Fear and Loathing over GOP’s Fiscal Cliff ‘Plan B’
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Fear and Loathing over GOP’s Fiscal Cliff ‘Plan B’

iStockphoto/Reuters/The Fiscal Times

Democrats have a good reason to fear House Speaker John Boehner’s “Plan B” on taxes—it just might kill a grand bargain to reduce the deficit and avoid the fiscal cliff.

Boehner said yesterday that he would bring a measure to the House floor that extends the expiring low tax rates on incomes below $1 million. His offer would erode the dangers of the fiscal cliff on the tax side, yet it would do nothing to address entitlement reform, the government breaching its debt ceiling early next year, or the $109 billion in sequestered budget cuts slated for next year.

The Ohio congressman was still selling the alternative to members of his own Republican caucus at a Tuesday afternoon meeting, but the mere idea of it left top Democratic officials shaken, worried about the prospects for a broader deal, and concerned that the plan could derail the ongoing negotiations.

“We hope the Republicans understand it would be a terrible waste to walk away from this opportunity,” said White House press secretary Jay Carney at a Tuesday briefing. “The president has shown enormous good faith in trying to reach a compromise here. And it would be shocking  if Republicans passed up this opportunity for what they say they seek—which is significant deficit reductions, significant spending cuts—simply to protect those just shy of being millionaires from having to pay a dime extra in income taxes.”

An exasperated Senate Budget Committee Chairman Kent Conrad, D-N.D., declared: “I think the Plan B is bordering on farcical. It is so completely out of position with what the country needs,” Conrad said. “I mean, can we please get to a serious discussion of what needs to be done instead of this endless posturing? My God, when does it end?”

Ever since President Obama won reelection last month, the White House and congressional Republicans have battled, begged, and horse-traded over a deal to salvage the nation’s finances and stop a potential recession.

Until recently, Republicans refused to budge on higher tax rates for the wealthy and Democrats resisted meaningful long-term savings from entitlement programs such as Medicare and Social Security. Their shared goal is two-fold: 1.) Shave $4 trillion off the national debt during the next decade, and 2.) Prevent more than $500 billion in combined tax hikes and spending cuts scheduled to begin in 2013.

The prospects for a deal had become brighter in the past few days before Plan B was unveiled.

In negotiations last Friday, Boehner—rejecting a cornerstone of conservative dogma—had proposed letting tax rates rise on millionaires that along with other changes on deductions would generate about $1 trillion in new revenues. Obama responded on Monday with a plan to increase tax rates on incomes above $400,000 and limit the growth of government spending with a stricter measure of inflation.  His plan also required a two-year hiatus on debt ceiling negotiations. 

Plan B shifts the burden of the expiring tax rates away from the House Republicans and onto Obama and the Senate majority Democrats vowing to block the bill. The option of Plan B in theory removes much of the pressure that GOP lawmakers felt to reach a grand bargain, leaving nerves frazzled in Washington’s corridors of power.

Boehner insisted yesterday that the plan was merely a fallback position and negotiations would continue with Obama on putting together a comprehensive package before the year is out.  “We all know that every income tax filer in America is going to pay higher rates come Jan. 1 unless Congress acts,” Boehner said. “So I believe that it’s important that we protect as many American taxpayers as we can.”

Democrats saw it much differently, concluding that House Republican leaders were prepared to let negotiations with Obama collapse as long as they were able to pass a bill this week extending the Bush-era tax cuts to all but the very wealthiest Americans.

"It's a non- starter but Boehner is serving his caucus by trying to give it cover," Senate Majority Whip Dick Durbin, D-Ill., told The Fiscal Times. "They're able to say, ‘Listen, we're not raising taxes on anybody under a million bucks and we're putting something on the table to make real deficit reduction, or something like that.’"

Republicans  praised Boehner and said he was justified in cobbling together a back-up option,  after—in their opinion—Obama refused to put together an offer with substantially more in spending and entitlement savings.

“I can’t imagine I would not be supportive of a proposal that had prominent tax reductions for a substantial portion of our tax-paying public,” Senate Republican Leader Mitch McConnell of Kentucky told reporters.  “My own view would be to not raise taxes on anyone, but we will deal with” whatever is sent over by the House.

Sen. Bob Corker, R-Tenn., said that “If there’s no other choice than rescuing most the country [from a tax increase], it’s an option that I would support.”

However, not all Senate Republicans are pleased with Plan B, because it is so narrowly focused on tax rates and would do nothing to block the more than $50 billion of cuts in defense spending set to automatically kick in Jan. 2 under sequestration.

Boehner’s decision not to address sequestration while parting with GOP orthodoxy to back a tax rate hike on millionaires could make passage of Plan B problematic if and when he brings the measure up for a vote in the House.  With most Democrats likely to oppose the measure on multiple grounds, the bill could be sunk by a sizeable defection of conservative Republicans opposed to cuts in defense spending and any type of tax increases.

Defense hawks including Sens. John McCain, R-Ariz., and James M. Inhofe, R-Okla., said yesterday they had strong reservations about the proposal. If it supplants a broader deal, it would leave the Pentagon budget vulnerable to drastic cuts.

“I’m most likely going to be opposed to that,” Inhofe told reporters.