 1.85 percent, the highest level since Oct. 25, before trading at 1.82 percent, according to Bloomberg Bond Trader prices.

To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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