Fiscal Cliff: Two Cheers for Boehner’s Plan B (But Oppose It Anyway)

Update December 20th, 11:30 p.m. ET:

Speaker Boehner’s “Plan B” tax bill died today, just hours after FreedomWorks sent Congress a letter and launched a national call to action opposing the bill.

When folks in Washington thought FreedomWorks was for the bill, they assumed it would pass. When FreedomWorks came out against the bill, it failed.

Below is the blog post that Speaker Boehner reportedly cited when trying to persuade his fellow House Republicans to support the plan. It seems that he and others in Congress assumed FreedomWorks supported the bill. A close reading, however, reveals that while I warmly praised Mr. Boehner’s decision to walk away from the negotiations with President Obama, and described the Boehner Plan B bill in factual terms, I never endorsed the bill, nor did FreedomWorks.

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Good news! Yesterday, House Speaker John Boehner announced he has pulled out of the bipartisan fiscal-cliff talks with President Obama and is moving toward the approach that FreedomWorks has been urging.

The FreedomWorks Plan:

  1. Lock in the promised $1.2 trillion in ten-year sequester savings.
  2. Extend all current tax rates for one year (including the FICA payroll tax rate).
  3. Reform taxes and entitlements to avert another debt downgrade. 

Mr. Boehner’s “Plan B” is to move a bill through the House that extends permanently (not just for a year) all current income-tax rates for everyone except those earning more than $1,000,000 a year. The bill includes some other tax provisions, listed below. Amendments are also likely to be made in order. [Note: It turned out no amendments were permitted, making it impossible for conservatives to improve the bill.] The votes could come as early as tomorrow [December 20].

While not nearly as good as the FreedomWorks Plan to avert the fiscal cliff, Plan B is much better than the so-called “balanced approach” that Mr. Boehner had, until Monday, been trying to negotiate with Mr. Obama. That deal would have: raised income tax rates for those in the two highest tax brackets; called off the promised sequester savings; cut Medicare benefits without real reform; and launched another round of wasteful and unnecessary stimulus spending. We need long-term spending reduction, but the Boehner-Obama plan as described in news reports would simply be another typical Washington “higher taxes today / lower spending someday, we promise” deal that wouldn’t actually solve our long-term debt problem.  Indeed, by cutting Medicare benefits without real reform, it would give the Left a convenient and powerful talking point in their efforts to stop real reform.

Thank goodness that deal is off the table. Let’s keep it off, by moving to Plan B — and then amending Plan B into the FreedomWorks Plan.

Plan B calls the Democrats’ bluff. They’ve been loudly pressuring the Republican-controlled House to pass a bill to extend all current tax rates on households earning less than $250,000 a year. Yet now, with the Speaker publicly embracing their idea (although he would set the threshold at $1,000,000 a year instead of $250,000), the White House has issued a veto threat and Senate Majority Leader Harry Reid (D-NV) has blasted the bill as totally unaceptable. Apparently, the Democrats are willing to hold a middle-class tax cut hostage to their insistence on raising tax rates on people earning between $250,000 and $1,000,000 a year. 

The Plan B bill would prevent tax hikes for most income-tax payers in this weak economy. Let the Democrats explain their opposition to that.

Given the Democrats’ opposition, Plan B is unlikely to be signed into law. But in my opinion the House should consider it anyway (and, as I said, allow amendments, so we can turn it into the FreedomWorks plan).

Details of the Bill

According to an email we’ve received from the House Ways and Means Committee, the Plan B bill:

  • Does not raise taxes. It is a net tax cut that prevents a $4.6 trillion [ten-year] tax hike on January 1;
  • Permanently extends income tax rate cuts for Americans making less than $1 million, which protects 99.81 percent of all taxpayers;
  • Permanently extends the current estate and gift tax [aka the Death Tax] [Specifically, the bill taxes estates valued at $5 million and up at 35 percent, indexed for inflation, rather than letting a 55 percent tax rate kick in on January 1, 2013, applicable to all estates valued over $1 million.];
  • Permanently extends section 179 expensing for small businesses ($250,000 and indexed for inflation);
  • Permanently stops the Alternative Minimum Tax (AMT) from hitting more middle class families;
  • Permanently extends parity for capital gains and dividend taxes, preventing dividend taxes from being taxed at the highest rates; and
  • Does not include anything on the debt limit or other non-tax policy items. Remember, Speaker Boehner’s rule on the debt limit still applies: spending cuts must exceed any debt limit increase.

Based on this description, I would say the bill can fairly be described as follows: a permanent middle-class tax cut that reduces taxes by $4,000,000,000,000 ($4 trillion) over ten years and does not violate the Americans for Tax Reform (ATR) “taxpayer protection” pledge (which most congressional Republicans have signed).

