Ahead of two votes in the House of Representatives on Republican-backed spending and tax bills, Senate Democrats ripped into House Speaker John Boehner's so-called "Plan B," calling the proposals to avoid going over the fiscal cliff a "nonstarter" in the upper chamber and deepening the partisan impasse ahead of a year-end deadline to avert a series of automatic tax increases and across-the-board spending cuts.
In what figures to be a largely symbolic vote, the House on Thursday evening appears ready to pass one bill that would preserve the current, Bush-era tax rates for all households earning less than $1 million a year, and another that would replace looming cuts to defense spending with alternative reductions in spending targeting a variety of federal programs.
Financial advisors and investors are keeping a close eye on the debate in Washington. In addition to ordinary income rates, a host of other tax rates are in play, including dividends and capital gains. If Congress and the White House cannot reach a deal, the top tier of capital gains tax rates would jump from 15% to 20%, while the highest tax rates for dividend income would move from the current mark of 15% to align with ordinary income for a top rate of 39.6%.
Boehner's plan would permanently freeze top tax rates on dividends and capital gains at the 15% level for all households under the $1 million threshold, estimated at 99.8% of taxpayers. Along with other proposals, including a permanent extension of the $5 million estate tax exemption, he bills his plan as a $3.9 trillion tax relief package.
Throughout the campaign and since the election, President Obama has insisted that the cutoff for top earners be set at $250,000, and that top rates for those earning more revert to the higher Clinton-era levels.
Senate Democratic leaders on Thursday afternoon blasted the expected House votes as a political maneuver, making an emphatic assurance that they would not bring the bills to a vote, and pointing out that Obama has said he would veto the tax measure if it made it to his desk.
"We are not taking up any of the things that they're working on over there now," Senate Majority Leader Harry Reid (Nev.) told reporters. "Let me be absolutely clear: Speaker Boehner's plans are a nonstarter in the Senate."
Boehner stepped to the microphones about 20 minutes later to offer his own version of the negotiations, reiterating his charge that the White House and Senate Democrats have insisted on tax increases while refusing to get "serious" about spending cuts.
"I did my part. They've done nothing," Boehner said of the Plan B vote, which would represent the first time in the fiscal cliff talks he has leaned on his caucus to support an increase in tax rates, even if for a smaller portion of taxpayers than the president is seeking.
"After today, Senate Democrats and the White House are going to have to act on this measure," Boehner said. "I am not convinced at all that when the bill passes the House today that it will die in the Senate. At some point, the Senate has to act."
Patty Murray of Washington, the No. 4 Democrat in the Senate, sees it differently, flatly calling Boehner's Plan B "bad policy."
"It's not balanced -- that's clear," Murray said. "It is dead on arrival here in the Senate. We are not taking it up, changing it and sending it back."
The mutual accusations of being unserious on either tax increases or spending reductions, accompanied by charges that the opposing side's approach is unbalanced, have marked the fiscal cliff negotiations from the outset, though at times, including earlier this week, Boehner and the White House appeared to be approaching a deal. Boehner's Plan B proposal follows a series of meetings between the speaker and the president that have seen both sides make concessions on taxes and spending, but ultimately fail to meet in the middle.
With a dwindling number of days before the year-end deadline, made still fewer by the Christmas holiday, time is running short for the two sides to reach a deal. Reid said that he plans to reconvene the Senate Thursday morning, Dec. 27.
"We can get a lot of things done very quickly if we put our minds to it," he said.
But with the two sides again taking up their sharp partisan rhetoric ahead of what appears to be a highly politicized House vote, the odds of reaching a deal before the year-end deadline are getting longer, according to Neil Simon, vice president of government relations with the Investment Adviser Association.
"It doesn't appear to me that Plan B is going to help the House get to 'yes,'" Simon said in an email. "Although I'm certain that Congress will resolve this issue, I'm no longer confident it will happen before the New Year," he added, warning of the disruption that has seen financial markets jolt through ups and downs as investors have reacted to each turn of the fiscal cliff negotiations.
"The resulting damage to the markets from this apparent Congressional dysfunction, even if only for an interim period, is hard to justify," he said.
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