President Obama had just arrived home, walking across Lafayette
Square after attending Sunday services with his family at St. John’s
Church. In the West Wing,
Obama ducked into the spacious office of his
chief of staff, where he
found his negotiating team huddled with two
leading Republicans and a passel of aides.
To the outside world, it looked like a do-nothing summer Sunday, a
disturbingly quiet reminder of government dysfunction.
The prevailing
theme on the weekly political talk shows was things falling apart. In
two weeks, the government would
be unable to pay its bills. Where were
the administration and congressional leaders who might work out a
compromise to avert the looming disaster? No meetings were taking place
at the White House that day, one network host said.
The reality was quite different.
Around 11 a.m. July 17, John A. Boehner, the House speaker, and Eric Cantor,
the majority leader, had slipped through a side entrance, out of view
from the bank of television cameras stationed near the front gate off
Pennsylvania Avenue. The on-and-off secret negotiations were on again.
They had resumed with a Friday meeting at the Capitol. And they seemed
to be going so well by the time Obama returned from church that he
invited Boehner and Cantor into the Oval Office to talk, just the three
of them.
The sermon the president had heard that morning was a
stirring Old Testament account of Jacob dreaming of a ladder that
stretched to heaven. Sometimes, the pastor had said,
“the best
adventures occur when we venture into unmarked terrain.” Obama was in a
similar frame of mind. Against the vehement advice of many Democrats,
including some of his own advisers,
Obama was pursuing a compromise with
his ideological opponents, a “grand bargain” that would move into
unmarked territory, beyond partisan divides, pushing both parties to
places they did not want to go. Now might be the moment.
Months
later, that moment and the tense, ultimately unsuccessful ones that
followed have become
a critical issue in Obama’s reelection campaign as
the president and his
Republican critics lay out competing narratives
about his stewardship of the economy and
the United States’ fiscal
health.
Republicans say
those days offer clear evidence that the
president is fiscally reckless and
determined to tax his way out of the
nation’s mounting deficit and debt problems. A
Washington Post-ABC News poll this month illustrates
Obama’s lingering vulnerability: Only about a third of Americans approve of his handling of the deficit.
From
the White House point of view, those
few days show a politically
selfless president willing to rise above the partisan fray and make
difficult choices for the good of the country — if only obstinate
Republicans would meet him halfway.
On that Sunday in July,
Boehner, the old-school pol from Ohio, seemed willing to hash it out. He
had
met in private with the president and his aides many times. Their
sessions
were so sensitive — especially for the speaker, who was dealing
with a House teeming with tea party rebels —
that Obama’s aides were
under strict orders to “protect Boehner” and not talk about his private
entreaties. Obama liked Boehner; they got along well during the private
sessions and a round of golf. But there was doubt in the White House as
to whether
the speaker could bring his party along. He
“probably could
not deliver a pizza,” was one administration aide’s skeptical
assessment.
Cantor, a Virginian, was more closely aligned with the
tea party wing. The fact that he was there, and had been involved since
Friday, however reluctantly, was taken by the White House as an
encouraging sign.
The conversation during that brief gathering
inside the Oval Office did nothing to dampen the optimism. When the trio
emerged and returned to the roomful of aides, Obama appeared upbeat.
“I want a deal,” he said.
The aides put down their muffins and BlackBerrys and snapped to attention.
Secrecy
would be essential as the details came together, the president told
everyone. He spoke openly with Boehner about how the two sides might
sell the emerging plan to their respective parties, an imposing task
from either end.
“How soon can we get this drafted?” the president
asked, according to notes taken during the meeting by a top Republican
staff member. When Obama left, the negotiations rushed forward, staffers
on both sides now energized by the prospect of a deal.
Three days later, the grand bargain was cold and dead.
What
happened? Obama and his advisers have cast the collapse of the talks as
a Republican failure.
Boehner, unable to deliver, stepped away from the
deal, simple as that.
