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March 28, 2012

Obama vs. Boehner: Who Killed theDebt Deal?By MATT BAI

Almost immediately after the so-called grand bargain between President Obama and the

Republican speaker of the house, John Boehner, unraveled last July, the two sides quickly

settled into dueling, self-serving narratives of what transpired behind closed doors. In the

months that followed, some of Washingtons most connected Democrats and Republicans

told me in casual conversations that they didnt know whose story to believe, or even what,exactly, had been on the table during the negotiations. A few mentioned, independently of

one another, that the entire affair reminded them of Rashomon, the classic Kurosawa

film in which four characters filter the same murder plot through their different

perspectives. Over time, the whole debacle became the perfect metaphor for a city in which

the two parties seem more and more to occupy not just opposing places on the political

spectrum, but distinct realities altogether.

There is a practical reason for this. Both sides knew that if the most crucial and contesteddetails of their deliberations became public, it would complicate relationships with some of

their most important constituencies in Washington or worse. Its one thing for a

Democratic president to embrace painful cuts in Medicare and Social Securitybenefits, or

for a Republican speaker to contemplate raising taxes, if they can ultimately claim that

theyve joined together to make the hard decisions necessary for the country; its quite

another thing to shatter the trust of your most ideological allies and come away with

nothing to show for it. Obama and Boehner have clung to their separate realities not just

because its useful to blame each other for the political dysfunction in Washington, butbecause neither wants to talk about just how far he was willing to go.

IN THIS ARTICLE:

The Secret Negotiations Begin

Boehner's Cryptic Message

Decoding Boehner's Proposal

The Trouble Getting to 'Yes'

Enter the Gang of Six A Costly Miscalculation

The Grand Bargain Within Reach

Cantor and the Counteroffer


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Boehner Betrayed?

The Republican version of reality goes, briefly, like this: Boehner and Obama shook hands

on a far-reaching deal to rewrite the tax code, roll back the cost of entitlements and slash

deficits. But then Obama, reacting to pressure from Democrats in Congress, panicked at the

last minute and suddenly demanded that Republicans accede to hundreds of billions of

dollars in additional tax revenue. A frustrated Boehner no longer believed he could trustthe presidents word, and he walked away. Obama moved the goal posts, is the Republican

mantra.

In the White Houses telling of the story, Obama and Boehner did indeed settle on a rough

framework for a deal, but it was all part of a fluid negotiation, and additional revenue was

just one of the options on the table not a last-minute demand. And while the president

stood resolute against pressure from his own party, Boehner crumpled when challenged by

the more radical members in his caucus. According to this version, Boehner made up thestory about a late-breaking demand as a way of extricating himself from the negotiations,

because he realized he couldnt bring recalcitrant Republicans along.Boehner couldnt

deliver, is what Democrats have repeatedly said.

In recent weeks, as it became clear that I was planning to write a more nuanced and

detailed account of the final week of negotiations, both sides but primarily the speaker

and his aides went out of their way to give extensive accounts to reporters at other

outlets, in an effort to reinforce their well-rehearsed narratives. And yet its possible nowto get beyond these clashing realities. Over the last several months, I spoke with dozens of

people who were involved in or were kept apprised of events that week, some of whom

made available private documents from that time, including the various offers and

counteroffers. I conducted most of these interviews on the condition that I would neither

reveal nor quote the people who spoke to me, so that they would feel free to speak

candidly.

What emerged from these conversations is a clearer and often surprising picture of exactlyhow close Obama and Boehner came to finalizing a historic agreement, what exactly was in

it and why it ultimately fell apart including a revelation that illuminates Boehners

thinking in those final hours and directly contradicts a core element of the version he has

told, even to some in his own leadership.

The truth here matters for more than its historical value. At the end of this year, no matter

how the presidential election turns out, the two parties will face yet another Armageddon

moment in the fight over debt and spending; this time, if they dont settle on a plan to reinin the nations nearly $16 trillion debt, then a series of onerous budget cuts worth about

$1.2 trillion over 10 years, divided between defense and other programs will

automatically go into effect. If we understand what really went on last July, then well have


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a better sense of how difficult it will be for the two parties to stave off the coming political

calamity and why, too, the situation may not be quite as hopeless as it seems.

The Secret Negotiations Begin

You may recall that Washington last summer was verging on something resembling cold-

war hysteria. Republicans in the House were refusing to meet an August deadline for

increasing the nations debt limit by some $2.4 trillion unless they got an equivalent

amount of budget cuts in return, raising the prospect of a default that, it was assumed,

would send the financial markets into a death spiral. Vice President Joe Biden and Eric

Cantor, the House majority leader and Boehners No. 2 in the Republican caucus, had been

holding talks in hopes of finding some preliminary agreement that might avert disaster, but

those talks broke down in late June, primarily over the issue of taxes; the two men andtheir staffs had identified something like $2 trillion in cuts over the next decade, but the

White House wasnt going to make a deal that didnt include some new tax revenue, and

Cantor was adamant that raising taxes any taxes was a deal-breaker.

