AS OBAMA PLOTTED OUT THE NEXT ROUND OF DEFICIT TALKS with John Boehner, he had settled on a saying borrowed from Joe Biden—“Don’t die on a small cross”—to encapsulate his thinking.
He knew he had to reach a deficit-reduction deal to prevent a default (and economic peril). He believed that addressing the nation’s long-term fiscal challenges would enhance economic prospects over the long run. And he realized that any negotiated agreement might help him with independent voters, but it would also come with a boatload of political pain.
After watching all the trouble Biden had gone through to reach just a medium-sized deal, Obama had concluded he might as well shoot for the moon and aim for an accord that could resolve the deficit issue for years to come.
Biden agreed with the president: go for the big cross. There would be enough political gain to buffer that pain.
“In the end,” the vice president said more than once at White House meetings, “I don’t think you die on it.”
ON JUNE 29, OBAMA HELD A PRESS CONFERENCE TO TOUT HIS recent and modest steps to buoy the employment picture—a government-wide review of regulations and a community college job-training initiative. But the question of the day was whether he could pull off a debt-ceiling deal.
Obama reiterated the basics from his anti-Ryan speech. Then he teed off on Congress for taking recesses while the debt-ceiling issue was unresolved: “Malia and Sasha generally finish their homework a day ahead of time. Malia is 13, Sasha is 10. . . . They don’t wait until the night before. . . . Congress can do the same thing.”
Obama was turning all of Congress into a punching bag, not just the Republicans—a point not well taken by his Democratic allies on the Hill. He was lumping the Rs and Ds together in something of a Capitol kindergarten.
This would be his tune for the coming weeks. He would often blame all of Congress for Washington’s woes. (This was not an unwise strategy; in a recent poll, just 17 percent of Americans approved of Congress’s job.)
But Capitol Hill Democrats were becoming increasingly impatient with Obama’s restraint regarding Republicans, complaining that he was not aggressively framing the debt-ceiling controversy and calling out the Republicans for playing Russian roulette with the economy. After all, if Obama would not depict the GOPers as irresponsible ideologues driving the nation to the brink of financial crisis and possibly another recession, who would? Nancy Pelosi? Harry Reid? Tim Geithner? No one else had the president’s wattage.
The day after the press conference, Reid announced he was canceling the Senate recess scheduled for the coming week. The House was already due to return to work then.
THAT HOLIDAY WEEKEND, OBAMA AND BOEHNER HELD ANOTHER secret meeting at the White House. Sitting on the patio near the Oval Office, they reviewed the contours of the grand bargain. Staff from each side followed up with additional conversations. And this was still all on the QT. Boehner didn’t want his Republican troops to know he was in cahoots with the president.
In public, Boehner showed no signs he was negotiating with the president and discussing concessions on revenues. In fact, the speaker even issued a statement denouncing Obama for requesting tax-reform-related revenues in a debt-ceiling bill—precisely what his staff and White House aides were working on.
Having begun covering the basics of an ambitious agreement with Boehner, Obama asked the eight top congressional leaders—Harry Reid, John Boehner, Mitch McConnell, Nancy Pelosi, Dick Durbin, Eric Cantor, Jon Kyl, and Steny Hoyer—to meet at the White House on July 7 for talks that he hoped would get this big thing done.
The night before the congressional leaders were to arrive, the grand bargain was unveiled—in a Washington Post article that leaked the preliminary details of Obama and Boehner’s potential deal. The paper reported Obama would be pitching the congressional leaders a $4 trillion agreement that would include “major changes” in Medicare and Social Security in return for “fresh tax revenue.”
This article set off alarms throughout Washington—especially among Democrats, who worried that Obama was placing his party’s treasured programs on the chopping block to reach an accommodation with the intractable Republicans.
AT 11:00 A.M., THE EIGHT CONGRESSIONAL LEADERS FILED INTO the Cabinet Room, which is next to the Oval Office and overlooks the Rose Garden, and sat down at the long oval mahogany table. Obama led the meeting, with Joe Biden, Tim Geithner, Jack Lew, Gene Sperling, and Bill Daley joining him.
The president said the debt matter must have a bipartisan resolution, and he would not accept any short-term debt-limit extensions. He was not willing to go through this rigmarole again. He would veto any measure that raised the debt ceiling for only a few months.
Geithner emphasized that the August 2 deadline was drop-dead real. Treasury officials had already pushed the date back, but the creative bookkeeping was exhausted. A hundred billion dollars in debt would come due every week after that. And, the Treasury secretary added, the Fourteenth Amendment was no “magic bullet.”
Some Democrats had urged Obama to invoke the Fourteenth Amendment—which states that the “validity of the public debt of the United States . . . shall not be questioned”—to skirt the debt-ceiling limit and instruct the Treasury Department to borrow money on its own to cover the government’s bills. Treasury officials had investigated the option and concluded it just might be possible.
But this option was open to constitutional interpretation. Article I of the Constitution plainly states that Congress possesses the power to borrow money. And legal arguments aside, there were practical concerns. If Obama tried this, he would undoubtedly face an impeachment effort in the House. More important, any attempted borrowing would occur under such a large cloud of legal ambiguity that lenders would not have confidence in the bonds being issued. Interest rates could soar. It would be tumultuous. The president and his aides never considered this seriously.
Geithner’s point was simple: without legislation, there was no easy way out.
Next, Obama, adopting his professorial manner (which often agitated Republican leaders), stated that they had three approaches from which to choose. He ran down the list, outlining the pros and cons of each.
The small deal included a package of discretionary cuts and reductions in mandatory programs, with no revenues and no whacks at Medicare or Medicaid and a debt-limit boost that would run through 2012. This package would likely not meet Boehner’s one-for-one standard.
The second was the middle course that the Biden group had explored. This would include some revenues and some entitlement cuts.
Then there was the grand deal: cuts in discretionary and mandatory spending, significant reductions in entitlements without any Ryanesque changes in the nature of these programs, more than a trillion dollars in revenues, and a commitment to tax reform.
The president favored the supersized deal. They had to get this debt matter over and done with, he maintained, so they could all turn their attention to another fight: what to do about the economy and creating jobs now.
“No sense dying on a small cross,” Biden said.
It was then time for the others to state where they stood.
“I didn’t run for speaker just to have a fancy title,” Boehner said. He was for a grand bargain.
Reid and Pelosi indicated that they were open to the big cross—but with big ifs.
“It has to be balanced,” Reid said, “between spending and revenues—in terms of timing, specificity, and dollars.”
In other words, it couldn’t be cuts now but revenues later.
Pelosi also had a line in the sand: no cuts aimed at Medicare beneficiaries. But savings on the provider side could be acceptable.
The House Democratic leader realized that any compromise that included Medicare reductions (even if only affecting providers) would undercut the Democrats’ ability to attack Republicans for voting to end the Medicare guarantee. But she and her political advisers believed the Democrats could still make the case that the GOPers had attempted to dismantle Medicare, while the Democrats had supported cost savings that would preserve the program for years to come. (Plouffe thought so as well.)
Cantor and Kyl each expressed opposition to the grand bargain. Cantor insisted it had to be midsized. Both said that a large agreement would never pass the House. Kyl also noted he was opposed to serious cuts for the Pentagon—which would have to be part of a big-cross deal.
McConnell, perhaps the cagiest of the leaders, was supportive of Boehner’s ambition to go big. But he spoke the least—which was not unusual—noting that a large deal would be fine with him, though unlikely to survive in Congress. The Democrats couldn’t help noticing each number two on the GOP side was out of sync with his leader’s stated desire for a grand bargain.
It was three months since the lawmakers had met with the president before his fiscal policy speech, a senior administration official later pointed out, and the president and congressional leaders were still not in agreement on the size of the cross.
THIS CABINET ROOM MEETING SHOWED THAT THE WHITE House was once more not dealing with a unified Republican Party. Was Boehner really in a position to negotiate a grand bargain—which would require holding the Tea Partiers at bay—if his second in command, who was closer in spirit and style to this far Right band, was not aboard, and if his comrades in the Senate were unenthused by the prospect?
“Perhaps that was the moment we should have known better,” a White House aide later said.
Democrats were fretting about Medicare and Social Security being in play. Back on Capitol Hill, Pelosi declared, “Any discussion of Medicare or Social Security should be on its own table. We are not going to balance the budget on the backs of American seniors, women, or people with disabilities.”
