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Why Boehner’s fiscal cliff ‘Plan B’ is just a time buyer

U.S. House Speaker John Boehnerspeaks at a news conference after a Republican caucus meeting on Capitol Hill in Washington on December 18, 2012.


In tug-of-war, you can tell very early whether your side has a chance of winning. And if the brutes opposite prove an immovable force, and you start to feel your heels being dragged toward the line, there is only one way to delay the inevitable: drop the rope.

This is how Matt McDonald, a partner at Hamilton Place Strategies and a former Republican strategist, described negotiations over the "fiscal cliff" after House Speaker John Boehner introduced his "Plan B" Tuesday.

The chattering classes are unsure what to make of Mr. Boehner's intention to have the House of Representatives vote on legislation that would raise the tax rates paid by everyone who earns more than $1-million (U.S.), and protect everyone else.

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Some describe Mr. Boehner's move as disruptive, a sign that "cliff" talks could fail. (Senate Majority Leader Harry Reid said Mr. Boehner's proposal would fail in his chamber, even though some Democratic senators have proposed a similar measure.) Others see it as purely tactical – a reminder to the other side that the Republicans might be down after the election, but are not out.

The later seems more likely. It's significant that even as he unveiled "Plan B," Mr. Boehner assured that he still was negotiating with the White House. And for all the bluster, negotiations are going well. The two sides appear to be on the verge of an agreement.

Mr. Boehner's willingness to call a vote on raising the tax rates of millionaires is a significant concession from a starting position of opposition to higher rates for anyone. President Barack Obama has moved to meet Mr. Boehner on rates. The White House's latest proposal calls for higher taxes on incomes above $400,000, a marked shift from Mr. Obama's campaign pledge to raise the rates paid by all households with annual incomes of more than $250,000. Mr. Obama now is seeking revenue of about $1.2-trillion over the next decade, and the latest Republican offer would generate $1-trillion. An agreement on taxes is there to be had.

The White House also has moved on spending. Mr. Obama would change the way Social Security and other benefit programs account for inflation, trimming benefits over the next decade by about $130-billion. That's a significant give because the administration had stated early that it wanted to leave Social Security for another day. As with revenue, both sides are proposing spending cuts in the range of $1-trillion. An agreement on spending targets is there to be had.

Most likely, the main purpose of Mr. Boehner's "Plan B" is to buy a little time. The proposal came as Mr. Boehner met with his caucus to discuss the state of negotiations. Oft forgotten in the play-by-play coverage of the "cliff" talks is that any agreement must pass both chambers of Congress. Leaders in the House and Senate for a grip on their members, but not total control.

The most likely trajectory for negotiations at this stage is a paper agreement between Mr. Obama and Mr. Boehner before Christmas, perhaps by the end of the week. The legislative process would then occur between Dec. 26 and the New Year. Both sides will try to enter that phase with their troops fully aligned. That's why "Plan B" most likely is about giving Mr. Boehner and his lieutenants time to count votes.

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More


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