Possible Amendments

The newspaper Roll Call is reporting that the House may consider some amendments:

According to House Republican aides, GOP leaders are planning to bring their “plan B” to the floor as soon as Thursday. Under that proposal, the House would vote on two amendments: One that would allow tax rates to go up on those making more than $250,000 — as Senate Democrats have called for — and one that would allow tax rates to go up on those making more than $1 million. The latter would also include extensions of the estate tax and a fix to make sure the alternative minimum tax does not hit middle-income taxpayers.

These and additional amendments should definitely be allowed. Let House members vote on tax rates, including payroll tax rates.

[Update: On 12/20, the Speaker’s Office published the following notice:

The House of Representatives will vote today on two measures to shield families and small businesses from the looming “fiscal cliff” by cutting spending and protecting millions from tax hikes. These bills are:

The Spending Reduction Act of 2012 (H.R. 6684) replaces the president’s defense ‘sequester’ with common-sense spending cuts and reforms, and reduces the deficit by an additional $242 billion over the original sequester. The bill focuses on stopping waste, fraud, and abuse in federal programs, eliminating government slush funds (including an ObamaCare slush fund), and reducing waste and duplication in government bureaucracies. The House passed this bill in May but Senate Democrats never took action. Learn more about it here. [Update 12/20: The bill passed the House narrowly.]

 The Permanent Tax Relief for Families and Small Businesses Act of 2012 (H.J. Res. 66) permanently protects millions of taxpayers from President Obama’s tax rate hikes. The bill permanently extends current tax rates for everyone making less than $1 million, the $1,000 child tax credit, expensing relief for small businesses, and much more. Analysis by the nonpartisan JCT found it is a $3.9 trillion tax cut. As Speaker John Boehner said yesterday, the president can “call on Senate Democrats to pass [this] bill, or he can be responsible for the largest tax increase in American history.”  Learn more about it here. [Update 12/20: The bill was pulled from the House schedule for lack of sufficient support.]

The Rest of the Cliff

Even if Plan B does become law (without or without the aforementioned amendments), the following things will happen on January 1, 2013: 

  • The sequester will kick in. It will reduce spending by an estimated $110 billion in 2013, and $1,200,000,000,000 ($1.2 trillion) over ten years.
  • The Social Security portion of workers’ payroll taxes (FICA) will rise by 30 percent.
  • Certain expiring tax provisions (mostly of interest to corporate interests) will expire. 
  • Medicare’s payments to physicians for medical services will go down by about 30 percent.
  • Extended unemployment insurance benefits will no longer be extended and go back to their normal, 26-week length.

Next: Debt Ceiling

Most of these “unaddressed” issues would presumably get dealt with during the next round of the Great Debt Ceiling Debate or as part of some bipartisan “grand bargain” bill, in the New Year. 

The current debt limit of $16,400,000,000,000 ($16.4 trillion) is projected to be reached in February of next year, at which time the president will have to ask Congress for another increase. Meanwhile, the 40 percent of the budget that is annually appropriated expires on April 1, 2013. So we should expect budget brinkmanship and bipartisan game-playing to continue right through the first quarter of 2013.

Better Way: The FreedomWorks Plan

Plan B is similar to the FreedomWorks plan for averting the fiscal cliff. It differs primarily in that it lets taxes go up, as currently scheduled, on two main groups of people: 1) those earning more than $1,000,000 a year; 2) all workers, via a huge FICA payroll tax hike. Here, again, is the FreedomWorks plan:
  1. Lock in the promised $1.2 trillion in ten-year sequester savings.
  2. Extend all current tax rates for one year (including the FICA payroll tax rate).
  3. Reform taxes and entitlements to avert another debt downgrade. 
(Of course, point 3 depends on cooperation from President Obama and congressional Democrats, which, based on past history, we shouldn’t count on.)


Speaker Boehner: Congratulations, you are moving in the right direction. You woke up and realized you have the power to say No to the Left. Stay the course. Go all the way to the FreedomWorks plan, and you’ll have it made in the shade.
P.S. From now on, sir, we in the grassroots freedom movement respectfully ask you to offset each new debt ceiling increase with an equivalent amount of spending reductions, in the same bill. No more “super committees.” No more kicking the can down the road. The time to get serious on spending reductions is now.

Update, December 20th, 11:30 p.m.:
The Speaker’s refusal to allow amendments to his bill, and the Democrats’ insistence on holding out for more tax hikes, led FreedomWorks to conclude today that passing the bill at that point would only strengthen the Left’s movement for higher taxes and therefore the bill should be opposed. A few hours before the scheduled vote, FreedomWorks issued a national call to action against the bill. When the time arrived to vote, the Speaker was forced to pull the bill from consideration, unable to secure ufficient support for it among his fellow Republicans, despite having taken the unusual step of publicly lobbying them in person. We believe FreedomWorks’ opposition helped kill the bill, and that Mr. Boehner would probably have fared better if he had taken our advice and tried to extend ALL current tax rates.


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