The Price of Politics (24 page)

• • •

On the morning of Thursday, July 7, a
New York Times
story headlined “President Looks to Broader Deal in Deficit Talks” revealed that Boehner and Obama were engaged in secret negotiations.
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The report said the speaker had shown a “new willingness” to bargain over revenues, and mentioned that a figure of up to “$1 trillion or more” was in play.

David Krone, Reid’s chief of staff, told Jackson that the White House had briefed Pelosi and Reid, and it looked like the leak had come from Senate Democrats.

On the $1 trillion figure, Boehner insisted to Cantor and others, “That’s not accurate. I’m not doing that.” He was proposing tax reform exclusively. It was the only way.

However, he added, “I want something big.” It would be easier to sell than something small or at the medium level. “I want something big.”

“I don’t know that you can,” Cantor replied. “Our members aren’t there. Maybe we should go for the Biden thing.” He was trying to convey skepticism, even animosity, without rocking the boat too much. Additional debate about a split between the speaker and majority leader would generate headlines reading “Ambitious Cantor Wants to Overthrow Speaker.”

The internal House Republican dynamic, as viewed by their staffs and by the House press corps, was Cantor vs. Boehner. They were obviously in different places, and any disagreement by Cantor was gauged in terms of a leadership challenge. Cantor referred to it as “the soap opera,” but it was real.

• • •

Boehner’s staff worried that the president thought if he got Boehner in a room with the rest of the leaders and announced a deal, Boehner would fold in front of everybody. Loper tried to get the speaker to beg off even going to another meeting. It was ridiculous. The distance was too great, and Pelosi would never agree to support a deal with big Medicare cuts.

Boehner and Obama spoke on the phone in advance of the scheduled White House meeting.

I’m going to lay out three potential paths to an agreement, Obama said. The choices would be: a smaller deal with roughly $1 trillion in deficit reduction, a medium-sized $2.4 trillion plan, or a big deal that would require tough cuts but provide close to $4 trillion in deficit reduction.

“We aren’t there” on any agreement of any size, Boehner reminded him. He was nervous. The deal was so unformed that he was afraid discussing it in a meeting would only confuse people. Even the other
Republican leaders “didn’t have any clue” about what he’d been discussing with Obama.

“This ain’t going to cut it,” Boehner said. Why have the meeting at all?

“Well, we’ve already got it scheduled and I feel like I have to bring them down here,” Obama insisted.

Boehner wondered if Obama was using the meeting as a means of managing Reid and Pelosi, who were increasingly upset about being cut out of the negotiations.

Boehner met with Cantor, McConnell and Kyl to discuss the White House meeting that day, and then called the entire Republican conference. Negotiations are ongoing on a number of options, he told them, including structural entitlement reforms, spending caps, and comprehensive tax reform. All of these things could be part of one significant framework, but there will be no tax increases.

In case there was any doubt, Boehner spoke to the press after the meeting. In the debt limit negotiations, he said, “Everything’s on the table except raising taxes on the American people.”

• • •

As promised, Obama laid out his three options when the top eight congressional leaders met at the White House that morning.

The big deal was impossible, Cantor and Kyl said immediately. The $4 trillion deal, which required $1 trillion in new revenue, would never pass the House, Cantor said.

The president cautioned them that he wouldn’t sign anything that didn’t get the country through the 2012 elections without another debt limit crisis.

Boehner remained convinced that the president’s insistence on a single-step debt limit increase was purely political.

“Okay, so, he wants to get reelected,” he recalled in an interview.
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“Doesn’t want to have to deal with it more than once. Okay, so, he kept saying it. This had nothing to do with anything other than the convenience of his own reelection.”

Did you say that to him?

“No, no, no. I didn’t have to state the obvious.”

They made little progress during the 90-minute meeting, but agreed to meet again on Sunday evening.

The president spoke to the media at about 1 p.m., calling it “very constructive,” but admitting that “the parties are still far apart on a wide range of issues.”
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Afterward, Pelosi expressed concern that cuts to Medicare, Medicaid and Social Security were on the table.
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“We are not going to balance the budget on the backs of America’s seniors, women or people with disabilities,” she said.

• • •

Later, Boehner met with the rest of the House leadership: Cantor, McCarthy and Hensarling.

They discussed options for a Plan B, in case the White House negotiations didn’t pan out. They neared a consensus to pursue a medium-sized package, based largely on the Biden group’s work.

Boehner’s decision to send the rest of the Republican leadership in search of a Plan B had two purposes. First, he had no confidence the negotiations with the president would produce a deal, and second, he had to cover his own back by keeping McConnell, Cantor, McCarthy and Hensarling busy doing something because they were really nervous about what the hell he was up to. And he realized that was an understatement.

Did they ask you? I asked the speaker.

“Oh, hell yeah!”
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What did you say?

“Well, you know, I couldn’t get into what we were actually talking about, because hell, you know, everything around here is like a sieve.”

So what did you say to them?

“I’m working on this, working on this. They kept saying we’re not going to do a big deal, can’t do a big deal, can’t do a big deal, and so I said why don’t we work on a deal that we think we can do. So there was effort under way, one, in case this thing did fall apart, and two, to keep them engaged in something.”

• • •

Late that day, Jack Lew went to the Hill to meet with an angry Nancy Pelosi. She had asked him to brief senior Democrats on the debt limit talks, but she also wanted to send a message to the White House.

House Democrats are being excluded from the talks, she said, and obviously, we are going to be necessary to pass any bill. The contingent of right-wing Republicans in the House will never vote for any debt ceiling increase, she said. Everyone knew this.

