- The Washington Times - Thursday, December 20, 2012

The dizzying budgetary roller coaster careened closer to the “fiscal cliff” this week when House Speaker John A. Boehner tossed a new “Plan B” into negotiations with the White House.

Just when it seemed Mr. Boehner and President Obama were nearing a deal, the speaker changed course, voicing doubts a full package could be worked out before the Jan. 1 deadline.

That’s when a combustible combination of higher taxes and sweeping, automatic defense and domestic spending cuts will send the economy into a recession, economists say.

Mr. Boehner’s 11th-hour rescue plan would permanently extend virtually all of the tax cuts enacted under President George W. Bush for all households with income less than $1 million. That would include reining in the punishing alternative minimum tax and retaining the lower tax rate on inherited estates.

“I believe it’s important we protect as many American taxpayers as we can. And our Plan B would protect American taxpayers who make $1 million or less and have all of their current rates extended,” Mr. Boehner told reporters after closed-door meetings with his House GOP caucus.

Was this an insurance-policy move by Mr. Boehner and his leaders to blunt a likely White House offensive that would blame Republicans if a compromise weren’t reached before year’s end? Or was it a daring move to demonstrate his political strength in the GOP House to extract deeper concessions from Mr. Obama?

To many House Republican veterans who have fought over countless negotiated legislative deals before, Mr. Boehner was playing both strategies at once.

It was a high-wire act by a cunning legislative strategist who has gone toe to toe with Mr. Obama many times before only to walk away from a deal his party could not accept. He thinks a deal still can be worked out but that the White House needs to be convinced that only a tougher package can win House passage — one with no increase in tax rates below $1 million at a time when the economy remains sluggish and full-time jobs are in short supply.

Mr. Boehner pulled out his backup plan at midweek after both sides had moved the needle toward a deal. Then the talks stalled over deeper spending cuts the speaker sought and other complicated tax matters. GOP leaders feared there was little or no time to construct a full-blown trillion-dollar-plus deal over a raft of fiendishly complex issues that cannot be fully resolved in less than 12 days.

Ordinarily, fiscal fights take months to wind their way through a fierce gantlet of committees, subcommittees, countless votes and endless conference-committee dealing before a bill reaches the floor for final passage.

In this case, the White House was attempting to bypass much of that process in the belief it could bully Republicans into caving in for fear of suffering the public’s wrath against the wave of higher taxes that would result if no agreement were reached. This has been Mr. Boehner’s fear from the beginning of the negotiations.

By midweek, he was preparing to play the tactical card he had hidden up his sleeve: House Republicans would show their resolve and make the expiring Bush tax cuts permanent, avoid the worst of the fiscal cliff and postpone action on spending. Then they would send the bill to the Senate, daring the Democrats to kill it and push the economy over the edge.

“Then, the president will have a decision to make,” Mr. Boehner said. “He can call on Senate Democrats to pass that bill, or he can be responsible for the largest tax increase in history.”

Senate Majority Leader Harry Reid said the bill could not pass the Senate and swore to block its consideration. The White House, caught off-guard, called it a non-starter. The talks clearly have stalled.

As many as 10 House conservatives opposed the bill’s top tax-rate increase on millionaires. The Heritage Foundation also opposed the bill on those grounds, but Grover Norquist, the hard-core anti-tax crusader, supported Plan B, saying it didn’t violate his anti-tax pledge, which almost all GOP lawmakers signed.

Mr. Boehner has made significant concessions in the past week or so in negotiations, and so has the president. Mr. Obama gave up his long-standing demand to raise the top tax rate to nearly 40 percent for people who earn more than $250,000 a year, limiting it to households earning more than $400,000.

Mr. Boehner held fast to his opposition to all tax-rate hikes that would hit small-business employers and investors but agreed to applying the highest rate to those earning more than $1 million. In fact, existing tax deductions and exemptions would bring the effective rate well below that top level for many, if not most, millionaires anyway.

The White House also gave in to Mr. Boehner’s key demand on entitlements, allowing a less generous inflation formula on cost-of-living adjustments for Social Security benefits, and agreed to end the 2 percent payroll tax cut that affects virtually every worker in the country.

In the final analysis, Mr. Boehner was sending a signal that House Republicans would not be bullied into accepting Mr. Obama’s higher taxes when the economy was limping at a less than 2 percent average annual rate that was expected to decline in the fourth quarter.

Plan B not only would avoid sending the country tumbling over the fiscal cliff that economists say will drive the economy back into a recession, it also would erase the pervasive uncertainty that has retarded economic growth during the last four years.

Businesses would know that their tax rates would not change next year, emboldening them to make investments and plant-expansion plans that have been on hold throughout Mr. Obama’s first term.

It also would buy needed time for Congress to revise the difficult revenue reform plans pushed by Republicans to cleanse the tax code of inefficient special-interest tax loopholes and other corporate-welfare provisions. Tax reform will not only raise tax revenues, reducing the deficit, it will spur stronger economic growth — the pivotal fiscal ingredient that has long been missing from this debate.

Donald Lambro is a syndicated columnist and former chief political correspondent for The Washington Times.