By then, however, Obama and Boehner had themselves started meeting furtively in the

White House, in secret negotiating sessions that grew out of a much-discussed golf outing

in June. Over a few drinks at the clubhouse at Andrews Air Force Base, Boehner suggested

they might be able to use the impending debt crisis to achieve something ambitious and

significant not just the kind of cuts that Cantor and Biden were discussing, but

fundamental reforms to entitlement programs and the tax code too, a sweeping

modernization of the federal budget. The president agreed that they should try to get

something started, but the breakthrough that seemed to make a transformational deal

possible didnt come until mid-July, in the form of a cryptic e-mail.

Budget deals happen in much the same way you might haggle over the purchase of a house:

one side bangs out a proposed contract and sends it to aides on the other side, who cross

out some numbers and phrases and insert new ones in their place, until the two sides

ultimately iron out their differences, or until someone delivers a final offer and walks away.

In this case, Obamas principal negotiators Jack Lew, then his budget director, and Rob

Nabors, his top aide on legislation sent a proposal to Boehners team that included $1.5

trillion in new revenue over 10 years. The White House negotiators knew this had about as

much chance of happening as a meteorite falling on the Capitol, but the real question was

whether Boehner was willing to go some distance toward meeting them on the revenue side

of the ledger, or whether he would stick to Cantors hard line against any form of newtaxes.

When the response came back to Nabors, Boehners aides had, as expected, struck the $1.5


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trillion from the offer. But in its place they had inserted a strange formulation: they were

proposing to reduce federal revenue, compared to current law, by $2.8 trillion. On the

surface, this sounded like a flagrant rejection of what the White House was proposing

Youre asking for more in taxes, were giving you less but in fact Boehner was speaking

in complex code.

Boehners Cryptic Message

There are two base lines or sets of assumptions that policy makers generally use

when they try to make projections about future revenue, and in order to understand some

of the most critical moments in the negotiations, its necessary to understand the arcane

difference between them. One is current law, which refers to whats supposed to happen

in the years ahead, assuming that certain temporary tax cuts or increases really do expireas planned. The other is current policy, which refers to what the numbers would look like

if you took the rules as they are today and froze them in place. The most important

difference between these two projections has to do with the Bush tax cuts, which Obama

and Congressional Republicans agreed to extend, temporarily, at the end of 2010. Under

current law, those tax cuts would expire at the end of this year, leading to a projected

total revenue of more than $39 trillion over the next decade. But few people in Washington

actually expected Congress to let most if any of the Bush tax cuts lapse anytime soon,

and through the more realistic lens of current policy, under which all the tax cuts wouldremain in place, that same 10-year number became something like $35.5 trillion, or $3.5

trillion less.

In his offer, Boehner had used the higher, less relevant current law base line. Then hed

proposed lowering revenue by $2.8 trillion, which reduced the 10-year number to just

under $36.3 trillion. What mattered from the White House perspective was that this

number was about $800 billion more in revenue than either party was actually expecting

to generate under current policy.

This was an exceedingly convoluted way of coming at the tax question, and even Nabors,

who is one of a small number of genuine budget experts in Washington, wasnt sure, as he

stared at Boehners language, whether it meant what he thought it meant. Sitting in his

spacious West Wing office, Nabors might as well have been one of John F. Kennedys

advisers in 1962, reading and rereading the cable from Khrushchev, trying to divine the

carefully worded message within. He showed it to Lew, and they quickly reached the same

conclusion: Boehner was saying that he was willing to accept $800 billion more in taxrevenue. Or, to put it another way, Boehner was proposing to increase the governments

haul by the same amount you would get if you reversed Bushs tax cuts for the most affluent

Americans, but he was proposing to do it by lowering rates and eliminating loopholes and


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subsidies instead a revenue increase by other means. There was no other way to read

this except to conclude that the speaker was now backing off his partys hard line against

additional revenue.

Excited White House aides suddenly felt that a deal might really be possible. But even with

more revenue now on the table, Boehner and Obama continued to go back and forth over

the Rubiks Cube-like structure of a comprehensive deal whether entitlement cuts wouldhave to come before tax reform, whether most of the cuts would accrue in the first decade

or the second and so on. Meanwhile, political pressure was building from inside Boehners

leadership circle. Cantor, who had heard about the Obama-Boehner talks only when Biden

happened to mention it, was nonplused at having been excluded and appalled that Boehner

was offering more revenue. He and others pressed the speaker to drop the idea of a

comprehensive deal, and on July 9, Boehner did just that, calling Obama at Camp David to

tell him that the grand bargain was dead. He issued a statement immediately after, saying

it was time for both parties to set their sights on a less ambitious solution to the debt-

ceiling crisis, which now loomed less than a month away.

Except the speaker couldnt bring himself to settle for something less ambitious. Five days

later, on July 14, he called the president yet again.

Decoding Boehners ProposalWhy couldnt Boehner let it lie? Its a question that still puzzles a lot of his closest allies in

Washington, not to mention his fellow Republican leaders on the Hill. Obamas reasons for

chasing the grand bargain were clear enough. Not only was he bent on avoiding a

catastrophic debt default, but he needed to get out from under the debt issue, to

demonstrate that he cared about reducing deficits before public concerns about

government spending, stoked by rhetoric on the right, overwhelmed his presidency.

