Boehner’s ‘fiscal cliff’ plan fails

WASHINGTON — House Speaker John A. Boehner abruptly canceled a vote on his Plan B tax proposal late Thursday after failing to find enough GOP support, a stunning political defeat that effectively turned resolution of the year-end budget crisis over to President Obama and the Democrats.

The speaker had spent the last few weeks negotiating one-on-one with the president, establishing himself as the second-most powerful figure in Washington. But with his strategy imploding, Boehner conceded that he would play a lesser role.

“Now it is up to the president,” he said, to work with a fellow Democrat, Senate Majority Leader Harry Reid of Nevada, “to avert the fiscal cliff.”

The proposal the speaker had hoped to bring to a vote would have prevented a year-end tax increase for all but those earning more than $1 million a year.

But the Ohio Republican said in a statement, “It did not have sufficient support from our members to pass.”

The unexpected turn of events caused an immediate reaction on Wall Street, where after-hours investors began to yank money out of U.S. stocks. Futures that track the Standard & Poor’s 500 fell 1.5%, and the Dow Jones industrial average dropped 1.6%.

Now, Obama faces a crucial test of his leadership, with little time left to craft a deal.

Obama’s most recent offer is likely to be the starting point. He made a substantial concession: raising taxes only on household income above $400,000, rather than the $250,000 threshold he campaigned on for reelection.

As he pursues votes in Congress, the president will need to face down Democrats, particularly the liberal wing that may feel emboldened to demand that a deal be tilted toward their views — perhaps with additional spending on infrastructure or unemployment benefits.

Any compromise will need substantial Democratic support. Although the president needs the speaker to allow legislation to come to a vote in the GOP-controlled House, Boehner emerges in a weakened position and has little leverage to demand further concessions. His Senate counterpart, Mitch McConnell (R-Ky.), will need to decide whether to become a final line of defense against Obama or step aside for a Democratic-led plan.

“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,” White House Press Secretary Jay Carney said after Boehner canceled the vote. “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.”

Without a compromise, most Americans will see their taxes automatically rise and spending cuts ripple across the economy in the new year. The White House and the speaker had been closing in on a broad deficit-reduction deal to steer around the coming “fiscal cliff,” but Boehner suddenly changed course this week to gauge the sentiment of House Republicans.

The support expressed by top Republicans for new taxes has cracked the party’s anti-tax orthodoxy and opened the door to a compromise that would have been unthinkable before the November election.

Mindful that his own job as speaker comes up for a vote in two weeks, Boehner must make a difficult choice: whether to allow a plan to come to the House floor without support from his majority, or play a key role in sending the nation over the fiscal cliff and raising taxes on most Americans.

As the speaker and his lieutenants trolled for votes earlier Thursday, buttonholing lawmakers in scenes like those in the movie “Lincoln,” Carney dismissed Boehner’s Plan B as a “multi-day exercise in futility.”

“Instead of taking the opportunity that was presented to them to continue to negotiate what could be a very helpful large deal for the American people, the Republicans in the House have decided to run down an alley that has no exit,” he said.

Late in the evening, as the time for voting neared, the House took an unscheduled recess — a sign that the tally had come up short. With Democrats almost unanimously against the bill, Boehner could afford to lose only two dozen Republican defectors.

The speaker and his top lieutenants then convened a late-night meeting of rank-and-file lawmakers and announced they were pulling the bill.

“We don’t have the votes,” the speaker said, according to a lawmaker in the room.

Conservatives split over Plan B, complicating Boehner’s quest. He received a major assist when anti-tax stalwart Grover Norquist’s Americans for Tax Reform declared that the bill was a vote for lower taxes and did not violate the pledge most Republicans had signed not to raise taxes. But other leading conservative groups opposed it, including FreedomWorks, which is extremely influential with tea party supporters.

To sweeten the deal for conservatives who wanted steeper spending cuts in exchange for a tax hike, GOP leaders brought a second bill to the floor — a proposal to shift the automatic cuts due on Jan. 2 from both defense and domestic programs to only domestic ones.

The House approved it, 215 to 209, but with 21 Republicans opposed — a signal that Boehner’s plan was in trouble.

Rep. Paul Broun (R-Ga.) said he opposed the Ryan bill and Plan B because the proposals failed to make tough budget cuts.

“It’s kind of like Wimpy in the Popeye cartoons: ‘I’ll be glad to pay you tomorrow for a hamburger today,’” Broun said. “And I’m not going to give the hamburger anymore.”

Boehner’s Plan B would have continued most of the existing tax rates, first approved under President George W. Bush, that would otherwise expire at the end of this year, while allowing taxes to rise on household income above $1 million. The top 35% rate would have increased to 39.6%, and the 15% rate on capital gains and dividends would have risen to 20% for earners making more than $1 million annually.

The Boehner bill excluded other expiring provisions, including college and child tax credits, first approved under Obama in 2009. That meant that Plan B would have raised taxes on low- and moderate-income households that claim those credits.

The House recessed for the holidays, but members were told to be ready to return on 48 hours’ notice. The Senate was poised to recess Friday, returning after Christmas.

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Staff writers Colby Itkowitz in Washington and Joe Bel Bruno in Los Angeles contributed to this report.