Boehner's defeat is no big deal

The House Speaker couldn't deliver the votes of his own caucus. But in a perverse way, that's good news for fixing the fiscal cliff.

By Jim J. Jubak Dec 21, 2012 12:45PM
Image: Washington, D.C. (Corbis)Surely you didn't expect global financial markets to react positively to Thursday night's debacle in the House of Representatives?

Overnight, after a revolt among conservative Republican members forced House Speaker John Boehner to pull his solution to the U.S. fiscal cliff, Hong Kong’s Hang Seng index dropped 0.68% and Tokyo’ Nikkei 225 index fell 0.99%. 

As morning rolled across the world, the Germany DAX index declined by 0.74% and the French CAC 40 index moved 0.46% lower. In the United States, the Dow Jones industrials ($INDU) was down 1.23% and the Standard & Poor's 500 Index ($INX) was down 1.33% in late-morning trading.

From a cynical U.S. perspective (and is there any other appropriate perspective on U.S. politics these days?), it’s hard to see what all the hoo-hah is about.

Boehner’s Plan B -- a proposal to raise the marginal tax rates for taxpayers making more than $1 million and to extend the Bush tax cuts for everyone else -- was never a real proposal with a chance to pass into law in the first place. It would have been dead on arrival in the Senate and President Barack Obama had promised to veto it.

It was a political stunt designed to embarrass Democrats -- and not a particularly well-designed one to begin with.

And to even get the bill to a chance of passage in the theoretically Republican-controlled House, Boehner had to load it up with all kinds of spending cuts -- to Food Stamps, for example -- designed to appeal to the most conservative Republicans. But those additions made the bill even more repugnant to Democrats in the House and even less likely to pass the Senate.

So what’s the big deal? If it had passed would we be closer to a deal on the fiscal cliff? I think there’s a strong argument to be made that we’d be further away. This morning we’d be watching Boehner push a bill that stood no chance of passage. Granted Republicans packed their bags last night and went home for Christmas and so there are no negotiations Friday, but if Plan B had passed nobody would be engaged in serious talks today anyway.

In having to pull Plan B before it came to a vote, Boehner has actually delivered a strong dose of reality -- always in short supply in Washington. Last night demonstrated Boehner’s inability to deliver the votes of his own caucus for a proposal that he crafted. And that testifies to the reality that the Speaker can’t deliver a majority of Republican votes in the House if he were to strike a deal with the Democratic President and Senate.

That’s only a big deal if you thought Boehner had any real control over the Republican caucus in the House to begin with. If you didn’t -- and frankly I don’t see how anyone watching the post-election Republican party can think its leaders have any control over the conservative rank and file members of the House -- then last night’s events aren’t especially surprising.

Before last night, the odds were that Congress was going to send the country off the fiscal cliff at the end of December. And that’s still the case.

Before last night, the only deal with a chance to pass the House and the Senate and get signed by the President would have had to be a bipartisan agreement able to attract a majority of Democratic votes and a sufficient minority of Republican votes. And that’s still the case.

In a perverse way, last night’s debacle -- because it was so profoundly humiliating for Boehner and because it so clearly demonstrates Boehner's inability to deliver his caucus on any deal with a chance of passing the Senate -- clears the way for action in January. It’s one less piece of political grandstanding in the way of a solution. And it’s one big demonstration of how a coalition to fix the fiscal cliff will have to be assembled.

The big test -- the one the markets should be focused on -- is not whether Washington could get its act together to pass a fiscal cliff solution before the end of December. That was always extremely unlikely. The big test is whether Washington can act relatively quickly in January so that the economy can avoid real damage from the higher tax rates and lower spending targets that go into effect on Jan. 1.

A little bit of a fall off the fiscal cliff isn’t going to send the economy into recession. But if our politicians are still staging political stunts at the end of January, then the economy is in real danger.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own the shares of any company mentioned in this post as of the end of September. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 
105Comments
Dec 21, 2012 1:15PM
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Fuzzy Details misses the point totally.  Cutting spending is a goal.  But proposing a strategy that does not have any base in reality - such as Plan B - is not going to get anyone anywhere, and that is exactly what happened.  All Boehner proved is that he can't lead.  His efforts should have been focused on those Republicans that are open to compromise instead of the "disgruntled, stubbornly ignorant and entrenched ideologues that are in the minority but apparently controlling Boehner and the rest of the Republican party.  Some leadership needs to surface among the Republicans. 
Dec 21, 2012 1:06PM
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535 Politicians in Washington control the United States!   All part of a criminal conspiracy to rob the American People of their FREEDOM ! We are doomed unless we all wake up to the reality of what is happening around us and the legacy that we are leaving our children  !!!
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Gee people the fiscal cliff deal either way Republican or Obama

 

is going to be way too little way too late

 

even if it is done we are going to have a debt of $25 trillion in seven years 2020 perhaps even in just 6 years

 

we need to cut or raise $2 trillion a year not $1 trillion over 10 years to start to make a dent in the debt.

