The Price of Politics (23 page)

By the end of their discussion, Boehner thought he had convinced Obama that the big deal was the best option.

“The more I got into this, it became clear to me and frankly it became clear to the president that the only way to actually do this was to do the big deal,” he said in an interview.
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Boehner also remembered the meeting as a moment that crystallized his view of the difference between himself and Obama.

At one point in the meeting, he recalled, “I look at myself, I look at the president, and I just started chuckling to myself. Because all you need to know about the differences between the president and myself is that I’m sitting there smoking a cigarette, drinking Merlot, and
I look across the table and here is the president of the United States drinking iced tea and chomping on Nicorette.”

• • •

“That’s exactly right. And that’s true,” Obama said, smiling broadly and unwrapping another Nicorette during an interview in the Oval Office.
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“And then it started raining, and so we had to move back in. And it was very hot.”

Asked to recall the meeting with Boehner, Obama said he told the speaker the same thing he had been telling members of Congress about the debt limit.

“I want to take this issue off the table,” he said. “Because part of my view is that even though we were not largely responsible for these deficits and this debt, the public cared about it deeply. And we could not move an affirmative agenda forward as long as this debt and deficit was looming over the horizon.

“And I’m saying to them, look, there are three components to this. There’s discretionary [general and Defense], there’s mandatory [for instance, food stamps], and there’s entitlements [such as Medicare and Medicaid]. I said, I’m game to do the discretionary, it’s in our budget anyway. Biden and Cantor have done some good work on the mandatories, the nonentitlement mandatories. And we should be able to come up with something on that. And I said, the entitlement issues, from our perspective, are co-joined entirely with how far you guys are willing to go on revenue. So what I said was, you can—you have a menu of options here. You can go small, and we’ll just do the discretionary. We can go medium, where we also do some of the mandatories. Or we can go large, with some of the entitlements. But if we do the large piece, then you’ve got to have significant revenues with us.

“I said, here’s a menu of options. You guys can select whatever options you want, and I’ll work with you to resolve this. We can go big. Maybe you guys can’t deliver. Maybe we’ll go small.”

I
nside the White House on the 4th of July, senior staff were irritated. Daley, Lew, Sperling and Nabors had been talking with Boehner’s staff for several days without making much progress, and now here they were giving up family time for negotiations that still didn’t feel serious.

Nabors found the whole situation aggravating. Why weren’t they getting to some point of closure? Every time the White House took a step in one direction, the Republicans took a step in the opposite direction.

• • •

On Tuesday, July 5, the president made a short statement in the White House Briefing Room.
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Without offering any details, he said that talks on the debt limit had continued over the July 4th weekend, and that progress had been made.

There was still work to do, he cautioned, and solving the crisis would require a balanced approach that included both spending cuts and increased tax revenues. “This will require both parties to get out of our comfort zones, and both parties to agree on real compromise,” he said.

He reiterated his opposition to a short-term debt limit extension
and announced that he had asked the top eight congressional leaders to come to the White House for a meeting on July 7.

In a statement released later, Boehner said, “We’re not dealing just with talking points about corporate jets or other ‘loopholes.
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’ The legislation the president has asked for—which would increase taxes on small businesses and destroy more American jobs—cannot pass the House, as I have stated repeatedly.”

Regarding the requested meeting, he said, “I am happy to discuss these issues at the White House, but such discussions will be fruitless until the President recognizes economic and legislative reality.”

• • •

Jack Lew and Rob Nabors went to Capitol Hill on Wednesday, July 6, to meet with Jackson and Loper in advance of another private Obama-Boehner meeting.

Loper handed them Boehner’s counterproposal for a $2 trillion deficit reduction deal, which, they believed, offered $788 billion in new revenue.
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The proposal also insisted that yearly revenue not exceed 19.1 percent of GDP—a giant goal, given that government spending had increased to an annual average of 23.2 percent of GDP.

The plan had been bouncing around Boehner’s office since the spring, Boehner later recalled.

“When you look at current tax policy it produces about $35.5 trillion plus over 10 years. If you look at current tax law, it produces $39-plus trillion. Out of tax reform the goal was to hit $36.2 or whatever, and so the idea was, and our proposal was that tax reform would produce up to—underline a hundred times ‘up to’—$788 billion. And then roughly 19.1 percent of GDP. Which was a way for us to put revenue out there and unlock my box and their box.”

Where the administration proposed saving $15 billion from Medicare over 10 years, the Boehner proposal sought $250 billion. He wanted to overhaul the system, combining Medicare’s various parts that covered doctor’s fees and hospital care separately into a single plan that looked and functioned more like a conventional insurance policy. The two-year increase in the retirement age would begin seven
years earlier, in 2015, and be completed 19 years earlier than the White House proposed.

Combining the hospital care and regular medical care segments of Medicare might be the right policy, Lew said, but it’s very complicated. You’re going to create winners and losers. This can’t be sold as part of a budget-saving policy. It’s got to be done on a no-cost basis, just for good policy, because you’re screwing some of the healthy and creating more of a safety net for the unhealthy. You have no idea what the political ramifications are going to be, he added. This is going to be bad politics for you.

This was the sort of thing Jackson couldn’t stand—the White House telling House Republicans about their own politics.

“Jack, I know my politics,” he said. “I don’t pretend to know yours. Don’t pretend to know mine.”

Boehner’s counteroffer applied the modified Consumer Price Index to Social Security and made other changes to the Democrats’ treasured retirement program.

