By MATT BAI
Almost immediately after the so-called grand bargain between President Obama and the Republican speaker of the house, John Boehner, unraveled last July, the two sides quickly settled into dueling, self-serving narratives of what transpired behind closed doors. In the months that followed, some of Washington’s most connected Democrats and Republicans told me in casual conversations that they didn’t know whose story to believe, or even what, exactly, had been on the table during the negotiations. A few mentioned, independently of one another, that the entire affair reminded them of “Rashomon,” the classic Kurosawa film in which four characters filter the same murder plot through their different perspectives. Over time, the whole debacle became the perfect metaphor for a city in which the two parties seem more and more to occupy not just opposing places on the political spectrum, but distinct realities altogether.
There is a practical reason for this. Both sides knew that if the most crucial and contested details of their deliberations became public, it would complicate relationships with some of their most important constituencies in Washington — or worse. It’s one thing for a Democratic president to embrace painful cuts in Medicare and Social Security benefits, or for a Republican speaker to contemplate raising taxes, if they can ultimately claim that they’ve joined together to make the hard decisions necessary for the country; it’s quite another thing to shatter the trust of your most ideological allies and come away with nothing to show for it. Obama and Boehner have clung to their separate realities not just because it’s useful to blame each other for the political dysfunction in Washington, but because neither wants to talk about just how far he was willing to go.
In This Article:
• The Secret Negotiations Begin
• Boehner's Cryptic Message
• Decoding Boehner's Proposal
• The Trouble Getting to 'Yes'
• Enter the Gang of Six
• A Costly Miscalculation 2nd page
• The Grand Bargain Within Reach 2nd page
• Cantor and the Counteroffer 2nd page
• Boehner Betrayed? 2nd page
• Boehner's Cryptic Message
• Decoding Boehner's Proposal
• The Trouble Getting to 'Yes'
• Enter the Gang of Six
• A Costly Miscalculation 2nd page
• The Grand Bargain Within Reach 2nd page
• Cantor and the Counteroffer 2nd page
• Boehner Betrayed? 2nd page
The Republican version of reality goes, briefly, like this: Boehner and Obama shook hands on a far-reaching deal to rewrite the tax code, roll back the cost of entitlements and slash deficits. But then Obama, reacting to pressure from Democrats in Congress, panicked at the last minute and suddenly demanded that Republicans accede to hundreds of billions of dollars in additional tax revenue. A frustrated Boehner no longer believed he could trust the president’s word, and he walked away. Obama moved the goal posts, is the Republican mantra.
In the White House’s telling of the story, Obama and Boehner did indeed settle on a rough framework for a deal, but it was all part of a fluid negotiation, and additional revenue was just one of the options on the table — not a last-minute demand. And while the president stood resolute against pressure from his own party, Boehner crumpled when challenged by the more radical members in his caucus. According to this version, Boehner made up the story about a late-breaking demand as a way of extricating himself from the negotiations, because he realized he couldn’t bring recalcitrant Republicans along. Boehner couldn’t deliver, is what Democrats have repeatedly said.
In recent weeks, as it became clear that I was planning to write a more nuanced and detailed account of the final week of negotiations, both sides — but primarily the speaker and his aides — went out of their way to give extensive accounts to reporters at other outlets, in an effort to reinforce their well-rehearsed narratives. And yet it’s possible now to get beyond these clashing realities. Over the last several months, I spoke with dozens of people who were involved in or were kept apprised of events that week, some of whom made available private documents from that time, including the various offers and counteroffers. I conducted most of these interviews on the condition that I would neither reveal nor quote the people who spoke to me, so that they would feel free to speak candidly.
What emerged from these conversations is a clearer and often surprising picture of exactly how close Obama and Boehner came to finalizing a historic agreement, what exactly was in it and why it ultimately fell apart — including a revelation that illuminates Boehner’s thinking in those final hours and directly contradicts a core element of the version he has told, even to some in his own leadership.
