Last night House Majority Leader John Boehner withdrew his “Plan B” proposal for the budget. He had no choice: conservative Republicans in the House made it clear that would not vote for a plan that raises taxes for ANYONE—even millionaires.
Many in Washington believe this makes a bungee-jump over the “fiscal cliff” inevitable. As I have explained, that is not as scary as it sounds. The precipice is an imaginary line drawn in the sand and dated “January 1.” Any damage done if we miss the deadline can easily be reversed. Early in January Congress would, no doubt, extend tax cuts for 98% of all Americans while voting down Draconian across- the- board spending cuts scheduled to kick in the first of the year.
But today, House Minority Leader Nancy Pelosi said “there is still a chance for a deal” before year-end. In fact, Pelosi probably knows that House Democrats and Republicans have more than enough votes to extend tax cuts for the 98% now. The Senate has already passed a bill that would do just that. And in the House few Republicans are eager to stand up and vote to hike taxes for the vast majority of Americans. Conservatives just want to give the same break to the wealthiest 2%. But by now, most Republicans recognize that some tax increases are inevitable.
Pelosi’s optimism makes me hopeful. She’s a superb vote-counter, and she knows what’s happening on the other side of the aisle.
CEOs Urge Republicans to Compromise
As Bloomberg reported yesterday, corporate chieftains have begun to lobby Republicans to give way on tax increases: CEOs such as Lloyd Blankfein of Goldman Sachs Group Inc., Robert Iger of Walt Disney Co. and Randall Stephenson of AT&T Inc. have been meeting with White House officials and their “support for Obama’s tax stance has split the Republican business alliance, driving a wedge between CEOs urging compromise and the nation’s most prominent small-business group.
Bloomberg notes that the small business federation is not comprised simply of “Mom & Pop businesses.” They group includes ”global law and accounting firms, oil pipeline companies and hedge funds.” (“Companies structured as S corporations, partnerships or sole proprietorships typically don’t pay the corporate tax of up to 35 percent.Instead, the small-business owners report profits on their individual tax returns.”)Thus, if the Obama plan to let income tax cuts expire for the wealthiest 2% of all households becomes law, these business owners would be paying significantly more on their individual returns.
Of course CEOs who haul home 7-figure salaries also would see their taxes climb, but, Bloomberg observes, “Obama’s ability to bring around top executives on tax rates is striking, considering the clashes the president had with the business community during his fights over the overhaul of the health-care industry and financial-market regulation.” Back in 2010, CEOs gave the president little support as he battled Republicans over how to reduce the debt. At the time, “the 2010 Republican midterm election victory and uncertainty over Obama’s re-election prospects weakened the White House in getting business support” one former administration official told Bloomberg. ”Now Obama has a fresh four-year election mandate.”
It‘s safe to assume that Pelosi knows that dozens of powerful CEOs have been lobbying Republicans to compromise. Today, said she hoped Republicans would consider President Obama’s proposal “and iron out any differences,” adding that “every time a deal gets close, the Republicans walk away.
Higher Taxes on Households Earning over $250,000 or $400,000?
Meanwhile, Chris Van Hollen, the Maryland Democrat who is the ranking member of the House Budget Committee, said he believes the House, if given the chance, would pass the Senate bill extending tax rates for those making under $250,000.
That was the plan that passed in the Senate, though recently President Obama ceded ground,, offering to raise the bar to $400,000.
But now, that more generous offer may no longer be available. Today, Jared Bernstein, a Senior Fellow at the Center on Budget and Policy Priorities (CBPP) wrote: “the R’s may have lost their chance to take advantage of the President’s offer to raise that threshold to $400,000. If I were him, I’d take the position that all the give-backs he offered in compromise -- the higher threshold, the chained CPI, the new trillion in spending cuts, the debt ceiling still in play — are no longer on the table. That’s the cost of the House R’s unwillingness to deal.”
A Two-Step Approach: What Obama Always Wanted
At this point, a House deal would have to be bi-partisan. Boehner and Pelosi would need to put together a block of Democrats and Republicans —and the deal would have to be made on terms that President Obama would accept. That means higher taxes for households earning somewhere between $250,000 and $400,000, and– at the very least– an agreement to raise the debt ceiling. (President Obama has made it clear that he is not going to even consider compromising on that point—and he’s right. If we don’t lift the debt ceiling, we’re telling the world that we might default on our debt,. The nation’s credit rating would plummet. )
The details about how and where to trim spending on Medicare and other programs could be hammered out after January 1—which is what the President proposed from the beginning. Take a two- step approach: first settle questions about taxes, then look at spending.
Would Boehner Work With Pelosi?