Capitol Hill Democrats were suspicious of Obama. Was he hoping to win back those unreliable independent voters by sacrificing entitlement programs his party had long championed and defended? How far was he willing to go?
At a closed-door meeting of House Democrats, Representative Steve Israel, who now chaired the DCCC, declared, “We will defend Medicare and go our own way from the White House, if we have to.”
Obama was risking a split in his party. If he got close on the grand bargain, he could ignite a civil war among Democrats.
AFTER THE JULY 3 MEETING BETWEEN OBAMA AND BOEHNER, Lew and Nabors had begun haggling with Jackson and Brett Loper, Boehner’s policy director, about the details of a big deal. They concentrated on two critical issues: the trigger and the basic shape of the tax reform (which would supposedly generate $800 billion in revenues).
Boehner’s office sent the White House a proposed tax reform plan, which Obama, Geithner, Sperling, Reed, and others concluded was not sufficiently progressive. The White House sent back a response and expected a quick counteroffer. They seemed to be on their way.
But as Boehner’s aides were negotiating with the White House, members of the House Republican caucus grew uneasy about the prospect of Boehner coauthoring a grand compromise with Obama. They realized that meant yielding on taxes. The Tea Party Republicans had come to Washington to smash the status quo, not cut deals.
“They were giving Boehner a helluva time,” a senior House Republican staffer recalled. “They weren’t interested in deal making. They didn’t want to recognize this was divided government. They were willing—eager—to see what would happen if they refused to compromise.”
Several of Boehner’s closest allies in the caucus came to the speaker’s office. They knew Boehner was ready to compromise with Obama on revenues and contemplating Obama’s proposal to decouple the upper-income Bush tax cuts as the trigger.
“We told him, ‘You’re too far over the tips of your skis,’ ” one of these lawmakers later said.
Boehner, they feared, was pursuing an agreement that his members couldn’t stomach, and that meant his speakership was in jeopardy. Cantor and his allies, they told him, were whispering that Boehner had gone RINO—that much-dreaded insult in conservative circles: Republican In Name Only.
“Cantor,” one of these members subsequently maintained, “is a palace-intrigue guy. He was just waiting for a bus to hit Boehner so he could say, ‘Oh, I wasn’t planning on being speaker, but if I have to be. . . .’ ”
Boehner’s allies told the speaker he was at risk of losing not 40 to 60 Tea Party members of the caucus, but 150 members. If that occurred, his speakership would be kaput. Cantor would lead—or benefit from—a revolt. There was not much percentage in reasoning with the Tea Party wing and their allies in the leadership, Boehner’s friends explained to the speaker.
“The young guns really believe that if everything blows up, there will be a Republican president, a Republican House, and a Republican Senate,” one of these GOP lawmakers subsequently said, “and they’ll be able to do whatever they want.”
ON JULY 9, A SATURDAY, OBAMA’S SENIOR AIDES—LEW, SPERLING, Nabors, Reed, and others—were waiting to hear back from Boehner’s office. In the afternoon, the White House put out a call to these top officials: Daley wants you in his office as soon as possible. As Sperling headed toward 1600 Pennsylvania Avenue, he was excited. He thought this meant a deal was close, and he started pondering what final details had to be confirmed in the next twenty-four hours.
When Sperling and others arrived at Daley’s office, Nabors handed out a statement Boehner had just released: “Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes. I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.”
Boehner had called Obama at Camp David to tell him he was no longer pursuing the grand bargain.
Obama and his aides were stunned and puzzled. Who ends negotiations this way? Senior staff had been exchanging paper and proposals. They were working it out. Yet Boehner had jumped ship without notice. It was bizarre.
Obama’s aides did not know that Boehner had been told that Cantor and other Republicans were waiting to pounce on him.
But there was a clue as to what was transpiring on the other side. That morning, the conservative editorial page of the Wall Street Journal had warned Boehner against cutting a deal with Obama. The editorial focused on the possible trigger of decoupling the Bush tax cuts and suggested that Obama had outmaneuvered Boehner. Why, the editorialists asked, would Boehner agree to a possible tax hike before tax reform was done? Wouldn’t that provide Democrats the incentive to stall tax reform and grab the tax-cut win that had so far eluded them?
The article, which hinted that Boehner’s speakership would be on the line if he green-lit such a deal, was laced with so many details from the negotiations that someone within the House Republican leadership must have orchestrated it. It was a sign that Republicans on the inside were gunning for Boehner.
“There was a feeling that the speaker was going further than his caucus would,” a senior House Republican staffer subsequently explained. “We heard rumors a tax increase was involved. I know my boss made clear to him the conference would not support that.”
White House aides sensed that Boehner had hoped to sneak a deal past the Republican caucus. At one point, a Boehner staffer had said to White House aides, “We can do better on revenues as long as you don’t describe what we’re doing as revenues.” That told the Obama advisers a lot.
THE NEXT EVENING, OBAMA HAD ALL THE CONGRESSIONAL leaders back to the White House. He told them he was willing to go far to get the big-cross deal, noting he’d accept a gradual rise in the eligibility age for Medicare.
“If not now, when?” he asked.
There’s not enough time, Boehner said—reversing his position from three days prior.
Reid showed his irritation. The Republicans, he complained, had backed out of one deal after another. He ticked off the instances. Senate Republicans who had cosponsored a bill to set up a congressional deficit commission voted against it after Obama endorsed it. It was a Republican who had run away from the Gang of Six talks. Cantor had left the Biden negotiations. And now Boehner had turned tail on the big deal.
Cantor noted that the grand bargain breached his and Boehner’s obligation to their caucus. In other words, they couldn’t sell any package that contained revenue increases.
McConnell barely said a word, but Kyl suggested that they focus on the Biden group savings that did not make “fundamental changes” in Medicare. He was trying to claim the cuts the Biden gang had discussed, sidestepping the fact that they were only provisional without accompanying revenues.
Obama reminded the Republicans it had been their idea to deal with deficit reduction at the same time as the debt limit. Now, he said, they were running scared.
“It was a completely unproductive meeting,” a Democratic staffer recalled.
WASHINGTON HAD REACHED A CURIOUS POINT. A DEMOCRATIC president was pushing for more deficit reduction than the Republican leaders of Congress were. And Obama was beginning to win the message war: he was willing to compromise to reach a balanced and big deal, but the Republicans were too wed to tax cuts for the well-to-do to make anything happen. An NBC/Wall Street Journal poll found that Obama’s approach to deficit reduction was favored over the Republicans’, 58 to 36 percent. In a Quinnipiac poll, 67 percent of voters agreed that legislation to lift the debt ceiling should include tax hikes for corporations and the wealthy, not just spending cuts. Only a quarter opposed such a move.
At a press conference, Obama tried to nudge Boehner back toward the grand bargain. He said he was open to “meaningful changes to” Medicare, Medicaid, and Social Security, but he expected Boehner and the Republicans to reciprocate with revenues. He noted that “nobody has talked about increasing taxes”—just eliminating tax breaks and closing loopholes. He repeatedly praised Boehner as a sincere fellow who had been acting in good faith. Obama said the speaker’s caucus was the problem.
The president also pleaded with progressives to recognize that reforms were necessary for these cherished entitlement programs to survive. Medicare, he noted, was projected to run out of money eventually: “If you’re a progressive who cares about the integrity of Social Security and Medicare and Medicaid . . . we have an obligation . . . to make it sustainable over the long term.” And, he added, if the deficits weren’t tackled, spending for investments that liberals supported—Head Start, student loans, medical research, infrastructure, and all the rest—would be threatened.
This was a case that tended not to fly with Obama’s liberal allies. When the economy was lousy, when millions were out of work, when millionaires and corporations were doing just fine, when Wall Street had recovered and the banks were back on top, why was it a top priority to slice these mainstay programs for middle- and low-income families? (And wasn’t the real long-run problem the cost of health care, not the cost of Medicare? Squeezing Medicare would just transfer those out-of-control costs to vulnerable beneficiaries.)
