While Republicans in the U.S. House of Representatives were able to successfully pass a measure that would replace the looming sequester cuts to military and other programs, Speaker John Boehner (R-Ohio) withdrew his “Plan B,” which would have extended the income tax rate cuts for most Americans making less than $1 million, and avoided the Fiscal Cliff. Lawmakers have left town and the House will not take any votes until after the Christmas holiday.
Boehner could not muster the votes for his measure, seen as a fiscal-cliff negotiating chip, which faced an onslaught of conservative opposition from both inside and outside the conference as opponents argued the legislation amounts to a tax hike. The speaker said the bill did not have enough backing in his conference to pass.
"The House did not take up the tax measure today because it did not have sufficient support from our members to pass. The House has already passed legislation to stop all of the January 1 tax rate increases and replace the sequester with responsible spending cuts that will begin to address our nation's crippling debt. The Senate must now act."
The House leaders gave no indication of when (or if) the chamber will return in 2012, leaving the nation in limbo until after the holiday.
Meanwhile, Deutsche Bank economists wrote in a Dec. 20 analysis, “Such an abrupt and caustic mix of tax increases would impart a significant financial and psychological shock on a broad swath of households.” Disposable income and consumption would fall, confidence would plummet, and the consequence of going over the cliff “is sufficiently large to prove insurmountable for the economy, given the tepid pace of growth at present,” they argued. The analysts said the economy would shrink by 2 percent in the first half of the year and unemployment would rise by a full percentage point.
Worldwide stocks fell on Dec. 21 following the House’s canceled tax bill vote on the day prior. In the U.S., Dow futures fell by about two percent and S&P futures dove by about three percent immediately following the House action, but came up off their lows Friday morning. Major European and Asian indexes were down by nearly one percent on Dec. 21.
It's not clear how the fiscal-cliff proposals from President Obama or Speaker Boehner will affect small businesses, The Wall Street Journal reports. Boehner's plan to allow taxes to rise on income over $1 million would hit 311,000 small-business owners, according to the report. Raising taxes on income over $500,000 — a slightly higher benchmark than the president's $400,000 — would affect roughly 750,000 small-business owners. Exactly how the tax hikes would affect the businesses, however, is not clear.