Lew said the administration would consider the CPI change, but any other changes to Social Security would need to be balanced with an increase in payroll taxes. He suggested creating a “donut hole” system for payroll taxes. Currently, everyone paid payroll taxes on their first $106,800 of income. Lew suggested keeping the cutoff at $106,800 and reinstating the tax on income over $250,000.

Loper found Lew obnoxious. The budget director was doing 75 percent of the talking, lecturing everyone not only about what Obama’s policy was, but also why it was superior to the Republicans’.

Jackson found Lew’s tone disrespectful and dismissive.

Lew was incredulous when he considered the Republican proposal as a whole. The changes they were considering sounded simple. But the speaker’s office was laying down general principles and looking to apply them to extremely complex programs. The devil was always in the details. What mattered was what impact those general principles would have on people’s lives if they were implemented.

When the speaker’s office made a proposal, Lew would return with an analysis of what it would mean for the average Medicare retiree
and people at different income levels. It complicated the negotiations, and in Lew’s experience, the answer “things are complicated” was not highly appreciated by the speaker’s office.

Lew felt that Loper understood the issues and, if he had been given the freedom to negotiate, would have been able to come to a deal. Jackson, on the other hand, was a political strategist. He had little interest in the substance of the debates—his eye was always on the Republican conference, making sure Boehner wasn’t too out of step with what they would support.

To Lew, it seemed the speaker and his staff were constantly complaining about the problems they had with their caucus. It wasn’t as if the White House would have an easy job selling the deal either. Democrats in Congress weren’t exactly clamoring for cuts to Medicare and Social Security.

Lew tried to explain the magnitude of what Republicans were asking the White House to support. Their proposed changes to Social Security, Medicare and other social programs would overturn decades of Democratic orthodoxy. Even the Ryan budget, viewed as unacceptably radical by the Democrats, didn’t change things so quickly. He said the Republicans had fundamentally misread the politics of the budget debate.

“You realize that all the Democrats think we’ve got you by the balls because of that Paul Ryan budget you voted for? And we’re going to give it up in one fell swoop?”

• • •

Later, at the White House, Nabors and Sperling looked over Boehner’s offer.

We can’t do most of this Medicare stuff, Nabors said, and the Medicaid pieces are completely unworkable. The Republicans were pushing for funding levels that could only be reached by turning Medicaid into a block grant program—something Democrats would never accept.

The cuts to entitlements, in general, were higher than the Democrats would tolerate. The proposed $788 billion in new revenue was a fiction. It assumed a new and lower starting baseline.

“We can’t do this,” Nabors said. “And they have to know that we can’t do this. This would be suicide.” He thought the Republicans were pulling away from a deal.

“Oh, my God, why are we in this negotiation?” Sperling said. “It’s a fraud.”

Sperling had focused on the requirement that government revenue be tied to GDP. This was the killer line: “Projected revenue could be no higher than 19.1 percent in any year.” It would be a potential revenue cut of $600 billion, not a revenue increase. The 19.1 percent was something the
Wall Street Journal
editorial board fantasized about, but the federal government’s obligations to seniors through Medicare and Social Security were skyrocketing with the retirement of the baby boomers. There was no way to go back to the Reagan 1980s with some arbitrary 19.1 percent cap. They wanted to cap revenues at an already low percentage of GDP when the country was coming out of a recession?

“No fucking way,” Sperling said.

We can’t do this, Nabors told Jackson.

This is a fair deal. It’s reasonable, Jackson replied, pointing out the offer of $788 billion in revenue.

As much as anyone in the White House, Nabors was eager to cut a deal. But this was just insulting.

“If you can’t sell it to me,” he told Jackson, “there’s no way you’re going to sell it.”

• • •

During the course of the week, the approximately $1.1 trillion in discretionary cuts negotiated by the Biden group had become an assumption. They would be part of whatever deal could be worked out.

When Boehner went to meet with Obama on the evening of July 6, he remained convinced that the offer his staff had delivered the previous day held the key that would unlock the box each side was trapped in. It would allow the Democrats to say they were raising additional revenue while protecting the Republicans from having to support a tax increase.

“Listen, $788 billion was real simple,” Boehner recalled.
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“Flatter, fairer code, you’re going to get more economic growth. Secondly, you’re going to have a more efficient tax system.”

He said that Internal Revenue Service data shows that the current tax system produces about 85 to 86 percent of what it’s supposed to. Boehner’s staff had estimated that it could be increased to 93 percent with a flatter, fairer code.

“Thirdly, I’ll call that opportunity savings, nobody knows what the tax rates are going to be. We got [the Alternative Minimum Tax] hanging out there, we got the Bush tax cuts all going to expire. There’s some value into locking this down. Well, I was entirely comfortable—well, entirely, that’s an overstatement—I was comfortable.”

The demand that revenue be limited to 19.1 percent of GDP would have made it an easier sell to Republican hard-liners, but it “was not something I was going to fall on my sword over,” Boehner later recalled. “But the up to $788 billion, I was comfortable enough to put it on the paper. I don’t want to say I was that comfortable, because I knew I was going to have a battle here, but I was willing to do that if there were real reforms in the entitlement programs. You know I think at this point they were pretty excited about us putting revenue on the table and we were making progress.”

But at the end of the meeting, despite their previous discussion about pressing staff to find an agreement, they remained far apart on the key issues of taxes and entitlement reform.