The Price of Politics (10 page)

“It was a hard-fought election,” the president began. “This is the first of regular meetings between us.” It was a new world. They would meet, talk and listen. “We’ve gone through tough times.” But they had a responsibility, jointly, to grow the economy. There are “going to continue to be serious political differences,” he said, but “let everyone get something done.”

The Democrats got “shellacked,” he admitted, repeating what he had said in a press conference the day after the election.
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He focused on the party, not on himself. But it wasn’t just Democrats. “People aren’t happy with everything that is going on. We all read the polls,” a not very subtle reference. Polls showed an approval rating of Congress at 17 percent and Republicans at 31 percent.
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“I haven’t reached out as effectively as I should have,” Obama acknowledged. “Let’s have honest cooperation, not just photo ops.”

He had a list of what needed to get done in the lame-duck session—while the Democrats still controlled the House—and what could wait until the Republicans took over the House in January.

The first big question was what to do about the Bush tax cuts, due to expire at the end of the year. If the rates for all but the highest income brackets were extended for another 10 years, it would cost the U.S. Treasury $3.2 trillion.

They went around the room.

“Congratulations to John Boehner and Eric Cantor,” Pelosi said graciously. “Two things we need to do: create jobs and control spending.”

“I am a transparent guy,” Boehner said. He called for more direct communication, saying they all “need to have more time together.” Jobs and spending were his focus also.

“Thank you for the spirit in which you have welcomed us,” said Cantor, whose connection to the Tea Party made him a new power center in the House. “Thank you for the pay freeze,” he said, referring to Obama’s recently announced two-year pay freeze on federal workers that would save $5 billion.
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He proceeded to list what he hoped would be “common ground”—deficit reduction, spending and bureaucracy cuts, and jobs.

On taxes, Cantor emphasized his belief that all the Bush tax cuts needed to be extended. He urged the others to “look through the prism of people that have to pay taxes.” Getting on his favorite hobbyhorse, he said, small businesses are asking, “Where do we get the money?” They had to let those folks who would create jobs keep their money so they could invest in their own businesses and expand.

Cantor urged them to act on the Bush tax cuts during the lame-duck session, and not start in January when the Republicans would control the House. Otherwise, he more or less threatened, it would have to be done “retroactively.”

“How do we get out of here?” Senator Reid half joked. How could this be done before the December holidays? “Try to be reasonable,” he urged. No one has “a magic wand,” he said, and reminded everyone that the Senate was different, meaning slow and burdened with many procedural hurdles.

McConnell, the Republican Senate leader, saw it somewhat differently. “American people prefer periods of divided government,” he said. “Sometimes divided government can be productive.” This was
because any deal that passed would necessarily have both parties’ fingerprints on it. The key questions, according to McConnell, were what to do about tax cuts, how to come to an agreement on the budget, and yes, how would they get out of town before the holidays? He said he hoped that something productive would come out of the Simpson-Bowles commission, and said he was prepared to do some business.

“The long term needs to be our goal,” said Jon Kyl, the Senate minority whip.

Kyl, at 67, had been representing Arizona in Congress for 23 years, first as a member of the House, and since 1995 as a senator. One of the most conservative members of the Senate, Kyl also knew how to exert political pressure.

Without any attempt at subtlety, he said, the “sooner we get to agreement on taxes and spending, the more time we will have for START.” Kyl was referring to a major strategic arms reduction treaty that the administration had painstakingly negotiated with Russia and which Obama had been pressing the Senate to ratify. It had support from both Republicans and Democrats, but Kyl was concerned that the treaty did not invest enough in weapons modernization.

The “this for that” suggestion was not lost on anyone.

“We have gotten some stuff done,” Obama interjected. He was pleased they had agreed on setting aside $1.2 billion to compensate black farmers who had faced discrimination from the Department of Agriculture. And, he pointed out, they had toughened economic sanctions on Iran.

Geithner said the economy was growing annually in the 2 to 2.5 percent range, “but not very strong,” noting there was “some risk of double dip recession.” Next year “could be slightly stronger, 2.5 to 3 percent.” The economic conditions in Europe were “very messy,” and Europe was the main risk that could damage the U.S. economy.

