US 'fiscal cliff': Boehner pulls Republican tax reform plan

 
US Speaker of the House John Boehner 20 December 2012 John Boehner has called on the Senate to act

US Republicans have cancelled a tax vote in Congress, less than two weeks before a deadline for budget reform.

Republican House speaker John Boehner proposed the bill, which would have raised taxes on high earners. But right-leaning Republicans rejected it.

Analysts say the rejection has weakened Mr Boehner's position in negotiations with the White House.

Politicians need to agree fiscal rules by 1 January, or steep tax rises and deep spending cuts will take effect.

Analysts say the so-called fiscal cliff could take the US into recession.

Despite the failure of the vote, major stock markets were little changed, as most analysts had expected this to be a long, drawn out process. European markets were down in the first half hour of trading, but by less than 0.5%.

Veto threat

Mr Boehner said he had been unable to garner sufficient votes to secure passage of the bill.

Analysis

Even a bill that was presented to Republicans in the House of Representatives as a $3.9 trillion tax cut could not persuade enough of them to back it. Why? Because it also proposed raising taxes on people earning more than $1m. For the class of 2010 in particular, talk of raising any taxes amounts to heresy.

House Speaker John Boehner hoped Republicans would swallow his so-called Plan B, a move that would strengthen his negotiating hand with the White House. Instead, they have snubbed him in a clear blow to his leadership.

If Mr Boehner wants to get a deal that pulls America back from the fiscal precipice he's going to have to do a bipartisan deal that pulls in Democrat support too. The cliff edge just got closer.

Although it would have ensured a tax cut for 99.8% of Americans, it would have imposed a rise on those earning more than $1m (£600,000).

He said in a statement that the bill "did not have sufficient support from our members to pass".

Shortly after, the White House said President Barack Obama would work with Congress.

The White House statement said it was "hopeful that we will be able to find a bipartisan solution quickly".

Earlier on Thursday, the House narrowly passed a companion bill that would cut domestic spending while protecting the defence budget.

The House is controlled by the Republicans, but the Senate is Democrat-led.

Mr Boehner's plan would have had little chance of passing a Senate vote.

Analysts say it was in effect an effort to tell the US public that the Republicans should not be blamed if a deal could not be reached.

But some believe that the White House has now been strengthened by Mr Boehner's failure.

What is the fiscal cliff?

  • On 1 January 2013, tax increases and huge spending cuts are due to come into force - the so-called fiscal cliff
  • Deadline was put in place in 2011 to force president and Congress to agree ways to save money over the next 10 years
  • Fear is that raising taxes while massively cutting spending will have huge impact on households and businesses
  • Experts believe it could push the US into recession, and have a global impact on growth
'Exercise in futility'

White House spokesman Jay Carney earlier said Mr Boehner's plan was a "multi-day exercise in futility at a time when we do not have the luxury of exercises in futility".

Mr Boehner announced the bill on Tuesday, saying he would bring forward a measure that extended Bush-era tax cuts for those earning less than $1m per year - but would not address the automatic spending cuts.

On Wednesday, the Republican leadership added a companion bill that would replace the automatic cuts with a proposal to remove cuts from defence and government operating budgets. They would be offset by reductions elsewhere in the budget.

The proposal would cut food stamps, benefits for federal workers and some social services programmes.

Start Quote

Mr Boehner has no alternative but to return to negotiations with Obama, his moral authority shredded but his bargaining hand curiously strengthened”

End Quote

Mr Obama had sought tax rises for the wealthy, but was pushing for a lower threshold of $400,000.

He also offered a change to the way Social Security cost of living adjustments are made for some recipients, cuts from government healthcare programmes and a two-year extension of the debt ceiling.

Mr Boehner's office called the proposal "a step in the right direction" but not fully "balanced".

Analysts have painted a grim picture of the consequences of going over the cliff, with some warning that the impact could push the US back into recession.

The Organization for Economic Co-operation and Development (OECD) said in its latest economic outlook that the recession from the cliff could become global.

Changing taxation across the years

Tax year 1993-2000 2001 2002 2003-2008 2009-2012 2012 tax brackets 2013 scenarios

Source: Tax Foundation, IRS

Tax brackets shown for unmarried individuals

President

Bill Clinton

Bill Clinton

George Bush

George W Bush

Barack Obama

Barack Obama

Tax cuts expire

Tax cuts expire for top incomes

Bottom rate

15%

15%

10%

10%

10%

Up to

$8,700

15%

10%

15%

15%

15%

$8,700-$35,350

15%

28%

27.5%

27%

25%

25%

$35,350- $85,650

28%

25%

31%

30.5%

30%

28%

28%

$85,650- $178,650

31%

28%

36%

35.5%

35%

33%

33%

$178,650-$388,350

36%

33%

36%

Top rate

39.6%

39.1%

38.6%

35%

35%

Over

$388,350

39.6%

39.6%

 

More on This Story

US Economy

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 182.

    Instead of creating jobs and working towards improving society, the US Congress, White House, and Supreme Court is failing in thier duty. Taxing the wealthiest people or businesses is not going to help anyone. It simply means costs for consumers will go up! You really think the rich are going to eat these taxes? This is politics as usual. They are the true criminals in my mind. Time to change

  • rate this
    +2

    Comment number 149.

    Simple solution but politically unworkable.

    Tax all income at one rate including investment income.

    If the rich want to become tax exiles, let them, but exile them properly.. Remove their citizenship.

    To paraphrase an iconic statement.

    No representation without taxation.

  • rate this
    +1

    Comment number 144.

    The republicans already went down this road before ! They will not be forced to accept something that will not be good for the country. The democrats MUST learn that actual spending cuts will take place and I hope that across the board cuts of 10% for the first year then 2% for every year after takes place.

  • rate this
    -15

    Comment number 54.

    50 Have you ever considered that raising taxes may in fact not be in the best interest of the US and may acutally be little more than a political ploy adopted by Obama?. In reality raisign the top marginal rate will probably bring in less revenue, not more.

  • rate this
    +8

    Comment number 50.

    As usual the Republicans and being obstructive and are playing games. For once they should act in the best interests of the USA and support President Obama in this crisis. A crisis that has Republican fingerprints all over it.

    If they start to co-operate they may start to regain much of the respect they have lost worldwide in the last 10 years. Otherwise they will just marginalise themselves.

 

Comments 5 of 10

 

More US & Canada stories

RSS

Features & Analysis

Elsewhere on the BBC

Programmes

  • Models of roads and cars on a bridgeThe Travel Show Watch

    A world in miniature - behind the scenes at one of the world’s largest model railways

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.