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Way forward on US 'cliff' uncertain after Republican plan fails

Source: Thomson Reuters Foundation - Fri, 21 Dec 2012 15:48 GMT
Author: Reuters
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(Corrects party affiliation of Burgess from Democrat to Republican in paragraph 16)

* House Speaker Boehner to speak at 10 a.m. (1500 GMT

* Global markets weak as "fiscal cliff" talks stall

* Boehner's leadership criticized by some Republicans

* Democrats say they're ready to work on path forward

By Thomas Ferraro and Rachelle Younglai

WASHINGTON, Dec 21 (Reuters) - The task of picking up the pieces of the "fiscal cliff" talks - and reassuring global financial markets that were shaky early on Friday - is likely to fall largely to President Barack Obama after Republicans abandoned their own proposed fix championed by House of Representatives Speaker John Boehner.

Boehner, the top Republican in Congress and Obama's chief negotiating partner, failed to muster enough support from his fellow Republicans, who control the House of Representatives, to pass his bill called "Plan B" on Thursday.

He had hoped to use it to pressure Obama in talks to avert the steep tax hikes and automatic government spending cuts slated to start taking effect in just 11 days.

Boehner late on Thursday abruptly pulled the legislation, which would have raised taxes only on people earning ${esc.dollar}1 million or more a year. House members, heading to their home states for the holidays, were instructed to be available on 48 hours notice if necessary.

With his power apparently weakened, Boehner scheduled a news conference for 10 a.m. (1500 GMT) Friday. Democrats were urging him to go back to the bargaining table with Obama.

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

Obama said he still plans to work with Congress and was hopeful for a bipartisan solution, his press secretary said in a statement late on Thursday.

The failure casts fresh uncertainty over talks to avoid across-the-board tax hikes and spending cuts that could push the U.S. economy into recession in 2013.

Global stock markets weakened on Friday and both the euro and gold slipped as the new setback rattled investors' nerves. Most major stock markets saw widespread selling as investors moved to traditional safe-haven assets.

BOEHNER'S TRAVAILS

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.

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.

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.

"There's been very little outreach by this leadership team to conservatives. ... Do not ask for tax increases. We're not going to give them," Huelskamp said, added: "We can still get this done."

Obama and his fellow Democrats in Congress are insisting that the wealthiest Americans pay more in taxes in order to help reduce high federal budget deficits.

Democrats, who are the minority in the House but control the Senate, 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 wealthy.

'READY TO WORK'

"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.

"I believe we can and must take action before the end of the year to prevent the fiscal cliff," Steny Hoyer, the second ranking Democrat in the House, told MSNBC. "Democrats are ready to work with Republicans to do so."

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.

Wall Street and numerous chief executives have expressed frustration with Washington and the wrangling over a deal that has persisted for weeks with little progress.

Aetna Inc Chief Executive Officer Mark Bertolini said he feels negotiations seem like they are falling apart, calling the back-and-forth among politicians "pitiful and embarrassing" in the Wall Street Journal on Friday.

"The worst-case scenario is increasingly becoming a probable scenario," BlackRock Inc Chief Executive Officer Laurence Fink told the newspaper.

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 and Susan Heavey; Editing by Fred Barbash and Will Dunham)

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