 

We are past the point of no return and headed towards complete economic meltdown.

Dec 21, 2012 1:51PM
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"The real problem with the federal budget is spending.  Numerous studies have shown that government spending that exceeds 20% of the GDP retards growth.  Spending is out of control."

I keep reading this. Is it a Cable Channel? WE SPEND ON TWO THINGS... the Bush Wars and Bail-outs associated with the Gramm Leach Bliley Act and Federal Reserve adverse agenda.  The Bush Wars and Military Hokum has to go. Shut the Military Machine down and rebuild it like it was really meant to defend us and not be the Bottomless Honey Hole for GOP nut cases. Abolish GLBA today. A nation that legalizes financial collusion, sees it fail and bails it over and over won't last long. We are THERE. Arrest EVERY elected Official who transitioned to a financial role after his her term. Dis-ban every lobby that brings financial services and politicians together. Restore the Glass Steagall Act before leaving on vacation, Congress. DO SOMETHING RIGHT OR DON'T COME BACK.  
Dec 21, 2012 4:17PM
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The GOP should be taking a back seat on this since they are the minority party.  It's up to Obama to put his plan up for a vote in the Senate and see if it passes his own party.  Now that is how its done Mr. Boner!
Dec 21, 2012 2:56PM
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WE the People are required to fix it.

[REIN IN BIG GOVERNMENT OVERREACH]

        

Poor foresight by all Americans regarding Washington legislation have created decades of inept policies. A simple, strategic, powerful fix to jump start the process:

 28th constitutional amendment: Yearly Balanced Budget Required

Balanced definition:

Debt to GDP ratio

>35% =   balanced               

<35% =   allow 10% extra yearly spending

 

This will not be easy to get congress to enact. The good news is we don’t need Washington to move this: The Constitution provides that an amendment may be proposed either by the Congress with a two-thirds majority vote in both the House of Representatives and the Senate or by a constitutional convention called for by two-thirds of the State legislatures.

 

It will take only one state to get the ball rolling!!!!!!! A STATE CONSTITUTIONAL CONVENTION!!!!!!!

Dec 21, 2012 1:12PM
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The real problem with the federal budget is spending.  Numerous studies have shown that government spending that exceeds 20% of the GDP retards growth.  Spending is out of control.  I don't know why the republicans are not all over that message at every opportunity.  They allowed the democrats to take control of this subject by making it all about tax rates for the rich.
Dec 21, 2012 1:59PM
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Let the spending cuts and tax rates take effect on the overstuffed wealthy and then we'll see who's willing to get serious. It's OK to spend $4 trillion of SSA money on needless Christian wars protecting wealthy assets but don't make any of them pay the taxes to pay those monies back. OK, now the Democrats can pass a Senate bill that rolls back taxes for just the middle class, extends UE, fixes AMT, fixes MC payments and ups the age to match SS and various of good ideas. Then let's see if the House has the balls to pass it.
Dec 21, 2012 12:58PM
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So cutting spending that is about 1/3 debt is now a 'political stunt'? And it's failure is cheered by the financial pundits? We really are finished.
Dec 21, 2012 4:05PM
Dec 21, 2012 1:11PM
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"So cutting spending that is about 1/3 debt is now a 'political stunt'? And it's failure is cheered by the financial pundits? We really are finished."

Wall Street and cranks like this author are scared stiff. After YEARS of effort-less wealth grabbing, the pendulum swings. People who were unsuccessful at basic functionality in society found the alternative in financial corruption. No penalty is good enough as we undo them and attempt to be the strong nation we were before them.
Dec 21, 2012 4:45PM
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In the current movie on Abraham Lincoln,  President  Lincoln gets opposition party Congressmen  to support his  bill (the 13th Amendment abolishing slavery) through Congress.  Yes, Lincoln gave political favors, bought or rented votes,  to opposition Democratic, pro-slavery Congressmen, but he won.  IMO, Abe Lincoln was the best U.S. president ever.

 

I don't get Obama and the Democrats approach to getting a budget:  if all 195 or so Democratic Congressmen vote for the Obama budget plan, then Obama needs to get only about 30 Republican Congressmen to either vote Yes or to Abstain.  Why aren't Obama and Nancy Pelosi courting Republican Congressmen who will vote for a reasonable budget?  There are conservative Republicans who will vote for the budget.

