The Price of Politics (22 page)

He laid out his concerns. First was the soft economy, and the economies of Japan and Greece. Second were the Republicans, who were in “the political bunker with the Tea Party and taxes.”

If they could get the big deal, with the Republicans giving in on “big revenue” and income tax rates “that would be accompanied by some Medicare structural reforms,” the media could consider it a “game changer.”

The congressional Democrats in the room wondered if the president realized the danger of talking about “Medicare structural reforms.” That was Paul Ryan’s language. But Obama insisted he would support a hard line with the Republicans on “big revenue.”

Van Hollen had some specific revenue proposals: the previously discussed “cats and dogs” of corporate tax loophole closers—oil and gas subsidies and corporate jet depreciation. Second was an idea to phase out income tax deductions for those making over $500,000 a year, and giving a tax cut to those earning between $170,000 and $250,000. That was appealing because they would be able to argue that the overall effect was to give more people a tax cut than a tax increase.

The third idea was Sperling’s proposal to limit personal income tax
deductions for those in the highest brackets. It could raise $130 billion over 10 years.

As the Democrats left the White House they got word that something dramatic had just happened with Eric Cantor.

• • •

Cantor was having lunch at a Capitol Hill restaurant when Biden called.

“You’ve got to come back in,” Biden said. “We’ve got to go back into that meeting just so we can say that we are agreeing to stop right now, but we’re all on the same page.”

“There is no way,” Cantor said. They were not on the same page, not in the same book, or even the same library.

“What do we tell the press?” Biden asked.

Cantor said they should just say the talks were in “abeyance,” not necessarily over.

“I get it, I get it,” Biden said. Just one more try? “Any chance you could come back in the meeting and take a photo?”

“I can’t,” Cantor said, “given the statements I’ve already made to the press.
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I can’t go back in there.” There was some utility to the talks, he added. “But again, I gave you the background about we don’t think you go and put good money after bad if you’re not fixing the problem.

“The entitlement trajectory here is going to bankrupt the country.”

Biden hung up the phone. His search party had been a failure. They’d discovered plenty of things they could agree on. But they had come home empty-handed.

• • •

The breakdown of the Biden talks was treated by the press as an act of willfulness by the House Republicans in general and by Eric Cantor in particular.

“Deficit Talks in Danger as Cantor Bails,” read the headline on Politico.
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com that morning.

The next day, the
New York Times
editorial board, under a headline
accusing the House Republicans of pitching a “temper tantrum,” observed that “this bit of grandstanding has brought the nation closer to the financial crisis that Republicans have been threatening for weeks.”
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Boehner tried to portray Cantor’s walkout as a necessary and unremarkable part of the process.

“I understand his frustration. I understand why he did what he did,” Boehner said publicly, “but I think those talks could continue if they are willing to take tax hikes off the table.”
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• • •

The following morning, June 24, Boehner effectively replaced Cantor as the Republicans’ chief negotiator on the debt ceiling. In a press conference, he laid out three criteria for a deal: It had to commit the government to spending cuts greater than the increase in the debt limit; restrain future spending growth; and contain no tax increase.
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“A tax hike,” the speaker said, “cannot pass the House of Representatives.”

• • •

On June 29, 2011, President Obama appeared in the East Room of the White House at 11:40 a.
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m. for a press conference on the economy and the need to raise the debt limit. He went after Republicans for their unwillingness to raise any revenue through tax increases. “I spent the last two years cutting taxes for ordinary Americans, and I want to extend those middle-class tax cuts,” he said.

Ridiculing Republican “sacred cows,” he said, “The tax cuts I’m proposing we get rid of are tax cuts for millionaires and billionaires; tax breaks for oil companies and hedge fund managers and corporate jet owners.”

In John Boehner’s office on Capitol Hill, the president’s appearance was met with anger and derision. The repeated references to corporate jets—six in all—were particularly annoying. Eliminating the tax break for corporate jets would have a trivial impact on the overall deficit, saving perhaps $3 billion over 10 years.

