Wall Street Week Ahead: A lump of coal for "Fiscal Cliff-mas"

NEW YORK (Reuters) - Wall Street traders are going to have to pack their tablets and work computers in their holiday luggage after all.

A traditionally quiet week could become hellish for traders as politicians in Washington are likely to fall short of an agreement to deal with $600 billion in tax hikes and spending cuts due to kick in early next year. Many economists forecast that this "fiscal cliff" will push the economy into recession.

Thursday's debacle in the U.S. House of Representatives, where Speaker John Boehner failed to secure passage of his own bill that was meant to pressure President Obama and Senate Democrats, only added to worry that the protracted budget talks will stretch into 2013.

Still, the market remains resilient. Friday's decline on Wall Street, triggered by Boehner's fiasco, was not enough to prevent the S&P 500 from posting its best week in four.

"The markets have been sort of taking this in stride," said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago, which has about $38 billion in assets under management.

"The markets still basically believe that something will be done," he said.

If something happens next week, it will come in a short time frame. Markets will be open for a half-day on Christmas Eve, when Congress will not be in session, and will close on Tuesday for Christmas. Wall Street will resume regular stock trading on Wednesday, but volume is expected to be light throughout the rest of the week with scores of market participants away on a holiday break.

For the week, the three major U.S. stock indexes posted gains, with the Dow Jones industrial average <.dji> up 0.4 percent, the S&P 500 <.spx> up 1.2 percent and the Nasdaq Composite Index <.ixic> up 1.7 percent.

Stocks also have booked solid gains for the year so far, with just five trading sessions left in 2012: The Dow has advanced 8 percent, while the S&P 500 has climbed 13.7 percent and the Nasdaq has jumped 16 percent.

IT COULD GET A LITTLE CRAZY

Equity volumes are expected to fall sharply next week. Last year, daily volume on each of the last five trading days dropped on average by about 49 percent, compared with the rest of 2011 - to just over 4 billion shares a day exchanging hands on the New York Stock Exchange, the Nasdaq and NYSE MKT in the final five sessions of the year from a 2011 daily average of 7.9 billion.

If the trend repeats, low volumes could generate a spike in volatility as traders keep track of any advance in the cliff talks in Washington.

"I'm guessing it's going to be a low volume week. There's not a whole lot other than the fiscal cliff that is going to continue to take the headlines," said Joe Bell, senior equity analyst at Schaeffer's Investment Research, in Cincinnati.

"A lot of people already have a foot out the door, and with the possibility of some market-moving news, you get the possibility of increased volatility."

Economic data would have to be way off the mark to move markets next week. But if the recent trend of better-than-expected economic data holds, stocks will have strong fundamental support that could prevent selling from getting overextended even as the fiscal cliff negotiations grind along.

Small and mid-cap stocks have outperformed their larger peers in the last couple of months, indicating a shift in investor sentiment toward the U.S. economy. The S&P MidCap 400 Index <.mid> overcame a technical level by confirming its close above 1,000 for a second week.

"We view the outperformance of the mid-caps and the break of that level as a strong sign for the overall market," Schaeffer's Bell said.

"Whenever you have flight to risk, it shows investors are beginning to have more of a risk appetite."

Evidence of that shift could be a spike in shares in the defense sector, expected to take a hit as defense spending is a key component of the budget talks.

The PHLX defense sector index <.dfx> hit a historic high on Thursday, and far outperformed the market on Friday with a dip of just 0.26 percent, while the three major U.S. stock indexes finished the day down about 1 percent.

Following a half-day on Wall Street on Monday ahead of the Christmas holiday, Wednesday will bring the S&P/Case-Shiller Home Price Index. It is expected to show a ninth-straight month of gains.

U.S. jobless claims on Thursday are seen roughly in line with the previous week's level, with the forecast at 360,000 new filings for unemployment insurance, compared with the previous week's 361,000.

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: rodrigo.campos(at)thomsonreuters.com)

(Reporting by Rodrigo Campos; Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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Douglas wins AP female athlete of the year honors

When Gabby Douglas allowed herself to dream of being the Olympic champion, she imagined having a nice little dinner with family and friends to celebrate. Maybe she'd make an appearance here and there.

"I didn't think it was going to be crazy," Douglas said, laughing. "I love it. But I realized my perspective was going to have to change."

Just a bit.