 

Obama needs to influence, cajole, and yes "rent" Republican votes.  Lincoln did it; so did Reagan, Kennedy, LBJ, and other effective presidents.  Then the Democrats will own the budget and cannot keep blaming Republicans.

 

Grow up, Democrats and Republicans.  We are a democracy; make a deal for the good of the country and move on.

Dec 21, 2012 2:30PM
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The million dollar and up tax hike was  a Warren Buffett idea that Obama embraced until that offer was made, but that's Obama. During the preelection period, those who were awake and paying attention, we heard many dems. claim we needed to go back to Clinton era tax rates. Well guess were we could be going. The dems. just wanted a way to blame it on someone else. They are smarter than the repubs. in a political sense,

Dec 21, 2012 1:58PM
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Jason    The only sky that is falling is on your clueless self !  GOD BLESS AMERICA LAND OF THE FREE ! HOME OF THE BRAVE !  FREEDOM IS NOT FREE !
Dec 21, 2012 4:07PM
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Like I've already said at least once, Boenher's Plan was not a Plan, it wasn't even a failure, it was a nothing and he knew it.....Buffoonery......
Dec 21, 2012 4:08PM
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Boehner gave me a good laugh yesterday.He said "I`m concerned about the middle

class"I believe in Santa Claus in 4 days too.LMAO.

Dec 21, 2012 5:02PM
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Stop Fiddling
If ever a situation pointed to the need for tax reform, the current budget bill debate is it.  While the two may seem unrelated, they are not.  The existing process promotes shifting the focus from spending cuts to revenue.  The real issue is not revenue stream, the issue is that politicians spend more than the system provides by continuing their “pork barrel” politics to win re-election. 
Nothing has changed in nearly a century; the Republicans want less taxation on the wealthy and use the economy to scare voters, while Democrats promote more taxation on the wealthy by scaring the poor and middle classes.  Therefore, is it surprising that the so-called “fiscal cliff,” which was enacted during a previous budget battle and likely designed to provide political cover for future battles, is now the “enemy” of everyone? 
Once again, the media tell us “Rome is burning.”  Meanwhile, the people we elected to lead this nation “fiddle.”  It is time to abandon the budget bill posturing, hand wringing and predictions of fiscal doom to enact a tax code that is fair, exempts no one, and does not require yearly change.  Perhaps, then, the people that put us in this mess can focus solely on curbing their uncontrolled appetites for spending other peoples’ money.

Jim
Dec 21, 2012 1:43PM
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Boehner really doesn't care what happens on the hill now that most of his "talking pets" have run away - he knows he is set for life rather he is the speaker or not and that we, the American tax payer, will be paying his bills for as long as he lives... Boehner is the perfect example of the "Peter Principle". Stay drunk and have a happy holidays Boehner - with any luck we won't have to listen to you too much longer....... 

Dec 21, 2012 5:59PM
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We need jobs.  All the fiscal cliff rhetoric has produced not a single job.  All they are doing is arguing over the insufficent funds in the Treasury and how to possibly re-distribute them.  Without increasing revenue in a meaningful way overspending will increase. 

 

Jobs should increase right now at a rate of , say, 200,000 new jobs per month more than the number of new young people entering the job market.  That would be about 450,000 jobs per month, and as we are all aware it isn't happening. 

 

Short of creating new jobs, a solution would be to double everybody's taxes.  This would still be a tad short since we spend $2.06 for every $1.00 revenue right now.

 

Another solution would be to defer future military spending until such time we can afford it.  Combine this with the limitation of unemployment benefits to 12 weeks, and stopping all cost of living increases for Social Security, again, until such time we can afford it.  Defer half of all pensions until such time we can afford them.  This combination of things could do the trick. 

Dec 21, 2012 6:13PM
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Why are Jubak and others chanting for any lawmaker to be under anybody's control?  They only vote based on their 401k's?  If so, they deserve everything that comes with going over the cliff.

SCREW BOEHNER, PELOSI, REID, ETC.

All congressmen were elected to represent their constituents by reviewing the bills before them and deciding for THEMSELVES if it represents their best interests.

Sounds like the Republicans need to replace Boehner and go completely hard right / tea party.  If they will be defeated for it --- SO BE IT !   Let's just hope it is by a Democratic party that closes their multi-cultural plantation and starts to believe in something (ala Bernie Sanders style).   Then voters would have something real to work with.
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