House Speaker John Boehner, R-Ohio, has promised “a whale of a fight.” Some Democrats are warning that the GOP could sink the economy. And so begins another budget showdown. How it ends – and whether the U.S. government can avoid a shutdown and a default – may hinge on whether the two principal combatants, Boehner and President Obama, can figure out a way to work together.
Their history shows that may not be possible. Based on interviews with key White House and congressional aides, meeting notes, and budget documents, here is a detailed, often verbatim account of the two leaders’ negotiations and conversations last time – during the dramatic “fiscal cliff” face-off of late 2012.
• • •
With the election behind them, Obama and Congress had just weeks until the George W. Bush-era tax cuts expired and automatic spending cuts – the sequester – kicked in, sucking billions of dollars out of a still-struggling economy. The president summoned congressional leaders for a 10:15 a.m. meeting in the White House’s Roosevelt Room on Nov. 16. In the news media, it was described afterward by all sides as a chummy gathering infused with good will – “a rare show of bipartisan bonhomie,” according to the New York Times.
Note-takers for both Democrats and Republicans, however, recorded the meeting’s unpleasant end.
“That episode from 2011 was the worst,” Obama said, recalling the previous year’s painful struggle over the debt ceiling. “I will not sign anything that does not have a debt-limit increase.”
“Everything comes at a price,” Boehner replied. “And I’m going to use the debt limit to extract things out of you that I would not otherwise get.” The previous year, he had used the same tactic – leveraging the need to increase the federal government’s borrowing authority – to get large spending cuts from the president.
“Well, that’s my price,” Obama retorted. He would not permit a replay of the previous year.
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Obama called Boehner to the White House on Sunday, Dec. 9. After a long discussion, the president was optimistic: “We’re close to an agreement.”
Obama, who had been insisting on the need to identify $1.6 trillion in new revenue, seemed to make a concession when he said, “I need more than $1 trillion in revenue.”
“I’m thinking more like $1 trillion in revenue,” Boehner said, upping his earlier offer of $800 billion achieved through tax reform.
“We’ll let these guys work out the details,” Obama said, gesturing to their aides. “You guys need to get together and discuss this as soon as possible. All right. Excellent.”
They seemed to be headed in the right direction: the middle.
On Friday, Dec. 14, at 5 p.m., Boehner called Obama with a detailed offer that included two key concessions: He was willing to raise taxes on individuals making more than $1 million and to extend the debt limit for a year.
By the next night, Boehner’s concessions had leaked to the media. There was widespread angst, even fury, among Republican House members who had not been told in advance and who opposed any tax increases. “We’re getting crushed,” said Brett Loper, Boehner’s policy chief.
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An Oval Office meeting on the morning of Monday, Dec. 17, began with Boehner complaining bitterly about the leaks. They were unsettling to his caucus members and eroded trust.
The president said he had nothing to do with the leaks.
Despite the acrimony, by their own account Obama and Boehner were still close to an agreement. The difference between their positions was only $200 billion over 10 years – $20 billion a year, or one-fiftieth of the annual federal deficit of about $1 trillion.
Boehner was pushing for more cuts. “If you can move up another $130 billion or $150 billion on the spending side,” he told the president, “we can get there.”
Health care spending was the big issue. Obama was talking about $400 billion in health care cuts, while Boehner wanted $600 billion.
“Can we split the difference here?” Boehner asked. “Can we land at $500 billion?”
“I have to look at not just the numbers on a piece of paper,” Obama said, “but what’s behind the numbers.” The impact on elderly Medicare beneficiaries could be dramatic if they went too far. “Four hundred billion is it. I just can’t see how we go any further on that.”
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In a 2:30 phone call that afternoon, Boehner agreed to take increasing the Medicare eligibility age off the table. Obama said he appreciated the offer: “I’m going to give you a counter that gets us closer, so close that it would be silly for us not to get an agreement.” He called back just before 4 p.m. with $120 billion in other concessions.
But Boehner realized that the extreme conservatives and tea party element among House Republicans would not go along with any of this. In a third phone call, he bailed out. “Your revenue number is still just too high,” he told the president.