Many Democrats and progressive activists had trouble viewing this as anything but capitulation to the Tea Party extremists or a political move designed to impress independents who had fallen out of love with the president. But the Republicans were holding the debt ceiling hostage, and Obama was offering his side the opportunity to establish a fiscal regime that would secure these programs for years. The president was also suggesting that it’s better for us to do it than to leave it to them—particularly because this them could have total control of the government after the next election.
ON THE AFTERNOON OF JULY 11, OBAMA, BIDEN, AND THE CONGRESSIONAL leaders were back in the Cabinet Room. And Cantor tried to pull a fast one.
The meeting opened with the majority leader presenting charts representing cuts in non-health mandatory programs that had been discussed during the Biden talks.
You’re missing a page, Obama quipped. The one with revenues.
Cantor moved on to Medicare and Medicaid reductions that he claimed the Biden group had accepted.
Reid called him on that. The Senate majority leader said he had spoken with Max Baucus and Daniel Inouye, and they said nothing had been settled on Medicare and Medicaid. The congressional leaders then began discussing possible cuts in these entitlement programs, but Reid stopped them: without significant revenues, there would be no health care changes. Durbin, Pelosi, and Hoyer backed him up.
Reid put another notion on the table: a $2.6 trillion package that would include cuts in discretionary spending and non-health-care mandatory programs and count the savings from winding down the wars in Afghanistan and Iraq. (Ryan’s budget had included such a peace dividend.) Plus, there would be a joint congressional panel—a supercommittee—to produce an additional deficit-reduction package that would be put to a straight up-or-down vote in the House and Senate after the next election and inauguration.
Reid was proposing a midsized cross that could grow into a larger one.
Obama reiterated that he would not support any plan that was not full of pain for both sides. Shared sacrifice, Obama said, was his bottom line.
At one point, Boehner challenged the president: “Look, entitlement cuts aren’t easy for us to vote for either. Our guys aren’t cheerleading about cutting entitlements.”
“Your guys already voted for them!” Obama replied, referring to the Ryan budget.
Boehner shot back: “Excuse us for trying to lead.”
Obama ended the meeting by remarking that he could not believe the Republicans would not ask wealthy folks to contribute anything.
McCONNELL, NO FAN OF THE GRAND BARGAIN OR THE WHITE House talks, had begun concocting a measure that would allow the president to lift the debt ceiling three times in the coming sixteen months unless Congress passed a veto-proof resolution of disapproval at each stage. Under this devilishly clever plan, Republicans could vote against extending the borrowing authority and there would be no default.
Obama and Democrats would assume responsibility for the debt-ceiling hike each time—and they would have to do so thrice before the next elections. It was political gamesmanship of the highest order.
ANOTHER MEETING OF OBAMA AND THE CONGRESSIONAL LEADERS convened the next day. These sessions were taking on the stale air of uselessness. There was little mutual trust. The participants knew that anything they said would leak. The division on the Republican side was so pronounced the White House had a hard time even cooking up a strategy. White House aides were losing faith in the process.
And Boehner and McConnell were publicly blasting Obama, complaining he was not willing to cut deeply enough and was too enamored of tax hikes. “This debt limit increase is his problem,” Boehner huffed, “and I think it’s time for him to lead by putting his plan on the table—something that Congress can pass. Where is the president’s plan?”
ON JULY 13, DALEY, GEITHNER, LEW, SPERLING, ROUSE, AND Reed gathered in the Oval Office to prep Obama for another session with the congressional leaders in the Cabinet Room.
“I want to make something clear,” Obama told his aides. “I’m not going to accept a short-term extension of the debt.”
He reiterated that he would not go through this exercise again in three, six, or twelve months.
His aides reacted with the sort of respectful but we-know-best condescension that advisers to the powerful sometimes muster: we understand why you feel that way, but when it comes down to it, we just may have to give in on this.
“I’m not doing it again,” Obama said. “This is wrong.”
The president felt that the Republicans’ threatening default to get their way on budget issues distorted the separation of powers. It shouldn’t be allowed. It was an embarrassment for the United States. It was not what the framers of the Constitution intended.
Obama was frequently disparaged for not adopting a firm stand. Here was his line. No more of this bullshit—at least not until after the next election.
OBAMA WAS TIRED OF TRYING TO CONVINCE THE REPUBLICANS to take a leap with him. At the meeting with congressional leaders later that day, he pointed out that he was personally attempting to work out the details of a big deal—far more than Reagan or George W. Bush would have done. He told the lawmakers the Republicans had shown him nothing that would push the conversation forward.
Obama, noting his pledge to veto any short-term extension of the debt ceiling, said, “This could bring my presidency down.”
But, he added, “I will not yield on this.” He would not allow the presidency to be held hostage again.
Throughout the meeting, Cantor and Obama tangled over the time frame of any debt-ceiling hike. Cantor was now advocating a smaller deal with a shorter extension that would lead to another face-off within a year.
The Democrats thought Cantor was especially prickly this day. He repeatedly interrupted the president. During the Biden talks, the vice president, Lew, and Sperling had developed a respect for Cantor. He had come across as serious, and there was no drama.
But when he was in the room with Obama, they observed, he became a different person. In these larger White House meetings—when leaks of what transpired would reach his fellow House Republicans (or Rush Limbaugh)—Cantor became more confrontational.
Toward the end of this session, Cantor once again raised the idea of a short-term extension.
“I’m not going to do it,” Obama angrily said to Cantor. “We’re not putting the country through this again. Don’t call my bluff.”
And he left the room.
Hours after the meeting, Cantor publicly claimed that Obama had stormed out after Cantor challenged him. He seemed to be boasting about getting under Obama’s skin in an effort to score points with the Tea Party set.
THE MEETING THE NEXT DAY WAS NO BETTER. THE NEGOTIATORS were moving apart. McConnell had nothing invested in these talks. Reid and Pelosi backed the idea of a grand bargain, but were leery of Obama’s entitlement concessions. (Reid had also started working with McConnell on a bill blending their two proposals—but it violated Obama’s call for no short-term extensions.)
Lew, Sperling, and Geithner reviewed the work of the Biden talks and proposed closing loopholes for oil and gas companies, ending tax breaks for corporate jet owners, and removing subsidies for ethanol producers. The Republicans in the room rejected all of this. They were holding firm to their party’s revenues-equals-tax-hikes orthodoxy. Cantor was mostly mum.
We’ve walked through all the components, Obama remarked. We have to figure out how to get to 218 votes in the House and 60 in the Senate. Go back to your caucuses and work that out.
“It’s decision time,” he said.
But it really wasn’t.
DEFAULT ANXIETY WAS SPREADING. FEDERAL RESERVE CHAIRMAN Ben Bernanke warned that failure to raise the debt ceiling would amount to “a self-inflicted wound” that would cause “a very severe financial shock” to the global economy. China, the US government’s largest foreign creditor, called on US policymakers to take action to protect the interests of investors.
OBAMA COULDN’T LET GO OF THE BIG DEAL.
“I’ve got reams of paper and printouts and spreadsheets on my desk,” he said at a mid-July press conference, “and we know how we can create a package that solves the deficits and debt for a significant period of time.” He was the guy who keeps chasing the girl who keeps saying no. But then romance was once again in the air.
That day, Boehner invited Geithner and Daley to his office. With Cantor by his side, Boehner presented a deficit-reduction plan that would include severe entitlement reforms and a tax code rewrite to generate $800 billion over ten years.
By now, White House aides were not sure Boehner could guarantee any offer he made. But Obama’s senior advisers decided to play this one out. At least this time Cantor was by Boehner’s side. The possibility of a grand bargain had risen from the dead.
Two days later—with the congressional leadership talks over—Daley, Geithner, and Lew were discussing the package with Boehner and Cantor at the White House. It would contain $1.2 trillion in discretionary cuts and procedures for finding trillions of savings via tax reform and entitlement reductions in the coming months. The White House would slice about $250 billion from Medicare (and gently raise the eligibility age) and trim Social Security benefits through the COLA change.
The ever-knotty matter of the trigger had yet to be resolved. The White House aides suggested sticking with decoupling the Bush high-income tax cuts. Boehner and Cantor nixed that. (That’s what had gotten Boehner into trouble earlier.)
The two Republicans proposed a repeal of the individual mandate from Obama’s health care plan. Obama’s aides thought that was ridiculous. Or, Boehner and Cantor suggested, greater cuts in Medicare and Medicaid?
