The Price of Politics (25 page)

The White House was willing to compromise on the Medicare eligibility age. They still wanted to raise it at the slower rate of one month per year, but would agree to start the process four or five years earlier. The Republicans were asking too much. “We can’t do this,” Nabors said. “You know we can’t do this. This would be suicide if we did this.”

“Medicare is going to be tough on us as well,” Jackson replied, noting that they had already voted, in the Ryan budget, for more radical cuts. “I’m not stupid. Come on, guys.”

• • •

Despite their frustration with some of Boehner’s positions, White House senior staff hoped there might be some substance to the negotiations. They had to be hopeful to work this hard. They were exchanging documents with Boehner’s staff, red-lining each other’s proposals, and returning them for further discussion. Sperling said he took it as a sign of seriousness that built confidence on both sides. “We both know there’s shit on this paper that would kill either of us.”

On Friday, July 8, Nabors came to Sperling. “They sent their tax principles and we’ve got to send a reply. Oh, and I need to do it by tonight.”

He handed Sperling one sheet of paper containing Boehner’s goals for tax reform.
¹³³

“Go consult with Geithner,” Nabors said. “Consult with Reed. Get back.”

Sperling went down Boehner’s list.

“Maintain an income-based system without adding any new tax structures,” he read. They could agree on that and on trying to reduce the number of personal income tax brackets to three.

In Sperling’s view, some of Boehner’s principles were standard right-wing dogma. The speaker wanted to reduce taxes on investment income, make the cuts to the estate tax implemented the previous December permanent, and “exempt from federal income tax all or substantially all dividends received from foreign subsidiaries.”

Sperling drafted a set of principles for the administration. It accepted some of the Republicans’ proposals verbatim and ignored others. On the question of the estate tax, the administration would propose reverting to a system similar to what was in place before the Kyl giveaway from the previous year.

Sperling knew the president was determined to keep the tax code progressive. Had the White House made a terrible negotiating mistake by leaving the definition of “progressivity” vague?

He decided to leave no doubt. Tax reform, he wrote, should “maintain or increase the progressivity of the tax code, compared to the Fiscal Commission baseline in 2013.
¹³⁴
Progressivity will be measured by the percentage change in after-tax income for each quintile as well as the top 2%.”

• • •

In an interview, the president recalled that he had been concerned by the Republicans’ tax principles because they didn’t appear consistent with Boehner’s promise to retain the current level of progressivity.
¹³⁵

“So we’ve got to do an evaluation: Can you maintain progressivity of the sort that we have right now with only three rates?” he said. “And the answer is no. So that all would have had to have been rewritten.”

• • •

Nabors sent the White House’s response to Boehner’s office that night. Loper looked at it in disbelief. The White House had eviscerated the Republicans’ tax principles. The section on progressivity stood out in particular. The Democrats’ proposal would push progressivity to record levels.

Loper knew this wouldn’t work. Republicans believed the burden of paying for the government was already too concentrated on middle-and upper-income earners, so changes that made the system more progressive could be seen as not enough reform. Loper took the administration’s principles to Jackson. The gap between us is too large, they agreed. We’re not going to be able to close it. They began drafting a pessimistic memo for Boehner.
¹³⁶

O
n Saturday morning, July 9, the president was still determined to “go big.” He would agree to sharp cuts in Medicare and Medicaid, adopt the modified CPI measure, and get some revenue. He realized the Democrats, especially in the House, were up in arms as details were getting out. Yet he felt he was chipping away at the barriers to a deal. He believed Boehner had agreed, for example, to big cuts of $50 billion or more on prescription drug rebates, previously a Republican no.

Obama also believed he was gathering some important intelligence from his talks with Boehner. First, the speaker acknowledged that Cantor was working against the deal.

The president and Boehner joked about the tension between the speaker and the majority leader.

You know Cantor’s trying to get your job, the president told Boehner. He’s trying to screw you. He’s stirring up stuff inside your caucus, and he walked away from the negotiations with Biden in part because he doesn’t want the failure to be around his neck. He wanted you to take the blame if this thing falls apart.

In addition, Boehner had confided that he believed another reason Cantor had walked out of the Biden talks was because he learned of
the secret Obama-Boehner meeting. Eric, Boehner had said, considered that an “end run.”

If they didn’t get a big deal, Obama realized they would have to go back to some of the core ideas that came from the Biden meetings—not a hopeful sign, given that the Biden work was tentative and had broken down over the revenue question.

So where were they?

“You know what?” the president told Daley. “We’ve got a 50–50 shot at getting something done.” But in phone calls that morning he had told some Democrats it was only a 25 percent chance.

• • •

Most of Obama’s economic team gathered early that Saturday morning in the West Wing. Nabors reported that he was somewhat optimistic. Though there were big differences, the distance between Obama’s offer of $2.7 trillion and Boehner’s $2 trillion ought to be something they could bridge in a normal negotiation. “They’re looking at it,” he said. The speaker, of course, wouldn’t take Obama’s first offer any more than they would take the speaker’s. And they had exchanged drafts of tax principles.

An immediate answer seemed unlikely. It was a hot summer Saturday, and Nabors said he thought the speaker might be playing golf. It wasn’t unusual, in complex negotiations, to unwind with a little time on the fairways. After all, this—at least the current phase of
this—
had all begun three weeks earlier at the Golf Summit.

Golf, a game of recovery, was a good metaphor for what they were doing. A bad or unlucky shot wasn’t fatal. Follow it up with a good second or third shot, and you could still find yourself on the green with a chance at par, or even better. Negotiations were similar. If your first offer is a bust, you can always follow with a second one.

