House Republicans put off vote on 'Plan B' after failing to rally enough support

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President Barack Obama waves to the media as he walks from Marine One to the Oval Office of the White House, Thursday, Dec. 20, 2012, in Washington, as he returns from Walter Reed National Military Medial Center in Bethesda, Md., where he visited injured military members. (AP Photo/Carolyn Kaster)

WASHINGTON - Confronted with a revolt among the rank and file, House Republicans abruptly scrapped a vote Thursday night on legislation allowing tax rates to rise for households earning $1 million and up, complicating attempts to avoid a year-end "fiscal cliff" that threatens to send the economy into recession.

The legislation "did not have sufficient support from our members to pass," Speaker John Boehner conceded in a brief statement. At the same time he challenged President Barack Obama and Senate Majority Leader Harry Reid, D-Nev., to work on legislation to avoid across-the-board tax increases and deep spending cuts due to take effect in less than two weeks.

"The Senate must now act," said the Ohio Republican, who has noted recently that he has taken risks in supporting higher tax revenues during several weeks of fruitless negotiations on the fiscal cliff.

In a statement released a short while later, the White House said the president's "main priority is to ensure that taxes don't go up on 98 per cent of Americans and 97 per cent of small businesses in just a few short days. The president will work with Congress to get this done and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy."

Reid's office sounded a more combative note. "The only way to avoid the cliff altogether is for Speaker Boehner to return to negotiations and work with President Obama and the Senate to forge a bipartisan deal," spokesman Adam Jentleson said.

Earlier, emerging from a hurriedly-called evening meeting of House Republicans, Ohio Rep. Steve LaTourette said Boehner had told lawmakers he's "going to call the president and he's going to go down and talk to him and maybe they can hammer something out."

The turn of events marked a major personal defeat for Boehner and yet another indication of the power of tea party-backed lawmakers who helped Republicans gain a majority in the 2010 elections.

One first-termer, Rep. Tim Huelskamp, said the developments were "a victory for Republican principles." The Kansas Republican is one of three lawmakers recently stripped of favoured committee assignments for bucking the leadership.

The legislation was crafted to prevent tax increases set to kick in on Jan. 1, 2013, on tens of millions of Americans. But another provision that would have let rates rise for those at the upper income range — a violation of long-standing Republican orthodoxy — triggered the opposition of anti-tax lawmakers inside the party.

The abrupt turn of events left precious little time for divided government to prevent across-the-board tax increases and deep spending cuts from taking effect with the new year. Economists say the combination threatened a return to recession for an economy that has been recovering slowly from the last one.

The House will not meet again until after Christmas, if then, and the Senate is expected to meet briefly on Friday, then not reconvene until next Thursday.

In his written statement, Boehner said the House has previously passed legislation to prevent all the tax increases from taking effect, and noted that earlier in the evening it had approved a measure to replace across-the-board spending cuts with "responsible" reductions.

Hours earlier, Boehner said Thursday night's legislation — he'd dubbed it Plan B — marked a move to "protect as many American families and small businesses as possible from the tax hikes that are already scheduled to occur" with the new year.

Referring to one of the core themes of Obama's re-election campaign, he said the president has called for legislation to protect 98 per cent of the American people from a tax hike. "Well, today we're going to do better than that," he said of the measure that raises total taxes by slightly more than $300 billion over a decade. "Our bill would protect 99.81 per cent of the American people from an increase in taxes."

Democrats said that by keeping tax rates unchanged below $1 million — Obama wants the level to be $400,000 — Republicans had turned the bill into a tax break for the wealthy. They also accused Republicans of crafting their measure to impose a tax increase on 11 million middle class families.

"This is a ploy, not a plan," said Rep. Sander Levin, D-Mich. He accused Republicans of being "deeply cynical," saying the legislation would scale back some education and child tax credits.

A companion bill on the evening's House agenda, meant to build GOP support for the tax bill, called for elimination of an estimated $97 billion in cuts to the Pentagon and certain domestic programs over a decade. It cleared the House on a partisan vote of 215-209 and is an updated version of legislation that passed a little more than six months ago.

Those cuts would be replaced with savings totalling $314 billion, achieved through increases in the amount federal employees contribute toward their pensions and through cuts in social programs such as food stamps and the health care law that Obama signed earlier in his term.

Ironically, the votes were set in motion earlier in the week, after Boehner and Obama had significantly narrowed their differences on a compromise to avoid the fiscal cliff.

Republican officials said that members of the GOP leadership had balked at the terms that were emerging. Democrats said Boehner's abrupt decision to shift to his Plan B — legislation drafted unilaterally by Republicans — reflected a calculation that he lacked support from his own rank and file to win the votes needed for the type of agreement he was negotiating with the president.

Asked at a news conference a few hours before the scheduled vote if that were so, Boehner avoided a direct answer. "Listen, the president knows that I've been able to keep my word on every agreement we've ever made," he said.

At the same time, Boehner hinted broadly that however Democrats end up responding to the legislation he placed before the House, it will not be the end of the attempt to keep the economy from reaching the fiscal cliff.

"Our country faces serious challenges. The president and I in our respective roles have a responsibility to work together to get them resolved. I expect that we'll continue to work together."

Obama made it clear on Wednesday that he, too, is prepared for further negotiations, and numerous officials in both parties in the Senate predicted that might happen quickly after the votes in the House.

The tax bill would prevent scheduled increases from taking effect on Jan. 1 on all income under $1 million. Above that, the current rate of 35 per cent would rise to 39.6 per cent, the level in effect more than a decade ago when then-President George W. Bush signed tax cuts into law that now are expiring.

The top rates also would rise on capital gains and dividends from 15 per cent to 20 per cent.

By any measure, the two bills in the House were far removed from the latest offers that officials said Obama and Boehner had tendered.

Obama is now seeking $1.2 trillion in higher tax revenue, down from the $1.6 trillion he initially sought. He also has softened his demand for higher tax rates on household incomes so they would apply to incomes over $400,000 instead of the $250,000 he cited during his successful campaign for a new term.

He also has offered more than $800 billion in spending cuts over a decade, half of it from Medicare and Medicaid, $200 billion from farm and other benefit programs, $100 billion from defence and $100 billion from a broad swath of government accounts ranging from parks to transportation to education.

In a key concession to Republicans, the president also has agreed to slow the rise in cost-of-living increases in Social Security and other benefit programs, at a savings estimated at about $130 billion over a decade.

By contrast, Boehner's most recent offer allowed for about $940 billion in higher taxes over a decade, with higher rates for annual incomes over $1 million.

His latest offer seeks about $1.2 trillion in spending cuts, not counting the change in the cost-of-living adjustment that Obama has said he can accept. He is seeking $600 billion in savings from Medicare and Medicaid, $200 billion from other benefit programs and $300 billion from a range of government accounts.

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Associated Press writers Andrew Taylor, Alan Fram and Jim Kuhnhenn contributed to this report.