'Fiscal cliff' efforts in disarray as U.S. lawmakers flee

WASHINGTON Sat Dec 22, 2012 3:15am IST

U.S. one dollar bills are displayed in this posed photograph in Toronto October 22, 2008. REUTERS/Mark Blinch/Files

U.S. one dollar bills are displayed in this posed photograph in Toronto October 22, 2008.

Credit: Reuters/Mark Blinch/Files

WASHINGTON (Reuters) - Efforts to avoid the looming U.S. "fiscal cliff" were thrown into disarray on Friday with finger-pointing lawmakers fleeing Washington for Christmas vacations even as the year-end deadline for action edged ever closer.

No new negotiations were scheduled between Republicans, congressional Democrats and the White House to reach a deal to prevent a fiscal calamity in 10 days. The White House said President Barack Obama will make a statement at 5 p.m. EST (2200 GMT) on Friday on the "fiscal cliff" stand-off.

"How we get there, God only knows," House of Representatives Speaker John Boehner, the top Republican in Congress, told reporters on Friday when asked about a possible comprehensive "fiscal cliff" solution.

Boehner's own "Plan B" option dramatically collapsed in a heap on Thursday night when he failed to rally the support of his fellow House Republicans.

If there is no agreement, taxes would go up on all Americans and hundreds of billions of dollars in automatic government spending cuts would kick in next month - actions that could plunge the U.S. economy back into recession.

In the eye of the storm was Boehner, who reluctantly agreed to a demand by Obama that taxes go up on the wealthiest Americans, only to find he could not bring along anti-tax conservatives in his own party.

After protracted negotiations, Boehner had extracted a compromise from Obama to raise taxes on those Americans making more than $400,000 a year, instead of the president's preference of those with income of $250,000 a year.

But with talks stalled on the level of spending cuts to which Obama would agree, Boehner attempted a backup plan to raise taxes only on those making more than $1 million a year - amounting to just 0.18 percent of Americans.

That failed because conservative House Republicans refused to support tax increases on anyone. Now Boehner's leadership is in question as both parties engaged in a round of blaming as they began closing down business until after the Christmas holiday next week.

It emerged on Friday that Boehner's defeat in the House was worse than first thought. A key Republican lawmaker said Boehner scrapped the vote when he realized that between 40 and 50 of the 241 Republicans in the House would not back him.

Obama and his fellow Democrats in Congress are insisting that the wealthiest Americans pay more in taxes in order to help reduce federal budget deficits and avoid deep spending cuts. Republicans control the House and Democrats control the Senate.

It was not clear whether Obama would go ahead with plans to spend Christmas in Hawaii with his family or stay in Washington to try to breathe some life back into the talks.

Stocks dropped sharply on fears that the United States could go fall back into recession if politicians do not prevent it.

Major indexes lost about 1 percent, though investors still held out hope that an agreement will be brokered in Washington.

"I think if you get into mid-January and (the talks) keep going like this, you get worried, but I don't think we're going to get there," said Mark Lehmann, president of JMP Securities, in San Francisco.

BLAME GAME

Boehner, joined by his No. 2, Eric Cantor, at a Capitol Hill news conference, said the ultimate fault rests with Obama for refusing to agree to more spending reductions that would bring down America's $1 trillion annual deficit and rising $16 trillion debt.

"What the president has proposed so far simply won't do anything to solve our spending problem. He wants more spending and more tax hikes that will hurt our economy," Boehner said.

Democrats responded with incredulity.

"I like John Boehner, but gee whiz," said an incredulous Senate Majority Leader Harry Reid, the top Democrat in Congress. He decried what he called the "brinkmanship and silliness" in the House.

House members, heading to their home states for the holidays, were instructed to be available on 48 hours notice if necessary.

"They went from 'Plan B' to 'plan see-you-later,'" Obama adviser David Axelrod said on MSNBC on Friday morning.

The crumbling of Boehner's plan highlights his struggle to lead some House Republicans who flatly reject any deal that would increase taxes on anyone.

Boehner's bill was pulled after his team concluded that they were "40 to 50" votes short of the 217 needed in the chamber for passage, said Representative Tom Cole, who helps the House Republican leadership round up votes.

"If we were within four or five votes," Cole said, he and other Republican leaders along with Boehner would have kept trying to rally support. "But there was too much distance between where we were at and what we needed."

Republican Representative Tim Huelskamp criticized Boehner's handling of the negotiations, saying the speaker had "caved" to Obama opening the door to tax hikes. Huelskamp, a dissident first-term congressman, said he was not willing to compromise on taxes even if they are coupled with cuts to government spending sought by conservatives.

Fiscal conservatives "are so frustrated that the leader in the House right now, the speaker, has been talking about tax increases. That's all he's been talking about," Huelskamp said on MSNBC on Friday morning.

Democrats are now stepping up efforts to gather some Republican votes for a Democratic bill passed by the Senate months ago that would extend the expiring tax cuts to all but the wealthiest Americans.

"What we'll have to do is figure out where that line is that gives us those 218 votes" needed to garner a majority of the House behind legislation, Republican Representative Michael Burgess said on CNBC on Friday.

Senate Republican Leader Mitch McConnell, who has experience helping to forge deals when House Republicans are in disarray, is likely to play a larger role now in attempting to rescue the situation along with other Senate Republicans, who have been more receptive to compromising.

Sean West, a Eurasia Group analyst, told Reuters: "Boehner didn't have a ton of good moves, and has even fewer now." He said he thought Boehner was "either headed back to the White House for a big deal or he's accepting whatever bipartisan fallback is crafted by Senate leaders. Hard to see him coming back with another partisan gambit."

(Additional reporting by Richard Cowan, Rachelle Younglai, Thomas Ferraro and Susan Heavey; Writing by Steve Holland; Editing by Alistair Bell)

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