The truth here matters for more than its historical value. At the end of this year, no matter how the presidential election turns out, the two parties will face yet another Armageddon moment in the fight over debt and spending; this time, if they don’t settle on a plan to rein in the nation’s nearly $16 trillion debt, then a series of onerous budget cuts — worth about $1.2 trillion over 10 years, divided between defense and other programs — will automatically go into effect. If we understand what really went on last July, then we’ll have a better sense of how difficult it will be for the two parties to stave off the coming political calamity and why, too, the situation may not be quite as hopeless as it seems.
The Secret Negotiations Begin
You may recall that Washington last summer was verging on something resembling cold-war hysteria. Republicans in the House were refusing to meet an August deadline for increasing the nation’s debt limit by some $2.4 trillion unless they got an equivalent amount of budget cuts in return, raising the prospect of a default that, it was assumed, would send the financial markets into a death spiral. Vice President Joe Biden and Eric Cantor, the House majority leader and Boehner’s No. 2 in the Republican caucus, had been holding talks in hopes of finding some preliminary agreement that might avert disaster, but those talks broke down in late June, primarily over the issue of taxes; the two men and their staffs had identified something like $2 trillion in cuts over the next decade, but the White House wasn’t going to make a deal that didn’t include some new tax revenue, and Cantor was adamant that raising taxes — any taxes — was a deal-breaker.
By then, however, Obama and Boehner had themselves started meeting furtively in the White House, in secret negotiating sessions that grew out of a much-discussed golf outing in June. Over a few drinks at the clubhouse at Andrews Air Force Base, Boehner suggested they might be able to use the impending debt crisis to achieve something ambitious and significant — not just the kind of cuts that Cantor and Biden were discussing, but fundamental reforms to entitlement programs and the tax code too, a sweeping modernization of the federal budget. The president agreed that they should try to get something started, but the breakthrough that seemed to make a transformational deal possible didn’t come until mid-July, in the form of a cryptic e-mail.
Budget deals happen in much the same way you might haggle over the purchase of a house: one side bangs out a proposed contract and sends it to aides on the other side, who cross out some numbers and phrases and insert new ones in their place, until the two sides ultimately iron out their differences, or until someone delivers a final offer and walks away. In this case, Obama’s principal negotiators — Jack Lew, then his budget director, and Rob Nabors, his top aide on legislation — sent a proposal to Boehner’s team that included $1.5 trillion in new revenue over 10 years. The White House negotiators knew this had about as much chance of happening as a meteorite falling on the Capitol, but the real question was whether Boehner was willing to go some distance toward meeting them on the revenue side of the ledger, or whether he would stick to Cantor’s hard line against any form of new taxes.
When the response came back to Nabors, Boehner’s aides had, as expected, struck the $1.5 trillion from the offer. But in its place they had inserted a strange formulation: they were proposing to reduce federal revenue, “compared to current law,” by $2.8 trillion. On the surface, this sounded like a flagrant rejection of what the White House was proposing — “You’re asking for more in taxes, we’re giving you less” — but in fact Boehner was speaking in complex code.
Boehner’s Cryptic Message
There are two “base lines” — or sets of assumptions — that policy makers generally use when they try to make projections about future revenue, and in order to understand some of the most critical moments in the negotiations, it’s necessary to understand the arcane difference between them. One is “current law,” which refers to what’s supposed to happen in the years ahead, assuming that certain temporary tax cuts or increases really do expire as planned. The other is “current policy,” which refers to what the numbers would look like if you took the rules as they are today and froze them in place. The most important difference between these two projections has to do with the Bush tax cuts, which Obama and Congressional Republicans agreed to extend, temporarily, at the end of 2010. Under “current law,” those tax cuts would expire at the end of this year, leading to a projected total revenue of more than $39 trillion over the next decade. But few people in Washington actually expected Congress to let most — if any — of the Bush tax cuts lapse anytime soon, and through the more realistic lens of “current policy,” under which all the tax cuts would remain in place, that same 10-year number became something like $35.5 trillion, or $3.5 trillion less.
In his offer, Boehner had used the higher, less relevant “current law” base line. Then he’d proposed lowering revenue by $2.8 trillion, which reduced the 10-year number to just under $36.3 trillion. What mattered from the White House perspective was that this number was about $800 billion more in revenue than either party was actually expecting to generate under “current policy.”
