The Price of Politics (6 page)

The Doc Fix would continue, but it would be “unpaid for” and “without offsets.” On paper, it reduced the deficit by $25 billion, but it left future administrations to find the offsetting cuts or revenue.

It was another gimmick, and it received a presidential check mark. But this check mark had a distinctly unsteady wobble on the upsweep.

What did the president actually think about all of this?

“He’s come to the view,” Orszag later remarked to others, “that this whole exercise is kind of silly anyway, so sure, let’s play the game.”

On the Doc Fix, the memo noted that the White House had at least some political cover. Senator Conrad, it read, “has expressed the possibility that the Senate could move toward a five-year unpaid-for-fix” on the Medicare payments to doctors.

Orszag explained: “It’s almost like we’re saying, well they’re [the Senate] cheating too, so we will. So we can follow their lead. Welcome to sausage making.”

In all, the memo proposed deficit reductions totaling $85 billion. A pittance. The Treasury had borrowed more than $1.8 trillion to finance deficit spending in 2009 alone. Geithner was a near absolutist on the need to reduce the deficit to an average of only 3 percent of the GDP. The deficit was currently running at 10 percent of GDP and by their own forecasts, included in a Budget Summary Table given to Obama, would rise to 10.6 percent in 2010. Full-scale calamity was on the horizon.

There was a hole in the budget proposal where a serious deficit reduction plan should have been and they needed a filler—a plug in the budget to show there would be more cuts to reduce the deficit.

This was where the fiscal commission pushed by Senator Conrad would come in.

The memo described a commission made up of members of Congress and outside experts that would be charged with creating a plan
to achieve “deficits of about 3 percent of Gross Domestic Product by 2015.” It was a version of what David Stockman, Ronald Reagan’s first budget director, called the “magic asterisk”—an undefined solution to constrain the budget without providing specifics. Instead of doing the hard work of budget cutting within the administration, they would outsource it to a commission.

“Identifying a goal of about 3 percent of GDP,” they wrote, “would make the commission appear more credible by sending a signal about the amount of deficit reduction that it is expected to recommend.”

The meetings on this went on for hours.

Orszag thought the commission was a fig leaf. Without it, the administration’s lack of a solution to the deficit problem would be exposed. The truth was their proposal did not put the deficit on a path to that 3 percent level. Orszag suggested including exact numbers the commission might contribute to deficit reduction.

Geithner vacillated. He wanted to get to 3 percent but he wasn’t really convinced an outside commission would work, so he didn’t want to put too much weight on it.

“Fucking figure it out,” Rahm Emanuel finally told them. Define what you expect—or don’t expect—from the commission.

Despite their misgivings, they finally took the debate to the Oval Office. Orszag argued for the 3 percent target—it would put more pressure on the commission to be meaningful, give it teeth, and boost Obama’s credibility.

The president looked at his budget director, who was supposed to figure this stuff out, and said it was ridiculous that a question like that should come to him.

In the end, the economic team punted. They put a large box in the Budget Summary Table that mentioned the 3 percent but didn’t do anything specific to get there. A commission “is charged with stabilizing the debt-to-GDP ratio at an acceptable level once the economy recovers. Under current Administration projections, that would require achieving deficits of about 3 percent of GDP by 2015. The magnitude and timing of the policy measures necessary to achieve this goal are subject to considerable uncertainty and will depend on the evolution
of the economy. In addition, the Commission will examine policies to meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.”

Summers had proposed gimmicks, but this was a model of obfuscation. The mouthful of budget jargon promised to practice some tough love. But certainly not on any timetable, and certainly not now.

The box would come back to haunt Geithner when the House Ways and Means Committee held hearings on the president’s budget request a few months later. Given his three minutes to question the treasury secretary, a relatively unknown young Republican congressman from Wisconsin named Paul Ryan pointed out that while the budget explicitly said it was essential to get the deficit down to 3 percent of GDP, it failed to do so.
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“So you’ve got this warning under here; it’s like the warning on a cigarette pack,” Ryan said. “You’ve got this little magic box underneath your budget totals that says we’re going to have a commission to do it.”

Ryan demanded an explanation. “If you’re going to solve our fiscal situation, why don’t you do that? Why don’t you give us a budget that actually gets the deficit to a sustainable level?”

• • •

Orszag, the numbers and budget expert, saw a ticking time bomb in the budget. Massive tax cuts enacted during the Bush administration were scheduled to expire at the end of 2010, and the president was committed to not extending them for the two upper-income brackets. This affected only about 2 percent of those who filed income tax returns but would increase tax revenue by up to $800 billion over the next ten years. Obama was determined to extend the cuts for the middle-and lower-income brackets. The cost would be $3.2 trillion over 10 years. Orszag argued that by making the middle-class tax cuts permanent the administration would be handcuffing itself. The federal revenue base would be too low, and there would be no plausible way of raising it. If they did make them permanent, he predicted, “we would
have a fiscal crisis at some point over the next decade with very high—I don’t say 100 percent—but very high probability.”

Was it possible that these middle-and lower-income tax cuts could be ended?

Phil Schiliro proposed that they do exactly that—a daring suggestion. They came up with a modified version that Orszag liked. Obama would declare that the tax cuts should only be extended if they were paid for. There was no way, of course, given the deficit problem, that they could possibly be paid for. So that would end them, Orszag believed.

In one scenario imagined by the team, the president would say something like, “I’m in favor of the tax cuts but they just can’t add to the deficits. So if people can come up with offsets, I’ll sign that bill. If not, I won’t.”