The teenager has become a worldwide star since winning the Olympic all-around title in London, the first African-American gymnast to claim gymnastics' biggest prize. And now she has earned another honor. Douglas was selected The Associated Press' female athlete of the year, edging out swimmer Missy Franklin in a vote by U.S. editors and news directors that was announced Friday.

"I didn't realize how much of an impact I made," said Douglas, who turns 17 on Dec. 31. "My mom and everyone said, 'You really won't know the full impact until you're 30 or 40 years old.' But it's starting to sink in."

In a year filled with standout performances by female athletes, those of the pint-sized gymnast shined brightest. Douglas received 48 of 157 votes, seven more than Franklin, who won four gold medals and a bronze in London. Serena Williams, who won Wimbledon and the U.S. Open two years after her career was nearly derailed by a series of health problems, was third (24).

Britney Griner, who led Baylor to a 40-0 record and the NCAA title, and skier Lindsey Vonn each got 18 votes. Sprinter Allyson Felix, who won three gold medals in London, and Carli Lloyd, who scored both U.S. goals in the Americans' 2-1 victory over Japan in the gold-medal game, also received votes.

"One of the few years the women's (Athlete of the Year) choices are more compelling than the men's," said Julie Jag, sports editor of the Santa Cruz Sentinel.

Douglas is the fourth gymnast to win one of the AP's annual awards, which began in 1931, and first since Mary Lou Retton in 1984. She also finished 15th in voting for the AP sports story of the year.

Douglas wasn't even in the conversation for the Olympic title at the beginning of the year. That all changed in March when she upstaged reigning world champion and teammate Jordyn Wieber at the American Cup in New York, showing off a new vault, an ungraded uneven bars routine and a dazzling personality that would be a hit on Broadway and Madison Avenue.

She finished a close second to Wieber at the U.S. championships, then beat her two weeks later at the Olympic trials. With each competition, her confidence grew. So did that smile.

By the time the Americans got to London, Douglas had emerged as the most consistent gymnast on what was arguably the best team the U.S. has ever had.

She posted the team's highest score on all but one event in qualifying. She was the only gymnast to compete in all four events during team finals, when the Americans beat the Russians in a rout for their second Olympic title, and first since 1996. Two nights later, Douglas claimed the grandest prize of all, joining Retton, Carly Patterson and Nastia Liukin as what Bela Karolyi likes to call the "Queen of Gymnastics."

But while plenty of other athletes won gold medals in London, none captivated the public quite like Gabby.

Fans ask for hugs in addition to photographs and autographs, and people have left restaurants and cars upon spotting her. She made Barbara Walters' list of "10 Most Fascinating People," and Forbes recently named her one of its "30 Under 30." She has deals with Nike, Kellogg Co. and AT&T, and agent Sheryl Shade said Douglas has drawn interest from companies that don't traditionally partner with Olympians or athletes.

"She touched so many people of all generations, all diversities," Shade said. "It's her smile, it's her youth, it's her excitement for life. ... She transcends sport."

Douglas' story is both heartwarming and inspiring, its message applicable those young or old, male or female, active or couch potato. She was just 14 when she convinced her mother to let her leave their Virginia Beach, Va., home and move to West Des Moines, Iowa, to train with Liang Chow, Shawn Johnson's coach. Though her host parents, Travis and Missy Parton, treated Douglas as if she was their fifth daughter, Douglas was so homesick she considered quitting gymnastics.

She's also been open about her family's financial struggles, hoping she can be a role model for lower income children.

"I want people to think, 'Gabby can do it, I can do it,'" Douglas said. "Set that bar. If you're going through struggles or injuries, don't let it stop you from what you want to accomplish."

The grace she showed under pressure — both on and off the floor — added to her appeal. When some fans criticized the way she wore her hair during the Olympics, Douglas simply laughed it off.

"They can say whatever they want. We all have a voice," she said. "I'm not going to focus on it. I'm not really going to focus on the negative."

Besides, she's having far too much fun.

Her autobiography, "Grace, Gold and Glory," is No. 4 on the New York Times' young adult list. She, Wieber and Fierce Five teammates Aly Raisman and McKayla Maroney recently wrapped up a 40-city gymnastics tour. She met President Barack Obama last month with the rest of the Fierce Five, and left the White House with a souvenir.

"We got a sugar cookie that they were making for the holidays," Douglas said. "I took a picture of it."

Though her busy schedule hasn't left time to train, Douglas insists she still intends to compete through the Rio de Janeiro Olympics in 2016.