Larry Summers added that the economic demand for goods and services was less than the capacity to produce. “Private spending is sluggish,” he added. “Unemployment claims are dropping . . . not terrific, but better than we have seen.”

Obama went to the nub, taxes, noting that Boehner and Cantor had
raised the issue. “I would love it to not tax anyone,” he added. “I’m not hung up on the notion that we have to ‘sock it’ to the rich.” Simultaneously reducing the deficit, spurring economic growth, and adjusting tax policy was a complex blend of policies. They might not all work together, he warned. Under Keynesian economic theory, cutting government spending hurt economic growth.

So he had an idea that, not coincidentally, his 2012 campaign team would endorse: “Not doing anything too drastic in 2012, then medium-tough measures in 2013 in spending . . . then taking on long-term entitlement.”

Turning to what would later become his campaign focus, he said, “Our view is the middle class have been impacted” by the recession and as a result those who make $250,000 a year or more should be taxed at the old Clinton-era top rate of 39.6 percent, while everyone below should be protected from any tax increase.

“This doesn’t negate the need for spending cuts,” he added, but “we can’t cut our way out of this deficit.

“Why not decouple?” he asked. “Then have debate on higher incomes?” He wanted Republicans to consider extending the tax cuts for people earning less than $250,000 separately from the issue of what to do with upper-income rates. “That way we can achieve 98 percent of what we agree on.

“Unemployment insurance is very important,” he added. It benefited small businesses.

He turned to Cantor. “Eric,” he reminded him, “Walmart says pass the middle-class tax cuts . . . get unemployment insurance extended.”

The president suggested that each of them assign someone at the staff level to meet with Geithner and Jack Lew, who had replaced Orszag as head of the Office of Management and Budget.

“We need to extend the estate tax,” Kyl said, because the generous exemptions were expiring also.

Obama said they had to get to “what are our options . . . what are each other’s bottom lines?” Then they could set up a process for implementing the agreed-on recommendations.

“We all need to step into the rowboat together,” Biden said, using
one of his favorite analogies, so it won’t tip and no one will fall in the water.

“I don’t see enough of the growth” coming from the Simpson-Bowles fiscal commission, Pelosi said, citing “green jobs” as an example. On taxes, she wondered if there should be a size limitation on small business, “so we aren’t giving benefits to companies that don’t need it.” She added, “We can reward success, but this is about fairness.”

Reid urged his colleagues not to “waste time” on other pending issues like the DREAM Act, which aimed to create a path to citizenship for certain illegal aliens brought to the country as minors, or the Zadroga Act, which expanded compensation for rescue workers disabled as a result of their actions in the aftermath of 9/11. They needed to focus on “just taxes and funding,” he said.

Obama turned to Kyl about START. “This needs to get done. The U.N. Security Council would not have gone along with Iran sanctions if the Russians hadn’t come along. Can we turn Russia more towards the West? This is worth doing on the merits. Absolutely vital to our national interest.”

Missile defense, which used to be very controversial, had just sailed through. It was all part of a larger strategy with the Russians, he said.

“No politics involved,” Kyl said. “The resolution or ratification needs to be amended . . . priorities have to be established.” Then he reissued his threat. “If we agree on taxes and spending, we will have enough time to take up START.”

• • •

Just before lunch that morning, one day before the fiscal commission was due to vote, Simpson and Bowles went into the House Ways and Means Committee’s private library to see the fiscal commission’s three Republican House members: Dave Camp, Jeb Hensarling and Paul Ryan.

Of the three, Ryan, a 40-year-old Wisconsinite, was the only one with a national public profile. Six weeks earlier he had published the book
Young Guns: A New Generation of Conservative Leaders
, with
co-authors Minority Whip Eric Cantor and Deputy Whip Kevin McCarthy.
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Ryan was seen as a major new deficit reduction force in the Republican Party, a policy intellectual who would chair the House Budget Committee in the incoming Congress.

