By Erik Wasson and Russell Berman - 12/18/12 06:56 PM EST
Speaker John Boehner (R-Ohio) told House Republicans on Tuesday he will move to a “Plan B” on the fiscal cliff by having the House vote on legislation to extend tax rates on annual income under $1 million.
The bill would allow tax rates on annual income above $1 million to rise from 35 percent to 39.6 percent, but make permanent lower rates on income below that threshold, Boehner's office said.
Boehner, who informed the president of his designs for a Plan B in a telephone call Monday night, is not cutting off talks with Obama and told members his Plan B is less than ideal. Republican aides stressed that the talks will continue, but lawmakers said the bill could come to a vote as early as Thursday.
The White House and Senate Majority Leader Harry Reid (D-Nev.) swiftly rejected Boehner’s move.
“Speaker Boehner’s ‘Plan B’ is the farthest thing from a balanced approach,” Reid said in a statement Tuesday morning. “It will not protect middle-class families because it cannot pass both houses of Congress.”
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White House spokesman Jay Carney said Obama was “not willing to accept a deal that doesn’t ask enough of the very wealthiest in taxes and instead shifts the burden to the middle class and seniors.”
Carney also criticized Boehner’s plan for not including spending cuts, something Republicans have demanded previously.
“The Speaker’s ‘Plan B’ approach doesn’t meet this test because it can’t pass the Senate and therefore will not protect middle-class families, and does little to address our fiscal challenges with zero spending cuts,” Carney said. “The president is hopeful that both sides can work out remaining differences and reach a solution so we don’t miss the opportunity in front of us today.”
Boehner's office noted that Democrats, including House Minority Leader Nancy Pelosi (Calif.) and Sen. Charles Schumer (N.Y.) have previously expressed support for raising tax rates on annual income above $1 million.
But a Schumer spokesman said things changed with the reelection of President Obama, who campaigned on a pledge to raise tax rates on annual income above $250,000.
"Republicans should've taken Senator Schumer's offer two years ago when they had the chance," Schumer spokesman Brian Fallon said. "We've had an election on the president's tax plan, the president won, and Republicans can't turn the clock back."
Obama on Monday shifted his position on taxes and offered to raise income tax rates on annual income above $400,000, instead of $250,000.
Boehner told members that with time dwindling before large tax increases on all taxpayers occur in January, the House must have a backup plan. Without action by Congress, all of the Bush-era tax rates will expire at the end of the year. Spending cuts are also set to be triggered, and the combination could push the economy into a recession, economists have warned.
House Republicans said they expected that the Senate would amend any bill the House passed and send it back to the lower chamber, meaning the House bill could serve as a legislative vehicle for a final agreement.
But it could be difficult for the bill to make it through the House.
House Minority Whip Steny Hoyer (D-Md.) told reporters Tuesday that Democratic leaders would rally their members against Boehner's plan, forcing Republicans to come up with the votes to pass it on their own.
Boehner explained his move to his conference behind closed doors, saying he was moving to Plan B because of intransigence on the part of the White House.
“For weeks, Senate Republicans — and a growing number of you — have been pushing for us to pivot to a ‘Plan B.’ I think there's a better way. But the White House just can't seem to bring itself to agree to a 'balanced' approach, and time is running short,” Boehner said, according to prepared remarks.
“At the same time we're moving on ‘Plan B,’ we're leaving the door wide open for something better. And I have been clear about that with the president. Plan B is Plan B for a reason. It's a less-than-ideal outcome. I've always believed we can do better,” he said.
The conference is set to meet again at 5 p.m. Tuesday.
In a press conference after the meeting, Boehner said he remained hopeful he could reach a broader deal with the president rather than rely on his alternative measure.
“Our hope continues to be to reach an agreement with the president on a balanced approach that averts the fiscal cliff,” Boehner said. “What we’ve offered meets the definition of balanced, but the president is not there yet.”
Inside the meeting, however, the Speaker stopped short of predicting that a deal with the president was likely.
“He would love to have no ‘Plan B,’ but he thought it was a responsible thing to have a ‘Plan B’ because he couldn’t say that discussions at the White House were even 50-50 at this moment,” Rep. Steven LaTourette (R-Ohio) said of Boehner.