No female Olympic champion has gone on to compete at the next Summer Games since Nadia Comaneci. But Douglas is still a relative newcomer to the elite scene — she'd done all of four international events before the Olympics — and Chow has said she hasn't come close to reaching her full potential. She keeps up with Chow through email and text messages, and plans to return to Iowa after her schedule clears up in the spring.

Of course, plenty of other athletes have said similar things and never made it back to the gym. But Douglas is determined, and she gets giddy just talking about getting a new floor routine.

"I think there's even higher bars to set," she said.

Because while being an Olympic champion may have changed her life, it hasn't changed her.

"I may be meeting cool celebrities and I'm getting amazing opportunities," she said. "But I'm still the same Gabby."

___

AP Projects Editor Brooke Lansdale contributed to this report.

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EPA finalizes boiler rule to cut pollution

WASHINGTON (AP) — The Environmental Protection Agency has finalized rules aimed at reducing toxic air pollution from industrial boilers and incinerators, offering industry more flexibility and reduced costs.

Obama administration officials say most of the 1.5 million boilers nationwide are not covered by the regulation since they are too small or emit too little pollution to warrant controls.

The changes will require pollution controls at about 2,300 of the largest and most polluting boilers nationwide, including those found at refineries and chemical plants. Another 197,000 smaller boilers would be able to meet the rule through routine tune-ups.

The EPA says the revisions maintain public health protections while addressing concerns from industry and other stakeholders.

Industrial boilers burn coal and other fuels to generate steam and hot water for heat and electricity.

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Madness in the air in Washington

National Rifle Association Executive Vice President Wayne LaPierre calls on Congress to pass a law putting armed police officers in every school in America.

STORY HIGHLIGHTS

• David Gergen: After election, there were hopes partisan tension would fade


• He says this week we've seen a complete breakdown on the fiscal cliff


• The NRA doubled down on its anti-gun-control rhetoric despite Newtown, he says


• Gergen: We're seeing the character assassination of a hero, Chuck Hagel

Editor's note: David Gergen is a senior political analyst for CNN and has been an adviser to four presidents. A graduate of Harvard Law School, he is a professor of public service and director of the Center for Public Leadership at Harvard University's Kennedy School of Government. Follow him on Twitter.

(CNN) -- What in the world is gripping Washington? Everywhere one turns -- from finances to guns to nominations -- there is madness in the air.

With time rapidly running out, efforts have collapsed to reach a major agreement on federal spending and taxes before year's end, and both Congress and President are leaving town for the holidays. At best, they will return next week and construct a small bridge over the "fiscal cliff"; at worst, they won't. But who knows?

David Gergen

And that's a big part of the problem -- no one can be confident that our national leaders are still capable of governing responsibly. And in the process, they are putting both our economy and our international reputation at risk.

Fresh poison

President Barack Obama had rightly hoped that the elections would clear the air; they haven't. If anything, the recent squabbling over the federal budget has injected fresh poison into relationships and dimmed prospects for other bipartisan agreements in the next few years, starting with hopes for a "grand bargain"in 2013.

John Boehner and Eric Cantor, the House GOP leaders

The President insists he remains an optimist, but if he and Republicans can't agree on how to bring the nation's finances under control -- something fundamental to the welfare of the country -- why should we have faith they will succeed on other important issues like energy, education, immigration and gun safety?

As the blame game heats up, Republicans are sure to pay the biggest price with the public. It was bad enough that they lost the message fight, letting themselves be painted as protectors of the wealthy. But it was inexcusable when they revolted against House Speaker John Boehner in his search for a way forward: that only reinforced a narrative that the Grand Old Party has fallen hostage to its right wing -- a narrative that already exacted a huge price in the fall elections.

Most voters -- I am among them -- believe the country needs a center-right party but will not support an extremist party.

President Obama is certainly not blameless in these financial talks. Early on, he overplayed his hand, alienating rank-and-file Republicans. Like Boehner, he has been more accommodating recently, offering concessions on taxes and entitlement spending that narrowed the negotiating gap between the parties, even as his leftward allies fretted.

Still, Boehner has a point in arguing that what Obama now has on the table comes nowhere close to what the he was advocating in the election season: a ratio of 2.5 dollars in spending cuts to 1.0 dollars in tax increases.

The buck stops on the President's desk, so that ordinarily one would expect him to take the lead in these final days before January 1. For reasons that are still unclear, he instead chose in his press statement late Friday to toss responsibility for negotiations next week into the laps of Congressional leaders.