Bernstein, who served as an adviser to Vice-president Joe Biden during President Obama’s first term, has witnessed politics on the Hill up close, and knows that things can get personal. On the one hand he suggests, ”if Boehner decided to go for a compromise with a bunch of D votes, he could likely get to 218 and passage.” On the other, hand, Bernstein writes “John Boehner teaming up with Nancy Pelosi to pass a tax increase — even on just the top few percent — is not… um… a likely outcome.”
Bernstein may well be right. But on the question of Pelosi and Boehner working together, I’m more optimistic. It seems to me Boehner has good reason to talk to Pelosi—and little to lose. As it stands, his chances of being re-elected Majority Leader on Jan. 3 are dim at best. Conservatives see him as traitor. More moderate Republicans view him as a man who quite obviously can’t count votes—hardly a sterling recommendation for a House leader. ( Apparently Boehner didn’t figure out that Plan B wouldn’t fly until sometime late yesterday. The vote was scheduled for yesterday evening.)
If Boehner were able to recruit enough Republicans to make a deal, this could salvage what’s left of his reputation. He might hope to be known as the man who walked us back from the cliff. Pelosi is savvy enough to let him take however much credit he could scrape together.
One thing I’m sure of : Pelosi would work with him. (If Nancy Pelosi thought she could accomplish a progressive goal,, she would work with the Devil. And I mean that as a compliment.) This afternoon, the National Journal reported that ”John Boehner and Nancy Pelosi had a short, informal meeting today in the corridors of the Capitol.
“The three-minute-long encounter started when the Democratic leader walked hurriedly into the Speaker’s Lobby for today’s pro-forma session . . . and sat waiting on the floor for the speaker, who presided over the short session.
“Pelosi approached Boehner as he walked down from the dais before they left the floor and walked to Pelosi’s office. At points during the walk, Pelosi put her hand on the speaker’s back. Their conversation was mostly inaudible.”
“Plan B” Was Never a Real Plan
Keep in mind that neither Boehner, nor anyone else, though that Plan B was going to become a final solution. Senate leaders had said that if it passed the House, they wouldn’t even consider it. President Obama had made it clear that, if the bill landed on his desk, he would veto it.
Plan B was meant merely to put some pressure on the Democrats by making it appear that the Republicans were willing to compromise.
But as CBPP’s Chye-Ching Huang reveals in a startling chart under Plan B, millionaires would be better off—despite paying higher taxes on their income over $1 million—while the rest of us would be worse off.
She explains “According to the Tax Policy Center, all told, millionaires’ after-tax incomes would be 2.9 percent higher on average under Plan B than under the bill the Senate passed (which lets tax cuts expire on incomes over $250,00.
As Bernstein pointed out yesterday, “if you compare Plan B to the President’s most recent offer, Plan B is actually tax cut even for millionaires because their income betwen $400k and $1 million would be taxed at lower rates.”
Meanwhile all other income groups would be worse off under Plan B, Chye-Ching Huang observes because the Senate-passed bill extends the 2009 improvements to tax credits for working families and students, while Plan B ends them, .
Plan B’s failure to extend the improvements in the Child Tax Credit and Earned Income Tax Credit for working families, as well as the American Opportunity Tax Credit to help pay college costs for low- and middle-income families, would affect 25 million families with incomes below $250,000 and throw more than 1.5 million working people (including 800,000 children) into poverty.
No wonder Plan B had no chance of becoming law.
Nothing will happen until legislators return to Washington sometime after December 25. At that point, I’m hoping that both Boehner and Republicans will accept reality: If they are going to pass legislation, they are going to have to do it with Democratic votes.
Republicans will have little leverage: Democrats will have little reason to give ground on anything that the administration considers important. If we go over the cliff, all of the polls show that Republicans—and Boehner—will be blamed.
Polls that came out today show that he now ranks as the least-liked congressional leader, with just 31 percent of voters holding a positive opinion of the Republican leader and more than half — 51 percent — saying they view the Ohio congressman unfavorably..
If Boehner wants to remain in Congress, and be an effective legislator (even if not Majority Leader) it seems to me that he has little choice but to team up with Pelosi.
”I Feel Sorry For This Man”
I can’t help but think of a recent Saturday Night Live skit in which President Obama comforts a beleaguered Boehner.
In the skit, an Obama impersonator stands next to the House speaker to announce they’d reached an agreement on the coming “fiscal cliff” — one that would include the major Obama concession of no tax increases.
“Now why would I do that?” Obama asks. “I won the election, I have the leverage, why give in?
“Well simply put, I felt sorry for this man. I realize how badly the Republican Party treats him when he even considers raising taxes.”
“Not only did Boehner have to sit by himself in the cafeteria, the Republicans took his milk.”
The piece ends with Obama demanding, “You leave this poor orange man alone!