The Speaker has made a similar move before in late-stage negotiations with the president. In 2011, as the nation approached the debt ceiling with no deal in sight, Boehner pushed a Republican proposal through the House floor in a bid to gain leverage with Democrats.
But this would be the first time Boehner would ask his members to vote for a tax increase, and it was unclear whether Republican leaders could even pass their bill through the House without Democratic support.
“It’d be a bit of a stretch,” Rep. Phil Gingrey (R-Ga.) said. “Good whip team. I just don’t know for sure.” Gingrey said he was undecided on how he would vote.
In grand-bargain talks with the president in 2011, Boehner had insisted on a ratio closer to four-to-one, in terms of cuts versus revenue.
While the White House has described its offer as containing $1.2 trillion in spending cuts and $1.2 trillion in tax increases, Boehner said it is closer to $1.3 trillion in revenue and $850 billion in net spending cuts, once additional spending Obama wants is included.
“That’s not balanced, in my opinion,” he said.
Boehner said it was important that Republicans “protect as many American taxpayers as we can” from a rate hike.
The new Republican proposal would not avert the entire fiscal cliff. Boehner said it would not eliminate the $109 billion in automatic spending cuts from sequestration set to hit in 2013, and he said leaders were still determining whether it would include a fix to the Medicare reimbursement rate, an extension of unemployment benefits and a patch for the Alternative Minimum Tax.
“We’re going to continue to look at how we address those issues,” Boehner said.
The Speaker’s plan also does not increase the debt ceiling, which Obama has indicated he wants in any final deal. Boehner’s proposal would increase both the capital gains and the top dividends tax rate to 20 percent from 15 percent, which matches Obama’s latest offer.
The conference meeting was a sobering reality check for House Republicans who have opposed tax rate hikes at every turn, and many lawmakers walked grimly past reporters without commenting.
Other members described a spirited discussion in the room and division within the conference about how to proceed.
“The Speaker laid out the plan in a very compelling way, and there’s just a lot of hard thinking going on,” conservative Rep. Trent Franks (R-Ariz.) said. “I’m going to let the Speaker have as much latitude as he needs to try to negotiate with this president.”
Senior Republicans rallied reluctantly around Boehner.
“We're all going to support the Speaker because we're not fiscal cliff divers,” said Rep. Pete Sessions (R-Texas), the incoming chairman of the House Rules Committee and former campaign chief for the party.
Several conservatives opposed to tax hikes said they would at least consider Boehner’s proposal, while some rejected it outright.
“I’m a 'Hell, no!' ” Rep. Raul Labrador (R-Idaho) said. “There are a lot of bad things in this bill.”
“I’ve had better days,” Rep. Michael Burgess (R-Texas) said. “I’m not sure I understand it.”
Some in the GOP rank and file suggested that Boehner’s plan was a way to ensure that most people in the U.S. don’t see a tax increase — the sort of rhetoric that has been a mainstay for Democrats for months.
“If we can get tax cuts for the majority of Americans, it would be a great move,” freshman Rep. Adam Kinzinger (R-Ill.) said. “We want to protect the majority of Americans from tax increases, which are written into law and coming at the end of the year.”
But Rep. Jim Jordan (Ohio), the outgoing chairman of the conservative Republican Study Committee, said that was a dangerous, if understandable, message for the GOP to adopt.
“Once you cross that line and say it’s OK for some people’s taxes to go up,” Jordan told reporters, “I think it’s a mistake for the Republican Party. So that’s what I think a lot of members are struggling with.”
Boehner said his talks with Obama could still yield a balanced plan that includes $1 trillion in spending cuts to match $1 trillion in revenue.
“Instead of letting tax rates rise on Americans making $250,000 or more, the rates would rise only on those making a million and up. Instead of getting zero spending cuts, we’d get a trillion in spending cuts, mostly from entitlement programs,” he said. “Most importantly, we’d lock in a process for tax reform and entitlement reform in 2013 — the two big goals we’ve talked about for years.”
The president has offered important concessions in the talks, including changing the way cost-of-living increases are calculated for benefits in entitlement programs. Obama's offer on chained Consumer Price Index, which would raise $130 billion over 10 years, immediately sparked complaints from the left.
The Obama offer would also lock in a framework for entitlement and tax reform in the next year.
Bernie Becker and Mike Lillis contributed.
This story was posted at 9:35 a.m. and updated at 1:56 p.m.