Boehners motives were less obvious. The speaker occupied what may have been the

toughest spot in Washington trying to control a nihilistic rebellion in his own caucus

while watching the approval ratings for Congress fall into the teens, all the while

surrounded by young, ambitious leaders who doubted his ideological resolve. The last thing

Boehner needed, you would think, was to close his eyes and take a Thelma-and-Louise-

style plunge with a president whom no one in his party could stand.

Nothing better illustrated Boehners position than his clandestine, convoluted overture to

the president on taxes. The offer for $800 billion in additional revenue as opposed to,

say, $700 billion or $900 billion was no accident. On one hand, Boehners people must

have known that Obama probably couldnt settle for anything less than that, because

Democrats in Congress would demand that any deal recoup the cost of Bushs least


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defensible tax cuts. At the same time, Boehners aides had calculated that, at $800 billion,

they could plausibly argue to their own caucus that the government could raise more

money without actually raising anyones taxes.

How could you make that case? Boehner would argue that some sizable chunk of that

money if not all of it would come to the government as a result of economic growth

spurred by new, lower tax rates, and from better compliance, since the new tax code wouldbe less confusing. Thus, by this feat of actuarial magic, Boehner contended that raising

revenue did not require raising taxes, and in fact would enable you to lower them. The

math was debatable, certainly, but it was a central tenet of any deal Boehner would

negotiate.

But then, having worked out a theoretical way to get to the $800 billion that he knew the

White House needed, Boehner wasnt comfortable even putting the figure down on a piece

of paper. The idea of any new tax revenue was so heretical to his party, and Boehner was sofearful of the reaction, that his aides felt compelled to come up with a roundabout way of

expressing the offer in terms that few people in Washington would be able to decipher, just

in case the paper should fall into the wrong that is, his own partys hands. Boehner

knew that his position might well imperil his standing as speaker, whether it led to a deal

or not, and yet he was taking it anyway.

Boehner would later tell me that he was determined to do this because he was tired, after

20 years in Washington, of seeing one Congress and one president after another ignore thecoming explosion of spending on entitlement programs and the growing public debt. He

also shared Obamas view that a grand bargain would actually be easier to pass than a

smaller deal that if lawmakers were going to have to make a bunch of politically

explosive cuts, they were more likely to go through with it if they could go tell voters that

theyd achieved something truly transformative. As Biden put it, Theres no point in dying

on a small cross.

The Trouble Getting to Yes

But politics is often as much about self-perception as it is about policy, and it wasnt hard

to discern a more personal reason for Boehners attachment to the idea of a grand bargain.

Having fashioned himself as a reformer since coming to Congress in 1991, Boehner was now

61, and with Congress flipping back and forth between the parties, it wasnt a given that he

would hold the speakership for more than a few years. What would Boehners legacy be, or

would he even have one? Some speakers, like Tip ONeill or Newt Gingrich, carve out

places in history as indispensable partners in creating momentous legislation. Others, like

Denny Hastert, are destined to be lost to the ages. Those who know Boehner say that what


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he saw in the grand bargain was a chance to be remembered as a statesman who helped set

the country on a different course, rather than as a party functionary who shakily presided

over a fractious caucus.

Obama and Boehner had spent little time together before the talks began, and they had

only a vague sense of each other. Aides on both sides described a kind of forced familiarity

between the two men, who would begin meetings with the shallowest of chatter Playany golf this weekend, John? before moving quickly into the substance of budget

politics. White House aides thought Boehner looked as if there were someplace hed rather

be, while Boehners aides were put off by what they saw as Obamas lecturing style. Still,

the two men Midwesterners, former state legislators, introverts by nature and smokers

by habit seemed to think they could trust each other.

In fact, when Boehner called back on that Thursday afternoon, the 14th, in hopes of

restarting the negotiations, it wasnt Obama but rather one of his chief aides who Boehnerhad decided was the problem. For weeks leading up to the breakdown in talks, Boehner and

his top lieutenants Barry Jackson, his chief of staff, and Brett Loper, his policy aide

had been talking principally to Jack Lew and Rob Nabors at the White House. But they had

become exasperated with Lew, who, in their view, talked a lot but offered few concessions.

Lew, whose detailed knowledge of the budget outpaced anyone elses in the room, always

seemed to have a better idea than whatever Boehner was proposing, and these ideas

seemed to Boehner like more complicated ways of describing positions they had already

rejected. The problem with Lew, Boehner bluntly told the president when he called, is thathe just didnt know how to get to yes.

Boehner thought he had a better shot with Bill Daley, the presidents chief of staff, and

Timothy Geithner, the Treasury secretary. Daley had made a point of reaching out to

Boehner since joining the administration, and he was known to be a pragmatist and a

dealmaker. Geithner, clearly rattled by the possibility that Treasury might default on its

debt, had been issuing almost daily warnings to Congressional leaders about the mounting

fear in the markets. Send me Daley and Geithner, Boehner told the president, and lets seewhat we can do.