Perhaps he has reached a quiet understanding with Boehner and Senate Majority Leader Harry Reid that the two of them can work out a stripped-down agreement. Let's hope so. But as we enter the holidays, it appears to be a mess. And time is quickly running out.

The NRA in denial

As if Friday weren't gloomy enough, the National Rifle Association weighed in with its long-awaited response to the horrors of Newtown, Connecticut. There had been hints that the NRA would offer a more conciliatory stance. Just the opposite: they doubled down.

Incredibly, Wayne LaPierre, executive vice president of the NRA, called for putting armed police officers in every school. Isn't that what parents of every six-year old have been longing for: to have their child studying and playing under the watchful eye of an armed guard? Has LaPierre visited an elementary school classroom in recent years? If so, he would know his idea would be repulsive in most schools.

Just as strikingly, the NRA response refused to acknowledge and address the beliefs of a majority of Americans in recent polls that the U.S. needs tougher laws in favor of gun safety. Americans aren't saying no one should have guns or that the 2nd Amendment should be gutted but they are demanding a national conversation to see what can be sensibly done. It is hard to have a conversation when one side won't talk.

Character assassination

Meanwhile, in a less noticed but important saga in Washington, we are once again watching the character assassination of a public servant of honor and distinction.

Chuck Hagel served America with valor as a sergeant in the Vietnam war, earning two Purple Hearts. He was a popular Republican senator from Nebraska who paid close attention to international affairs and is now co-chair of the President's Foreign Intelligence Advisory Board, serving with another former Senator, David Boren.

Ever since Hagel's name arose as a top candidate to become the next Secretary of Defense, he has been pilloried for statements and stands he has taken in the past. Is it legitimate to question his positions on Israel, Iran, and on gays? Absolutely. But what is grossly unfair is to misstate them, saying that he is against sanctions on Iran when in fact he has argued in favor of international sanctions, not unilateral sanctions (which don't work). As someone who strongly favors Israel, I am also deeply troubled by the way he has been misrepresented as virtually anti-Semitic.

Nor is this a fair fight. Hagel is in no-man's land because his name is prominently mentioned but he hasn't been formally nominated, so the White House isn't rushing to the barricades to support him.

The signals from 1600 Pennsylvania Avenue were that the Secretary of Defense nominee would be announced in a package with the Secretary of State. The President has now gone ahead with John Kerry but the absence of a Defense nominee has now left Hagel dangling in the breeze, a piñata.

The White House should now move early next week -- by announcement or by leak -- to settle this by making a decision. Whether or not the President nominates Hagel, he should put a stop to the defamation by recognizing Hagel as a patriot with an independent mind and a long record of honor. If selected as Secretary, Hagel would be a very fine member of the national security team.

One had hoped that the shootings at Sandy Hook would draw us together. Sadly, they haven't. Now, perhaps the blessings of the holidays and a brief moment to take a breath will lift our sights. Surely, this madness should not continue into the New Year.

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The opinions expressed in this commentary are solely those of David Gergen.

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Capture of jail escapee ends with bang, thud

The parents of the man who owned the townhouse where prison escapee Joseph Banks was found talk to the Tribune. (Antonio Perez/Chicago Tribune)

The spectacular escape from Chicago's high-rise federal jail — the first in nearly 30 years at the facility — fueled theories that convicted bank robber Joseph "Jose" Banks had a sophisticated plan to elude capture with hundreds of thousands of dollars in loot he had stashed away.

But in the end, Banks was hiding in a predictable spot less than five miles from the South Loop jail and was betrayed by someone who had spoken with the fugitive and was able to give authorities his exact location, a law enforcement source said. When he was captured, Banks had no cash, weapon or cellphone, and he was wearing some of the same clothes he had on when he escaped three days earlier, the source said.

Banks, who along with a cellmate scaled down some 15 stories of the sheer wall of the Metropolitan Correctional Center using a rope fashioned from knotted bedsheets, was taken into custody on the North Side by FBI agents and Chicago police about 11:30 p.m. Thursday. He was holed up at the home of a boyhood friend in the 2300 block of North Bosworth Avenue, just blocks from his former apartment and Lincoln Park High School, which he attended in the 1990s.

The second escapee, Kenneth Conley, also a convicted bank robber, remained at large Friday.