Boehner now was requesting more in entitlement cuts and offering less on the high-end taxes. This new deal was less attractive to the White House, but it was close enough. Obama’s aides once more allowed themselves to believe a grand bargain was within reach.
“We had been going through this Shakespearean thing,” a senior administration official recalled, “trying to negotiate with them, as Boehner and Cantor were trying to kill each other. Now they were back as a pair. More stingy. But we knew this was the last chance.”
Staffers on both sides started working. In public, Obama and Boehner were tussling over the so-called Cut, Cap, and Balance bill, which the speaker was pushing. This measure would slash government spending by 25 percent and require passage of a constitutional amendment mandating a balanced budget before the debt ceiling could be increased. Looking to placate his Tea Partiers, Boehner had scheduled this red-meat legislation for a vote that week, knowing it stood no chance of success in the Senate. And Boehner’s office was publicly denying he was once again negotiating with the president. As is often the case in Washington, there was the public game, and there was the inside game.
“The deal we were looking at was worse than what we’d accept in normal circumstances,” a senior administration official recalled. “We were willing to take a suboptimal deal because we were governing, and with our economy on the line, someone had to be the adult. We couldn’t allow our nation’s first default or the significant chance we would feed the uncertainty in Europe to the point where we risked a recession at home.”
Obama’s aides wanted this deal badly.
BUT THEIR HOPES RAN INTO A WALL WHEN THE STILL-ALIVE GANG of Six in the Senate (Coburn had rejoined the group) unveiled a bipartisan deficit plan that would sop up about $4 trillion in red ink with the usual assortment of spending and entitlement cuts, but with about $1.5 trillion in additional revenues. A bipartisan group of forty senators attended a briefing on the plan and the vibe in the room was positive.
The problem for Obama was that this plan included far more revenues than the agreement he was brewing with Boehner and Cantor. Their $800 billion in tax-reform-generated revenues would seem puny in comparison—and House and Senate Democrats would justifiably wonder why they should vote for legislation with significantly lower revenues than a package backed by several Republican senators.
ON THE EVENING OF JULY 20, OBAMA INVITED BOEHNER AND Cantor to the Oval Office. He told them that the Gang of Six had changed the playing field by demonstrating that Republicans could live with significant levels of revenues. Now he would have trouble selling their deal to congressional Democrats without more revenues. If the Republicans couldn’t add anything, they would collectively have to scale back the entitlement reductions in the package.
This wasn’t an ultimatum. The president was sharing a political reality and looking for a way to get past it.
That day, Obama’s economic team had devised a possible solution. To attract enough House Democratic votes to reach a bipartisan majority of 218, they figured they needed another $400 billion of revenues—but they were willing to add extra Medicare and Medicaid savings to the package to win this additional amount. Law, Sperling, and the others were mindful not to be asking for $400 billion on its own.
Nabors, after consulting with the president, sent the proposal to Boehner’s and Cantor’s offices—as if he were just floating an idea of his own. The response was encouraging: Sure, let’s talk about this tomorrow morning.
The next day, Nabors, Lew, Sperling, and Reed met with Barry Jackson and Steve Stombres, Cantor’s chief of staff, for two hours. The atmosphere was productive. It seemed a deal was within their grasp. Each side was sensitive to what the other needed. The Republicans said they understood why the Gang of Six had made it difficult for the Obama White House. They couldn’t agree to the additional $400 billion themselves—that was above their pay grade. But they did not recoil at the request. They discussed how to structure the tax reform that would generate the revenues in the deal.
Several other issues were resolved. The package would include extensions of the payroll tax cut and unemployment insurance benefits (for stimulus seekers). It would change the Social Security cost of living allowance, for about $125 billion in savings. They were still haggling over the trigger, but they were heading toward an agreement. Nabors thought they were a hair away from a deal.
Lew had to leave to attend a lunch meeting with Senate Democrats. As the meeting broke up, Jackson looked at everyone in the room and asked, “We’re all trying to get to yes?”
That was the consensus.
ON CAPITOL HILL, DEMOCRATS WERE NERVOUS—AGAIN. THERE were reports that the grand bargain was alive and rumors that the latest iteration didn’t contain revenues. “[When] we heard these reports of these mega-trillion-dollar cuts with no revenues, it was like Mount Vesuvius. . . . Many of us were volcanic,” Senator Barbara Mikulski, a Maryland Democrat, said.
In talking with reporters, Reid issued a quasi-warning: “The president has always talked about balance . . . this can’t be all cuts.”
Some Democrats suspected that Daley was once more ceding territory to his pal Boehner for the sake of a deal.
Lew went into that lunch meeting and was grilled by Democratic senators anxious to know what the White House was up to. Politico reported that “screaming” took place. If there’s a deal, why don’t I know about it? Reid asked.
Why yield to the Republicans right now, the senators asked, just as Obama and the Democrats were winning over the public on the question of raising taxes to achieve shared sacrifice?
Lew assured them that revenues were not off the table. He knew that the previous night, Obama had suggested adding even more revenues, but he could not share such details with the senators. The talks were too precarious. Whatever he told the lawmakers would leak—and that could cause an uprising on Boehner’s side. Lew had to absorb the venting.
Democrats were again questioning Obama’s core values. Slashing the budget of federal agencies, embracing cuts to entitlements—this was too high a ransom to pay. In a meeting with policy advocates, Senator Sheldon Whitehouse, a Rhode Island Democrat, remarked, “The question the president has to ask is, is he the conciliator in chief or is he the leader of the Democratic Party?”
A variety of progressive groups, including MoveOn and the AFL-CIO, launched call-in drives targeting the offices of congressional Democrats and Obama’s reelection headquarters in Chicago. “If Democrats agree to a deal that hurts working families but does nothing to make the rich and corporations pay their share, it would be a betrayal of core Democratic values and could have serious consequences for the base’s involvement in next year’s elections,” threatened Justin Ruben, MoveOn’s executive director.
Democratic strategist Donna Brazile tweeted, “What’s so grand about cutting the social safety net, eliminating children’s health programs, firing teachers and firefighters? That’s cowardly.”
A former Obama White House official expressed similar disappointment: “They keep saying, ‘We’re going to fight in the next round,’ and they never fight.”
This moment was bolstering progressive discontent. In an interview that week, author and agitator Cornel West declared, “Poor people and working people have not been a fundamental focus of the Obama administration. That for me is not just a disappointment but a kind of betrayal.” A month earlier, Al Gore had penned a piece for Rolling Stone expressing discouragement, observing that Obama had “failed to use the bully pulpit to make the case for bold action on climate change.”
As White House aides routinely pointed out, Obama’s approval ratings among self-described liberals were high; the dissatisfaction of progressive intellectuals and activists was not representative. But it was clear that if Obama conceded too much on Medicare and Social Security and didn’t wring a ton of revenue out of Boehner and Cantor, he could lose Democrats on Capitol Hill and elsewhere.
Boehner also had to worry about incoming fire from his own side. He rushed to Rush Limbaugh’s radio show and denied he was in league with Obama: “No deal publicly. No deal privately. There is absolutely no deal.”
AFTER LEW RETURNED TO THE WHITE HOUSE, THE PRESIDENT called Boehner.
“If we don’t get $400 billion more, it will be hard to get enough Democratic votes,” Obama told the speaker.
The president said he understood that Boehner would have a tough time going higher on the revenues. If that wasn’t possible, Obama added, they’d have to find a way to make the package more attractive (or less odious) to Democrats, perhaps by softening the entitlement provisions.
Obama was effectively saying it was Boehner’s call. Revenues could go up or entitlement reductions could go down.
The president said he thought the speaker should go higher on revenues so they could reach the grand bargain.
Okay, Boehner said, I’ll get back to you.
Obama and his aides now had to wait to see which course Boehner would choose.
“We all felt this was coming together,” a senior administration official said.
That evening, Obama called Reid and Pelosi to the White House and told them to ready themselves and their colleagues on the Hill for a deal with assorted entitlement reductions.
WHEN SPERLING, LEW, AND NABORS ARRIVED AT THE WHITE House the next morning, they immediately asked if Boehner had called the president.
He hadn’t. Obama had called Boehner but had not reached him.
When Boehner spoke to reporters that morning, he said, “Frankly, we are not close to an agreement.”