Everybody should take time off, they decided. People fled to play golf or tennis or spend time with family.

• • •

That same morning, Cantor read
The Wall Street Journal
, especially focusing on an editorial headlined “Boehner’s Obama Gamble.”
¹³⁷
The
Journal
’s editorial page, with its hard anti-tax line, was a kind of
Daily Racing Form
for Cantor and the new Republican, Tea Party–inspired majority in the House.

“A tax increase now for the promise of tax reform later won’t fly,” Cantor read. The
Journal
was issuing an explicit thumbs-down on the talks aimed at a big $4 trillion deal. “Especially risky is his [Boehner’s] willingness to ‘decouple’ the Bush tax rates,” Cantor read. “Taken by itself this would be a tax increase pure and simple and violate the GOP’s campaign pledge.” Talk of forcing tax reform over the next several months with a “trigger” was an insufficient guarantee. “We’ll see a unicorn first,” the
Journal
warned. “Republicans who embrace this logic deserve the Tea Party’s disdain.” The worry was that Obama would “bull-rush Mr. Boehner into a bad deal. . . . Mr. Boehner shouldn’t bet his majority on Mr. Obama’s promises.”

This was more than a small fire alarm. The
Journal
had a lot of influence with House Republicans. When it said their speaker was about to agree to a tax hike they shouldn’t support, the members would react.

Boehner had told Cantor that if he got significant entitlement reforms, specifically on Medicare, he would be able to sell what the White House would call a tax increase as tax reform that would generate revenue through economic growth.

Cantor begged to differ. A big number would be considered a tax hike. To sell that to their members would require large entitlement cuts that addressed the deficit problem—something transformational. And he knew from the Biden talks that the Obama administration wasn’t even close.

“I want something big,” Boehner kept repeating. “I want something big.” He and Jackson talked about the Boehner legacy, and how fine it would be to do something on the order of the dramatic 1983 Social Security deal between President Reagan and House Speaker Tip O’Neill or the tax reform deal of 1986.

“I didn’t run and become speaker to do small things,” Boehner told Jackson. “I did it to do big things.”

Cantor spoke with some of the members. The
Journal
editorial reflected their sentiments. Some of the members called the speaker’s staff and the speaker himself. The message: What are you doing? Don’t get too far ahead. Ease up. They would never agree.

Michael Steel, Boehner’s press secretary, thought the editorial was incoherent, failing to make the critical distinction between pure tax hikes and additional revenue through comprehensive tax reform, which Boehner had made a precondition of any deal. But it was too late. Inside information on the negotiations was unavailable. By stepping into the vacuum, the
Journal
had defined the issues.

• • •

Paul Ryan spoke with Van Hollen. The
New York Times
story on $1 trillion in revenue has blown any chance of a grand bargain, he said.
¹³⁸

Van Hollen appealed to Ryan for a big package.

“The window is already shut,” Ryan replied. “It just isn’t going to fly.” They needed to go back to the Biden framework.

• • •

Boehner was not playing golf that Saturday morning. The speaker was at his home in West Chester, Ohio, for the weekend, where he spent part of the day riding his bike. Then he tended to his lawn mower.

This was a ritual the speaker enjoyed—often telling staff how much he looked forward to it. He would tip the push mower over on its side, remove the blade and sharpen it with a hand file, then, like any suburbanite, mow the lawn.

That morning, Boehner looked over the three-page tax reform memo that Loper and Jackson had sent the night before, and called them. The memo was titled “Tax Reform Principles: Key Areas of Disagreement,” and it highlighted several of them.
¹³⁹

The first was the overall level of taxation. Republicans wanted to cap tax revenue at a percentage of GDP, which could require revenues
to fall in a slow economy. The Democrats wanted revenue targets set at a dollar figure, which would preserve revenues at a specific level regardless of economic conditions.

The White House memo was “cryptic,” its business tax proposals “vague.”

The two sides also disagreed about what sort of enforcement mechanism, or trigger, would be in place to assure that tax reform was enacted, and whether the system should be made more progressive.

We’re too far apart to get to a big deal, Loper said.

Boehner said he was concerned that at the White House meeting the next day, the president would announce that he and the speaker were close to a deal. He didn’t want to be railroaded or to have to contradict the president in front of the other congressional leaders, so he directed staff to draft a statement taking the big deal off the table.

But his reluctance to embarrass the president wasn’t Boehner’s only problem. Both the
New York Times
article and the
Wall Street Journal
editorial had focused on tax increases instead of tax reform.

Boehner knew that the predominant school of thought in the conservative movement held that you shouldn’t ever negotiate with Obama. You shouldn’t do any sort of big deals, because Republicans believed they were going to take the White House and the Senate back in 2012, and then they wouldn’t have to negotiate with Democrats at all.

Boehner and Jackson viewed this as a high-risk strategy. The deficit was too big a problem and with the country nearing the debt limit, they had leverage.

They discussed how to reframe the negotiation.

No matter how much time you spend on the phone explaining what the talks were really about, Jackson said, you’re losing that fight. The story has broken out and gone viral. You can’t talk to everybody.

Boehner needed time to focus the debate for the House Republicans—to get them to understand that the talks were taking place in the context of his demand for real, measurable spending cuts and tax reforms.

It was time to make a tactical retreat to advance his strategic interests,
Boehner and Jackson agreed, to get out from under the “tax” definition forced on the debate by the rush of media coverage.