The Price of Politics (30 page)

On tax reform, Obama said, “I was willing to put my full weight behind it.” But an enforcement mechanism would have to be put in place in case tax reform didn’t get done.

“Fundamental reform would equal more growth and more revenue,” Boehner said, offering the conventional Republican wisdom. “That’s why we all have an incentive to do it.”

Obama said that whatever the assumptions about more revenue from tax reform, “it wouldn’t be coming immediately. But if there’s an appetite for that, we can return to that discussion. I would love to.”

“We need to spend more time on real enforcement mechanisms,” Boehner said. “My members want a balanced budget amendment. It’s the ultimate enforcement mechanism.”

Obama said he did not consider a balanced budget amendment serious enforcement.

Some of Cantor’s presentation on health care from the day before had shown up in
Politico.
“Witness what happened last time we came in and brought paper, Mr. President,” Cantor said. “Witness what’s going on. Totally inappropriate. It shouldn’t have happened. Our members keep asking for what is going on. We bring it here and it ends up in the press. So we keep asking you what’s going on. We’d like to see the specifics of your plan. Let’s go through the same exercise that I went through yesterday, line-by-line specifics on your plan. And that’s what our members want. I came in here, I did it, it got leaked. Shouldn’t have happened.”

“Completely agree,” the president said. “Shouldn’t have happened. I will take responsibility for it. And if it happens again, we’ll have to kick out the staff.

“What I propose doesn’t violate anything Grover Norquist says,” Obama maintained. “These high-end tax rates are scheduled to lapse.
I proposed tax reform. We’d use that to make up the revenue from the higher-end tax rates going away.”

“Where’s the paper on this?” Cantor asked tartly.

“Your speaker has the paper,” Obama disclosed. “My assumption is you’ve been working with him. Nancy and Harry don’t have paper.”

“Let’s have the paper,” Cantor snapped.

“I’ll describe it,” Obama said. “It’s a big chunk of the Biden group. Health care and non–health care. Minimum of decoupling [Bush tax cuts] with tax reform of an equivalent amount. Raise the age on Medicare.”

“What are the tax rates?” Cantor asked sharply.

“Maybe I was naive,” Obama replied. “You took a pledge. I’m offering you the opportunity to lower everyone’s rates” with tax reform. “What happens if tax reform breaks down?” Obama asked. “Which you all think would be great for my politics.” Tax reform would be good policy, but they needed a fallback. “What happens if tax reform doesn’t happen? What’s the default? I’m saying revenues consistent with what we were promised from decoupling. And you’re saying that’s not acceptable. So here’s my question: If people want to discuss that, we are game. If not, the clock is ticking.”

“Mr. President,” Cantor began more politely, “what you’re talking about would actually be $1 trillion in additional revenue the way we look at it.” Letting the upper tax brackets rise to 39.6 percent would raise at least $800 billion. “So we’re going to end up with a higher tax increase than what you’re saying.” Tax reform is about lowering rates. “What is the top rate you’re willing to agree to on tax reform?” This was the guts of the matter.

“If we’re making a deal on the deficit,” Obama said, “then the cuts have to be scoreable, so you can’t count on economic growth. So I can’t say growth and I have to have a default. If things played out and we didn’t need the extra money, then fine.”

It was almost a joke to think they might have extra money.

“I only had this discussion because it was the only way to do tax reform,” Boehner said, justifying his private conversations with the president. “We’d need pain on both sides. We’re having problems
with the principles for tax reform. I want to lower, I want to go to three rates, broaden the base. And we’re far apart on one principle—progressivity.”

“That’s accurate,” Obama replied. “We have to maintain some level of progressivity. That doesn’t preclude going to lower rates. And we never came to agreement.”

“If we’re talking about a top rate of 25, 28 percent, that would be one thing,” Cantor said. “But if there’s no agreement and you automatically get $1 trillion in tax revenue, where is your incentive to act?” The Democrats would stall on tax reform and then the trigger would go off, giving them a bonanza—$1 trillion in new tax revenue.

