On Tuesday, Speaker John Boehner unveiled “Plan B,” his latest fiscal-cliff proposal, but few lawmakers expect the plan to be signed into law. Instead, the move is seen as part of Boehner’s larger strategy as he negotiates a final agreement with President Barack Obama.
In short, Boehner wants the president to raise his threshold for tax-rate increases. At the moment, Obama has offered to make the threshold $400,000 — tax rates would be kept the same if you make less than $400,000, but increased if your income is above that mark.
Boehner thinks that number is far too low. In a perfect world, he’d like to extend all current tax rates. But in an unfavorable negotiating environment, he’s willing to let rates rise on Americans who make more than $1 million.
That’s still $600,000 away from the president’s offer, but Boehner is betting that Obama will move toward him as the deadline nears. By budging on tax rates for high-end earners, Republicans have shown their willingness to compromise, and he hopes Obama will follow suit.
According to Bloomberg News, the plan would also leave the estate tax as is, block an expansion of the Alternative Minimum Tax, and “set tax rates for capital gains and dividends at 20 percent.” These measures will be included in the legislative package that comes to the House floor on Thursday.
“I think Obama will probably move toward $500,000 or $600,000 as the limit, but I doubt he goes beyond that,” says a Republican member who is familiar with the negotiations. “The president continues to think he has all of the bargaining power, so Plan B is about pushing him.”
By voting on Plan B this week, Boehner will be effectively showing the White House his hand. If it passes with a GOP majority, as Boehner hopes, it’ll show the president that the speaker can get his conference to agree to a deal, but only one that’s better than Obama’s offer.
Passing Plan B would also put pressure on the White House and Senate Democrats to come up with an appropriate response. House Republicans are firmly drawing their position in the legislative sand, and they want Democrats either to take up their proposal, or make a counteroffer.
It all comes down to this: Boehner and Obama want to finish a deal on tax rates as soon as possible, and leave the other parts of the fiscal cliff (spending cuts) for when Congress returns in January. All of this week’s posturing and “Plan B” chatter is really about finding a sweet spot on tax rates in order to calm the markets and protect taxpayers.
Of course, at the same time, Boehner and Obama continue to meet to discuss a grand bargain, “Plan A.” This would be a broad agreement that would include spending cuts, a deal on tax rates, entitlement reform, and a solution to defense sequestration.
But most Republicans don’t expect “Plan A” to be finished by the end of this month, since they sense that much haggling is still to be done. “I think Boehner and Obama will work on income taxes, then keep going with the rest of their talks,” says a Republican senator. “I don’t know how that’ll play over here in the Senate, but that’s what I’m hearing.”
All of this makes many Republicans uncomfortable. They feel like they’re caught in the middle of a chess game they never wanted to play.
But the dealings will continue. House Republicans will vote tomorrow on Plan B and on the Senate Democrats’ bill, which extends rates for those who make less than $250,000. Senate Democrats are expected to counter with the president’s $400,000 threshold as an amendment.
After this spectacle is over, many House insiders expect Democrats to show movement, perhaps toward $500,000 or more as a threshold. But even then, there will be a large gap between the two parties and little time to close it. To bring Boehner down from the $1 million threshold, Democrats are expected to offer small entitlement reforms or spending cuts.
Ultimately, the final fiscal-cliff deal will be centered on rates, and the dividing line between extended rates and increased rates will probably be in the range of $500,000 to $1 million. The deal will also likely include spending cuts to win over some unhappy House Republicans.
But for now, while the clock ticks, it’s all strategizing and show votes.