This was an exceedingly convoluted way of coming at the tax question, and even Nabors, who is one of a small number of genuine budget experts in Washington, wasn’t sure, as he stared at Boehner’s language, whether it meant what he thought it meant. Sitting in his spacious West Wing office, Nabors might as well have been one of John F. Kennedy’s advisers in 1962, reading and rereading the cable from Khrushchev, trying to divine the carefully worded message within. He showed it to Lew, and they quickly reached the same conclusion: Boehner was saying that he was willing to accept $800 billion more in tax revenue. Or, to put it another way, Boehner was proposing to increase the government’s haul by the same amount you would get if you reversed Bush’s tax cuts for the most affluent Americans, but he was proposing to do it by lowering rates and eliminating loopholes and subsidies instead — a revenue increase by other means. There was no other way to read this except to conclude that the speaker was now backing off his party’s hard line against additional revenue.
Excited White House aides suddenly felt that a deal might really be possible. But even with more revenue now on the table, Boehner and Obama continued to go back and forth over the Rubik’s Cube-like structure of a comprehensive deal — whether entitlement cuts would have to come before tax reform, whether most of the cuts would accrue in the first decade or the second and so on. Meanwhile, political pressure was building from inside Boehner’s leadership circle. Cantor, who had heard about the Obama-Boehner talks only when Biden happened to mention it, was nonplused at having been excluded and appalled that Boehner was offering more revenue. He and others pressed the speaker to drop the idea of a comprehensive deal, and on July 9, Boehner did just that, calling Obama at Camp David to tell him that the grand bargain was dead. He issued a statement immediately after, saying it was time for both parties to set their sights on a less ambitious solution to the debt-ceiling crisis, which now loomed less than a month away.
Except the speaker couldn’t bring himself to settle for something less ambitious. Five days later, on July 14, he called the president yet again.
Decoding Boehner’s Proposal
Why couldn’t Boehner let it lie? It’s a question that still puzzles a lot of his closest allies in Washington, not to mention his fellow Republican leaders on the Hill. Obama’s reasons for chasing the grand bargain were clear enough. Not only was he bent on avoiding a catastrophic debt default, but he needed to get out from under the debt issue, to demonstrate that he cared about reducing deficits before public concerns about government spending, stoked by rhetoric on the right, overwhelmed his presidency. Boehner’s motives were less obvious. The speaker occupied what may have been the toughest spot in Washington — trying to control a nihilistic rebellion in his own caucus while watching the approval ratings for Congress fall into the teens, all the while surrounded by young, ambitious leaders who doubted his ideological resolve. The last thing Boehner needed, you would think, was to close his eyes and take a Thelma-and-Louise-style plunge with a president whom no one in his party could stand.
Nothing better illustrated Boehner’s position than his clandestine, convoluted overture to the president on taxes. The offer for $800 billion in additional revenue — as opposed to, say, $700 billion or $900 billion — was no accident. On one hand, Boehner’s people must have known that Obama probably couldn’t settle for anything less than that, because Democrats in Congress would demand that any deal recoup the cost of Bush’s least defensible tax cuts. At the same time, Boehner’s aides had calculated that, at $800 billion, they could plausibly argue to their own caucus that the government could raise more money without actually raising anyone’s taxes.
How could you make that case? Boehner would argue that some sizable chunk of that money — if not all of it — would come to the government as a result of economic growth spurred by new, lower tax rates, and from better compliance, since the new tax code would be less confusing. Thus, by this feat of actuarial magic, Boehner contended that raising revenue did not require raising taxes, and in fact would enable you to lower them. The math was debatable, certainly, but it was a central tenet of any deal Boehner would negotiate.
But then, having worked out a theoretical way to get to the $800 billion that he knew the White House needed, Boehner wasn’t comfortable even putting the figure down on a piece of paper. The idea of any new tax revenue was so heretical to his party, and Boehner was so fearful of the reaction, that his aides felt compelled to come up with a roundabout way of expressing the offer in terms that few people in Washington would be able to decipher, just in case the paper should fall into the wrong — that is, his own party’s — hands. Boehner knew that his position might well imperil his standing as speaker, whether it led to a deal or not, and yet he was taking it anyway.