“We’ve been working with the speaker in good faith,” Obama said. Bypassing Cantor, the president turned to the speaker. “John, if you think your conference is open to the larger package, then let’s go back to it. If so, we can pass the debt ceiling deal . . . or at least the stuff we agreed to, along with some kind of deficit cap and the pathway towards tax reform. This would not involve your guys raising taxes. But we’d have an identifiable revenue source.”

“One concern I have on a small or big package,” Boehner said, is the lack of consensus on payroll taxes, Pell education grants and food stamps. “If we push the spending cuts off, then the markets will say, there they go again. We need to spend less now.”

“You all want to go back to 1890 levels of spending,” Obama joked. “But pulling that spending back has an economic impact just the same as you claim raising taxes would.”

Biden chimed in, “If we don’t have time for entitlements and tax reform, let’s pass the $1.7 in cuts now and begin the discussion on entitlements and taxes.”

This, of course, was what the Republicans wanted—a cuts-only agreement.

Reid addressed the president. “You are patient. I am not. There’s no revenue. The Republicans won’t help.” He shook his head in disgust. “And lower rates sure have helped the economy,” he added, in a snide reference to the Bush tax cuts. “We need to now spend some time on the McConnell approach.”

They turned to Sperling for details about a compulsory trigger if they didn’t cut spending or raise taxes in an amount at least equivalent to the debt ceiling increase.

“A trigger would lock in our commitment,” Sperling explained. “Even though we disagree on the composition of how to get to the cuts, it would lock us in. The form of the automatic sequester would punish both sides. We’d have to September to avert any sequester”—a legal obligation to make spending cuts.

“Then we could use a medium or big deal to force tax reform,” Obama said optimistically.

“If this is a trigger for tax reform,” Boehner said, “this could be worth discussing. But as a budget tool, it’s too complicated. I’m very nervous about this.”

“This would be an enforcement mechanism,” Obama said.

“Are health care savings included?” Kyl asked.

“Could include some health care,” the president answered tentatively.

“If you subtract from the package,” Kyl said, “meaning you start dropping things out of here, we’re going to subtract rural hospitals and medical education.”

“I just said $1.7 as a number,” Obama said. “The staffs need to get together and go through each one. That’s a rough estimate. Eric was at $2.2 trillion. I already discounted that.”

“We’re not touching Medicare and Medicaid without revenue,” Reid declared.

“We don’t have paper on your plan,” Cantor said again.

“I’ve been dealing with your speaker,” Obama said. “You all need to talk to the Republican caucus. Eric, if you want to go to the big deal, then we’ve got to talk about decoupling. Absent decoupling, no big deal. Harry and Nancy may have different views.”

On the current annual spending level, Obama said, “Our proposal is 1048,” meaning $1.048 trillion for general spending for fiscal year 2012.

On enforcement, Kyl said, “There’s a huge gulf in there. We can’t agree to a mechanism to reduce spending if it leads to tax increases.”

“There’s been no growth in the last 10 years in nonsecurity spending,” said Senator Durbin. “Eighty-four percent of the growth has been in Defense.” He pointed out that the pending transportation bill had cuts of 30 percent. “That’s the first time in 56 years. Doing all these cuts in the discretionary part of the budget is unfair.”

If they were limited to what his working group had done, Biden said, addressing the speaker, “There’s no way we’re above $2.2.” So they couldn’t stretch to the debt limit of $2.7 trillion or whatever it was and get dollar for dollar.

“Unless it’s coupled with an idea like Mitch’s,” Obama said, meaning the complicated scheme of legislation and vetoes that would put it all on the president.

“What the president described as the work we have to do is right on target,” Boehner agreed.

“We don’t need to go out and get our bases ginned up,” Obama said.

