Bloomberg News

House Republicans Delay Vote on Boehner’s Tax Increase

December 20, 2012

U.S. Budget Talks Dragging Into Final Week of Year or Beyond

House Speaker John Boehner takes a question during a news conference in Washington. Boehner and Jay Carney, the White House spokesman, both left open the possibility that high-level budget talks could resume and that a broader agreement is possible. Photographer: Andrew Harrer/Bloomberg

House Republicans delayed a vote on Speaker John Boehner’s tax-increase plan and called a meeting to consider how to build support for it or decide their next move in the U.S. budget standoff.

Republicans had planned to vote tonight on the measure that would allow higher tax rates on annual income above $1 million. They delayed after a related spending-cut bill passed with only a few votes to spare. Asked whether she thought the party could resurrect Boehner’s measure tonight, Representative Kay Granger, a Texas Republican, shook her head no.

Without congressional action, more than $600 billion in tax increases and spending cuts will start taking effect in January, with the possibility of a recession in the first half of 2013. The stalled U.S. budget talks won’t be resolved until the last week of 2012 or early in 2013 as lawmakers plan to leave Washington for the Christmas holiday.

The House narrowly passed the spending cut bill, 215-209, with 21 Republicans voting no and no Democrats voting in favor.

The White House has said it would veto the tax plan and leaders of the Democratic-controlled Senate say they won’t consider it, leaving an uncertain path forward for lawmakers.

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“I did my part; they’ve done nothing,” Boehner, an Ohio Republican, told reporters in Washington. “I’m convinced that the president is unwilling to stand up to his own party.”

Next Session

The Senate will return Dec. 27, leaving several days for lawmakers to address the tax-and-spending issues before the end of the year or the start of the next session of Congress on Jan. 3.

Members of both parties, trying to project strength and deflect blame, have ample reasons to wait until January.

Democrats, backed by Obama’s campaign promise to raise taxes on income above $250,000, claim a mandate from the Nov. 6 election and note that Republican plans would let tax credits for low-income households expire.

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Boehner and Jay Carney, the White House spokesman, both left open the possibility that high-level budget talks could resume and that a broader agreement is possible.

There is room for “compromise on a big deal,” Carney said today. He said he wasn’t aware of staff-level negotiations between the administration and House Republicans today.

‘Wasting’ Week

Senate Majority Leader Harry Reid, a Nevada Democrat, echoed Carney, saying that Boehner was “wasting an entire week” on a measure that House Republicans know “has no future.”

House Minority Leader Nancy Pelosi, a California Democrat, said, “We’re getting farther away from an agreement.”

Until Dec. 17, Boehner and President Barack Obama were trading counter-offers, edging closer to a deal that would include $1 trillion each in tax increases and spending cuts.

A vote on raising tax rates for income of more than $1 million would have been hard to imagine before the Nov. 6 election. Republicans previously labeled tax increases for top earners as job-killing class warfare.

Just seven weeks ago, Republicans opposed tax increases of any kind, especially the higher tax rates on income, capital gains and dividends that are in Boehner’s plan.

Boehner’s plan would raise the top rate on ordinary income to 39.6 percent from 35 percent and the top rates on capital gains and dividends to 20 percent from 15 percent. An additional 3.8 percent tax from the 2010 health care law will take effect in January.

Alternative Minimum Tax

The bill permanently prevents the expansion of the alternative minimum tax and permanently extends almost all of the George W. Bush-era tax cuts.

Boehner’s support for his so-called Plan B proposal reflected the leverage that Obama gained in his re-election and a potential dilution of the Republican anti-tax brand. Organizations aligned with the party are split on the issue.

Anti-tax groups including the Club for Growth and the Heritage Foundation oppose Boehner’s plan. Americans for Tax Reform, led by Grover Norquist, issued a statement saying that the plan didn’t violate Norquist’s anti-tax pledge, though it didn’t call Plan B a good idea.

Republican leaders sought to pair the vote on Boehner’s plan with the one on spending cuts in a bid for support from lawmakers wary of increasing tax rates without also reducing federal program costs.

Passed in May

The spending measure is similar to a bill passed in May by the Republican-controlled House that would cut food stamps, federal workers’ benefits and other domestic initiatives to replace spending reductions set to take effect next month.

The Standard & Poor’s 500 Index (SPX) rose 0.6 percent to close at 1,443.69 today. The Dow Jones Industrial Average increased 59.75 points, or 0.5 percent, to 13,311.72. The benchmark 10- year Treasury bond yield was little changed at 1.8 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices.

Some lawmakers expressed uncertainty about the path ahead. “Don’t make me lie to you,” said Representative Charles Rangel, a New York Democrat first elected to Congress in 1970. “I have no idea what the hell is happening.”

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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