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Boehner Moves To Plan B

by Mike Godfrey, Tax-News.com, Washington

21 December 2012


While both President Barack Obama and the Republican Party’s chief negotiator John Boehner (R – Ohio), Speaker of the House of Representatives, have moved from their previously-fixed positions over the Bush tax cuts renewal, there, as yet, appears to be no sign what deal could actually be made between them to avoid the "fiscal cliff" in the United States.

Shortly after the President and Boehner met on December 17, the former decided to propose that, in contrast to his previous insistence that he would never sign an extension of the Bush tax cuts for those earning over USD250,000, he would now accept to raise taxes only on those with annual earnings over USD400,000.

However, at a press conference the following day, Boehner retorted that: "While his hope continues to be to reach an agreement with the president on a 'balanced' approach that averts the fiscal cliff, (and) what we’ve offered meets the definition of balance, the President is not there yet. The White House offer is essentially USD1.3 trillion in new revenues for only USD850bn in net spending reductions. That’s not balanced in my opinion."

It was then that he also disclosed his plan for the House to vote on a bill "to protect as many American taxpayers as possible from the tax hikes scheduled to hit on January 1." While continuing to talk to the President, he is to move to a "Plan B" to extend permanently all of the Bush tax cuts, except for those wealthiest taxpayers earning more than USD1m. Discussions on spending cuts would be left to later talks on raising the federal government's debt limit.

"I believe," he stated, "it’s important that we protect as many American taxpayers as we can. Our Plan B would protect American taxpayers who make USD1m or less, and have all of their current rates extended."

Plan B would also permanently extend the current estate and gift tax (USD5m at 35% and indexed for inflation); extend section 179 expensing for small businesses (USD250,000 and indexed for inflation); adjust the Alternative Minimum Tax (AMT) for inflation; and extend parity for capital gains and dividend taxes, preventing dividend taxes from being taxed at the highest rates.

"I continue to have hope that we can reach a broader agreement with the White House that would reduce spending as well as have revenues on the table," he concluded. "But at this point, having a backup plan that makes sure that as few American taxpayers are affected by this increase as possible – moving down that path is the right course of action for us."

The move by Boehner appeared to pour cold water on the fiscal cliff negotiations that most commentators had felt, up to then, were moving towards a short-term agreement to increase tax rates for the wealthy while agreeing to cut federal government spending, particularly by reducing Medicare and Social Security entitlements.

Predictably, Plan B was immediately rejected by the White House. The President’s Press Secretary Jay Carney commented that "the President has put a balanced, reasonable proposal on the table that achieves significant deficit reduction and reflects real compromise by meeting the Republicans halfway on revenue and more than halfway on spending from where each side started. But he is not willing to accept a deal that doesn’t ask enough of the very wealthiest in taxes and instead shifts the burden to the middle class and seniors. The Speaker’s 'Plan B' approach doesn’t meet this test."

It was the President who had first expressed the hope that a long-term solution to increase to the government’s debt limit, which will need to be resolved again by early next year, could be achieved within the fiscal cliff talks. But, in that regard, Boehner has repeated that he has had one simple principle – "any debt limit increase must be accompanied by spending cuts of a greater amount."

"In negotiations to avoid the fiscal cliff," Boehner confirmed, "President Obama has asked for the authority to increase the debt limit whenever he wants, however high he wants – with no spending cuts. That is never going to happen. Congress controls the purse strings, and it will never hand control of the debt limit over to the President. If President Obama would like to increase the debt limit in a potential fiscal cliff agreement, the length of time will be determined by how much spending the President is willing to cut."

TAGS: individuals | capital gains tax (CGT) | tax | economics | business | fiscal policy | tax rates | gift tax | United States | dividends | individual income tax

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