The next afternoon, a Friday, Daley and Geithner went to the Capitol to meet with Boehner

and Cantor. In addition to requesting a change in negotiators, Boehners team had come up

with a new, simpler way to structure the deal that they hoped would eliminate some of the

persistent conflicts over timing in the earlier talks. Before, Boehner had wanted to legislate

cuts in annual spending and entitlements up front, while leaving tax reform for

Congressional committees to work out over a period of months a formulation thatworried Obama and his allies. But now the speakers team suggested that the two sides

come up with a framework of broad principles and specific target numbers on both the cuts

and revenue, and then let Congress work out all the details at the same time. Using that


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template, the two sides quickly found a large swath of common ground. Two days later, on

Sunday afternoon, Boehner and Cantor went to the White House to continue the

conversation, and Obama joined the group after he returned from church.

No one was under the illusion that a final agreement had been nailed down and was ready

for signatures, but when Obama and Boehner shook hands that afternoon, there was a

general feeling that they would work through the remaining details relatively easily. Beforethe meeting at last broke up, Obama mentioned to the others that they would have to

carefully think about how to roll out the deal, to make sure that both sides were saying the

same thing publicly. That night, Jackson and Loper sent over a three-page proposal based

on the discussions; in exchange for agreeing to the $800 billion in additional revenue, they

asked for more than $450 billion in combined cuts to Medicare and Medicaid over the next

decade alone, as well as a series of changes to Social Security, including a new formula for

calculating benefits and a higher retirement age.

There was no question that the framework negotiated by Obama, Daley and Geithner

and laid out in the Republicans offer sheet unsettled the stomachs of some White House

aides. No one liked the idea of acceding to Medicare cuts, and most didnt think Social

Security should be part of the deal at all. (Democratic orthodoxy holds that Social Security

has nothing to do with the federal debt, since it generates its own revenue from the payroll

tax.) But Obamas senior aides, including the political adviser David Plouffe, had come to

believe that a grand bargain, however imperfect, was preferable to a smaller deal and far

preferable to a debt default. The debate now was about what it would take to get the votes.Nabors and his legislative team had real doubts that Democrats in Congress would go for

anything close to what Boehner was asking for, and they were just as skeptical that Boehner

could get his own caucus behind it. As Jackson and Loper waited anxiously at the Capitol

for a counteroffer, the internal White House discussions dragged on into Monday night.

Enter the Gang of SixFor more than six months, ever since Alan Simpson and Erskine Bowles, the chairmen of

Obamas fiscal commission, offered their stark recommendations for remaking the budget

at the end of 2010, a group of senators Mark Warner, Richard Durbin and Kent Conrad

on the Democratic side, along with the Republicans Saxby Chambliss, Tom Coburn and

Mike Crapo had been trying to build some consensus around a plan. Over dozens of

dinners and negotiating sessions, some of which were held at Warners stately home in

Alexandria, Va., the so-called Gang of Six labored over a compromise they could sell totheir colleagues, while leaders of both parties eyed them warily.

But a deal remained maddeningly out of reach, mainly because it was proving impossible to


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bridge the distance between the two members of the gang who were furthest apart on the

ideological spectrum. Durbin, a member of the Democratic leadership and a close friend of

the presidents and the only avowed liberal in the group was determined to protect tax

credits for the poor and the working class. Coburn, a rigid fiscal conservative from

Oklahoma, wanted $130 billion more in cuts to entitlements than the rest of the group. In

May, Coburn excused himself from the deliberations in order to come up with his own

deficit-slashing plan.

By mid-July, just as Boehner was preparing to invite Daley and Geithner up to the Hill, the

groups informal chairmen, Warner and Chambliss, decided they couldnt wait any longer

to share the gangs uncompleted work with the rest of the Senate. They scheduled a briefing

for senators only no staff on Tuesday morning in the Capitol.

The White House knew about the briefing (Durbin had kept the West Wing informed), but

it didnt seem especially consequential to aides who were now thoroughly immersed intheir own secret negotiations. After all, the gang had made noise about being close to a deal

many times before, and nothing had ever come of it. Even now, its members admitted to

having only the broadest outline of a plan, and the briefing was slated for 8:30, when most

senators are still groping for coffee or pounding the treadmill. Even Warner thought it was

bound to be more of a sideshow than a main event.

And so no one was more surprised than the gang members themselves when almost half

the Senate, roughly divided between the parties, trickled in as Warner and Chamblissoutlined the new revenue and spending cuts in their emerging plan to cut $4.6 trillion from

the budget. The first one to rise, after the presentation was finished, was Coburn. The

unpredictable sixth man gave an impassioned endorsement of the plan, telling his

colleagues it wasnt perfect, but it was the best they were going to accomplish. Then Durbin

stood up and echoed the sentiment. One by one, senators from both parties added their

support.

Its not hard now to understand what happened in the room. As House Republicans and theadministration debated the debt, most of the Senate felt sidelined and powerless. What the

Gang of Six was offering was the promise of action, a way for the Senate to re-emerge as a

serious player in a national drama.

A Costly Miscalculation

Word quickly traveled down Pennsylvania Avenue to the White House, where Nabors, who

was still honing a response to Boehners offer from Sunday night, called Barry Jackson in

the speakers office and asked what was going on. Jackson wasnt sure. Within a few hours,

though, the White House had the sense that something important had shifted. More than


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20 Republican senators, by some counts, had stood up in favor of a plan that would raise

more revenue, and Obama thought he now had an opportunity to exert more pressure on

House Republicans by highlighting the widening split inside their own party. Shortly after

noon, Obama took the unusual step of marching out to the briefing room to declare his

support for the Gang of Six, instantly elevating what was supposed to have been an

informal, sparsely attended briefing into the days national news. It was, in retrospect, a

costly miscalculation.

