The Price of Politics (21 page)

Obama said he was in favor of reform. They would have to work together on it. If the Republicans insisted on reforms that made the system less progressive, he would walk away and end the Bush tax cuts for the two upper-income brackets.

“We’re not going to change progressivity, all right?” Boehner said. “We’ve got a progressive tax code, people get it. You know, I see that as being neutral, the issue of progressivity.”

As for the president’s threat to let the Bush tax cuts for the wealthy expire, Boehner said, “We’re not going there. We’re just not going to go there. You’re getting into an area where you’re tying my hands. We’re never going to get anywhere.”

He got the impression that the president was focused on being the one who got rid of the Bush tax cuts for the rich. He was acting as if he had the leverage.

Boehner said he and Congress had the leverage because the president only had about five weeks to get the debt limit extended.

You’re fighting on a playing field that cannot be resolved, all right? the speaker said. We can’t work in this universe of the current tax code. It’s too polarized. You caved in the 2010 lame-duck session by
extending all the Bush tax cuts. We’ve got to start from the premise that the whole code is getting thrown out. Let’s try to work out a way to get reform done. We’ve got to try to stay out of the mind-set of the battle over the Bush tax cuts.

“It was a good start,” Boehner later recalled.

• • •

Asked about the conversation with Boehner, the president said in an interview that it proceeded as follows:
¹⁰⁰

“I want entitlement reform,” Boehner said.

“John, I cannot ask seniors to make a series of sacrifices if people like me are not making any to reduce our deficit. So I am willing to move on entitlement reform—even if my own party is resisting, and I will bring them along—as long as we have significant revenues so that people feel like there’s a fairly shared burden when it comes to deficit reduction.”

“I can’t simply vote to raise taxes,” said Boehner. “I can’t get the votes. But there should be a way of raising revenue.”

The speaker suggested using tax reform as a way to increase revenue without increasing tax rates.

“John, I’m all for tax reform,” Obama said. “But I’m not going to have a situation in which we have a vague promise of tax reform later—because tax reform would take a year, year and a half to actually get done, rewriting the tax code—but all the entitlement cuts are locked in on the front end. I just can’t move my folks. So there would have to be a mechanism in which we had a guaranteed amount of revenue that was raised, and that revenue would have to be coming from not the middle class, but would have to reflect the progressive principles that exist in current tax policy.”

Asked if he felt that he and the speaker were on the road to a deal, the president said, “Let me preface this by saying generally that I like John Boehner. I genuinely think John wanted to get a deal done. And I don’t think John actually is, in his bones, an ideological person. I think he’s a pretty practical, old-school, country-club Republican.

“And I like him. I mean, by that time I’d quit smoking, but I was
making sure he had an ashtray,” he said with a laugh. “You know, he’d be having a sip of wine. We could have a good conversation. And I personally think he genuinely wanted to get something done. So I’m feeling fairly optimistic after the meeting on the Truman Balcony.”

• • •

After the meeting, Obama briefed his staff.

Boehner seemed eager to do something, he said. And we’re not getting anything done through the Biden talks or anything else. He and I agreed, at least, on the need to take some sort of action.

Boehner would consider accepting some additional revenue through tax reform, Obama said, mentioning that he had told the speaker that retaining progressivity was a condition of any tax reform deal.

“We need to stabilize the economy. We realize that this is a crucial moment in time,” Obama said. “See if you can make this happen.”

Afterward, Daley assembled Lew, Nabors, Sperling, Plouffe and Bruce Reed, Biden’s chief of staff.

“Should we engage at all?” was the question.

It was all very well for Boehner to talk about ignoring the issue of the Bush tax cuts, but within the White House they viewed their looming expiration at the end of 2012 as the president’s sword in the debt limit battle.

The thinking was that if they were allowed to expire, it would be an automatic decoupling. The popular lower- and middle-class cuts could be reinstated. That would be easy. But the high-income cuts would never get through the Senate. The government would collect $800 billion in new revenue, and the president would get credit for ending the Bush tax cuts for the wealthy.

Politically, this was a big deal. Many Democrats hated the Bush tax cuts and wanted them dead. This had been the single biggest fiscal issue separating the Republicans and Democrats since 2001.

Did they really want to get into negotiations about trading entitlement cuts for an unspecified amount of revenue that would come from unspecified tax reforms?

They would get hammered by their political base, many of whom
thought Obama already had a clear path to $800 billion by vetoing any legislation that extended the Bush tax cuts.

“Well, we all know it ain’t that easy,” Sperling argued. “Vetoing means vetoing the whole thing.”

Plouffe agreed. It was “pure insanity, politically and economically,” to let the cuts expire with no guarantee that the tax cuts for the middle class would be brought back. “I’m not part of the Democratic Party that signed up to raise taxes on working people $3,000 a year,” he said.

Plouffe wanted to negotiate with Boehner. His analysis of the politics was that while the individual components of a deficit deal all polled terribly, the whole was greater than the sum of its parts. People believed Washington was dysfunctional. If they saw their leaders coming together on a big deal to address a serious problem, there would be a huge political upside in addition to the economic benefits.

Sperling and Reed, who had been at the Biden meetings, knew this was their best shot at additional revenue. Cantor wasn’t going to give much, if any, on the issue, and everyone in the room knew Cantor’s position had the backing of a large element of the Republican conference.

Boehner’s probably a little over his skis here, Plouffe said. But he’s the speaker of the House, and historically, he’s been a good vote counter. We have to engage, he advised. We can’t be naive about it, but we have to engage.

The others agreed. Maybe they would get something bigger in scale with Boehner.