But interviews with most of the central
players in those talks — some of whom were granted anonymity to speak
about the secret negotiations — as well as a review of meeting notes,
e-mails and the negotiating proposals that changed hands,
offer a more
complicated picture of the collapse. Obama, nervous about how to defend
the emerging agreement to his own Democratic base,
upped the ante in a
way that made it more difficult for Boehner — already facing long odds —
to sell it to his party. Eventually,
the president tried to put the
original framework back in play, but by then it was too late.
The moment
of making history had passed.
The actions of Obama and his staff
during that period in the summer reflect the grand ambitions and the
shortcomings of the president’s first term.
A president who
promised to bring the country together, who confidently presented
himself as the transformational figure able to make that happen,
now had
his chance. But, like earlier policy battles,
the debt ceiling
negotiations revealed a divided figure, a man who remained aloof from a
Congress where he once served and that he now needed.
He was caught
between his own aspirations for historical significance and his inherent
political caution. And
he was unable to bridge a political divide that
had
only grown wider since he took office with
a promise to change the
ways of Washington, underscoring
the gulf between the way he campaigned
and the way he had governed.
In the end,
that brief effort,
described by White House officials as
the most intense and consequential
of Obama’s presidency, not only illuminated pitfalls in the road he had
taken during the previous three years but also
directed him down a
different, harder-edged,
more overtly
partisan path that is now
defining
his reelection campaign.
The meeting that crucial Sunday took place in the office of
William M. Daley, the White House chief of staff. Among those in the room were
Treasury Secretary Timothy F. Geithner
, perhaps Obama’s most influential Cabinet member;
Rob Nabors, the legislative liaison; and
Jacob J. Lew, then the budget director. Lew had
already made
the rounds on the Sunday talk shows, saying that Obama was waiting for a
negotiating partner to develop a plan to avert the looming fiscal
calamity. He betrayed no hint that those elusive partners were coming to
the White House that very day.
Lew’s comment referred to the
collapse of secret talks
a week earlier.
Boehner had broken them off after word leaked that tax
hikes were on the table. His caucus would not stand for them.
The
tea party conservatives, who dominated the group of new House
Republicans that gave the GOP a majority in the 2010 elections,
were
hellbent on preventing Obama from raising the legal limit on government
borrowing — known as
the debt ceiling —
without deep spending cuts and a
radical restructuring of expensive health and retirement programs.
While its members had elevated Boehner to the speaker’s office,
the tea
party caucus, critical of Obama’s political agenda and elected to stop
it,
also proved to be Boehner’s biggest political challenge.
Their
voice in the House leadership was Cantor, who also aspired to be
speaker and had
uneasy relations with Boehner.
Publicly,
Cantor was
insistent that
the House would never approve higher taxes. But the White
House took his presence now alongside Boehner as a sign that the rift
within the GOP had perhaps been patched and that talks could begin again
in earnest.
“We thought, ‘Okay, this is different,’ ” Daley recalled.
“There was a perception from our end that, because Cantor was in the
room, the people who blew up the first discussion may be able to be
mollified.”
Cantor and Boehner brought their top aides, including
Barry Jackson,
the speaker’s chief of staff, who had worked in George W. Bush’s White
House. When they reached Daley’s office,
the Republicans were handed a
four-page document that made changes,
typed in red, to an offer Boehner
had made two days earlier,
during a secret meeting at the Capitol.
A
lot of red ink, the Republicans thought. But the major elements of a
bargain seemed to be falling into place:
$1.2 trillion in agency cuts,
smaller cost-of-living increases for
Social Security recipients, nearly
$250 billion in Medicare savings achieved in part
by raising the
eligibility age. And $800 billion in new taxes.
In Boehner’s offer
Friday night, the taxes came with strings attached.
The Republicans
wanted Obama
- to give up plans to raise the tax rate paid by the
wealthiest Americans, now set at 35 percent. Instead, they wanted that
rate to go down.
- They also wanted to preserve low rates for investment
income — one of the biggest perks for the wealthy in the tax code —
- and
establish a blanket exemption from U.S. taxes for corporate profits
earned overseas.
- Another key caveat: Much of the $800 billion
would have to come from overhauling the tax code — not from higher tax
rates. The
- Republicans believed lower rates and a simpler code would
generate new revenue by discouraging cheating and spurring economic
growth.