A statement released by the speaker’s office said, “The President is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House.
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The votes simply aren’t there—and they aren’t going to be there because the American people know tax hikes destroy jobs.”

• • •

Later that day, Obama met with Senate Democrats, who wanted to introduce a short-term debt limit extension. Reid didn’t believe that a large deal including spending cuts and revenue was possible, and he thought a series of temporary increases was inevitable. He knew McConnell felt the same way. Reid wanted to get started.

No, Obama said. The talks with Boehner are making progress. We’re still going for the big deal.

That evening, Boehner left a message for Cantor, informing his second in command that the talks with the president about a big deal were ongoing. He had sent a proposal for a basic framework to the White House.

• • •

At the White House, Nabors, Lew and Sperling began putting a formal offer on paper to submit confidentially to Boehner.
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The speaker’s framework wasn’t specific. They knew any deal was going to be about two things—Medicare and revenue.

They went to work on Medicare. It was, in some respects, the prize. Paul Ryan’s budget had gone after it. Sperling’s sense was that the Republicans were looking for something iconic—a clear, understandable, structural entitlement change that they wanted, but didn’t want to do without political cover from the Democrats. And not incidentally, Sperling noted, it was a change that would cause Democrats the maximum amount of political pain.

The starting point was raising the Medicare eligibility age from 65 to 67. It was a seemingly small change, but tampering with Medicare—Lyndon Johnson’s Great Society contribution to the well-
being of the elderly—was almost forbidden among Democrats. The AARP, which had spent more than $20 million on lobbyists in 2010 alone, would rise in protest. But the president said it was Boehner’s requirement.

The Ryan budget had proposed increasing the age of eligibility by two months per year beginning in 2022, so that by 2034, a senior would have to be 67 to be eligible. “I don’t care what they say,” Sperling said. “We’re not starting more aggressive than Paul Ryan is.”

Sperling thought they should raise the age more slowly than Ryan. The White House team finally settled on raising the eligibility age by one month a year, meaning the full two-year increase wouldn’t be complete until 2046. Even putting such a proposal on paper was dangerous for the White House, should it leak.

So, the total 10-year savings would be a mere $15 billion, with a few small changes in cost to wealthy Medicare beneficiaries.

In addition, they proposed $1.1 trillion in general spending cuts, spread over 10 years, plus another $490 billion in cuts to other programs including the federal employee retirement program, Medicaid, and other health-related cuts.

Sperling, Nabors and Lew decided to take a hard line on revenue and proposed what Boehner would consider a $1.4 trillion increase. But overall, the proposal cut the deficit by $2.7 trillion.

On July 1, the White House sent the offer to Boehner’s staff.
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• • •

In his remote windowless fourth-floor office in the Capitol, Brett Loper, Boehner’s policy director, sat down to read the proposal. Loper, age 37, was one of those very important figures, little known outside Washington, who did the excruciating detail work. He headed a team of 10 policy experts.

With closely cropped hair, at 6-foot-2, Loper was the ultimate Republican efficiency man. Before coming to work for the speaker, he had worked in the White House Office of Management and Budget during the Bush administration and had been the Republican staff director on the House Ways and Means Committee. Prior to that, he
served as deputy chief of staff and floor coordinator for Representative Tom DeLay, the former Republican majority whip and majority leader whose vigorous enforcement of party loyalty earned him the nickname “the Hammer.”

In bold type on the first line of the White House offer were the words “Medicare structural reform.”
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Loper’s eyes flicked over to the right side of the page, where a column of numbers estimated the savings from each part of the proposal. The Democrats were estimating $15 billion in Medicare savings over 10 years.

Loper couldn’t believe it. Just $15 billion in cuts over 10 years? Medicare was the single biggest driver of the country’s long-term debt problem. The program would cost the government trillions of dollars over the next decade, and the best they could do was $15 billion in savings? This was almost too ridiculous to put down on paper.