Camp and Hensarling, though, would also play important roles in the new Congress. Camp, from Michigan, would head the powerful tax-writing Ways and Means Committee, and Hensarling, a Texan, would be Republican conference chairman, placing him fourth in the ranks of House leadership.

All three had told Simpson and Bowles that they would not support the commission’s final recommendation.

The plan the commission was about to release had changed only slightly from the chairmen’s earlier proposal, and nothing had been held sacred. As Simpson later put it, everyone “had to agree to shoot one of their favorite cows.” Democrats would still have to accept deep cuts to entitlement spending, and Republicans would have to sign off on increased tax revenue. Controversially, it proposed bridging the gap between current policy and full implementation of the plan by, in part, eliminating the Bush tax cuts for high earners.

“I hope and pray that you didn’t vote against this because of pressure from Grover Norquist,” Simpson told the Republicans. “Because if you did, I’ve lost all respect for all three of you.”

Norquist is the leading conservative anti-tax activist who successfully elicits pledges from about 95 percent of the House and Senate Republicans not to vote to raise income tax rates.

This is not about Grover, Ryan said. You’re broadening the base and lowering rates. That’s the kind of reform we all agree with. The problem, Ryan said, was the impact of the commission’s plan to eliminate the tax deduction for employer-sponsored health insurance plans.

If you remove the tax exclusion for health care, then you’re going to dramatically accelerate employers’ dumping their employees into Obamacare, Ryan said. You will eviscerate the employer-sponsored health care market. Everyone will be shoved into Obamacare and the cost will explode.

Ryan feared the government would find itself with an open-ended commitment to paying for the health care of more than 100 million people. On top of that, he added, the commission hadn’t addressed the increasing costs of Medicare and Medicaid.

We’re going to accelerate a debt crisis if we put this thing together, Ryan said.

Camp and Hensarling said they agreed with Ryan. Camp was also worried that the commission’s proposal was a backdoor method of raising government revenue, which the plan envisioned capping at 21 percent of GDP—well above the historical average. He thought it should be in the range of 19 percent.

If you’re going to do reform, you need to do reform, Camp said. If you’re going to raise money, you need to raise money. And I think to try to pretend that it’s reform when it’s really raising revenue makes the reform harder to do.

“That’s a good answer,” Simpson told them at the end of the hour-long meeting. “I sure will accept that answer. That’s honest.”

Stalemated at 11–7, Simpson and Bowles never called for a formal vote on the plan, ensuring it would not be sent to Congress. The panel held a final meeting on December 3, two days past its official deadline.

“The Fiscal Commission has been a success,” Ryan wrote in a statement appended to the final report.
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“Although I could not support the plan in its entirety, many of its elements surely are worthy of further pursuit.”

The president was visiting troops in Afghanistan on the day of the commission’s final meeting, and the White House released a statement in which Obama praised the commission’s overall work.

“The commission’s majority report includes a number of specific proposals that I—along with my economic team—will study closely in the coming weeks as we develop our budget and our priorities for the coming year.”
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But he cited no specifics, and did not endorse the commission’s conclusions.

In an interview on July 11, 2012, the president recalled that when the fiscal commission’s plan was released, “none of the House Republicans
vote for it, including Paul Ryan, which also was a harbinger of things to come.
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“A lot of people ask, well, why not immediately embrace Bowles-Simpson? The reason that we did not was that the revenue that they obtained involved eliminating the home mortgage deduction, health care deduction, charitable deduction, etc.,” he said.

“If people knew exactly what that was, it could not pass Congress. It would be wildly unpopular. We could not get that done. And the Defense cuts were actually much steeper than, responsibly, I could sign on to when we were still winding down the Afghan war. So what I said to my team was, rather than just embrace, whole-hog, Bowles-Simpson, let’s take the framework—which is the right one, a balance of spending cuts and revenue—and let’s affirmatively present to the country what we think would be a path to bringing down our deficit and stabilizing our debt. And I said internally, let’s not have any sacred cows. Let’s look at some things even if Democrats are uncomfortable with it.”