“No mandatory health care cuts without revenue,” Pelosi said, speaking for her base. “And it’s got to be net positive revenue.”

As if it weren’t already clear, Biden turned to Kyl. “Are you saying anything beyond revenue neutral is off the table?”

“It’s off the table,” Kyl said.

Cantor added, “$1.7 without revenue is all you say you can do. If you’re talking about getting to above dollar for dollar, revenue neutrality comes in. We can credit the revenue toward a corporate rate reduction, for example.”

“That is ridiculous,” Pelosi said.

“Let’s try to end on a constructive note here,” the president intervened. “One, let’s go find the areas of overlap. Two, let’s work on firewalls. Three, let’s work on trigger enforcement. I’ll think about net neutral revenue.”

Cantor said he would like to add health care mandatories and food stamps to the things to do.

Obama said they could do those things if they got revenue. “Allows us to do it, if revenue.” Could be done, the president repeated, “if revenue.”

• • •

When Cantor got back to the Capitol, he spoke to reporters about the progress of the talks.

“We both agree on entitlements,” he said, “and in fact we would both agree on what the president’s prescription for entitlement reform is, and we know what that is.
¹⁵⁷
So why don’t we do that?”

Asked about other plans, the majority leader said they were stalemated. “Nothing can get through the House right now. Nothing.”

In an interview later, Boehner said he did not understand why the president insisted on having the daily meetings.
¹⁵⁸
“It was all the small ball little stuff,” he said. “All we were going to do was nick everybody and irritate everybody and not accomplish anything. I just labored my way through this, because it was a sideshow. It wasn’t the real deal.”

B
efore the meeting on Wednesday, July 13, the president gathered his budget and economic team in the Oval Office for a pre-briefing. He was fretting. There was an unusual edge in his voice.

The economy was shaky once again. They could feel tremors. The stock market had been down for three straight days and with most public companies preparing to report third quarter earnings, predictions were for the lowest profit growth in two years.

Plouffe felt that confidence in the economy was beginning to unravel.

“I’ve decided that I am not going to take a short-term debt extension under any circumstances,” Obama said. He looked around at Daley, Lew, Geithner, Sperling, Reed, Nabors and Plouffe. What was occurring was fundamentally altering the founders’ vision of the presidency. The United States had always honored its debts—it was a tradition that stretched back to the Revolutionary War—and for somebody to be able to hold that tradition hostage was truly unfathomable and unacceptable. He was not going to go through this again.

“I want you to understand, I am not going to do it. This is altering the presidency. I am not going to take a short-term extension, no matter what. I want everyone to understand it, and I want it to be in all
your body language when you talk. Because you need to understand: I have made a decision. I am not going to do this.”

People, Republicans, anyone can criticize us, he said, they can fight, they can shut down the government. He would not permit the Republicans or anyone else to hold the creditworthiness of the United States hostage, to threaten to put the country into default as a budget or political tactic. “I am not going to do it. This hurts the presidency.” If they did a short-term deal, they would be going through this spectacle again in a few months—they’d have no time for anything else.

“This wasn’t why I came to Washington,” Obama said. “This wasn’t why I was elected, to be forced into these situations. This is bigger than me. This is about the presidency, and it’s about the nation. This is not the way this situation is going to be resolved. I can’t let that happen.”

Plouffe, for one, could see his boss was out on a limb. No one, including the president, was sure they could bring this in for a safe landing. But Plouffe said they had to realize what a huge cave-in it would be for Boehner and Cantor to agree to extend the debt ceiling beyond the election. That was their leverage, and they would cling to it. If possible, Plouffe said, it would be great if they could push the debt ceiling even further into the fall of 2013.

Lew was astonished that raising the debt limit had acquired such extraordinary power. A short-term debt limit would be terrible for the economy, and allow the Republicans to run the same play again next year, taking the whole economy to the edge of the cliff. “That’s not a way to run a great country,” he said.