The Price of Politics (32 page)

Was there a lot of theater in this? I asked.

“I wanted to emphasize to them that it was time to stop playing games and posturing. And there was just this constant sense of gamesmanship involved that the country simply could not afford, given the magnitude of what was at stake and what the country had already gone through. I mean, part of what I would say to some, including my own staff, was this wasn’t the equivalent of the government shutdown in ’95. When the economy’s growing at 5 percent, and you can afford to have these Washington theatrics, but essentially the engine’s going full-gear. This is a situation where we’d just come out of this tremendously difficult time, and people are still hurting really badly. And in those moments, you can’t play games. And a default on the debt is not a government shutdown. This is not the same thing. And I think that some over on Capitol Hill seemed to think that the consequences of this would be similar. And you know, you close up the national monuments and folks are on furlough for a couple of days, and then it all gets resolved.”

He said he feared what he called a “global cascade.” The prospect of default would begin to have serious effects on investors’ confidence in U.S. debt. The Treasury needed to hold regular auctions of its securities in the financial markets.

“If we have one failed auction, you don’t know if you can put that genie back in the bottle again,” he said.

“Things might then spiral in ways that could have plunged us back into a Lehman-type situation, or worse,” he added, referring to the investment bank, Lehman Brothers Holdings, which collapsed in 2008 after investors lost confidence in its ability to pay its debts.

O
bama’s exchange with Cantor at the previous day’s meeting sent an angry Harry Reid to the Senate floor on the morning of Thursday, July 14.

“With so much at stake, even Speaker Boehner and Minority Leader McConnell seem to understand the seriousness of this situation.
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They are willing to negotiate in good faith, which I appreciate and the country appreciates.

“Meanwhile, House Majority Leader Eric Cantor has shown that he shouldn’t even be at the table, and Republicans agree that he shouldn’t be at the table.”

He went on to call Cantor’s departure from the Biden talks the previous month “childish.”

• • •

Boehner was sick of the White House meetings. It was still mostly the president lecturing, he reported to his senior staff. The other annoying factor was Jack Lew, who tried to explain why the Democrats’ view of the world was right and the Republicans’ wrong.

“Always trying to protect the sacred cows of the left,” Barry Jackson said of Lew, going through Medicare and Medicaid almost line by line while Boehner was just trying to reach some top-line agreement.

• • •

Boehner wasn’t quite sure, but it didn’t seem like Cantor was on his side.

The confrontation with Obama and Reid’s criticism of the majority leader on the Senate floor focused a lot of negative media attention on Cantor, and that gave Boehner an opening.

At a news conference in the Capitol, reporters were hitting Cantor hard on his position on the debt limit talks. They were pounding the hell out of him, Boehner later recalled. “I just went up and put my arm around Eric and made it clear, listen, we’re on the same team.”
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Boehner then said to the reporters, “Let me just say, we have been in this fight together, and any suggestion that the role that Eric has played in this meeting has been anything less than helpful is just wrong.”
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Afterward, when Boehner and Cantor were waiting together to get on an elevator, Cantor indicated he had needed that vote of confidence.
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“Thank you very much,” he said.

• • •

That day’s White House meeting was scheduled for late afternoon in the Cabinet Room. Before it got under way, Pelosi and Hoyer spoke briefly with Boehner.

“Look,” Hoyer, a fiscal conservative, said quietly, “if you can get this nailed down, we’re going to be there.” He didn’t promise any votes but Boehner assumed it meant he wanted a deal.

Even Pelosi indicated to the speaker that they were counting on him to pull this off.

Boehner interpreted this to mean that the House Democratic leaders were not confident in the president’s ability to negotiate a deal and avoid default.

• • •

“Last meeting for this week,” Obama said. “We could potentially get to $2 trillion or more if we did not do revenue neutral.” He was sticking
it to Cantor, pointing out that it was the House majority leader’s insistence on revenue neutrality that was standing in the way of a deal securing $2 trillion in deficit reduction. “Standard & Poor’s is putting us on negative watch,” Obama added.

“It’s not public yet,” Geithner said. “It will come out in the next few hours. S&P is going to issue a statement regarding deficit risks,” saying there was a 50 percent chance that the U.
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S. debt rating could be lowered in the coming three months. The problem was the long-term deficits.

“Nobody wants to be in default,” Boehner said. “The second point Tim makes is valid.” The long-term deficit was the Republicans’ main concern.

The speaker was wound up. “We’re one hiccup away from September ’08 or worse,” he said dramatically, referring to the onset of the financial crisis. “We’ve got to get this done right. I’m upset by what happened yesterday.” The press had reported on the confrontation with Cantor. “But we’re all going to be polite. I’m not referring to you, President Obama, relax.” It was awkward. He seemed to be trying to break the ice and not get back into a pitched confrontation.

“I am relaxed,” Obama said.

“We are going backwards if there’s no new revenue,” said Reid, getting back into it.

“Health and revenue are tied together,” said Lew, reminding everyone that if the Republicans were not going to do anything on revenue, the Democrats would not do much on Medicare and Medicaid.

“Medicaid,” said Durbin. “This hits the states hard back home.” In his state, one in three children were covered by Medicaid. He said the provider tax might be a contrivance, but it was a contrivance that allowed Illinois to keep Medicaid afloat. Taking it away would damage the system. Unlike some other states, Illinois was reimbursed only 50 percent of Medicaid costs.

“Here’s the upshot,” Obama said. “There’s some additional health-care-related savings that aren’t structural. We could save about $200 billion, and we could use the revenue to offset extension [of the] payroll tax holiday. An approach like this wouldn’t add to the gross
savings but it would benefit the economy” because workers would have slightly more money from the payroll tax reduction.