Loper’s eyes plunged down the page.

Under the White House plan, the Medicare eligibility age would be increased by two years, from 65 to 67, but not until 2046. That was 35 years away. Talk about kicking the can down the road.

Next on the list was “Medicaid and Other Health.” The number there was $270 billion over 10 years. Okay, that was more like it.

But when Loper flipped to the third page, where the Medicaid cuts were specified, he realized that much of the savings weren’t coming from Medicaid at all, but from Medicare prescription drugs. It was a confusing mishmash. Loper knew this would never fly with the speaker. It wouldn’t even make it to the runway.

He turned to the section headlined “Revenues” and found yet another surprise. The Democrats were proposing the government collect what amounted to an additional $1.4 trillion in taxes over the next decade. It was an eye-popping number. Boehner had expressed willingness to increase revenue through tax reform, but there was no way to sell a number this big to the House Republican conference.

The revenue number was couched in a discussion of “fundamental tax reform” but included a wish list of changes to the tax code that the White House wanted up front that would increase taxes by $510 billion. Guaranteed to provoke Republican opposition, it targeted oil and
gas companies, the estate tax, business inventory accounting rules and corporate jets.

If there were tax increases up front, where was their incentive to follow through on tax reform? This was basically bullshit, Loper concluded. He took the plan to Barry Jackson, Boehner’s chief of staff.

Jackson, heavy and rumpled, with shaggy gray hair and glasses, was an Ohio native like the speaker. He had helped run Boehner’s first congressional campaign in 1990, and served as the speaker’s first chief of staff before taking over as the executive director of the House Republican Conference. He had left Capitol Hill in 2000 to work on the George W. Bush presidential campaign and spent eight years in the Bush White House, the majority of that time as deputy to senior adviser Karl Rove.

At 50, Jackson was the key figure in Boehner’s inner circle, often serving as the speaker’s proxy in negotiations with the Democrats in Congress. He knew a bad deal when he saw one.

He got on the phone with Boehner, who was back home in Ohio. This is a step back, not forward, Jackson said. The paper offer did not match the president’s willingness, as you perceived it, to make some hard choices.

Boehner agreed and said he had to reject the offer.

He sent a simple message to the White House: Call when you’re ready to get serious.

• • •

On Sunday, July 3, Boehner had a bunch of high school buddies and their wives visiting from Ohio.
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He was scheduled to go out to dinner with them that night, but the White House called. The president wanted to meet with him to see if they could get the negotiation back on track.

“All right. Six o’clock. I can do that and still make my dinner,” Boehner said.

It was a brutally hot summer evening when the speaker arrived in the Oval Office, but Boehner wanted a cigarette and he knew there was no smoking allowed inside the White House.
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“Hey, why don’t we go outside on the patio?” he asked the president.

Boehner asked for a glass of Merlot and lit up a cigarette, sitting in the blazing heat across from the president, who had publicly admitted to his struggle to quit smoking. The discussion turned quickly to the administration’s last proposal.

“Look, this isn’t cutting it,” the speaker said. “You’re way too high on revenue. I can’t do all these tax changes up front because, one, I’m opposed to them. But two, you will have no incentive to do tax reform.” McConnell wouldn’t go for it. The House Republicans wouldn’t go for it. “This is no good. If you need the revenue, we’ve got to find a way to make tax reform work as part of this and not do this splitting out of these other things.” And your entitlement reforms are inadequate. I can do revenue. But we need to have structural reforms of the entitlement programs.

I got it, I hear it, the president replied. Let’s make another run at it.

Boehner said that among their options—a small deal with minimal reforms, a big deal with major reforms, or something in between—it was the big deal that stood the best chance of passage. “We could bring the votes together better if we are really accomplishing something. Just going in and nicking everybody is going to be that: a whole lot of nicks without a whole lot of success. The overall package wouldn’t be big enough to really have accomplished much.”