Neighbors on the quiet block where Banks was discovered described hearing the loud bang of a flash grenade — designed to stun anyone inside a residence without causing serious injury — followed by agents and officers swarming the Fullerton Court Apartments just west of the DePaul University campus.

Within minutes, agents led Banks away in handcuffs and dressed in a T-shirt and shorts.

"We heard a big boom first," said the Rev. Baggett Collier, who lives in the complex. "We thought a transformer burst or there was a traffic accident. … I went out and I saw (Banks). He was cuffed. His head was down. I didn't hear him say anything. They got him into the wagon peacefully. The police were pretty calm bringing him out."

Hours later, Banks shuffled into a federal courtroom dressed in an orange prison jumpsuit and shackled at the waist and ankles with thick, padlocked chains. The slightly built former fashion designer answered questions from U.S. Magistrate Judge Sidney Schenkier softly and politely — a sharp contrast to his defiant behavior during his trial last week on bank robbery charges in the same federal courthouse.

Banks, a prolific bank robber dubbed the Second Hand Bandit because of the used clothing he wore during his holdups, was charged with one count of escaping federal custody that carries a sentence of up to five years in prison on conviction. He also faces sentencing in March for his conviction last week for two bank robberies and two attempted holdups.

Prosecutors objected to any bond being set on the new charge, suggesting matter-of-factly that Banks was a "flight risk" and a danger to the community. Banks' attorney, Beau Brindley, did not argue for his release.

After the brief hearing, Brindley called his client a "mild-mannered" person whose statements at trial were misconstrued as threats toward the court system.

"This is not a violent person," Brindley told reporters in the lobby of the Dirksen U.S. Courthouse. "He's a talented artist and clothing designer."

Banks' cousin Theresa Ann Banks said in a telephone interview Friday that he never tried to contact her or anyone else in the family during his short time on the run. Family members were still trying to piece together conflicting information they were getting on the circumstances of his arrest, she said. Asked who lived in the home where her cousin was found, she replied, "Maybe a friend."

Theresa Ann Banks said the family has spent the past few days scared for his safety, especially since he had been described as "armed and dangerous."

"He's not the bad guy they've made him out to be," she said of her cousin. "He's soft and gentle, and he has a good heart."

Banks and Conley were last accounted for in the jail at 10 p.m. Monday during a routine bed check, authorities said. About 7 a.m. the next day, jail employees arriving for work saw ropes made from bedsheets dangling from a hole in the wall near the 15th floor and down the south side of the facade.

The two had put clothing and sheets under blankets in their beds to throw off guards making nighttime checks and removed a cinder block to create an opening wide enough to slide through, authorities said.

The FBI said a surveillance camera a few blocks from the jail showed the two, wearing light-colored clothing, hailing a taxi at Congress Parkway and Michigan Avenue. They also appeared to be wearing backpacks, according to the FBI.

The daring escape was an embarrassment for the U.S. Bureau of Prisons and a rarity for the Metropolitan Correctional Center, where the only previous successful escape took place in 1985. A high-ranking employee in the facility told the Tribune this week that video surveillance had captured the men making their descent, but that the guard who was supposed to be watching the video monitors for suspicious activity may have been called away on other duties.

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Egypt's constitution seen passing in referendum

CAIRO (Reuters) - Egyptians voted on a constitution drafted by Islamists on Saturday in a second round of balloting expected to approve the charter that opponents say will create deeper turmoil in Egypt.

After a first round last week in which unofficial results showed 57 percent of those who voted approved the constitution, the opposition cried foul, saying a litany of alleged abuses meant the first stage of the referendum should be re-run.

But the committee overseeing the two-stage vote said their investigations showed no major irregularities in voting on December 15, which covered about half of Egypt's 51 million eligible voters.

Islamist supporters of President Mohamed Mursi, who was elected in June, say the constitution is vital to moving Egypt towards democracy two years after Hosni Mubarak was overthrown in a popular uprising. They say it will help restore the stability needed to fix an economy that is on the ropes.

If the basic law is passed, a parliamentary election will be held in about two months.

However, the opposition says the constitution is divisive and accuses Mursi of pushing through a document that favors his Islamist allies and ignores the rights of Christians, who make up about 10 percent of the population, as well as women.

"I'm voting 'no' because Egypt can't be ruled by one faction," said Karim Nahas, 35, a stock market broker, heading to a polling station in Giza, a province included in this round of voting which covers parts of greater Cairo.