Even before the president had stopped speaking, it was beginning to dawn on White House

aides that what had looked like an opportunity was actually a serious problem. Like

Boehner, Obama was risking an insurrection in his own party once the details of their plan

became public. For a lot of Democratic lawmakers, even conceding the central Republican

point about the debt that it was the hallmark of unsustainable government spending

was a kind of apostasy. The way they saw it, Republicans had created the deficit problem

with ill-advised tax cuts and disastrous wars, and now they were using it as a pretense to

roll back social programs for the poor and middle class. And as for Medicare, leading

Democrats on the Hill hoped to make it a pivotal issue in House and Senate races in 2012,

now that Paul Ryan, the Republican chairman of the House budget committee, had

proposed replacing the program with a voucher system. (A sign in the window at the

Democratic headquarters in Washington read: Vote Republican, End Medicare.) Why,

they wondered, would the president want to forfeit that advantage by agreeing now to cut

those programs himself?

If it was never going to be easy for the White House to sell the grand bargain to Democrats

on the Hill, then the plan put forward by the Gang of Six was likely to make it impossible.

On the surface, the gang had proposed an overall revenue increase of $1.2 trillion, a third

more than the $800 billion Obama and Boehner were talking about. Democrats were

bound to ask why the president had settled for less in taxes than the Gang of Six did.

But once Obamas aides looked more closely at the numbers, they understood that the

political problem posed by the gangs plan was actually far worse. This is where the wholedistinction between base lines current law and current policy comes in again. The

gang had settled on a base line that was somewhere between current law and current

policy; it had assumed the Bush tax cuts for the most affluent were expiring, while the

other, less costly tax cuts would persist. The White House, meanwhile, had been calculating

their figures based on current policy, under which all the tax cuts would remain in place.

This meant that when you actually compared the two plans in an apples-to-apples way, the

Gang of Six was proposing to raise revenue by about $2 trillion $1.2 trillion more than

the president and the speaker had tentatively agreed to.

How could Obama possibly ask Democratic leaders to pass a deal with $800 billion in new

revenue, when a bunch of Republican senators not to mention the president himself, on


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national TV had just stood up to applaud a plan with $2 trillion attached? Never mind

that the Gang of Six plan was little more than a memo, with no chance of becoming an

actual bill let alone passing the House or Senate. Liberals would laugh the president out

of the room. The numbers would confirm the suspicion, already voiced by some lawmakers

privately, that Obama wanted a bipartisan victory too badly and would accept a deal on any

terms, even if it sold out his partys principles.

Early Tuesday afternoon, Nabors called Jackson, this time sounding grim. They were going

to have a problem on the balance between revenue and spending, he said. Daley delivered a

similar message to Jackson. What do we do now? he wanted to know. The president just

wouldnt be able to sell that deal to enough of his own senators and congressmen to get it

across the finish line.

As White House aides would later present it, Boehners guys took this news with

equanimity, indicating they were skeptical but willing to talk. The speakers aides,however, say they were reeling. A deal is a deal, a mystified Jackson told Daley. He and

Loper hoped the alarm in the White House might be a temporary overreaction and that

Obama might relent once he and Boehner had a chance to talk. They were still trying to

process what had happened when, later that night, an e-mail from Rob Nabors popped into

Jacksons in-box. The presidents counteroffer had finally arrived.

The Grand Bargain Within Reach

For all the talk since last July about who blew up the deal, it has been difficult to get a clear

sense of what specifically the agreement was supposed to include. And so the three-page

counteroffer that Rob Nabors sent to Barry Jackson and Brett Loper that Tuesday night,

which turned out to be the last set of numbers exchanged between the two sides, represents

the most detailed picture yet of what a grand bargain might have looked like. Its a

remarkable snapshot of the moment, not for the points of contention it exposes, but rather

because it illustrates how much agreement Obama and Boehner had actually managed to

find.

They had agreed to reduce discretionary spending meaning both the defense budget and

money used to finance the rest of the government by about $1.2 trillion over 10 years; it

would be up to Congress to figure out how. They also agreed to a list of programs from

which they could cut at least $200 billion more in the coming decade. These included an

estimated $44 billion from pensions for civilian and military employees of the government;

$30 billion from Fannie Mae and Freddie Mac; $33 billion from farm subsidies and

conservation programs; and $16 billion from reforming the Postal Service.

On entitlements too they had moved closer to a final deal. The White House agreed to cut


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at least $250 billion from Medicare in the next 10 years and another $800 billion in the

decade after that, in part by raising the eligibility age. The administration had endorsed

another $110 billion or so in cuts to Medicaid and other health care programs, with $250

billion more in the second decade. And in a move certain to provoke rebellion in the

Democratic ranks, Obama was willing to apply a new, less generous formula for calculating

Social Security benefits, which would start in 2015. (The White House had rejected

Boehners bid to raise the retirement age.) This wasnt quite enough for Boehner, nor was it

as extensive as what the Gang of Six had proposed. But the speakers team didnt consider

the differences to be insurmountable, assuming the two sides could also settle on a revenue

number.