At a meeting of senior staff, Obama’s top aides tried to recall any previous occasion when a speaker of the House had not promptly returned a phone call from the president of the United States. No one could.
The hours went by. Nothing. Searching for an explanation, Obama’s aides figured that Boehner was waiting until after the Senate vote on his Cut, Cap, and Balance bill, which had passed the House a few days earlier. But there was still no call from him, following the Senate’s late-morning rejection of the measure on a 51–46 party-line vote.
“It was mind-blowing,” a senior administration official recalled.
In the afternoon, Obama tried to reach Boehner, and the speaker’s office said Boehner would call in about two hours. Obama asked to speak to him immediately, but Boehner would not take his call. White House aides were amazed. The speaker had disappeared for an entire day.
Sperling joked that he wouldn’t want to date these guys: They just leave. They don’t call to talk or say they want to see other people. They just leave.
OBAMA ENTERED THE JAMMED WHITE HOUSE BRIEFING ROOM at 6:00 P.M. Thirty minutes ago, he said, Boehner had called him to say he was again walking out of talks for a grand bargain. This was the second time in a month that Boehner had dumped Obama.
Obama outlined what he had kicked in: a trillion dollars in discretionary spending cuts (which included reduced military expenditures) and $650 billion in entitlement cuts. And, he added, he had asked for $1.2 trillion in revenues—no hikes in tax rates, just closing loopholes, eliminating certain deductions, and tax reform.
This was, he pointed out, less revenue than the Gang of Six had proposed. It was “an extraordinarily fair deal. If it was unbalanced, it was unbalanced in the direction of not enough revenue.”
“I’ve been left at the altar now a couple of times,” Obama complained, “and I think that one of the questions that the Republican Party is going to have to ask itself is, can they say yes to anything?”
With his “balanced approach” shot, Obama was now down to his final stand: “The only bottom line that I have is that we have to extend this debt ceiling through the next election.”
He told his advisers that he’d be damned if he were going through all this again anytime soon.
WITHIN AN HOUR OF OBAMA’S PRESS CONFERENCE, BOEHNER was holding his own on Capitol Hill.
“The White House moved the goal post,” he claimed. He charged that “there was an agreement on some additional revenues, until yesterday when the president demanded $400 billion more, which was going to be nothing more than a tax increase on the American people.” (The difference at stake—that $400 billion—represented only slightly more than 1 percent of the estimated $36 trillion to $37 trillion in government revenues for the next ten years.)
In a letter to his fellow House Republicans, Boehner declared that a deal “was never really close.” He claimed that Obama had been “emphatic that taxes have to be raised” and “adamant that we cannot make fundamental changes to our entitlement programs.”
None of this was true.
Obama had frightened his own party by consenting to considerable changes in Medicare and Social Security (and cuts in Medicaid), and he had accepted Boehner’s proposal to produce revenues without raising tax rates.
Senior House Republican staffers, according to one, were told by GOP leadership aides that the president had kept making demands for revenues without offering specifics on entitlements. (Sperling and other White House officials would later be aghast to hear this.) Boehner and Cantor apparently had not disclosed to their own colleagues how far the negotiations had come.
WHITE HOUSE AIDES WERE LEFT SCRATCHING THEIR HEADS. They had been striving toward a deal—after Boehner and Cantor revived the negotiations for a grand bargain. Specifics were on the table. Paper had been going back and forth between Boehner’s office and the White House. Barry Jackson had signaled he was committed to getting to yes.
Obama’s aides also realized that if Boehner had returned the president’s phone call and said he truly couldn’t budge further on revenues, the president might well have settled for the deal as it was (without any softening of the entitlement reductions) and then done what he could to pass it in the House and Senate. White House aides wondered if they had been suckers to believe good-faith negotiations were possible with Boehner.
Later that weekend, Obama, during a phone conversation with Boehner, asked why the speaker had never called back.
“I wasn’t taking anything off the table,” Obama said. There was nothing he had not been willing to discuss.
Boehner offered no explanation. He was not willing to talk about it.
White House aides, after learning of the conversation, reached a simple conclusion: John Boehner couldn’t deliver his own people. During that twenty-five hours of silence, he realized he couldn’t sell any package of this sort to his Tea Party–dominated caucus, and there was nothing left to talk about.
HAD OBAMA INVESTED TOO MUCH IN BOEHNER AND THE ALLURE of a grand bargain? “The president thought he was close to getting it done with Boehner and this animated every one of their actions,” Robert Gibbs recalled.
Yet, after the fact, it was easy to argue that Boehner had never been in a position to consummate a big deal. He couldn’t convince 218 of his 240 House members to pass such a package, nor could he round up enough Republican votes to give the grand bargain a fighting chance. Had he tried to bring a measure with revenues to the House floor, he might have faced an internal rebellion.
Despite Boehner’s public blustering, aimed at soothing the Tea Partiers in his caucus, Obama and his aides thought the speaker had been truly interested in a historic deal and that he had not jerked them along to purposefully set up a failure, for which the president could be blamed (though that possibility did cross some minds at the White House).
Perhaps Obama and his team should have recognized sooner that Boehner could not lead his own caucus to a deal. But a crisis loomed, and they were desperate for a solution. As several White House aides later noted, it had not been their job to worry whether Boehner could corral his own members.
Plouffe and others had wanted a values debate between the president and the Republicans, but Obama had spent (wasted?) months—precious time—stuck in complicated behind-the-scenes negotiations in search of a deal that was a bridge too far.
“For months and months, we were deep in the bowels of secret negotiations,” a senior White House official later lamented. “We stopped fighting them in public to get it done in private. Only it didn’t work.”
That was the price of Obama’s effort to transcend the political and policy wars of Washington to achieve what would have been a historic compromise. An outside Obama adviser later said, “After Boehner’s first walkout, it was incredible that they kept chasing that deal. They got too inside that bubble.”
Obama’s critics on the left—and in the middle—had frequently criticized him for lacking daring or fortitude. But it was in his nature to attempt difficult things that entail risk. Going for a big compromise had meant overcoming Republican obstinacy and potentially tearing apart his own party. It was a long shot. But the president had not been put off by the odds.
“He saw an opening and aimed for it,” a White House aide observed. “Obama is self-contained and lives completely within himself. He’s an introvert emotionally. But he’s a risk taker. He’s like an athlete who says, ‘Fuck it, I’m going to shoot that half-court shot at the last minute.’ He did the same on health care and bin Laden. That’s how you get the big wins. He tunes out the drama. He doesn’t care about, say, the relationship between Boehner and McConnell. He’s able to see opportunities others don’t and is willing to take these big chances. This time it didn’t pan out for him.”
THE NEXT WEEK WAS A BLUR OF LEGISLATIVE JOCKEYING ON CAPITOL Hill—most of it pointless. McConnell asked Obama to butt out and let the legislators fix this on their own. “Meanwhile, we were preparing for a double-dip recession,” a White House official later said.
Boehner drew up a two-phase plan that called for $1.2 trillion in cuts now and $1.6 trillion the next winter, with the debt ceiling being lifted each time. Without any revenues, the second round of reductions would have to incorporate severe whacks at Medicare and Social Security. This bill was designed to appeal to Boehner’s conservative wing, yet it was unclear if it was sufficiently draconian for his fellow Republicans.
On the other side of the Hill, Reid hatched his own legislation that would raise the debt limit through 2012 in return for $2.7 trillion in deficit reduction, which would include $1.2 trillion in cuts to federal agencies (including the Pentagon) and $1 trillion in savings from the end of the Iraq and Afghanistan wars. And there would be a supercommittee to work up a deficit-reduction proposal guaranteed an up-or-down vote by the end of the year.
There was not much balance or shared sacrifice in this plan. But the White House endorsed it. In a private tweet, a White House official at the time explained, “We obv want revenues, but Reid also doesn’t have entitlements, so he is trying to avert a crisis. Not ideal, but better than Boehner.”
EIGHT DAYS BEFORE A POSSIBLE DEFAULT, OBAMA IN A PRIMETIME address from the East Room lashed out at congressional Republicans unwilling to “ask the wealthiest Americans or biggest corporations to contribute anything at all.”
He blasted Boehner’s bill for offering only a short-term extension, which would likely lead to a credit downgrade for the US government and trap the nation in a Groundhog Day situation: “The House of Representatives will once again refuse to prevent default unless the rest of us accept their cuts-only approach.”