- If the White House would agree to count that money, the
Republican leaders said, then they might have a deal.
That last
condition was a problem. For years,
Democrats have mocked the Republican
argument that tax cuts pay for themselves by boosting the economy, an
assertion for which evidence is scant. Many independent budget experts
say the effect, if it exists, would be almost impossible to measure and
useless in crafting a budget.
Fiscal “snake oil,” some Democrats say.
So
there were issues to work out that Sunday but also reason for optimism.
In its counter proposal, the
White House appeared to
accept the
$800 billion tax offer and a
lower top rate. The
administration rejected
the exemption for overseas profits, but Geithner told the Republicans,
they said, that he could get most of the way there.
And when
Boehner brought up economic growth, arguing that his caucus would
not
accept tax increases under any other terms, the Republicans saw Geithner
as receptive, Jackson said.
“It was literally one of the last things
discussed when they came in on that Sunday. And Geithner said, ‘Yes, we
accept that,’ ” Jackson recalled.
“We viewed it as a breakthrough.”
On
this point, the two sides are in dispute.
Geithner and other
administration officials say
it never happened. They strenuously
deny
agreeing to count revenue from economic growth, a process
known as “dynamic scoring.”
Treasury spokeswoman
Jenni LeCompte said the Republicans “were
kidding themselves” if they thought the White House would concede that
point. “That’s always been a total non-starter for Secretary Geithner
and this administration and always will be,” she said.
Whatever
the case, by the time
Obama returned to the room with Boehner and Cantor
after their half-hour Oval Office chat, the focus was on
defending
their compromise more
than debating it. The president looked at the
Republicans and wondered how each side could sell the plan when key
components —
such as taxes —
would need to be explained in ways that
would attract liberals and conservatives alike.
“Everybody was
saying the right thing,” Daley recalled.
“Nobody was saying, ‘If you
don’t take this then the deal’s over,’ even though there were real
differences.
We walked away feeling that we were 80 percent there. But
no doubt about it, like any negotiation, the
final 20 percent is always
the most difficult.”
Jackson said the speaker and his aides felt
they had
reached a general understanding with
Obama and the White House.
“Everybody felt really upbeat,” Boehner’s top aide recalled. “They were
in nervous territory, as were we. But we walked out of there thinking
this was coming together, and we had the outlines.”
That
afternoon, the Republican team reconvened at the Capitol, pleased with
the morning’s progress.
They agreed to drop several key demands.
They
would accept fewer cuts in a category
of spending that includes
federal
worker benefits. And they would
drop the demands on investment income
and
overseas corporate profits.
Another major concession:
Their
offer had proposed boosting the debt ceiling just high enough to see the
Treasury through March, which would become the new deadline for
Congress to approve the more difficult cuts to entitlement programs and
to overhaul the tax code. The White House
vehemently opposed that
approach. Obama did not want to have this debate again in an election
year. The
White House wanted a “trigger” that would
automatically raise
taxes on the wealthy and cut health spending, an idea the Republicans
opposed. For now,
Boehner and Cantor agreed to give up their demand for a
short-term debt-limit increase. But talks on the trigger would have to
continue.
“Further discussion necessary to finalize,” Boehner aide
Brett Loper wrote in the GOP counteroffer he e-mailed to the White
House.
Loper hit the send button at 6:55 p.m. Sunday. Nabors replied immediately.
Thanks, Obama’s legislative liaison wrote. We’ll get right to work.
The
next morning at the White House, top aides circulated Boehner’s latest
offer throughout the West Wing. They met repeatedly in Daley’s office,
scouring budget tables and Democratic vote sheets.
By mid-afternoon,
they told the Republicans that
they were about to take a plan to the
president for his approval.
A senior administration official said
the White House team
recognized that the two offers were coalescing and
that the time for a decision was at hand. People asked themselves, the
official said:
Is this something we can sell? Is this a deal we can live
with?
At the Capitol, the Republicans waited.
Shortly after 6
p.m., Daley called Boehner’s office and said an update was on the way.
