Stocks may slump after GOP fails to pass tax bill

Updated: 10:48 p.m. ET

Maybe cooler heads will prevail by Friday morning, but financial markets late Thursday and early Friday in Asia were falling after House Speaker John Boehner couldn't muster enough votes to pass his own tax bill.

The carnage looked to be most concentrated in U.S. markets.

Futures trading Thursday evening suggested the Dow Jones industrials ($INDU) would tumble perhaps 190 points at the open. The Standard & Poor's 500 Index ($INX) would drop some 22 points, and the Nasdaq-100 Index ($NDX) might tumble some 38 points. In all, stocks would open down perhaps as much as 1.5%.

The U.S. dollar moved higher against foreign currencies, and gold (-GC) fell nearly $10 o $1,636 an ounce. Crude oil (-CL) in New York moved lower as well.

Meanwhile, stocks in Australia and Asia were lower as the news spread, although the declines were not nearly as great. Futures trading in Europe suggested a slightly lower open for stocks. The market reaction came as Boehner pulled his so-called Plan B proposal to prevent lower tax rates from expiring on most Americans. It came after the House had narrowly approved a plan to suspend planned Pentagon cuts.

When Boehner realized he didn't have the votes, he sent lawmakers home for the Christmas holiday. President Obama and Senate Majority Leader Harry Reid would have to come up with an acceptable deal, he said.

• 7 pieces of the fiscal cliff

Boehner's calculation is that Democrats will cave on spending before Republicans cave on taxes. But the failure of the bill raises the issue of whether Boehner can survive as speaker.

Most Washington pundits believe -- at least publicly -- that a fiscal cliff deal will still be struck. But the fact of the matter is that Democrats and Republicans don't like each other and find little to talk about.

"The differences between the two parties are enormous, they're theological," Greg Valliere, a veteran Washington observer, said Thursday morning in a note to clients.

The development came as more than a half-trillion dollars in tax increases and spending cuts are supposed to kick in on Jan. 1. Federal tax rates would revert to those in place in 2001 when George W. Bush took office. In addition, there would be significant cuts in across the board.

Boehner's bill would have put Republicans on record as supporting a tax increase on those who earn more than $1 million a year -- a position the party opposed only weeks ago.

Boehner had hoped to show that he has the full support of House Republicans by passing a bill that would limit income-tax increases to the wealthiest sliver of the population, far fewer than Obama wants.

Obama had campaigned for reelection on raising tax rates on those making $250,000 or more. But he had indicated he might support tax increases only on those making $400,000 a year or more.

House Republicans also wanted specific and deep spending cuts, particularly in entitlements such as Social Security and Medicare.

Until Thursday, investors had assumed Washington would avoid disaster. President Obama and Boehner have said they want to cut a deal on taxes and spending before Dec. 31. Instead, the intense partisan divide that nearly shut down the government a year ago has reemerged.

And it could lead to an uglier fight over the federal debt ceiling in February or March.

In August 2011, Congress and the White House narrowly avoided an actual government default on the national debt. But the down-to-the-wire nature of the effort prompted a first-ever debt downgrade by Standard & Poor's and spooked investors and consumers.

Between July 29, 2011, and Oct. 4, 2011, even as Federal Reserve Chairman  Ben Bernanke vowed to make sure the economy wouldn't collapse, the Dow fell as much as 14%.