Obama seemed open to that idea for a while. But like many politically risky propositions, when no one stood up as its champion, it faded away.

• • •

Summers saw the budget exercise on future deficits as pointless. There might be political benefits to proposing deficit reduction for years such as 2015, but Congress could easily unwind the cuts.

Orszag was less pessimistic. Looking back at past budget deals with delayed implementations—the Social Security fix in 1983, and the budget negotiations of 1993 and 1997—it was clear that the vast majority of spending caps and cuts had stuck.

He was worried less about Congress than the judgment of history. There was an opportunity for the president to do something about the long-term deficit. It would be economically and politically painful. But if he didn’t do something, and the country plunged into fiscal crisis later in the decade, Orszag told others, “I think he gets blamed by history for not acting.”

“O
utrageous,” said Senator Max Baucus, 68, the Montana Democrat, when he heard about plans for the fiscal commission. Baucus chaired the Senate Finance Committee, which had jurisdiction over taxation. Taxes had been his business since he first came to the Senate more than 30 years before, and he saw it as an end run around his committee.

Handing over a basic function of Congress to a commission that would include business and union leaders who would never have to answer to voters? Unacceptable. Even with some members of Congress on the commission, likely including Baucus himself, it would be like hiring a bunch of mercenary generals to lead the U.S. Army.

Baucus considered Conrad’s debt limit brinkmanship deeply irresponsible. The extension of the debt limit was supposed to be routine. This “vanity exercise” by Conrad to extend his role was a dangerous game. It was no less than “hostage taking.”

• • •

The selection of someone to coordinate with Congress on the fiscal commission came down to Biden and Emanuel. Obama decided to tap the vice president.

Thank goodness, Orszag thought. This was pure Senate deal
making, and nobody was better at that than Biden, a 36-year Senate veteran.

Conrad had been pushing Harry Reid very hard on the issue of the debt and the need for a commission that would work outside the regular order. For Reid, in charge of the Senate process, this was difficult to accept, but Conrad pressed, and the president’s backing seemed to tip the balance.

“I’m a convert to your cause,” Reid finally told Conrad.

Biden brought Senate Democrats to his residence for breakfast. He brought them for lunch. He visited them on Capitol Hill and worked with them over weekends.

At one point, he asked Orszag to take notes during a speakerphone call with Conrad. During the call, Biden and Conrad debated the structure of the commission and how to manage the debt limit vote.

The vice president hadn’t told Conrad that Orszag was listening in. After a while, Biden realized that Conrad thought it was a private talk, but it was time for Orszag to enter the discussion directly because Biden needed an expert voice.

“Oh, hold on a second,” said Biden into the speakerphone. “Peter Orszag is just right outside the door. I think I could call him in. Would that be okay? Please hold.”

Orszag went along with the ruse. Conrad was put on hold, and Orszag made his “entrance” into the discussion.

• • •

Senator Conrad, meanwhile, remained more than a distraction for the White House. As the debt limit vote approached, he kept pecking away, demanding special favors for North Dakota. He knew that no one was going to look out for his small state, with its population of less than 700,000, unless he did.

He was talking with staff at the highest levels of the White House about payments for North Dakota hospitals. He wanted to negotiate on Medicare provider reimbursements. And on education funding.

Obama’s team knew Conrad had them in a vise and they had to deal with him. But it was nonstop, and it was starting to get to Emanuel.

In a flurry of nine terse emails on January 14, Orszag and Emanuel went back and forth over one of Conrad’s issues.
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The senator thought the White House had agreed to support indexing Medicare and Medicaid reimbursements in North Dakota to rates in its higher-cost neighbor, Minnesota.

Orszag: “I need to talk with you. Conrad believes you already promised him the wage index.”

Emanuel: “What?”

Orszag: “Conrad believes that you already promised that North Dakota hospitals would get the Minnesota wage index in addition to the demo project, so he’s not willing to accept that in return for dropping Frontier [another payment plan for North Dakota hospitals]. He believes you already made a clear commitment . . .”

Emanuel: “I do not do details on that level.”

Orszag: “What do you want me to do?”

An hour and a half went by without an answer.

Orszag: “What do you want me to do on Conrad? They’re expecting some response.”

Emanuel: “I have no idea.”

Orszag: “At this point, my calling back will probably backfire. So when you’re free maybe you, me, [deputy chief of staff Jim] Messina, Phil [Schiliro] should regroup on this quickly. We’ll have commission language in a bit.”

But the Conrad issues wouldn’t go away, and days later an exasperated Emanuel sent Orszag a stern directive:
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“You fix this now.”

Orszag did not. Soon Emanuel was emailing Orszag because Conrad was threatening to change an important budget measurement on education. He ordered in reinforcements, including Biden, who was close to Conrad. He emailed Orszag, “Conrad is intending to switch.
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Get the VP on this ASAP.”

• • •

On Thursday evening, January 14, 2010, the president loaded the Cabinet Room with the key congressional Democrats for continuing negotiations
on health care reform. Included were Reid, Pelosi, their deputies, committee chairmen wrestling with health care reform, and senior White House and congressional aides. All shared essentially the same view about the need for large-scale, transformational legislation that would provide coverage to the nation’s more than 45 million uninsured. This was the president’s big move. But the Senate and the House had passed different bills. They needed to make them into one, and they needed to do it quickly. Obama attempted to preside as House members demanded more spending on prevention and extra subsidies while senators pressed for Medicaid subsidies for states like New York. It would go on for an hour or two, then the House people would break and go into one room, and Senate people into another. They would then come back for more, making little or even no progress.