None came, and four hours later, Jackson told his staff to go home. The
White House, he said, was continuing to “massage their counter on all
sections.”
The next morning,
Nabors called Jackson with an ominous question:
Have you heard about the Gang of Six?
Nabors
was using the Beltway shorthand for a group of senators —
conservatives
and liberals — who
had been working for months on a long-range
deficit-reduction plan based on recommendations
from a fiscal commission
Obama appointed the previous year.
The group included
Sen. Richard J. Durbin (D-Ill.), a close ally of the White House, and
Sen. Saxby Chambliss (R-Ga.), one of Boehner’s dearest friends. Another participant,
Sen. Tom Coburn (R-Okla.),
was close to Obama and Boehner.
The senators said they kept Boehner and
administration officials informed about their work. They said the White
House had been pressing them for months to put something out, believing
that
getting a few Republicans to sign on to any tax increase would
build momentum.
“The fact that we had Republicans willing to
discuss revenue was a breakthrough,” Durbin said. “That’s why [the White
House] thought it might help move the conversation forward in the
House.”
The Gang of Six was unable to seal its own deal. But that morning — a Tuesday —
they finally revealed their work at a closed-door briefing for 64 fellow senators. Coming at that moment,
it had an unintended effect.
Desperate
to resolve the debt-limit deadlock,
senators enthusiastically and
publicly latched on to the proposal, which
included more taxes and
stronger protections for the poor and
elderly than the still-secret
Obama-Boehner framework. Dozens of senators emerged from the briefing
praising the group’s work, including Republicans such as
Lamar Alexander
(Tenn.), then the third-ranking member of his party’s leadership team.
The Gang of Six had “come to a bipartisan agreement,” Alexander told
reporters, “and I support it.”
At the White House,
Obama showed
equal enthusiasm.
He made a rare appearance in the White House
pressroom,
surprising reporters who had been awaiting the regular
briefing from press secretary Jay Carney. As Carney stood to the side,
the president hailed the plan as
“broadly consistent with what we’ve
been working on here in the White House and with the presentations that I
have made to the leadership when they have come over here.”
In private, however,
he and his aides were alarmed. The emerging deal with
Boehner looked timid by comparison.
“The
Democratic leaders already thought
we were idiot negotiators,” Daley
said. “So I called Barry [Jackson] and said,
‘What are we going to do
here? How are
we going to sell Democrats to take $800 billion when
Republican senators have signed on to”
nearly $2 trillion?
Daley
added,“I don’t think it
was a mis-characterization on our part to say
we’d be
beat up miserably by Democrats who thought we got
out-negotiated.”
In lauding the plan quickly, Obama hoped to
harness the enthusiasm for it on behalf of his own talks.
But his
appearance that day caused more problems by increasing suspicions among
conservatives about the group’s framework — and boosting
their distrust
of any bipartisan dealmaking.
Coburn, a staunch conservative and
the only member of his party who openly acknowledged the need for higher
taxes to balance the budget, had developed a close personal bond with
Obama dating to their shared opposition to federal budget earmarks when
both were senators. But
Coburn was “shocked,” he said later, when he saw
Obama’s remarks that day on television. His effusive praise for the
Gang of Six, Coburn believed, was a tactical mistake that
revealed
Obama’s inexperience in the ways of Washington. It signaled to
skittish
conservatives that a tax hike was on the way.
Obama’s announcement, Coburn said in an interview,
“absolutely killed anything we were doing with the Republicans.”
That
afternoon, with concern mounting in the West Wing,
Nabors called
Boehner’s office with a message from the president: He still wants a
deal.
Obama had empowered the aide who knew the Hill best to try
to pull it out. Shortly before 7 that evening, he
sent a new proposal
that, Republicans said they were told, had not been vetted by other
senior advisers at the White House.
It was his own pitch, underscored by
its title: “Deficit Reduction Package — Nabors Draft.”
His plan backed away from earlier
positions on taxes in a number of ways,
including
- pushing the top rate below 35 percent. But there was a
deal-breaker for the Republicans —
- a demand for additional tax increases
to match proposed cuts to Medicare and Medicaid.