The section on revenue, though, was one of two significant disagreements that were less

easily brushed aside. Boehners offer two days earlier, on Sunday, included several points

to which he believed Daley and Geithner had essentially agreed. But in his counteroffer,

written hours after the Gang of Six briefing, Obama had made some extensive changes to

this section. To the $800 billion figure, he said he now wanted to add an amount equal to

the cuts in Medicare and Medicaid an additional $360 billion, at least for a total of

$1.16 trillion in total revenue. Aside from increasing the sheer amount, what Obama was

doing, for the first time in the negotiation, was explicitly linking the amount of new

revenue to the cuts Boehner wanted in entitlement programs. In other words, Obamas new

formula meant that for every additional dollar in savings Boehner wanted to negotiate

from Medicare or Medicaid, he was going to have to add a dollar of revenue.

This in itself was certainly enough to throw the deal into jeopardy. But the White House

made still other changes that were problematic. Most notably, Boehners team had insisted

that when lawmakers sat down to design a new tax code, the $800 billion in additional

revenue had to be a ceiling rather than a floor in other words, the final number

generated through tax reform couldnt be more than $800 billion, but it could be less.

Thats because, as part of revising the code, Boehner intended to ask Congress for

something called a macro estimate of the grand bargains impact basically, a best guess

as to the future revenues that would accrue once the lower rates kicked in and the economy

started humming along. Democrats normally despise such projections, because they are

used to support the conservative theory ofsupply-side economics. But the macro estimate

was essential to Boehner; he needed it to make the argument that a decent chunk of the

additional revenue could come through growth and stepped-up compliance, and thus

Congress wouldnt need to actually raise anybodys rates to get it done. Boehner left that

Sunday meeting convinced that Geithner, in particular, understood and accepted this

condition.

But in his counteroffer, Obama had reversed the formulation so that the tax revenue figure

now at $1.16 trillion would be the minimum that rewriting the code could achieve (a


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floor), rather than a maximum (a ceiling). With a slight turn of phrase, he rejected

Boehners entire premise that growth could be counted on to deliver some of the revenue.

Boehner could seek all the macro estimates he wanted if it made him feel better, but he

wouldnt be able to use those estimates to lower the amount of new tax revenue that

Congress would need to collect.

White House aides would later insist that, despite their rough agreement on a frameworkthe previous Sunday, the discussion about tax reform had always been fluid and unsettled,

an ongoing negotiation in which both sides were still feeling out each others limits. The

Gang of Six briefing had no doubt complicated this negotiation, they agreed, but it wasnt

as if they had signed on to something and then taken it back. If this is true, though, then its

true only in the technical sense. If you shake hands with a guy on the price of a car, and you

agree to talk again after the car has been inspected and the loan has been approved, you

dont really expect to show up and find out that car now costs $5,000 more. This is

essentially what happened to Boehner. What both Tuesdays panicky calls from the White

House and the subsequent counteroffer make clear is that Obama knew he was changing

the terms and felt he had no choice.

The other remaining area of contention had to do with the problem of enforcement

provisions, or triggers, in the deal. Because tax reform would take some time for

Congress to puzzle out, while the spending cuts were relatively straightforward, the White

House had been concerned from the start about being double-crossed. How could

Democrats be assured that the Republican-controlled House wouldnt simply announce adeal, enact only the spending cuts they wanted and then sabotage the revenue piece? The

answer, Obamas team decided, were a couple of triggers something both sides really

hated that would automatically kick in if they didnt come up with a version of tax

reform that each party could stomach.

Specifically, Obama had two triggers in mind. The first, for Democrats, would have

rescinded the Bush tax cuts for the highest earners. Boehner rejected this idea. He pointed

out that Democrats themselves would have little incentive to pass tax reform if, by notpassing it, they could achieve one of their most cherished policy objectives the

elimination of the Bush tax cuts.

The second trigger, to appease Republicans, would include an automatic $425 billion in

cuts to Medicare and Medicaid over 10 years. But Boehner repeatedly said that he wanted

his own political trophy as a trigger, something that had the same resonance for the right

as the Bush tax cuts had for the left namely the elimination of the individual mandate,

the central plank in Obamas health-care law that required every American to be insured.Striking down the provision was a top priority for the Tea Partiers in Congress, who saw it

as evidence of Obamas tyrannical tendencies. Obama wouldnt entertain the possibility.

The argument had been going on since the first round of negotiations between the two men


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and their staffs, but now that a deal seemed imminent, the question of how to enforce it

had taken on a new urgency. At its core, the trigger debate was a matter of trust; each man

had to be assured that the other wasnt going to let his party renege on the tax-reform

agreement when the inevitable arguments arose. And because they hadnt worked together

much and barely knew each other on a personal level, the only way for Obama and Boehner

to feel reassured was if the political cost of pulling out was intolerably high to both of

them.

Obama and Boehner argued heatedly but respectfully over both sticking points the

revenue number and the triggers during a two-hour meeting in the Oval Office on

Wednesday, July 20. By the next morning, both men were facing rebellions on the Hill. The

Timess Carl Hulse and Jackie Calmes had written a front-page article disclosing the

existence of the new round of talks and asserting that a deal was very near. Arriving for the

weekly lunch of the Democratic Senate caucus, Jack Lew found himself berated by senators

who were angered by the talk of entitlement cuts in exchange for the relatively paltry $800

billion in tax money, and livid at having heard about it from The Times. Senator Harry

Reid, the majority leader, had been fully briefed (along with the House leader, Nancy

Pelosi) only the night before. He remained stonily and pointedly silent in the meeting,

while Lew absorbed one verbal blow after another.