“This is no way to run the greatest country on Earth,” he asserted, noting that the American people were “fed up with a town where compromise has become a dirty word.”
Obama asked Americans to flood Congress with a simple message: “Solve this problem through compromise.” He had made it clear he favored a certain policy approach. But his higher message was that he valued compromise—that he was the reasonable man in this madhouse.
Boehner responded: “The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today. That is just not going to happen.”
Boehner acted as if he had slept through the summer. His spin was hollow. A blank check enables future spending. In requesting an increase in the debt ceiling, Obama was merely guaranteeing that the US government could cover past spending, including the blank checks written by Republicans during the Bush years. Politico noted, “As if ignoring what they had negotiated—Obama agreeing to raise the eligibility age for Medicare to 67—Boehner dismissed the president as ‘adamant that we cannot make fundamental changes in our entitlement programs.’ ”
As the speaker left the Capitol that night, a CBS News producer overheard him say, “I didn’t sign up for going mano a mano with the president of the United States.”
THE NEXT DAY, CAPITOL HILL PHONE LINES WERE JAMMED. A new poll showed 68 percent of Americans—including majorities across the ideological spectrum—favored compromise.
But Boehner’s problems were more immediate. Numerous House Republicans were not rallying behind his debt-ceiling bill—its sharp cuts were too mild for them—and some were even scheming against it. At a closed-door meeting, Cantor told GOPers to “stop grumbling” and fall in line.
To inspire the caucus, Representative Kevin McCarthy, the Republican majority whip, showed a clip from The Town, a bank heist movie. In the prelude to a violent attack, a crook played by Ben Affleck says to his friend, “I need your help. I can’t tell you what it is. You can never ask me about it later. And we’re going to hurt some people.”
His pal responds without hesitation: “Whose car are we gonna take?”
A pumped-up Representative Allen West, a full-fledged Tea Partier, exclaimed: “I’m ready to drive the car.”
The Republicans were looking to smash things.
BOEHNER WAS SCRAMBLING TO PASS HIS BILL—WHICH WAS doomed to fail in the Senate. And Reid’s measure would certainly be defeated in the House. But all this had to play out, almost like a predictable horror film.
At a meeting of House Republicans on July 27, Boehner had a tough message for his compatriots: “Get your ass in line.”
House Democrats were calling on the president to deploy the Fourteenth Amendment—an option Jay Carney unequivocally ruled out. Washington was in chaos.
THE FOLLOWING DAY—FIVE DAYS BEFORE THE DEFAULT deadline—Obama urged congressional leaders to forget about Boehner’s bill and produce a bipartisan compromise.
“We could lose our country’s AAA credit rating,” he remarked, “not because we didn’t have the capacity to pay our bills—we do—but because we didn’t have a AAA political system.”
A lower credit rating, he explained, would be the functional equivalent of a tax increase; it would result in higher interest rates on mortgages, car loans, and credit cards. Stocks had been falling for six days in a row.
After much drama, Boehner brought his legislation to the House floor, and it squeaked by on a 218–210 vote. Within two hours, the Senate cast aside the bill on a 59–41 vote.
After days of frenetic legislative activity, Washington was not any closer to a resolution. Cable television networks started running countdown clocks to default.
ON SATURDAY MORNING, THE MOOD AT THE WHITE HOUSE WAS grim. Obama had tried the Biden talks. He had tried the Cabinet Room talks. He had tried direct talks with Boehner. He had tried letting Congress sort this out. But the previous night, the obvious had been demonstrated yet again: no one could get a debt-ceiling bill through both houses of Congress.
At midday, Mitch McConnell called Biden to see what they could work out. McConnell preferred negotiating with Biden over Obama. They had paved the way to the tax-cut deal of the past December. Perhaps they could find a way out of this jam.
That conversation led to a flurry of calls between the vice president and the Senate minority leader, and between their respective staffers. And there were rolling meetings at the White House. Some were secret sessions on what the administration should do if no deal was reached by Tuesday night.
The White House and McConnell quickly agreed on the basic parameters: two sets of cuts that in total matched the hike in the debt ceiling, with up-front cuts of about $1 trillion and a supercommittee producing the second tranche of deficit reduction—or a trigger would be pulled.
Boehner was also in the mix. All through the day, he and McConnell conferred, often trudging to and from each other’s Capitol Hill office, Boehner puffing away on a cigarette. The two were in their own negotiation, while McConnell haggled with the White House.
Early in these conversations, McConnell and Boehner yielded on a critical point: there would not be another debt-ceiling vote in six months. Obama had said no, and that no was sticking. The agreement would somehow extend the borrowing authority through 2012. But the talks stalled—as they had in the past—over the tricky topic of the trigger.
Then White House aides suggested sequestration—Washington-speak for automatic spending cuts. And military spending would be included. The Republicans accepted the idea. But both sides had to determine what would be subject to this budgetary doomsday device.
AS THE HOUSE PREPARED TO VOTE DOWN REID’S BILL, THE MEETINGS continued. That afternoon, Obama summoned Reid and Pelosi to the White House to tell them a deal was being hastily constructed.
Pelosi said any agreement that included a provision scaling back the cost of living adjustment for Social Security would not win Democratic votes. She also pushed for less severe cuts to Medicare providers in the trigger (from 4 percent to 2 percent).
After the meeting, a testy Reid said, “The question is, are we closer to an agreement? The answer is ‘nope.’ ”
And Boehner was still lobbing brickbats at Obama. “It’s time for the president to outline how we get out of this cul-de-sac he’s driven us into,” he carped during a press conference with McConnell. Boehner was sticking to the same routine of blasting Obama for supposedly doing nothing, even while he was in negotiations with the president.
COME SATURDAY NIGHT, THERE WAS NO AGREEMENT ON THE trigger. During one call late that evening between White House aides and GOP staffers, the Republicans demanded that Medicaid cuts be part of the sequestration. (If the supercommittee failed, poor people would get less health care.)
Sperling was explaining why Obama would not accept that—“there has never been a low-income program in a sequester”—when suddenly, Lew interrupted.
“No means no,” he yelled. “No! No! No!”
Lew was exhausted—and also upset that the Republicans thought the White House would accept an unprecedented Medicaid sequester. In a meeting later with Obama, Sperling and Lew recounted the episode for the president.
“You did exactly the right thing,” Obama said.
ON SUNDAY MORNING, THERE WAS NO IMMEDIATE WORD FROM Boehner about the deal taking shape. Dark humor set in at the White House: it’s déjà vu all over again. Obama aides wondered if Boehner was trying to run out the clock as a way of forcing Obama to capitulate to an awful agreement at the last moment.
On the Sunday shows, news was spreading that a deal was near. Liberal Democratic senators, including Al Franken, Barbara Mikulski, Carl Levin, and Tom Harkin, were pressing Reid to explain why the agreement contained no revenues. Where was the balance? they asked.
But the talks hit another snag. The deal, at this point, would establish a firewall between military and nonmilitary programs in the discretionary spending budget for two years so nonmilitary programs could not be cut deeper to spare the Pentagon. Yet House Republicans wanted fewer reductions targeting the Pentagon—and White House aides assumed this was stirring up trouble for Boehner.
At one point, Biden was on the phone with the speaker, who was pressing the vice president to yield on this front. Biden explained that maintaining this firewall was necessary to guarantee Democratic votes. Otherwise, nonmilitary spending would be cut disproportionately to protect Pentagon expenditures.
“It’s religion for Democrats,” Biden explained.
But, Boehner countered, we’ve given you Pell grants and disaster relief funding.
“No,” Biden said. “We’re willing to be flexible but not broken.”
“Oh, come on, Joe,” Boehner said, sarcasm dripping. “The president is getting his money.”
Obama and Biden refused to budge.
McConnell, too, pushed Biden on this point.
“No chance we’re changing this,” Biden told him.
Obama walked into Biden’s office during this stretch, and the vice president told him, “I’ll take this to the brink.”
Don’t move on the firewall, Obama said.
For a while it seemed possible that the firewall dispute could crash the whole deal. The president and his aides began pondering how to break the news to the world that once more a deal had collapsed and that default could be imminent.