Polling stations opened at 8 a.m. (0600 GMT) and close at 7 p.m. (1700 GMT) though voting could be extended as it was last week. Queues formed at some polling stations around the country.

Unofficial tallies are likely to emerge within hours of the close, but the referendum committee may not declare an official result for the two rounds until Monday, after hearing appeals.

Shahinaz Shalaby, a housewife, said she would be voting "yes" even though she disagreed with some clauses. "We feel our voice matters," she said, adding that a "yes" vote would not stop protests but "then it will stabilize afterwards".

Cairo districts covered in the first round voted "no", but overall the vote in that round was in favor.

Analysts expect another "yes" vote on Saturday because it covers rural and other areas seen as having more Islamist sympathizers. Islamists may also be able to count on many Egyptians who are simply exhausted by two years of turmoil.

MORE UNREST

But, even if it is approved, the opposition say it is a recipe for trouble since the charter has not received broad consensus backing from the population. They say the result may go in Mursi's favor but will not be the result of a fair vote.

"I see more unrest," said Ahmed Said, head of the liberal Free Egyptians Party and a member of the National Salvation Front, an opposition coalition formed after Mursi expanded his powers on November 22 and then pushed the constitution to a vote.

Citing what he said were "serious violations" on the first day of voting, he said anger against Mursi and his Islamist allies was growing: "People are not going to accept the way they are dealing with the situation."

At least eight people were killed in protests outside the presidential palace in Cairo this month. Islamists and rivals clashed on Friday in the second biggest city of Alexandria, hurling stones at each other. Two buses were torched.

Mohamed Beltagy, a senior official in the Muslim Brotherhood, the group that propelled Mursi to elected office, said the constitution was crucial to holding a parliamentary election and setting up the essential institutions of state.

"What is the catastrophe of this constitution?" he asked the assembly which drafted the document, during a sitting on Friday that was called to challenge opposition criticism of the text.

Opponents, who had earlier quit the drafting assembly saying their voices were not heard, were invited but stayed away.

The vote was staggered after many judges refused to supervise the vote, meaning there were not enough to hold the referendum on a single day nationwide.

The first round was won by a slim enough margin to buttress opposition arguments that the text was divisive. Opponents who include liberals, leftists, Christians and more moderate-minded Muslims accuse Islamists of using religion to sway voters.

"The problem is not whether the majority approves, it is that they rallied the people in the name of the religion," said Mustafa Shuman, who is among dozens of people who have been camped outside Mursi's palace in Cairo in protest.

Islamists, who have won successive ballots since Mubarak's overthrow albeit by narrowing margins, dismiss charges that they are exploiting religion and say the document reflects the will of a majority in the country where most people are Muslim.

(Additional reporting by Tamim Elyan; Writing by Edmund Blair; Editing by Andrew Osborn)

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Boehner to pursue backup bill to avert tax hikes

House Speaker John Boehner said Tuesday that he is readying a backup bill aimed at averting the "fiscal cliff" because President Barack Obama has yet to offer a balanced package of revenues and spending savings that would cut burgeoning federal deficits.

Boehner's measure, dubbed "plan B," would cancel tax increases due to take effect Jan. 1 on everyone earning $1 million or less, while allowing tax increases on those earning more than that amount.

"I continue to have hope that we can reach a broader agreement with the White House" that would cancel a wave of tax increases and spending cuts now poised to begin in early January, Boehner, R-Ohio, told reporters.

But he said when it comes to offering a package that balances tax increases with spending cuts, "The president is not there yet."

In a closed-door meeting, Boehner presented his alternative to rank-and-file Republicans, who reacted coolly to any plan that includes an increase in the tax rate. Conservatives and tea partyers signaled the idea was a non-starter and Boehner lacked the votes for passage.

"I think it's a terrible idea," said Rep. Raul Labrador, R-Idaho. "For a lot of reasons."

When asked whether there was enough support among fellow Republicans to pass it, Labrador said, "I do not."

Rep. Jason Chaffetz, R-Utah, said he is in favor of preventing tax hikes for as many taxpayers as possible, but he's not ready to support Boehner's plan.

"I didn't see enough specificity to support it," Chaffetz said.

Rep. Jim Jordan of Ohio, the outgoing chairman of the conservative Republican Study Committee, said, "I'm not doing cartwheels over it, that's for sure."

Jordan said Boehner's plan crosses a dangerous line by enacting higher tax rates for anyone.