At that very moment, Boehner was dialing Rush Limbaughs radio show, unbidden, in an

effort to quell the eruption on the right. It wasnt only the additional revenue that

conservatives hated. Having campaigned in 2010 against Obamas health-care plan, whichincluded future Medicare cuts, conservatives in Congress were no more eager than

Democrats to give the issue away in advance of 2012. (Their resistance to this part of the

grand bargain highlighted what is perhaps the central paradox of budget politics on the

right: Republicans have defined themselves almost entirely by their determination to

reduce debt, but virtually every means of actually getting there taxes, defense cuts,

restructuring entitlements strikes them as politically unpalatable.) There is absolutely

no deal, Boehner assured Limbaugh on air.

And yet, even then, as powerful contingents in both parties rose up to oppose a deal that

was already tenuous, negotiations were proceeding amiably and apace. At the White House

that Thursday morning, July 21, Jackson, Loper, Nabors, Sperling and Lew, among other

aides, agreed to set aside the revenue question and focus on hammering out some of the

smaller discrepancies in the two offers. By now, a level of trust had grown among them; the

mere fact that they had exchanged so much paper, and that none of it had been leaked to

reporters or bloggers, seemed to cement their working relationship. To hear aides on both

sides tell it, anyone who wandered into Naborss West Wing office would have thought they

were moving, inexorably and constructively, toward a final agreement.

In fact, Obama felt confident enough to tell Reid and Pelosi, during a meeting in the Oval


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Office that Thursday evening, that a grand bargain was imminent. The president told his

Congressional leaders that he had given Boehner a choice: either the two sides could go for

the bigger bargain that Obama wanted, with the nearly $1.2 trillion in revenue and the

spending cuts they were already close to nailing down, or they could do a smaller version,

with the original $800 billion in revenue but a smaller slate of cuts. Obama told Reid and

Pelosi that he understood that this would seem like a choice between a bad deal and a

worse deal, but he wanted a commitment from them that they would get behind the

agreement. Neither of the Congressional leaders was wild about the prospect, but they

quietly pledged theyd have the presidents back.

Cantor and the Counteroffer

Like much of Washington, White House aides were perplexed by the relationship betweenBoehner and the man who was 14 years younger and next in line for his job, Eric Cantor.

During one of a series of tense White House meetings with Congressional leaders in July,

Obamas aides had been stunned even a little embarrassed to see Cantor, when asked

for his opinion, directly contradict the speaker in front of the president. He insisted that

the caucus would not accept the kind of sweeping deal that both leaders wanted. It struck

Obamas aides as breach of Washington decorum, and it appeared to betray deeper

divisions inside the Republican caucus. When Daley and Geithner were first invited by

Boehner to his Capitol office to restart the negotiations in mid-July, they were surprised tofind Cantor there too. It was one of the main reasons that the White House dared to hope a

deal might work. They assumed that Cantors presence meant that the two Republican

leaders were now speaking with the same voice.

Cantor hadnt changed his mind about the grand bargain, however. Boehner had invited

him to the meeting, just as he had invited Daley and Geithner, and there was little the

majority leader could do in that situation other than accept. And from Cantors perspective,

it was better to be inside the room than not, which is what had happened during the firstround of talks, when for 10 days he had been ignorant of the negotiations going on.

Cantors objections werent simply obstructionist. He didnt like the revenue piece partly

on principle, and partly because he thought it would reignite the grass-roots insurgency

that Washington Republicans had been desperately trying to keep under control,

endangering the re-election of some members. A fight over taxes with the partys leaders

arguing that government should get more money, rather than less might lead to outright

insurrection and a breakaway third party. Cantor also didnt trust the White House tostand by a deal, warning that they would ultimately come back with more demands.

Perhaps most important, Cantor was highly skeptical that a grand bargain with

Boehners $800 billion gambit already being called a tax increase by The Wall Street


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Journals editorial page had any chance of passing the House.

This last point hinted at what was perceived inside the caucus as Boehners primary

vulnerability. Boehner had traveled an idiosyncratic path to the speakership, having never

served as a House whip, the pivotal job of corralling and counting votes. He wasnt much of

a closer, either; the more aggressive tactics that getting to yes sometimes required didnt

come naturally to him. Boehner seemed to believe that his prestige as speaker would carrythe day on key votes, but already that assumption had gotten him into trouble a few times,

and other members of his leadership team had little faith in his predictions. Before the

Gang of Six fiasco, Boehner estimated that he could round up something like 150 votes (out

of 240 Republican members) for the grand bargain. Cantor and many other senior

Republicans thought the number could be less than half of that.

By Thursday afternoon, when Cantor entered Boehners office to consult on their next

move, the speaker was in something of a box. The White House position was leavingBoehner little room to maneuver within his own caucus, and yet he was loath to see the

deal unravel after getting so close, and with so little time left before the debt-limit standoff

became a full-blown national crisis.

