December 21, 2012 5:49 am

Boehner tax gamble backfires

The rejection of John Boehner’s plan to avert the fiscal cliff exposed the Republican party as essentially leaderless in the final countdown before the US economy is rocked by $600bn in possible tax increases and spending cuts on January 1.

The last minute decision by the Republican speaker of the House – the second in the line of succession to the presidency after vice-president Joe Biden – to call off a vote on “plan B” to avoid the fiscal cliff, immediately raised questions about whether he would face a challenge to his leadership in party elections early next year.

It also left him with little wiggle room to avoid an event that economists have warned could tip the US into another recession.

Mr Boehner’s options are limited: he could either return to the negotiating table with President Barack Obama or have Republican and Democratic leaders in the Senate try to reach a compromise and seek to pass that measure in the House. Such a bipartisan proposal would require the full support of Democrats in the House after it became clear on Thursday night that Mr Boehner would struggle to win a majority of Republicans to back any tax increase.

Mr Boehner’s failure to secure the support of his backbenchers put the spotlight on Nancy Pelosi, the former Democratic speaker, who could rally rank-and-file Democrats to come to Mr Boehner’s aid if a deal with the president was agreed. If Mr Boehner, who as speaker has control over when proposals are brought for a vote, had the support of roughly 120 to 130 Democrats he would only require the support of 100 Republicans.

But that scenario could spell doom for Mr Boehner’s personal political future.

The Ohio congressman could also throw up his arms and simply refuse to bring another vote to the floor. That would, in effect, push the US over the cliff. Some observers have speculated for weeks that Republicans would only overcome their absolute aversion to tax rate increases once tax rates have already automatically increased, thereby giving them the opportunity to vote on tax cuts after January 1. The likely poor market response to a failure to strike a deal would add pressure to Republicans to act after January.

“Wall Street has been way too sanguine about the fiscal cliff,” said independent political analyst Charlie Cook. “Sure, there will be a deal, but it could be next week. It could be February or March. The more exotic, meaning ideological extremes [on the left and right] are not yet ready to do what is necessary.”

Mr Boehner had surprised the White House when he announced this week that he would bring a proposal to the floor of the House that would increase tax rates on households earning over $1m. The move was intended to put pressure on Mr Obama, who has a longstanding commitment to increase tax rates on households making more than $250,000 as part of a broad deficit reduction package to be passed before the new year.

But there were signs that trouble was brewing for Mr Boehner as early as Wednesday night. A Republican aide told the FT that conservatives were concerned that Mr Boehner’s demand that they increase tax rates on certain households, betraying the current Republican doctrine, was too tall of an order for a “test vote” that never had any chance of becoming law given Mr Obama’s opposition.

“It seems likely that this is really just a way for the speaker to get a better read on where the votes are,” the aide said on Wednesday night.

About 24 hours later, Mr Boehner had his answer. It was a resounding “no”.

However, the consensus in Washington on Thursday was that Mr Boehner would get the votes he needed. Grover Norquist, the conservative anti-tax activist, had given his blessing to “plan B” because, he argued, and many Republicans agreed initially, that the proposal was sparing a large majority of Americans from seeing their taxes increase automatically once Bush-era tax rates expire on December 31. Mr Norquist’s argument was seen as giving cover to many Republicans who have sworn to abide by his “no tax” pledge.

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