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"Plan B" is dead; what's next for "fiscal cliff"?

House Speaker John Boehner's big idea for a backup "Plan B" exploded Thursday night when, after days of wrangling with his own troops, he realized he didn't have enough votes to pass the tax cut part of his plan.  With four days until Christmas and 11 until the effects of the "fiscal cliff" begin the big question today is: what happens now?

Obama and Boehner to talk?

Boehner sent House Republicans home for Christmas after last night's legislative collapse, ensuring nothing will be passed until Dec. 27 at the earliest, when members are due back in town.  That leaves Boehner and President Obama to keep negotiating - something that ground to a halt after Boehner announced he was moving forward with his "Plan B" earlier in the week. 

But the two are at a stalemate, even though they're not that far apart in their proposals. In their most recent offers, Mr. Obama was offering $1.2 trillion in revenue and $800 billion in spending cuts; Boehner was offering $1 trillion in revenue and $1 trillion in spending cuts.  Also, the president agreed to let the Bush-era tax cuts expire on those making over $400,000; Boehner is supporting a $1 million threshold, to the consternation of some in his party who don't want anyone's taxes to go up.

The president is hoping to get to Hawaii for Christmas - he was planning on leaving town today but without a "fiscal cliff" deal, it's unclear whether he'll get to the Aloha State at all for the holiday.  Meantime, Boehner wakes up today with the realization that he has a seemingly irreparable schism within his own ranks: there are just enough Republicans who refuse to budge on taxes and are demanding more spending cuts, especially on entitlement programs such as Medicare, therefore gumming up the works for any progress Boehner wants to make on the "fiscal cliff".

Ultimately, negotiations between the president and Boehner might be over, especially since it's clear to all parties after last night that Boehner doesn't have the votes to get any compromise through the House.

Obama and Reid to offer a solution?

Boehner seemed to throw up his hands after calling off the "Plan B" vote Thursday night saying the solution to averting the "cliff" is in the hands of Mr. Obama and Senate Majority Leader Harry Reid, D-Nev.

"The House did not take up the tax measure today because it did not have sufficient support from our members to pass. Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff," Boehner said Thursday night in a written statement. "The House has already passed legislation to stop all of the January 1 tax rate increases and replace the sequester with responsible spending cuts that will begin to address our nation's crippling debt. The Senate must now act."

White House spokesman Jay Carney said in a statement tonight: "The President's main priority is to ensure that taxes don't go up on 98 percent of Americans and 97 percent of small businesses in just a few short days. The President will work with Congress to get this done and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy."

The Senate is in session today before recessing until Dec. 27; both the president and Reid will attend a memorial service for the late Sen. Daniel Inouye, D-Hawaii, so action between the two, if any, would begin this afternoon at the earliest.

Over the "cliff"?

The only way to reach a deal may be to let the nation go over the "cliff." When that happens, the expiration of the Bush-era tax cuts will mean that taxes on nearly all Americans will go up. That fact would seem to make it easier for House Republicans to back a "fiscal cliff" deal, since they would be voting for a tax cut, not a tax hike.

But going over the "cliff" could have significant consequences. To be clear, the "cliff" is actually more of a slope: The $1.2 trillion in automatic spending cuts are phased in over a decade - it's not the immediate punch to the cut that "cliff" implies - and there are budgetary maneuvers that can at least somewhat soften the blow of both the tax hikes and spending cuts. But going over the "cliff" could spook the markets and once again shake world perceptions of the ability of the U.S. government to function effectively. And if a deal is not reached relatively soon after the deadlilne, the $500 billion in tax hikes and $200 billion in spending cuts in the first year will likely start pushing the nation back into recession.

How will the markets react?

Many eyes will be on Wall Street to see how it reacts to the growing realization that the over the "fiscal cliff" scenario may be closer to reality than anyone hoped.

Things were not looking up early this morning: Asian markets across the board closed slightly down for the day after news of the "Plan B" withdrawal broke.

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