Boehner's 'Plan B' Is Off the Table, Markets Await 'Plan C'
The U.S. House of Representatives Speaker John Boehner called off a vote on Thursday to raise taxes for wealthy Americans in a proposal dubbed "Plan B," bringing the country on the brink of going over the "fiscal cliff."
A series of tax increases and spending cuts are expected to kick off on January 1, if lawmakers don't reach a compromise and this could push the U.S. economy into a recession.
But analysts told CNBC they expect a "Plan C" within a few days that would help U.S. avert a fiscal crisis.
"I'm sure a 'Plan C' will materialize over the next few days, there's time for things to be renegotiated, and 2013 will be in better shape for equity markets," said Jim McCafferty, managing director and co-head of equity research with CIMB Securities in Hong Kong.
Soon after the vote was called off, the House went into recess until after Christmas. Reacting to the news stock futures immediately sank, but then recovered some lost ground. (Click here for the latest premarket prices.)
In Asia as well, stocks gave up their earlier gains.
Boehner said Thursday that he had failed to gather support among Republicans for "Plan B" that proposed raising taxes only on families earning more than $1 million. This plan is opposed by the White House, which favors raising taxes on families earning more than $400,000, instead of the $250,000 cited during President Barack Obama's successful campaign for a new term.
(Read more: Is $250,000 a Year Rich? Let's Break It Down)
While Thursday's events have made markets nervous, analysts said they expect the Republicans and Democrats to come up with a new income threshold to raise taxes.
"The Republicans are agreeing to higher tax rates for the so-called rich. I don't know how it will look like - somewhere between $250,000 and $1 million - they will compromise on that," said Hans Goetti, chief investment officer of Finaport in Singapore, referring to the income threshold.
The "magical number" will be in the $600,000 to $750,000 range for higher taxes, said Jason Hughes, head of premium client management with IG Markets in Singapore.
After the planned vote fell through, President Barack Obama said he will ensure that the majority of Americans will not see higher taxes.
Obama's press office said in a statement on Thursday: "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."
Mark Sheriff, head of research Asia with Bank Julius Baer, said "there's only a "small chance" a deal won't be reached.
"I think they will reach an agreement, I put a very small chance on them not doing that. I think its grabbing headlines but the world goes on. If this doesn't go through in the next 24 hours, it won't be the end of the world," Sheriff said.
-Additional reporting by Ansuya Harjani.