“A down payment,” Geithner said, “if we could get somewhere close to $2 trillion [total] savings, would be seen as credible if we combined it with a trigger.”

“We could include next steps for tax reform,” Obama said. Everyone was talking tax reform, the genie in the bottle that might be lured out to fix all their problems—a project that surely would take six months to a year or more and step on all the special interests.

Sperling then made another presentation on global caps and targets.

“This is mutually assured destruction,” Boehner noted unhappily. They all knew it was designed to force decisions.

“Reagan, when he did cuts, weren’t they 50–50 domestic and Defense?” Pelosi asked.

Lew and Geithner next walked through a presentation based on paper they had presented to the group.

Kyl didn’t like it one bit. “He who controls the paper controls the negotiation,” he said. “This paper excludes stuff we talked about, other savings that are not on this list, that we ought to talk about. We wouldn’t pay for the tax changes you talk about, payroll holiday, etc. If you want to do those things for free, fine, but we’re not going to raise other taxes to pay for it.” He wouldn’t even accept Cantor’s revenue neutrality.

The president wanted to get back to the overall. “Let’s assume $1.7 with nonhealth, discretionary and interest,” he said. “We’ve discussed some revenue raisers that don’t cause much heartburn.” He had proposed capping itemized deductions—Sperling’s brainchild from the Biden talks. “The 35 percent revenue may never materialize because you guys,” the Republicans, “may be successful in replacing me, or we would get tax reform done. That’s about as modest as it gets in terms of revenue raisers and net neutral. If it gets us to about $2 trillion, it’d be worth it.”

“There’s a better way to get to $2 trillion,” said Kyl. “The stuff we put on the table that you took off. Discretionary caps. We could get
agreement among staff. Enforcement. If you think that ours will agree that if Congress doesn’t do its job then taxes go up, that’s not something we’re agreed to.”

“We thought about this,” Geithner said. They needed enforcement of some kind.

“That’s not true,” said Kyl. “You don’t need enforcement to raise revenues.” Don’t make it automatic. “Congress can raise taxes anytime we want.”

“You also have the right to cut spending anytime you want too,” noted Obama.

“We have less revenue now because of the recession,” Kyl said, “not necessarily the Bush tax cuts.”

“We all have our own economic theories about what happened and why we don’t have this revenue,” Obama said.

It was, however, an economic fact that the recession, with less economic activity and income, resulted in less tax revenue. It was also an economic fact that the Bush tax cuts had meant the Treasury collected $1.5 trillion less in revenue in the last decade.

“Actually 50 percent of people don’t pay taxes,” Kyl said.

Hoyer protested, noting accurately that 50 percent of workers do not pay income tax, but all workers pay the payroll tax.

Reid noted the proposal was to get about $75 billion from the high-profit drug industry. “Let’s face it,” he said, “there’s no chance in hell that Republicans agree to Part D rebates, so already we’re $75 billion off of this.”

He went on, saying that he had read the press accounts of the previous day’s meeting and clearly some of the issues were carrying over. “Unless the deal has some revenue to it, I don’t know how we do it.”

“Are there any other comments?” Obama inquired. There were no more. “If not, here’s where we are. I’m prepared to do the largest deal possible. Discretionary, health, mandatory revenue. Solve problems for the foreseeable political future.” On the revenue question, he told the Republicans, “I don’t expect a bedside conversion on your part. The American people want a balanced approach. Two out of three Republican
voters want a balanced approach,” Obama added, providing Republicans some raw polling data on what their voters wanted.

It drove Boehner crazy when the president told him what his party’s voters wanted, but he didn’t say anything.

“So option one, big deal,” the president continued. “Option two, fallback, $2 trillion. The fallback, we can get a little over $2 trillion in savings with” what he carefully called
“some gestures on revenue.”

Boehner, Cantor and most of the others wondered what that meant. Gestures? They were still $200 billion to $300 billion short of the $2 trillion target.

“If we coupled that with a trigger,” Obama continued, “it would buy us some credibility.

“Option three, some mechanism like Mitch and Harry. I’m happy to take responsibility, as Mitch proposed, but that is suboptimal. We’ve tried every angle. Hard to bridge the differences. The leaders all need to go take 24 to 36 hours, come back and tell me what you can accomplish. I prefer the big deal, but we’re running out of time.” He added that they might need to meet next week.

“Last point,” the president said. “A short-term solution is not something I will sign.” Just in case anyone had missed his message to Cantor the previous day, he repeated that he would only go along with a debt extension that took them past the 2012 election. A short-term extension, he said, “makes it harder, not easier. Not for me, but for you.”

Boehner again cringed, but remained silent. The president was telling them again what was good for Republicans. It would be good for Republicans to relinquish their leverage? Unbelievable.

The president’s assertion was highly debatable. He had acknowledged that it rested on him. He was president. He was going to wear that jacket.

Pelosi said, “I’m an optimist. I think we can tell you all right now where we are. So why do we need to wait 24, 36 hours?”

“Mitch and I have a plan,” Reid disclosed, tantalizing everyone. “So let’s just do that.”

“This is a complicated dynamic,” Obama said, understating the problem. “Both between the parties, the leaders and the chambers.”

“Our caucus fully supports you, Mr. President,” Pelosi said, “your bigger deal.” That evening, there was the congressional baseball game, Democrats vs.
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Republicans, so she joked, “How about whoever wins the baseball game tonight decides?”
*

• • •

Cantor had not said a word.

Durbin, a Chicago poker player, was watching him carefully, looking for a “tell,” some cue that would betray what he was thinking. He decided the silence itself was the tell. It was a sign that Cantor knew he had been chastised. To Durbin, it looked like Cantor wanted to hide under the table, become a mouse and disappear. He was sure Cantor realized that, in holding the press conference, he had gone too far.