Boehner would later tell me that he was determined to do this because he was tired, after 20 years in Washington, of seeing one Congress and one president after another ignore the coming explosion of spending on entitlement programs and the growing public debt. He also shared Obama’s view that a grand bargain would actually be easier to pass than a smaller deal — that if lawmakers were going to have to make a bunch of politically explosive cuts, they were more likely to go through with it if they could go tell voters that they’d achieved something truly transformative. As Biden put it, “There’s no point in dying on a small cross.”
The Trouble Getting to ‘Yes’
But politics is often as much about self-perception as it is about policy, and it wasn’t hard to discern a more personal reason for Boehner’s attachment to the idea of a grand bargain. Having fashioned himself as a reformer since coming to Congress in 1991, Boehner was now 61, and with Congress flipping back and forth between the parties, it wasn’t a given that he would hold the speakership for more than a few years. What would Boehner’s legacy be, or would he even have one? Some speakers, like Tip O’Neill or Newt Gingrich, carve out places in history as indispensable partners in creating momentous legislation. Others, like Denny Hastert, are destined to be lost to the ages. Those who know Boehner say that what he saw in the grand bargain was a chance to be remembered as a statesman who helped set the country on a different course, rather than as a party functionary who shakily presided over a fractious caucus.
Obama and Boehner had spent little time together before the talks began, and they had only a vague sense of each other. Aides on both sides described a kind of forced familiarity between the two men, who would begin meetings with the shallowest of chatter — “Play any golf this weekend, John?” — before moving quickly into the substance of budget politics. White House aides thought Boehner looked as if there were someplace he’d rather be, while Boehner’s aides were put off by what they saw as Obama’s lecturing style. Still, the two men — Midwesterners, former state legislators, introverts by nature and smokers by habit — seemed to think they could trust each other.
In fact, when Boehner called back on that Thursday afternoon, the 14th, in hopes of restarting the negotiations, it wasn’t Obama but rather one of his chief aides who Boehner had decided was the problem. For weeks leading up to the breakdown in talks, Boehner and his top lieutenants — Barry Jackson, his chief of staff, and Brett Loper, his policy aide — had been talking principally to Jack Lew and Rob Nabors at the White House. But they had become exasperated with Lew, who, in their view, talked a lot but offered few concessions. Lew, whose detailed knowledge of the budget outpaced anyone else’s in the room, always seemed to have a better idea than whatever Boehner was proposing, and these ideas seemed to Boehner like more complicated ways of describing positions they had already rejected. The problem with Lew, Boehner bluntly told the president when he called, is that he just didn’t know how to get to “yes.”
Boehner thought he had a better shot with Bill Daley, the president’s chief of staff, and Timothy Geithner, the Treasury secretary. Daley had made a point of reaching out to Boehner since joining the administration, and he was known to be a pragmatist and a dealmaker. Geithner, clearly rattled by the possibility that Treasury might default on its debt, had been issuing almost daily warnings to Congressional leaders about the mounting fear in the markets. Send me Daley and Geithner, Boehner told the president, and let’s see what we can do.
The next afternoon, a Friday, Daley and Geithner went to the Capitol to meet with Boehner and Cantor. In addition to requesting a change in negotiators, Boehner’s team had come up with a new, simpler way to structure the deal that they hoped would eliminate some of the persistent conflicts over timing in the earlier talks. Before, Boehner had wanted to legislate cuts in annual spending and entitlements up front, while leaving tax reform for Congressional committees to work out over a period of months — a formulation that worried Obama and his allies. But now the speaker’s team suggested that the two sides come up with a framework of broad principles and specific target numbers on both the cuts and revenue, and then let Congress work out all the details at the same time. Using that template, the two sides quickly found a large swath of common ground. Two days later, on Sunday afternoon, Boehner and Cantor went to the White House to continue the conversation, and Obama joined the group after he returned from church.