- To keep the
health-care cuts, a critical component of the deal for the GOP,
- Republicans would have to swallow about $400 billion more in tax hikes —
a 50 percent jump from the figure that had been under discussion.
Inside
the White House,
the offer reflected the new political reality shaped
by the Gang of Six. In light of that farther-reaching proposal, White
House officials worried that the
deal under discussion with Boehner
would meet resistance, particularly among Obama’s
Democratic supporters.
Higher taxes explicitly targeted toward the wealthy offered an element
of fairness, in the White House view, and a
way to sweeten any deal for
the Democratic base.
Obama
aides said the new offer also reflected
their frustration at what they described as an unrelenting effort by
the GOP to cut safety-net programs. “They say:
‘You moved the goal
posts. You derailed this entire thing,’ ” said a senior administration
official. “But it was simply a recognition of what they were demanding.”
The
official said the
Republicans wanted “game changers” on Medicare and
Social Security; they said they
needed an “Obama scalp.”
“We said,
‘Look, guys, in a world in which the Gang of Six just came out today,
if you’re doing all those things, a fair and balanced approach involves
more revenue,’ ” the official said. “At the time,
nobody in the room,
neither us nor them,
thought that anybody was moving the goal posts.”
The
Republicans describe it differently. The news from the White House,
they say, was a
“tough blow” to Boehner, who saw the push for additional
taxes as tantamount to
Obama violating a “gentleman’s agreement” on the
broad outlines of a plan for which
the speaker was already taking heat
from some in his ranks.
By Wednesday morning, as the Obama and
Boehner sides gathered again in the Oval Office, t
he optimism of Sunday
had disintegrated. Vice President
Biden, a skeptic of restarting talks
with Boehner after the first round collapsed, was there. There appeared
to be a
very different president in attendance, as well.
Excited
and upbeat three days earlier, Obama now was stern and lecturing.
According to notes taken by GOP aides,
he opened by complaining about
Boehner’s demand for $200 billion in Medicaid cuts, a persistent point
of contention. Then he began to talk about taxes,
saying the Gang of Six
“makes things more complicated.” The White House would
need more tax
revenue or smaller health-care cuts.
Boehner opened by expressing
continued support for a big deal.
But he told Obama that Republicans
could not sign off on $1.2 trillion in new taxes. “I cannot go there,”
he said.
Nor could he sell $800 billion in tax increases without cuts to
federal health programs, the biggest drivers of future borrowing.
Annoyed,
Obama
invoked Boehner’s
personal friendship with Chambliss, a member of
the Gang of Six,
warning that Democrats would never support the package
under discussion when “your friend Saxby” and other
Republicans were
willing to stomach as much as $2 trillion in new taxes. Negotiations
deteriorated from there.
Boehner said
Republicans could accept
automatic repeal of the
top-end Bush tax cuts as an
enforcement trigger
only if that were
balanced by automatic repeal of a key piece of
Obama’s
signature health-care law,
the individual mandate. Here in the
president’s own office, Boehner used the most derisive terminology of
conservative critics, calling it
“Obamacare.”
Obama laughed. Then
he joked that maybe
the trigger should be his own removal from office.
Biden deadpanned: Republicans might just go for that.
On Thursday
morning,
aides to Boehner and Cantor gathered again at the White House.
During a two-hour meeting, the two sides
hashed over minute details of a
deal, never actually
killing the president’s request for additional tax
revenue.
Later that day,
Obama called Boehner. The two spoke as if an agreement was still possible.
“We’re close,” Obama said.
“Call me back.”
That night, Obama prepared his party’s congressional leaders. He warned
Senate Majority Leader Harry M. Reid (D-Nev.) and
House Minority Leader Nancy Pelosi (D-Calif.)
that he might
return to the position under discussion the previous
Sunday — that is,
cuts to Social Security, Medicare and Medicaid in
exchange for just $800 billion in tax increases.
Would they support him?
The
Democratic leaders “kind of gulped” when they heard the details, Daley recalled.
By
this time,
Obama had become the face of the bitter debt-ceiling talks
and his poll numbers were dropping.
