The speaker's announcement comes just a day before more talks with the president. Under pressure from right, Boehner nixes $4T debt deal

House Speaker John Boehner, under pressure from the right and facing resistance from his own deputies, backed away Saturday from a bold $4 trillion deficit-reduction package that he once hoped would resolve the August debt ceiling crisis and give a shot in the arm to a lagging economy.

Tax policy disputes were at the center of the collapse, including differences with the White House over President Barack Obama’s demand that future tax reforms must maintain or increase the progressivity of the tax code. But for days Boehner has been under relentless pressure from conservatives to step away from the deal, which Saturday’s Wall Street Journal editorial writers dubbed “Boehner’s Obama Gamble.”


The White House signaled it will continue to make its case for the plan in a meeting Sunday evening with congressional leaders, including Boehner. But without the speaker’s support, it has no chance of being implemented, and the focus is expected to turn toward a smaller package more in the range of $2.4 trillion.

Boehner spoke with the president prior to making his announcement Saturday evening and continues to demand that the deficit reduction match dollar-for-dollar whatever debt ceiling is agreed to prior to the August 2 deadline set by Treasury.

That will not be an easy matter, given the Republican hard line against new tax revenues. Weeks of negotiations led by Vice President Joseph Biden have identified deficit-reduction savings in the range of $1.7 trillion to $2 trillion in savings. But that leaves a gap of $400 billion to $700 billion to be filled, and Democrats have argued strongly that revenues must be part of the mix.

“Despite good faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes,” Boehner said in his statement. “I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.”

White House communications director Dan Pfeiffer countered that Obama wants “a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree.”

“Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington,” Pfeiffer said in a statement. “The president believes that now is the moment to rise above that cynicism and show the American people that we can still do big things. And so tomorrow, he will make the case to congressional leaders that we must reject the politics of least resistance and take on this critical challenge.”

The setback would appear a clear victory for conservatives in Boehner’s conference and in the Republican leadership.

Boehner’s second-in-command, House Majority Leader Eric Cantor (R-Va.), has been outspoken against the larger deal, as has Senate Minority Whip Jon Kyl (R-Ariz.), who has strong ties to the Journal’s editorial pages. Senate Minority Leader Mitch McConnell (R-Ky.) made a show of outward support for Boehner at the White House last week, but Boehner had really no one in the leadership to protect his back if he opted for new revenues.

“As Eric has said for weeks, tax increases that the Democrats are insisting upon cannot pass the House and are the last thing Congress should be doing with so many people out of work,” said Brad Dayspring, a spokesman for Cantor.

Lost in the process will be hundreds of billions in savings that Obama had been willing to put on the table impacting major government benefit programs. Also lost is an opportunity that promised quick action on reforms by early next year shaping future taxes for corporations and small business.

“America cannot afford to give up on these negotiations,” said Rep. Rob Andrews (D-N.J.), an adviser to House Democratic Leader Nancy Pelosi (D-Calif.). “I urge congressional Republicans to reconsider their position and go back to the negotiations. This is not a fight about taxes — it is a question of whether those entrusted with the leadership of the country are willing to make the hard decisions necessary to create jobs and put our fiscal house in order.”

Given Friday’s bad unemployment report, the promise of tax reform — as a means to generate revenues for deficit reduction and to help the economy — increasingly helped drive the would-be deal. Boehner had effectively agreed to decouple the high-end tax rates of the Bush era from the middle and lower income rates favored by Democrats. But before anything changed in 2013, he was promised enactment of broad reform — covering personal and corporate taxes — with the goal of lowering rates by establishing a more efficient code.

To help back up this promise, the deal proposed an enforcement mechanism that would have imposed a 1 percent income tax surcharge and a 1 percentage point increase in the payroll tax — divided between workers and their employers — if Congress failed to act.

The speaker repeatedly has said he will oppose any increase in tax rates, and with the draconian trigger in place, he felt confident the reforms would be enacted before the high-end Bush tax breaks for the wealthy would end in 2013.

The goal was a simplified personal income tax code with no more than three different rates and the promise to keep the top rate no higher than what it is today.

The corporate tax rate would also be lowered by doing away with often costly and inefficient tax expenditures. And by tackling personal income taxes and corporate taxes at once, Republicans would have been better positioned to help small businesses with flow-through tax income as well as larger companies.

Nonetheless, it was a tall order given the assumption that the deal would also yield close to $1 trillion in new revenues over 10 years. Ending oil and gas tax breaks, as well as the favorable “carried interest” capital gains rates used to shelter investor income, would be part of the picture. But reform also would have to contribute its share of new revenues.

Boehner’s camp argued that much of this could be accomplished through the extra revenues generated from new economic growth. But it would have been very difficult to cover the entire $1 trillion this way and some net increase in taxes — perhaps $400 billion — seemed almost certain, albeit much smaller than the spending cuts Obama was offering.

In this context there was a fear that some tax breaks, such as favorable capital gains, could be jeopardized. And it appears the Boehner negotiators wanted a freer hand than the White House would accept given its insistence that middle- and lower-income tax payers be kept whole.

Progressivity was to be measured by the percentage in after-tax income for each quintile as well as the top 2 percent, and that was a standard that apparently met objections from the speaker’s camp.

A Republican familiar with the negotiations agreed that the tax issues were the central issue, but insisted too that the two sides also had not bridged their differences on the level of entitlement cuts needed.

“It has become has become increasingly apparent that Republicans and Democrats are unlikely to reach agreement on such a package because of the White House commitment to tax increases,” this Republican said. “On Friday, the Speaker proposed a set of tax reform principles as a guarantee against tax increases. Unfortunately, the White House would not agree with the core elements of tax reform proposed by the Speaker.”

“A gulf also remains between the Speaker and the White House on the issue of medium and long-term structural reforms. Consequently, the Speaker believes a package that is smaller but still consistent with the standards he has outlined may now be the most appropriate option.”

“I am disappointed that Republicans are unable to work with us to take a historic step forward that would have dramatically reduced our long-term deficit,” Senate Majority Leader Harry Reid (D-Nev.). “We asked Republicans to consider a balanced approach that would have required shared sacrifice, but they would not.”

A smaller-scale deal could significantly alter the internal political dynamics in the House.

House Democrats already have been stung twice by Obama: He worked with Republicans in the Senate to extend the Bush-era tax rates and Republicans in the House to cut domestic spending in April to keep the government open. Leaving significant revenue increases aside in a final package could further alienate the House minority.

It could also complicate the vote count. Minority Whip Steny Hoyer (D-Md.), the more centrist House leader who commands several dozen votes in the lower chamber, has told Boehner he would provide him with assistance to pass a debt ceiling hike, as long as it was balanced with revenues.

Whatever deal is made, time is running out. Sunday’s meeting with House leaders — including top Democrats and Republicans in both chambers — is just 23 days before the nation can no longer borrow money. Congress is scheduled to be in session 14 of those days.

Carrie Budoff Brown contributed to this report.