“It’s a good deal and the country wants it,” Obama argued. “There’s no stomach for crazy s---. If we can get a deal, I can get Nancy (Pelosi) and Harry (Reid) to get there. People are going to say that we’re bad leaders and that we’re crazy.”
“This is difficult for everybody,” Boehner said. He told the president that he would try to get House Republicans to approve a Plan B: increasing taxes on those earning more than $1 million a year. Obama had been pushing to raise taxes on people earning more than $400,000.
“Don’t hang up on me,” the president said. “Be honest with me – why can’t we get it done?” He asked whether House Majority Leader Eric Cantor, R-Va., or House Majority Whip Kevin McCarthy, R-Calif., was holding them up. “Their supporters want to get it done. What’s the thought process? It’s getting harder, not easier.”
“This is the risk we have to take,” Boehner said. “I can’t do the revenue number.”
“What is it about the politics?” Obama asked.
“My guys just aren’t there,” Boehner said.
There was a long, uncomfortable pause.
“We’ll keep working,” the speaker said.
“Describe the scenario in which it gets done,” Obama challenged with his latest estimate. “We are $150 billion off, man. I don’t get it. There’s something I don’t get.”
• • •
Two days later, in a Dec. 19 news conference, Boehner announced Plan B with an air of confidence: “Tomorrow, the House will pass legislation to make permanent tax relief for nearly every American – 99.81 percent of the American people.”
“Oh, my God!” McCarthy, the House Republicans’ chief vote counter, said to himself. He was standing nearby and almost gasped, having been caught off guard. According to “the McCarthy Rule,” to avoid embarrassing defeats, the House leadership is supposed to educate caucus members and assess support before announcing a date for a vote. Though Plan B was technically a tax increase for only 0.19 percent of taxpayers, it violated Republican anti-tax orthodoxy. After polling Republican lawmakers, the whip told Boehner that Plan B was doomed.
Boehner’s staff calculated that about 230 Republicans in the House wanted Plan B to pass – 12 more than the necessary majority of 218. The problem was that only 200 were willing to publicly vote for it. The remaining 30 indicated that there was no way they would declare support for even a small tax increase in a public vote. Period. That was the measure of courage in the House majority. In a massive embarrassment, Boehner was forced to cancel the vote.
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Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., were sitting on a sofa and a chair in the reception area of the West Wing when Boehner walked up the stairs on the way to meet with the president on Dec. 28.
“F--- you,” the speaker said, glaring at Reid.
“What did I do?” Reid asked.
You know what you did, Boehner said.
I’m at a loss, Reid replied.
What you said on the floor about me being a dictator, Boehner said.
Reid had declared on the Senate floor that the House was being run by “a dictatorship of the speaker” – even though the Plan B failure demonstrated the precise opposite.
Do you even listen to the stuff that comes out of your mouth? Boehner asked.
Reid slowly stood up. McConnell stood, too, looking very uncomfortable.
David Krone must have written that for me, Reid said, referring to his chief of staff, who had just arrived.
Krone was having none of it. Whenever I see the speaker’s name in something, I cross it out, he said.
On his tendency to shoot from the hip, Reid had once told Krone: “My mouth works faster than my brain. And it just comes out.”
• • •
With negotiations stalled in the final two days before the Jan. 1 deadline, the talks were turned over to McConnell and Vice President Joe Biden.
“Does anyone down there know how to cut a deal?” McConnell asked.
“I’m only the vice president,” Biden said. “You and I can get a deal, but it’ll have to be sold to Harry” Reid.
They quickly reached an agreement on tax-rate increases for the upper brackets. But the sequester was a last point of contention. Biden wanted to replace the automatic spending cuts with a mix: half targeted spending cuts and half new revenue. McConnell wanted just cuts. He believed that was the agreement struck in 2011. The White House vehemently disagreed and didn’t think the 2011 deal bound it in any way in 2012.
In a phone call at 12:40 a.m. on Dec. 31, Biden proposed that each side have an opportunity to offer an amendment to the sequester and that they battle it out on the Senate floor.
That’s a reasonably elegant solution, said McConnell aide Rohit Kumar. Whoever came up with it should be commended.
It was actually the president’s idea, Biden said.
Oh, well, good for him, Kumar said.
