The apparent breakdown of talks between U.S. President Barack Obama and Republican House Speaker John Boehner on a fiscal cliff deal took the optimism out of the markets on Wednesday, with the Dow Jones Industrial Average falling nearly 100 points.
As the markets prepared to open for trading Thursday, U.S. stock futures were lower.
Boehner has decided to go ahead with a vote on his "Plan B," which would extend the Bush-era tax rates for all taxpayers with income of less than $1 million but would not deal with any of the automatic spending cuts that would take effect after Jan. 1.
In an effort to win support from wavering House Republicans, it has been reported that a companion bill could be brought to the floor with Plan B. The bill would prevent across-the-board cuts required by the fiscal cliff from being applied to the military and other specific programs.
Assuming Boehner can round up enough votes to pass Plan B, then "the president will have a decision to make," Boehner said. "He can call on the Senate Democrats to pass that bill or he can be responsible for the largest tax increase in American history."
Senate majority leader Harry Reid, D-NV, has indicated Plan B will not pass in the Democrat-controlled Senate, and President Obama has vowed to veto the bill if it reaches his desk.
Can Boehner Get the Votes for Fiscal Cliff Deal?
Plan B has been roundly criticized by Democrats, as expected. But Boehner is facing sharp opposition from some members of his own party.
Tea Party Republicans are opposed to Plan B because they will not vote for a tax increase on anyone. The Heritage Foundation, a conservative think tank, opposes Plan B because it concedes taxes need to go up for at least some taxpayers.
Grover Norquist's Americans for Tax Reform put out a statement saying it did not consider a vote for Plan B to be a violation of its pledge to never increase taxes. Rep. Paul Ryan, R-WI, who had been the Republican vice-presidential candidate, also endorsed Plan B.
Press reports state that Boehner has already lost about 10 Republican votes for Plan B, mostly from members opposed to any tax increase. Boehner was seen on the floor of the House Wednesday shaking hands and cajoling Republicans to support Plan B in today's vote.
Even if Plan B passes the House, what does it achieve? Since it will be dead in the water when it reaches the Senate, in practical terms, nothing.
But politically, if the House passes the fiscal cliff deal, it will give the Republicans some cover when they go home for the Christmas break. They will be able to say to their constituents that Democrats rejected a bill that would continue tax cuts for all but the wealthiest Americans.
House passage of Plan B also would keep the fight over the debt ceiling alive when Congress returns to work in January.
Debt Ceiling Remains Sticking Point in Fiscal Cliff Deal
Republicans have been very reluctant to lose the leverage they get from the debt ceiling to wring more concessions from President Obama on spending cuts.
Earlier this week, when they were talking about a comprehensive deal to resolve the fiscal cliff and the debt ceiling, Boehner had offered a one-year increase in the debt ceiling while President Obama had been pushing for two years. The president has said repeatedly that he will not negotiate with Republicans on the debt ceiling.
Given Boehner's abrupt about-face in the negotiations when a fiscal cliff deal seemed to be at hand, markets are rightly concerned that a deal on the debt ceiling might meet the same fate.
The fiscal cliff is bad enough: It could tip the U.S. economy back into recession. But to add the possibility that the U.S. Treasury could default on its debt during the first quarter of 2013 would likely poison the markets until some sort of agreement is reached.
- Read more Money Morning coverage of fiscal cliff deal negotiations.
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