Dan Pfeiffer started drafting a statement for the president to announce that no last-minute compromise could be reached.
McCONNELL BROKE THE IMPASSE BY SUGGESTING THEY CHANGE the placement of the firewall. Instead of separating defense and nondefense discretionary spending, it would set up a divide between “security” and “nonsecurity” spending. This would lump military operations with foreign aid, homeland security, veterans affairs, and other functions and would cushion the blow to the Pentagon.
On late Sunday afternoon, Obama convened his aides for a discussion.
“What do we think of this policywise?” he asked.
Lew quickly led a policy seminar on the possible impacts of this proposal, and Obama and his aides at the end of the conversation concluded this change would be fine.
But the Republicans wanted the security/nonsecurity distinction also applied to the sequestration in the trigger. Obama rejected that. The trigger had to be as painful as possible for the Republicans so they would be motivated to accept a second round of deficit reduction that included revenues. If the GOPers could protect the Pentagon from the full force of sequestration, they’d be less willing to sign on to revenue increases.
“In the end, the Republicans rolled over on defense,” a Democratic staffer later said. “That surprised us.”
OBAMA AND BIDEN STILL HAD TO SELL THE DEAL TO THE DEMOCRATS. In the late afternoon, Reid, Hoyer, Durbin, Van Hollen, and others assembled in Pelosi’s office to review the possible accord. None of them was enthused about it. Biden was on the phone.
The vice president went over the technical details with Van Hollen. But his big pitch to the group was that the trigger included significant military cuts and that ought to compel Republicans to eliminate corporate loopholes to generate revenues.
Reid left to issue a statement of support. But Pelosi said she first had to discuss the agreement with her caucus. She had accomplished her mission—keeping Social Security and Medicare beneficiaries out of the range of the trigger. In next year’s election, no one would be able to say (accurately) that the congressional Democrats backed Medicare benefits cuts.
AT ABOUT 8:00 P.M., OBAMA, SURROUNDED BY AIDES IN THE Oval Office, called Boehner. When Boehner got on the line, Obama started explaining the final details. But in the middle of a sentence, Boehner interrupted him.
The president’s aides couldn’t hear what Boehner was saying but anxiety flared.
Oh my God, Sperling thought, here we go again.
But after a few moments, Obama said, “Congratulations to you, too, John.”
THE DEAL WAS DONE. IN RETURN FOR IMMEDIATE SPENDING CUTS of $917 billion spread out over ten years, Obama could raise the debt ceiling by $900 billion. (Supposedly almost half of these initial cuts would come from security spending, with the Pentagon absorbing about three-quarters of that, but the language of the actual legislation would make this a bit fuzzy.) In the second phase, a bipartisan supercommittee made up of twelve House and Senate members would have to produce by Thanksgiving a plan for $1.5 trillion in additional deficit reduction, and Congress would have to vote on the measure within a month.
If such a plan were enacted, Obama could boost the debt limit by $1.5 trillion. But if the supercommittee failed to achieve at least $1.2 trillion in deficit reduction, sequestration (divided equally between defense and nondefense programs) would kick in starting January 2013.
Medicare payments to providers could be hit by these automatic cuts, but, as Pelosi had demanded, these reductions were limited. Sequestration would not touch Medicaid, Social Security, veterans’ benefits, and assorted programs servicing low-income families. And Obama could ask for up to $1.2 trillion in new borrowing authority in conjunction with the sequestration.
No matter what happened, Obama was guaranteed the debt ceiling would not again become a major legislative fracas until after the 2012 election.
The agreement had no revenues and no entitlement reductions. The supercommittee would consider both areas and squabble over all that. The deal contained no job-creation measures, but the White House inserted increased funding for Pell grants. The Republicans were guaranteed votes in the House and the Senate on a balanced budget amendment.
AT 8:40 P.M., JULY 31, 2011, OBAMA ENTERED THE WHITE HOUSE briefing room to announce the deal. The result, he noted, would be a historically low level of spending that still allowed “job-creating investments in things like education and research.” He had made the same argument at the end of the budget fight.
“Is this the deal I would have preferred?” he asked. “No.” But the agreement “will allow us to avoid default and end the crisis that Washington imposed on the rest of America.”
Obama, once again, was blaming Washington more than Republican extremism. Even at this late stage, Obama did not feel free to lash out. The debt-ceiling deal still had to move through the House, and if Obama were to lambaste the GOP, he could diminish the prospects for passage.
This agreement, Obama remarked, “will allow us to turn to the very important business of doing everything we can to create jobs, boost wages, and grow this economy . . . and that’s what we should be devoting all of our time to accomplishing in the months ahead.”
Biden tweeted, “Compromise makes a comeback.”
In a conference call late on Sunday, Boehner told House Republicans, “I’m not celebrating.”
But as of this moment, the plan was all cuts—no revenues, no shared sacrifice, no balance. He told his fellow Republicans, “This isn’t the greatest deal in the world, [but] it shows how much we’ve changed the terms of the debate in this town.”
That much was true.
Obama had ended up with a small cross. He had averted a default that never should have been possible. But he had paid Boehner ransom—though some of that payment was coming out of the Pentagon’s hide.
The president had beat back the GOP attempt to pin him down with repeats of the debt-ceiling debacle prior to the 2012 elections, but he had not been able to prevent the establishment of a troubling precedent: the debt ceiling could be a bargaining chip. He had protected certain funding priorities, but he had not won a package with job-creating measures. He had persuaded the public that the Republicans’ cuts-only stance was wrong, but he had not found a way to translate that into political leverage he could use to influence the outcome. He had looked reasonable, but he had ended up the lead player in an unpopular Washington fiasco.
“Not getting a second debt-limit vote was what we cared about,” a senior administration official said. “They were getting $1 trillion in discretionary spending cuts this first time. The next time, they’d come back and demand $500 billion out of Medicare and Social Security. Imagine if Pelosi had said to President Bush, when she got the speaker’s gavel, ‘You pull out of Iraq or we blow up the global financial system.’ If we gave them a second vote, who knows where this would go?”
Liberal Democrats were appalled. Obama may have blocked irresponsible Republican extremists from causing a default, but for them he had bartered away too much.
Representative Raúl Grijalva, the head of the Congressional Progressive Caucus, proclaimed, “This deal trades people’s livelihoods for the votes of a few unappeasable right-wing radicals, and I will not support it.”
Representative Emanuel Cleaver, who chaired the Congressional Black Caucus, dubbed the accord “a sugar-coated Satan sandwich.” On MSNBC, he complained, “I came back to Washington at the beginning of the year thinking we were going to create jobs, and we allowed the national discourse to change from jobs to the debt. . . . If I were a Republican, I would be dancing in the streets.”
Under the headline “The President Surrenders,” Paul Krugman, in his New York Times column, contended the deal was “a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.”
THE NEXT NIGHT, THE QUICKLY DRAFTED BILL WAS BROUGHT TO the House floor. Pelosi intended to vote yes—to avoid a possible financial crisis—but she did not press her members to follow her lead. This was a bitter moment for her. The Tea Partiers, she sadly realized, had succeeded in shifting the Washington conversation toward an obsession with deficits. “They did win that,” she said later. “They changed the arena.” And the debt-ceiling crisis, as she saw it, was part of their blueprint to demolish government with spending cuts targeting crucial programs: “Clean air, clean water, education—they will destroy it.”
When the voting started, the Democrats held back as the Republicans cast votes. “Let them put 218 on the board,” Pelosi told her party colleagues, “and then we’ll see.”
As the minutes ticked by, it became evident that the Republicans couldn’t reach a majority. About a quarter of Boehner’s caucus was voting against him. Once again, the speaker couldn’t deliver.
With a few minutes remaining, the Democrats, having made their point, started voting. The final vote count was 269–161. Half of the Democrats voted for the Satan sandwich. Boehner lost 66 Republican votes. The ideologues of his party, who had prevented him from achieving the grand bargain and who had pulled the debt-ceiling deliberations far to the right, were still off the reservation.
There was little celebration in the chamber. Yet one bright moment occurred when Representative Gabrielle Giffords, on her first visit to the House since surviving that assassination attempt seven months earlier, received a standing ovation as she cast a vote for the bill.
The next day, the Senate passed the compromise with little drama—hours before the midnight deadline.