No one was under the illusion that a final agreement had been nailed down and was ready for signatures, but when Obama and Boehner shook hands that afternoon, there was a general feeling that they would work through the remaining details relatively easily. Before the meeting at last broke up, Obama mentioned to the others that they would have to carefully think about how to roll out the deal, to make sure that both sides were saying the same thing publicly. That night, Jackson and Loper sent over a three-page proposal based on the discussions; in exchange for agreeing to the $800 billion in additional revenue, they asked for more than $450 billion in combined cuts to Medicare and Medicaid over the next decade alone, as well as a series of changes to Social Security, including a new formula for calculating benefits and a higher retirement age.
There was no question that the framework negotiated by Obama, Daley and Geithner — and laid out in the Republicans’ offer sheet — unsettled the stomachs of some White House aides. No one liked the idea of acceding to Medicare cuts, and most didn’t think Social Security should be part of the deal at all. (Democratic orthodoxy holds that Social Security has nothing to do with the federal debt, since it generates its own revenue from the payroll tax.) But Obama’s senior aides, including the political adviser David Plouffe, had come to believe that a grand bargain, however imperfect, was preferable to a smaller deal — and far preferable to a debt default. The debate now was about what it would take to get the votes. Nabors and his legislative team had real doubts that Democrats in Congress would go for anything close to what Boehner was asking for, and they were just as skeptical that Boehner could get his own caucus behind it. As Jackson and Loper waited anxiously at the Capitol for a counteroffer, the internal White House discussions dragged on into Monday night.
Enter the Gang of Six
For more than six months, ever since Alan Simpson and Erskine Bowles, the chairmen of Obama’s fiscal commission, offered their stark recommendations for remaking the budget at the end of 2010, a group of senators — Mark Warner, Richard Durbin and Kent Conrad on the Democratic side, along with the Republicans Saxby Chambliss, Tom Coburn and Mike Crapo — had been trying to build some consensus around a plan. Over dozens of dinners and negotiating sessions, some of which were held at Warner’s stately home in Alexandria, Va., the so-called Gang of Six labored over a compromise they could sell to their colleagues, while leaders of both parties eyed them warily.
But a deal remained maddeningly out of reach, mainly because it was proving impossible to bridge the distance between the two members of the gang who were furthest apart on the ideological spectrum. Durbin, a member of the Democratic leadership and a close friend of the president’s — and the only avowed liberal in the group — was determined to protect tax credits for the poor and the working class. Coburn, a rigid fiscal conservative from Oklahoma, wanted $130 billion more in cuts to entitlements than the rest of the group. In May, Coburn excused himself from the deliberations in order to come up with his own deficit-slashing plan.
By mid-July, just as Boehner was preparing to invite Daley and Geithner up to the Hill, the group’s informal chairmen, Warner and Chambliss, decided they couldn’t wait any longer to share the gang’s uncompleted work with the rest of the Senate. They scheduled a briefing for senators only — no staff — on Tuesday morning in the Capitol.
The White House knew about the briefing (Durbin had kept the West Wing informed), but it didn’t seem especially consequential to aides who were now thoroughly immersed in their own secret negotiations. After all, the gang had made noise about being close to a deal many times before, and nothing had ever come of it. Even now, its members admitted to having only the broadest outline of a plan, and the briefing was slated for 8:30, when most senators are still groping for coffee or pounding the treadmill. Even Warner thought it was bound to be more of a sideshow than a main event.
And so no one was more surprised than the gang members themselves when almost half the Senate, roughly divided between the parties, trickled in as Warner and Chambliss outlined the new revenue and spending cuts in their emerging plan to cut $4.6 trillion from the budget. The first one to rise, after the presentation was finished, was Coburn. The unpredictable sixth man gave an impassioned endorsement of the plan, telling his colleagues it wasn’t perfect, but it was the best they were going to accomplish. Then Durbin stood up and echoed the sentiment. One by one, senators from both parties added their support.
It’s not hard now to understand what happened in the room. As House Republicans and the administration debated the debt, most of the Senate felt sidelined and powerless. What the Gang of Six was offering was the promise of action, a way for the Senate to re-emerge as a serious player in a national drama.