Boehner Floats Fiscal Cliff "Plan B"; Obama Offers Concessions Regarding Tax on Wealthy

Boehner Floats Fiscal Cliff "Plan B"

Both house speaker John Boehner and president Obama have given ground in the "fiscal cliff" drama. The sides are still far apart but concessions now are steady. The fact there is ongoing movement makes a deal possible. 

Will we get there? Can Boehner get enough in return on entitlement cutbacks? On that score the president has barely budged, but the stock market sure seems to think a deal will be reached.

Please consider Boehner floats ‘Plan B’ as cliff deadline nears.

House Speaker John Boehner on Tuesday floated a back-up plan to raise taxes on incomes of $1 million and above, even as Republicans and the White House were moving closer to a deal to avert the fiscal cliff.

Dubbed “Plan B” by the Ohio Republican, the proposal was met with immediate pushback from the White House and Senate Democratic Leader Harry Reid, who said it cannot pass both houses of Congress.

The speaker said he remains confident a deal can be done before the end of the year. But he dismissed Obama’s latest offer as unbalanced. Boehner said he wants $1 trillion in spending cuts for $1 trillion in revenue.

“That would be my version of a balanced approach,” he said.

The only difference between Plan A and Plan B that I can tell is the offer of tax hikes on those making over $1,000,000. Wasn't that hashed out over a week ago?

Concessions From Both Sides

MarketWatch notes concessions, Where Obama and Boehner Have Backed Down

Taxes: Monday night, Obama dropped his long-held insistence that rates rise for incomes of $250,000 and above. The new target: allowing Bush-era rates to expire for incomes of more than $400,000. The speaker is willing to accept higher rates on $1 million incomes and above. Chances are that neither side is done moving toward the other. Could $500,000 be the sweet spot?

Spending: Obama has offered $1.2 trillion in spending cuts, including $400 billion in savings from entitlement programs. That’s a $50 billion increase in entitlement savings, but still far from the $1 trillion in entitlement cuts sought by Boehner.

Debt ceiling: Some Republicans had wanted to use the threat of default to push the White House to make spending cuts. But last week, Boehner offered a one-year increase in the debt ceiling as part of a fiscal-cliff deal — as long as it is coupled with corresponding spending cuts. But Obama upped the ante on Monday night, calling for a two-year extension. (He’d originally wanted unlimited power to raise the ceiling.)

Significant Differences

• There is a huge gap between $400,000 and $1,000,000 on tax hikes.
• There is a huge gap between $400 billion and a $trillion on entitlement cuts.
• Boehner wants a debt-ceiling deal to include spending cuts for every dollar upped. Will Obama agree to that if Boehner agrees to a two-year extension?

The gaps that still remain are huge. Nonetheless, the stock market acts as if a deal is at hand.  Should there be a deal, a sell-the-news event seems likely.

Assuming there is a deal (and I am still not entirely convinced there will be one), the only market-favorable fundamental is the Fed, and at some point that will cease to work.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com