Boehner scraps 'Plan B' as Republicans defect

In the United States, the political brinksmanship over the so-called fiscal cliff is continuing.

The latest act in the drama has been a move by Republican leadership to pull their own bill on tax increases out of the House of Representatives due to a lack of support from their own party.

Republican House speaker John Boehner, who has been locked in negotiations about the US budget with president Obama, had put forward a compromise proposal to increase taxes for millionaires only.

Mr Obama wants tax increases to apply on those earning $US400,000 a year and above, which is itself a compromise on his initial proposal for tax increases on those earning at least $US200,000.

However, Mr Boehner pulled his tax rise proposal from the House before a vote because of a lack of support from members of his own party.

The Democrat-controlled Senate had already expressed its opposition to the proposal, and Mr Obama had threatened to veto the bill anyway.

The US House of Representatives had earlier narrowly passed a bill to cut domestic spending.

It is part of what Republicans are calling Plan B - a back-up plan to a broader deal over the so-called fiscal cliff, which is an automatic mix of tax hikes and spending cuts that are due to come into force at the end of the year if the White House and Republicans cannot reach a deal.

The House of Representatives is now adjourned until after Christmas, denting prospects of a pre-Christmas deal between the White House and Republicans to avert the so-called fiscal cliff.

Mr Boehner says he has been making efforts to reach a compromise with the White House.

"President Obama and Senate Democrats haven't done much of anything," Mr Boehner argued.

"Their plan B is to slow walk us over the fiscal cliff." However, Senate Democrats will not pass the Republican's proposals as they stand, and White House spokesman Jay Carney says the president would also veto it.

"It is a multi-day exercise in futility at a time when we do not have the luxury of exercises in futility," he responded.

Mr Obama says he is ready to strike a balanced deal with Republicans, including some of the spending cuts they want.

Negotiations are likely to resume after Christmas.

Heading for the edge The former chief administrator of the US House of Representatives, Scot Faulkner, is highly doubtful that a deal can be struck before the end of the year.

"Both sides have dug themselves so deep into their trenches that you are not going to see a deal until after the first of the year and a new Congress comes in," he said.

"The problem is that both sides really don't think the fiscal cliff is going to happen no matter how much they posture to the public, and they both think the other side is going to give more ground and nobody is going to give more ground." According to projections from the Congressional Budget Office, gross domestic product will drop by 0.5 per cent next year if the US falls off the fiscal cliff.

That contraction in the economy is forecast to cause unemployment to rise to 9.1 per cent in the fourth quarter of 2013.

However, the agency estimates that after next year, economic growth will pick up and the labour market will strengthen with unemployment shrinking to 5.5 per cent by 2018.

"What will happen is that the first time that thing hits, one of those indicators hit recession, the recession zone, you will then have a scramble for everyone to first blame everyone else and then say okay, what can we do about this," he said.

"So I think it's going to take an economic shock to finally get the political system working, even if it is only superficially."

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