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Obama had been pushing to delay the sequester for a year, but McConnell wouldn’t go along. Now, Obama asked for two months, which would at least get them past the inauguration and the State of the Union address.
McConnell agreed, but only if they could find the necessary small amounts of revenue and spending cuts.
The president warned that those offsets shouldn’t hurt Democratic priorities. He complained about McConnell’s aide: Kumar is always picking offsets that seem to stick it to our guys. We need to lock in something neutral but real. By Obama’s calculation, they were only $6 billion or $7 billion away.
McConnell said he saw the difference as $20 billion but, he added, surely we can find it.
Their aides went back and forth over the course of the day. At 6 p.m., Kumar presented a proposal for two months’ worth of revenue. Taxpayers would be allowed to convert their 401(k) retirement plans to Roth individual retirement accounts. They would face an immediate new tax, but future earnings from new IRAs would not be taxed. So even if the initiative would add $12 billion in revenue over 10 years, taxpayers would save more – and the government would get less – in the long run. One Biden aide referred to this as “fake revenue.”
At 8 p.m., Rob Nabors, the White House congressional relations chief, e-mailed Kumar to say the proposal wouldn’t work. It was gimmicky in the extreme. The only people who would pay this tax would be the wealthy, and their net tax liability would be reduced in the long run. Did Republicans have anything else?
No, Kumar answered.
I don’t think this is going to work for us, Nabors replied. We’re taking grief from the left for this whole thing. The only people who are going to do this are people who have financial planners who say, “Pay the tax now because you’ll pay less tax later.”
Biden felt Kumar had run out the clock to pull a fast one.
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Next, McConnell called Biden. I hear you don’t like our Roth IRA proposal, he said. Just seems to me that we’re not going to get there. Let’s just do the income-tax deal.
“No, no, no, no,” Biden said. He had to deliver on the president’s insistence on a two-month delay of the sequester. “We have to do this. Let’s just get this done. I’ve got to come up there and sell this package tonight” to the Senate Democrats. “We’ve got to do this now. I’ll take your Roth IRA offset.”
Biden also gave in on a Republican estate-tax proposal and on a technical issue of how to count taxable income. Let’s just do the deal, he told McConnell. “We should all just swallow hard and get this done. No sudden moves.”
They had an agreement. It was far from a grand bargain to stabilize the deficit. Tax revenue would go up by $625 billion over 10 years. The only spending cut was $12 billion in general cuts, with half in defense. The only revenue to offset the sequester delay was the $12 billion in fake revenue from the retirement account conversion.
• • •
In the early hours of Jan. 1, 2013, the Senate approved the deal, 89-8. Now the House leadership had to take it up, and the only way Boehner could get it through was to rely on Democrats: 172 Democrats joined 85 Republicans, including Boehner, to pass the bill.
The speaker was deeply disappointed. He had hoped that 2013 would bring serious tax and entitlement reform, along with significant spending cuts.
Mike Sommers, Boehner’s chief of staff, told some of the speaker’s senior staff members: “I think this is one of the things that our members have to realize, that our leadership team has had to realize, that the conservative movement as a whole has to realize. There is a limit to what you can do with a majority in one half of one branch of Congress.”
Instead of pursuing the reform and government-shrinking programs that House Republicans deemed necessary, the House was now going to have to be negative and focus on stopping further tax increases, new spending and legislation that Obama wanted.
Sommers summarized the essential condition of the House Republicans in 2013: “We are primarily a blocking majority.”
• • •
Several times during the last round of budget negotiations, Obama and Boehner came close to a meaningful deal. But they would not compromise, perhaps split the difference. “We are $150 billion off, man,” Obama had said at one point, a number that was insignificant in the context of the federal budget over 10 years. “I don’t get it.”
What the president and the speaker did not get was that they had larger obligations than those to their parties or their doctrines. They did not get that a genuine deal would send multiple messages to the world, establishing some economic certainty, laying the conditions for a burst of economic growth and providing evidence, sorely lacking for years, that Democrats and Republicans could work together for the common good.
Now, as the fall budget battle looms, rather than talking, the White House and the Republicans are engaging in a caustic messaging war. There is no real blueprint for the necessary compromise, and there is insufficient framework or history to suggest how they might succeed in the next round, which is upon them.