"I think it's a mistake for the Republican Party, so that's what I think a lot of members are struggling with," said the Ohio Republican.

In the Senate, Democratic Leader Harry Reid said the Boehner plan could not pass and urged the speaker to work out an agreement with the president.

"Now is the time to show leadership, not kick the can down the road," Reid said. "Speaker Boehner should focus his energy on forging a large-scale deficit reduction agreement. It would be a shame if Republicans abandoned productive negotiations due to pressure from the tea party, as they have time and again."

In addition to allowing a tax increase for million-dollar earners, the Boehner plan would prevent an expansion of the alternative minimum tax that would otherwise hit 28 million middle- and upper-class Americans with an average $3,700 increase on their 2012 tax returns.

The plan also would extend the current maximum 35 percent tax rate on inheritance, exempting the first $5 million. That tax rate is slated to rise to 55 percent on Jan. 1, with only a $1 million exemption.

Under the plan, the automatic, across-the-board spending cuts of $1.09 trillion to domestic and defense programs would go into effect.

Boehner said GOP efforts to cull savings from Medicare by increasing the eligibility age from 65 to 67 could wait until next year. That source of savings had been an important demand from Republicans earlier in Boehner's negotiations with the White House.

Boehner aides said the call for a separate tax bill does not mean the Republican is cutting off negotiations with Obama on averting the full slate of tax hikes and spending cuts due to take effect next year. Obama and Boehner have each made significant concessions in recent days, signaling a new stage in the negotiations.

Boehner's latest move is an attempt to give Republicans political cover if Washington fails to reach a deal before the end of the year and taxes increase on all income earners. The White House had no immediate response to Boehner's proposal, but has previously rejected his attempts to extend tax cuts for families making up to $1 million.

However, the president has dropped his long-held insistence that taxes rise on individuals earning more than $200,000 and families making more than $250,000. He is now offering a new threshold of $400,000 and lowering his 10-year tax revenue goals from the $1.6 trillion he had argued for a few weeks ago.

Obama and Boehner met privately at the White House on Monday, and then spoke again on the phone later that night. Boehner huddled with House GOP members on Capitol Hill Tuesday morning to discuss the status of the talks and review Obama's latest offer.

"We have to stop whatever tax rate increases we can," Boehner said in the meeting, according to prepared remarks released by an aide. "In the absence of an alternative, as of this morning, a "modified Plan B" is the plan."

Unless Congress acts, tax rates will increase on all income earners on Jan. 1. Boehner first opposed raising rates on any income earners, including the wealthiest Americans, but agreed on Friday to accept an increase in tax rates for taxpayers who earn more than $1 million. Boehner's plan would raise about $1 trillion in taxes over 10 years.

In return, Obama also abandoned his demand for permanent borrowing authority. Instead, he is now asking for a new debt limit that would last two years, putting its renewal beyond the politics of a 2014 midterm election.

And in a move sure to create heartburn among some congressional Democrats, Obama is proposing lower cost-of-living increases for Social Security beneficiaries, employing an inflation index that would have far-reaching consequences, including pushing more people into higher income tax brackets.

Those changes, as well as Obama's decision not to seek an extension of a temporary payroll tax cut, would force higher tax payments on the middle class, a wide swath of the population that Obama has repeatedly said he wanted to protect from tax increases.

As public posturing has given way to pragmatism, both sides still seem willing to lock in on a substantial agreement rather than just putting off a fiscal day of reckoning. To that end, Obama has conceded that a big bargain would require giving up some of his proposals.

"I understand that I don't expect the Republicans simply to adopt my budget," he said during his post-election news conference last month. "That's not realistic. So, I recognize we're going to have to compromise."

The talks, facing a looming deadline, seek to avoid spending cuts at the Pentagon and in domestic programs that are set to kick in at the start of the new year. Economists inside and outside the government have warned that the combination of spending cuts and tax hikes could stall a weak recovery and threaten a new recession.

Despite signs of progress, there are still plenty of disputes to iron out. And people familiar with Obama's proposal were careful not to describe it as his final offer.

The Obama plan seeks $1.2 trillion in revenue over 10 years and $1.2 trillion in 10-year spending reductions. Boehner aides say the revenue is closer to $1.3 trillion if revenue triggered by the new inflation index is counted, and they say the spending reductions are closer to $930 billion if one discounts about $290 billion in lower estimated debt interest.

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