And in the worst scenario—Republicans demanding that the tax code be made more regressive—the president still had his sword. He could veto an extension of the Bush tax cuts and hope it got them $800 billion in revenue.

• • •

A few hours later, the president appeared in the East Room.
¹⁰¹
In front of a nationwide television audience, he announced a drawdown of 33,000 U.S. troops from Afghanistan by the next summer.

“America,” he said, “it is time to focus on nation building here at home.”

• • •

Back at the Capitol, Cantor called his senior staff together. One staffer passed on what he believed was good intelligence about the Democrats. They were pissed that the talks had gone into Medicare, had demanded a meeting with Obama at the White House, and were planning to scuttle the talks and blame the Republicans, especially Cantor.

Gee whiz, Cantor thought, it’s going to blow up. The Democrats are going to blow up the Biden discussions and finger me.

Maybe he should act first. He talked with Paul Ryan, Kevin McCarthy and Jeb Hensarling, his brain trust. It was late that evening when they finished, too late to call the speaker, who was often hard to reach after 9 p.m.

• • •

After the meeting, Van Hollen ran into Representative John Larson, a Connecticut Democrat, on the House floor. He neatly summarized the Biden meetings to the third-ranking leader in the Democratic minority: “We are all fucked.”

Later that night Van Hollen called Senator Chuck Schumer to hear the Senate perspective on potential cuts on Medicare prescription drugs. Baucus was lining up with the Republicans.

“Not just Baucus,” Schumer said. “If so, we could end-run him—but also Harry [Reid].” The deal had been that the drug companies would support Obamacare and not come after Senate Democrats—like Reid—who had been up for reelection in 2010. The deal had held and Reid, for one, had won reelection.

Baucus is using his perch as Finance Committee chairman to pursue his parochial interest in agricultural subsidies, Van Hollen complained.

The problem, he continued, is that Biden is discussing the merits of Medicare cuts while the Republicans refuse to engage in a serious discussion of revenue.

Schumer and Van Hollen pretty much agreed that the White House was talking about $2.4 trillion that would apparently include the $1 trillion saved from drawing down troops in Afghanistan and Iraq—the Overseas Contingency Operations fund to some, “funny money,” to others.

Van Hollen said he would be surprised if the Republicans went for that. But if there was no revenue in the package, the use of funny money might be the only way to get to $2.4 trillion in deficit reduction.

E
arly on the morning of Thursday, June 23, Cantor gave an interview to
The Wall Street Journal
.
¹⁰²
“We’ve reached the point where the dynamic needs to change,” he said. “It’s up to the president to come in and talk to the speaker. We’ve reached the end of this phase.”

He then sent one of his aides to the speaker’s office to see Boehner’s deputy chief of staff. The Democrats are going to the White House at 10 a.m. They are going to blow up the talks, which are no longer useful. They will blame us. Eric thinks we need to blow it up first and punt this thing to the speaker and the president.

The aide then went to Kyl’s chief of staff and repeated the plan.

“Makes sense,” she said.

• • •

Cantor went to see Boehner, and told the speaker exactly what had happened. “The meeting was vastly different yesterday. The mood was bad,” he said. “I know that you’re meeting with the president now.”

Silence.

Biden had told him, Cantor said. If the president’s chief deputy knew, why hadn’t he, as the speaker’s chief deputy?

Boehner said the president had insisted on absolute confidentiality,
which had obviously been breached by the vice president. They had only met once, the day before.

The speaker apologized to Cantor. Boehner said he was sorry it had happened this way. They agreed they needed to salvage something, save face, move forward, and work together.

The Democrats are meeting at the White House right now, Cantor said. There was a rumor they were going to blow the whole thing up. We could use that as a reason to act first.

“We are going to do it on our own terms, so we don’t get blamed for this thing,” he told Boehner.

Shortly afterward, Cantor placed a call to Biden, but the vice president was in a meeting. Cantor wanted to give Biden the courtesy of telling him personally that the Republicans were pulling out, rather than letting him hear it from the media.

After several tries, he got through.

“We’re not going back in,” he said.

“Oh, my God,” Biden said. “I get it. Let me call you back.”

• • •

“It’s your meeting,” Obama said around 10 that morning, in the Oval Office. “I’m here to listen.”

Hoyer, Van Hollen, Clyburn and Pelosi sat on chairs and sofas in the office. Biden, Geithner, Lew, Sperling and Daley represented the administration.

“This is an opportunity to do something big,” Pelosi began, characterizing it as “a Nixon to China moment” in which they could do the totally unexpected. At minimum, they could extend the payroll tax holiday. If the Republicans agree to do bigger revenue, we’ll agree to some significant reforms, she said. “And we need a jobs program,” she added, reminding Obama of his call for investments in energy, education and infrastructure.

Hoyer, the fiscally conservative Democratic whip, said he supported the Simpson-Bowles approach and was actually against extending the payroll tax holiday.

Nancy! Steny! the president interrupted sharply, you are “contradicting” each other. “Practical politics” and the effort to boost the economy now required action. “Only a payroll tax holiday will fly,” he said.

Van Hollen said that though he was not thrilled with the extension of the payroll tax holiday, “I agree it is the only politically viable option.” However, a debt extension of only one year was a bad idea. “It puts us right back in the soup, that’s for sure.” They would be having this debate again in the middle of next year, right as the presidential election heated up. They needed the big deal with large spending cuts and significant revenue.

“We’ve got to get past the election,” Obama agreed emphatically. Otherwise the Republicans could threaten to shut down the government or stall out the economy every six months. He had to have an extension of 18 months, at least.