THE PREDICTABLE DEBATE KICKED OFF: COULD OBAMA HAVE handled this better? Liberal commentators asked why Obama hadn’t slammed the Republicans from the start, issuing clear demands—no chaining of the debt ceiling to deficit reduction, no deficit reduction without higher taxes on the wealthy—and sticking with them.
One outside evaluation was particularly stinging. Jared Bernstein, who had recently been Biden’s chief economic aide, noted that because the president did “not have a strategy to counteract [Republican] extremism,” he had been forced into the position of accepting “a plan far less balanced than” he would have liked: “This was an ugly debate where reckless ideologues got the better of the grown-ups in the room who were not willing to risk the economy to protect the government.”
The bad review from commentators, naturally, irritated White House aides, who believed the president had demonstrated courage (by striving for the grand bargain) and responsibility (by eschewing the routine brawling of politics to avert a catastrophe).
“Our own pundits were decrying us for dealing with hostage takers, as if there was another option,” a senior administration official griped.
White House aides even felt a bit heroic. They had saved the country. Had the United States stopped paying its bills, the whole global financial house of cards—see Greece—could tumble.
As the debris was settling, Axelrod maintained that the deal had “removed an obstacle” for Obama. Now the president could finally return to his growth agenda and the push for near-term job creation.
“We’ve lifted a brick off that,” Axelrod said.
What about the narrative that Obama was forced to cave in the face of Republican intransigence?
“I don’t think the American people give a damn about that,” Axelrod contended. “The impression people are getting is that the Republicans are willing to tank the economy to get their ideological prerogatives and to beat the president. This is not a situation where we got ’em just where we want ’em. But who put themselves in a better position to win later? We did better than they did.”
A senior administration official echoed this point: “We definitely didn’t win this. We took a hit and our share of the blame for the dysfunction. But the Republicans seriously soiled themselves.”
TO ANSWER ITS CRITICS, A DEFENSIVE WHITE HOUSE RELEASED A long fact sheet on “myths and facts” about the agreement that insisted the deal was a “a win for all Americans.” The first myth it cited was “President Obama caved.” No, he had avoided default, protected entitlements, and set up a path that would pressure Congress to adopt a balanced approach.
The White House was again selling an unpopular compromise with benefits that were largely based on preventing negatives from happening: we stopped the crazies from ruining the economy. The December tax-cut compromise had included provisions to assist Americans confronting economic troubles; it had the potential to boost the economy. Democratic and independent voters, according to polls, had reacted favorably to that compromise. The debt-ceiling deal had few, if any, explicit policy advances that could juice the economy in the short run.
The immediate polls found that a majority didn’t like the deal. And a CNN/Opinion Research Corporation survey noted that only 46 percent approved of Obama’s handling of the debt negotiations. But it was worse for the Republicans: 14 percent responded positively when asked how Congress had been doing its job. In a USA Today/Gallup survey, half of independents—the target group for Obama’s be-the-adult-and-compromise strategy—were unhappy with the compromise; only 33 percent approved.
But there was a sliver of good news for the White House. By the end of the messy episode, a significant majority of Americans, according to numerous polls, backed Obama’s overall approach to deficit reduction over the GOP’s slash-slash-slash strategy. This suggested that when Obama presented a clear vision of his values and priorities—and contrasted them with those of the Tea Party–fueled Republicans—he could gain ground. This was consolation for Obama and his team as they looked ahead to future confrontations and, of course, the reelection campaign.
The Republicans absorbed a different lesson. McConnell boasted that this “creates an entirely new template for raising the national debt limit.” And he called the debt ceiling “a hostage worth ransoming”—as if he was enthusiastic about a rerun down the road.
Representative Kevin McCarthy expressed delight that the rigidity of the House GOP freshmen had bolstered his side, saying, “You had a fear of how far they would go. I’m sure the president looks back, too, and was fearful. But in negotiations, isn’t that the best thing?”
After the crisis was over, Vice President Biden shared his own theory with his aides. He wished they had let the Republicans shut down the government in April. The Tea Party was obviously looking for a dramatic moment. They didn’t get one with the 2011 budget deal—and they ended up feeling cheated on the numbers, due to Lew’s brilliant handiwork. But after that, the House Republicans were brimming with suspicion and loaded for bear.
That meant the Obama White House had been negotiating with a party dominated by a group looking to act out. A government shutdown would probably have been less damaging than a default. Perhaps it would have been best, Biden pondered, to have the big battle earlier—and on a smaller cross.
THE STOCK MARKET SLUMPED IN THE DAYS FOLLOWING THE deal. The episode had not bolstered confidence. Standard & Poor’s for the first time downgraded the nation’s credit rating, explaining that the “political brinkmanship” was a sign that “America’s governance and policymaking” were “becoming less stable, less effective, and less predictable.”
Soon after the deal, economic activity, as measured in the Business Outlook Survey conducted by the Federal Reserve Bank of Philadelphia, hit its lowest point since March 2009. With the nation having reached the precipice of default, it seemed the whole economy was standing still—and Washington was broken.
THE COLLAPSE OF THE GRAND BARGAIN WAS A CRITICAL MOMENT in the Obama presidency. A former senior Obama administration official noted that at the White House—and in the Oval Office—the realization sunk in that even if the president wanted to take risks to compromise with the Republicans, he couldn’t succeed: “There was no pot of gold at the end of the adult-in-the-room rainbow, and there were only so many times Lucy could pull away the football.”
Obama had been struck by the Republicans’ willingness to damage the economy and to tilt the playing field even further toward the wealthy. He had assumed—perhaps naively—that during an economic crisis, the Republican leadership would do something to help. And he and his aides had felt obliged to find that common patch of ground, though it might have been small and distant.
“This is the fundamental insight,” a senior administration official said. “What made this year so difficult was not just divided government or how obstructionist the Republicans have been. What was so challenging was that we had to face this degree of division at a time when our economy demanded we take responsible action to prevent a downturn or a sustained period of very high unemployment. That is a major constraint. It was not that everybody in the White House could not figure out how to have good political positions. We can.
“Our obstacle to hitting the most ideal message was simply that our paramount responsibility is to do the right thing for the US economy.”
The debt-ceiling fiasco had, at least, been instructive, Axelrod believed: “People are not rooting for gridlock and partisan strife—at least the vast majority are not. But the folks on the other side fundamentally believe cooperation is akin to treason. In that set of circumstances, you have to push back harder. The public recognition of that is there now.”
He added that the path forward was clear: “We’re in a new period. We need to confront them.”
If compromise was not possible, Obama would have no alternative but to engage in open combat with the Republicans—and, with the GOPers no longer holding the economy hostage, he would have the freedom to do so.
As a senior administration official noted, “We don’t have a gun to our head anymore.”
THE DAY OBAMA SIGNED THE DEBT-CEILING BILL INTO LAW, HE held a previously scheduled meeting in the East Room with the AFL-CIO’s executive council. He was eager to explain himself.
He told the unionists he had had no other choice but to cut this deal to remove the debt-ceiling “millstone around our necks.” He had shielded entitlement and low-income programs from the GOP hatchet. And now he was in a better position to advocate for job-creating programs. To have credibility for that crusade, he argued, progressives had to show they can manage the economy responsibly, and, like it or not, the American people were genuinely concerned about government debt. That could not be ignored.
He counseled the unionists not to be discouraged by the dispiriting debt-ceiling fight.
“I won the argument,” he said. “I wasn’t willing to burn down the house or split the baby.”
And he maintained that the administration had been confronted with impossible circumstances: “It’s not like if I had been a better negotiator, we’d all be better off.”
“I’m attacked every day for my socialist tendencies,” Obama said, with a touch of sarcasm. But he vowed, “I’m not through fighting.”
He reiterated the message he had conveyed to the union presidents the previous December: This is a long fight; the House Republicans’ agenda started with Barry Goldwater in 1964. “They got whipped but stayed with it. . . . Now everyone is mopey and mad at me. Don’t doubt my commitment.
“Don’t doubt who I am fighting for,” he added. “The other side knows and that’s why they are trying to beat me.”
He promised the labor officials that “the only thing we will talk about for the next nine to ten months will be how to grow the economy and put people back to work.”
Toward the meeting’s end, he remarked, “Given the economy, it’s remarkable that we are still in the game.”