His allies on Capitol Hill cringed
at his predicament but also at
what he was asking them to do.
Dan Pfeiffer, the White House communications director, recalled that the
president and his team felt the weight of the global economy “on our shoulders.”
“Is
there political benefit to coming to a big budget deal with John
Boehner? Sure,” Pfeiffer said. “But every other political and message
imperative was thrown out the door to prevent a disaster and
do the
right thing for the country. That’s why we were willing to do things we
wouldn’t normally do.”
Reluctantly, Reid and Pelosi
agreed to do their best to support the plan.
Boehner, meanwhile,
had gone dark.
The
House speaker
did not return Obama’s call until 5:30 p.m. the next day,
a Friday, when
he told the president that he was again breaking off the
talks. The two men staged dueling news conferences.
Obama said
angrily
that he had been “left at the altar” again.
Boehner said
dealing with
the White House was “like dealing with a bowl of Jell-o.”
“There
was an agreement with the White House for $800 billion in revenue,”
Boehner told reporters. “It was the president who walked away from this
agreement.”
Two day later, July 24, one week after the Sunday
morning meeting that sparked such optimism,
the president found himself
trying to turn back the clock.
Working late into the evening,
Obama asked someone to get Boehner on the phone. His message:
I’ll take your last offer.
“Mr. President,” Boehner answered,
“we don’t have time to reopen these negotiations.”
White House officials said
this week that the offer is still on the table.
The
following night,
Obama delivered a prime-time address from the East
Room to update Americans on the status of the talks.
He left no doubt
about whom he intended to blame for the failure of the grand bargain.
The
only reason
a deal is not on its way to becoming law, he said, “is
because
a significant number of Republicans in Congress are insisting on
a different approach —
a cuts-only approach — an approach that
doesn’t
ask the wealthiest Americans or biggest corporations to contribute
anything at all.”
In the following days,
congressional leaders and
Obama worked out a bare-minimum agreement to lift the government’s
borrowing limit just enough to get past the election.
The
tough
choices on deficit reduction were handed to a
special House-Senate
“super committee,” and if that group failed to secure legislation by the
end of 2011, then
the deal required $1.2 trillion in automatic,
across-the-board cuts to agencies, including the Pentagon.
Although
Obama had
denounced “kick the can down the road” deals as a candidate
in 2008, he was now
adjusting to the realities of his office. The
agreement
was at least a tactical victory.
He used it
to wash his hands
of Washington’s dysfunction, presenting himself as a
well-intentioned
man
unable to secure a fair deal, because of
the capital’s enduring
partisanship.
But White House advisers conceded that the
collapse
of the debt talks was a disaster from a policy perspective and, at least
in the short term,
from a political one. For the first time,
Standard
& Poor’s, the credit rating agency,
downgraded U.S. debt. Polls
showed that
the public blamed Obama as well
as congressional
Republicans, with approval ratings for both reaching new lows.
In
mid-August,
Obama escaped for a week of golf and relaxation with his
family on Martha’s Vineyard. He reviewed his strategy, concluding that
it was time for a dramatic shift in approach. With the debt-ceiling
debate over,
he would focus more fully on jobs, the
chief concern of
most Americans, including
his Democratic base.
At the White House,
economic advisers who had devoted so much time to meeting with House
Republicans now
turned their attention to drafting the American Jobs
Act, a package that would
extend a temporary payroll tax holiday,
provide
fresh money for roads and bridges — and set up a new
confrontation with Republicans.
“You say you’re the party of tax
cuts? Well then,
prove you’ll fight just as hard for tax cuts for
middle-class families as you
do for oil companies and the most affluent
Americans,” Obama said to thunderous applause at a Labor Day speech in
Detroit. “We’re going to see if
congressional Republicans will put
country before party.”
Suddenly, the same Democrats who had
accused Obama of meekness in negotiating with the GOP were praising his
aggressive new tone.
What happened during those days in July when the
grand bargain was almost reached, but not quite, had changed him. He no
longer seemed divided.
His goal now was unequivocal: to win a second term.