The president had to deal with the House Republican majority, Lew said, attempting to defend the secret talks as a strategy of necessity.

“Don’t insult us,” Pelosi retorted. “You guys don’t know how to count.”
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There was often theater in these meetings, Lew knew, particularly when a leader like Pelosi was speaking in front of her extended leadership team. He was being chastised in order to send a message to the White House and to other House Democrats that she was asserting her rightful role.

The Democrats had 192 votes in the House. “Next time around,” Pelosi added, “you better make sure that you—
we
—use the leverage. If you’re going to ask for House Democrats to put the vote over the top, we want to make sure that our concerns are more fairly reflected.”

A
t 8:30 a.m. on July 8, the Labor Department announced that job growth had slowed in the previous month and that the unemployment rate was stuck at 9.2 percent.
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Within an hour, the House Republican leadership was holding a news conference.

“After hearing this morning’s jobs report,” said Boehner, “I’m sure the American people are still asking the question, ‘Where are the jobs?’ ” It was a theme he had been pushing since the 2009 stimulus package.
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Asked about the prospects for a debt ceiling deal, he said, “There is no agreement, in public or private.
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 . . . It’s not like there is some imminent deal about to happen. There are serious disagreements about how to deal with this very serious problem.”

What were the prospects for progress in the meeting scheduled for Sunday?

“I don’t know,” Boehner said. “There’s a lot of conversations continuing, but I don’t—in all honesty, I don’t think things have narrowed. I don’t think this problem has narrowed at all in the last several days.”

• • •

Senator Kent Conrad sat down for a private meeting at the White House requested by Obama and Biden.

Though Conrad had been the impetus behind the Simpson-Bowles fiscal commission and had served on it and voted for the final product, he had urged Obama not to endorse or embrace it because it would mobilize Republican opposition and “House Republicans would automatically oppose it.”
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A longtime veteran of the budget wars, Conrad was one of the six senators in the bipartisan group called the Gang of Six that had been trying to come up with its own deficit reduction plan that combined increased tax revenues and spending cuts.

How would the revenue piece for the Gang of Six, which had not officially released its plan, actually work? Obama asked.

“You’ve got two pieces,” Conrad said. First, $800 billion in revenue over 10 years came from not extending the Bush tax cuts for the upper brackets; second, another $1.2 trillion, also over 10 years, came from tax reform.

“You’ve spent all this time negotiating with Republicans,” Obama said. “In all those hours of negotiation, what have you found works?” He had to crack the code. How do you get revenue out of these guys?

“There is only one thing that works,” Conrad said. “And that is fundamental tax reform that actually lowers marginal rates.” Reagan had dramatically reduced income tax rates in 1982 and 1986, and it had been a Republican obsession ever since. Most of them had signed a pledge originated by anti-tax lobbyist Grover Norquist vowing never to raise taxes.
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It was holy writ. The extremist Tea Party wing of the party was smaller and consisted of 40 to 60 “crazies,” or “barbarians at the gate,” according to Nabors. Their power, however, was not within the House Republican conference. Rather, it was the threat of a primary challenge, which they could engineer and help finance.

Tax reform was a possible way around Norquist—eliminating loopholes raised revenue, which in turn could be used to both lower tax rates and reduce the deficit.

The reform would include elimination of tax deductions, including those for mortgage interest and employer-provided health care insurance. Technically these deductions were called “tax expenditures,” as the president and Biden knew, because they cost the Treasury money—more than $1.1 trillion, each year. It was an astonishing number: The
government lost more through the tax code than it spent through the annual appropriations process.

The key to generating revenue through tax reform, Conrad said, was not to raise the income or corporate tax rates, but to lower them while eliminating deductions.

“Combined with entitlement reform and with going after wasteful spending,” Conrad said, it was possible to get there.

One lesson, he said, was to look at Defense spending. Lift the veil over there at the Pentagon, he said. Savings could be found that would not compromise the military’s real capacity an iota. While serving on the Simpson-Bowles commission, Conrad said, he heard a witness testify that 51 percent of all federal employees, including uniformed military, were at the Department of Defense.
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That did not count the Defense contractors, so Conrad had asked how many there were. The answer had an astounding range—1 million to 9 million. He had been unable to get more precise numbers, though the Pentagon had acknowledged they had a contractor problem.

“They’ve got a huge contractor problem,” Conrad said.

• • •

In his first meeting with the president-elect during the transition in 2008, Nabors, then an OMB expert, had spent 10 minutes discussing tax reform.

“It’s a necessary part of our reform agenda,” Obama had said. “It has to be, because it’s so screwed up.”

Since then, senior staff had spent many hours with Obama discussing tax reform. Nabors considered them surreal conversations. “Let’s just give them two to three months to come up with tax reform,” the president said at one point. It only seemed reasonable, Nabors realized, until they got into the details. He found himself walking the line between his old role as a technician and his new one, as a political guy.

They called in the tax experts from the Treasury Department—Nabors called them “the trolls”—who said even six months would be fast. Realistically, it would be 12 to 18 months.

Later that day, Lew and Nabors went back to the Capitol to meet with Loper and Jackson. They hadn’t brought any new paper with them, but they were ready to talk about some of the details in the Republicans’ latest offer.

The White House was willing to compromise on some of the changes the Republicans wanted to make to Medicare, such as transforming the confusing Medicare Part A and Medicare Part B systems into a single entity. They would agree to that if the change could be pushed off to 2021 or 2022, and if there were guarantees that the policies would be affordable for low-income seniors. The net change in costs had to be zero. Republicans could change Medicare, but they couldn’t generate any savings from doing it.