The speakers story about this moment in the negotiations has always been remarkably

consistent, and he and his aides have repeated it frequently in recent weeks, including to

me. The additional revenue that Obama demanded was a nonstarter, he says. He did a

gut check and decided that he could no longer trust the president, who obviously didnthave the courage to stand behind the deal they had made. And so Boehner had no choice

but to walk away from the negotiations. He and Cantor, of like mind, reached this

conclusion together.

Its a clean story of a man standing by his conservative principles. And yet the additional

revenue wasnt, strictly speaking, a nonstarter. After all, Boehner wanted a deal badly

enough to stay at the table for 48 hours after Obama moved the goal posts, which casts

doubt on his claim that this breach of trust was an obvious dealbreaker. And at some pointthat Thursday, Boehner and his most senior aides at least entertained what would have

been an astounding counteroffer to the president.

As part of a broader proposal, which has remained until now a closely held secret, Boehner

was apparently open to meeting the president at the new, higher revenue target a

concession that most likely would have meant abandoning the idea that no taxes would

have to be raised. Had that counteroffer ever made it to Obamas desk, its not hard to

imagine that the grand bargain would have gotten done within 24 hours, at great politicalrisk to both men. Whether it could have passed the House whether, in fact, any deal

would ever have reached the presidents desk is a question that will never be answered.


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What happened, instead, based on extensive reporting, was this: Boehner raised the

possibility of his counteroffer with Cantor on that Thursday afternoon, and Cantor

dismissed the suggestion out of hand. He had always warned that the White House couldnt

be trusted and would come back for more, and Obamas reversal on the revenue number

had vindicated that view. Cantor made it clear he wasnt going to support any more

counteroffers. He was pretty sure the caucus wouldnt either. No longer was Cantor content

to be the skeptic in the room. He was now certain that the grand bargain was a practical

impossibility.

Boehner talked to Obama a short while later. The president laid out the options as he

would later relay them to Reid and Pelosi: more revenue and a bigger package, or the $800

billion and a smaller one. Boehner heard him out, but by then he must have known, from

his discussions with Cantor and others, that neither option was going anywhere in his own

caucus. It was one thing to risk your speakership on a grand bargain, which Boehner had

without question been willing and even eager to do. It was another thing to throw that

speakership away with little chance of success, which is what Obama was now asking of

him.

The final act of the saga played out like the awkward undoing of a brief teenage romance,

minus the texting and Facebook un-friending. At about 10 p.m. that Thursday, Obama

placed a call to Boehners cellphone to check in; when Boehner didnt pick up, the president

left a voice-mail message. Late the next morning, Obama casually asked Daley if hed heard

from Boehner; Daley told him there was no word, and he added that he couldnt reach anyof the speakers aides either. And so the president waited anxiously, wondering why the

speaker wasnt returning his call. As the hours passed, the mood in the West Wing turned

from puzzlement to concern to anger. By the middle of the afternoon, rumors began to

reach the White House from the Hill. Boehner had scheduled a briefing for reporters. He

was telling people the deal was dead, and he was meeting with Reid and Mitch McConnell,

the Republican leader in the Senate, to see if there was some other way to raise the debt

limit.

When Boehner finally called back late that Friday afternoon, it was a perfunctory call

between wounded suitors. Each man hung up and immediately went out to tell his side of

the story, offering the versions Obama moved the goal posts, Boehner couldnt deliver

that would soon become fixtures of Washingtons double-sided reality. Both were

essentially true, and yet incomplete.

Why didnt Boehner call back earlier on Friday? Any kid who has ever traded a Pokmon

card knows that you dont walk away from a negotiation without at least leaving your bestoffer on the table. Boehner would say that he had run out of time and was certain Obama

wouldnt budge. But theres a more persuasive theory, which is that Boehner didnt want to

talk with Obama because he feared exactly the opposite that Obama would respond by


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offering him the original terms from the previous Sunday, and that Boehner would then

find himself trapped. He had to now know that, despite his sense of himself as a persuasive

statesman who could get his caucus to follow his lead, he couldnt get any deal past even his

own leadership. It was safer for Boehner to walk away and accuse Obama of having

sabotaged the deal than to risk that Obama would retreat to the earlier terms on which

they had agreed, forcing the speaker to backtrack himself.

In the end, thats essentially what happened, anyway. The following day, Congressional

leaders informed Obama that they were ready to offer a deal on their own. It would force

another vote on the debt ceiling in 2012, and it would create a supercommittee of six

lawmakers charged with finding massive spending reductions; if the committee failed, a

slate of painful cuts would go into effect at the end of 2012. (Ultimately, the debt ceiling

vote was pushed back to 2013, but the rest of the bill passed.) Obama hated it and made his

anger known to the lawmakers who laid it out for him in the Oval Office. After that

meeting, he called Boehner yet again, asking if they could just go back to the previous

Sundays handshake agreement. Boehner told him it was time to move on.

Boehner Betrayed?

From Boehners perspective, its not hard to see why he came away feeling Obama betrayed

him. He had to have known that this was going to set my hair on fire, Boehner told me

when we sat together in his office on the first day of March. He was seated in a leather chair

by a marble fireplace, his cigarette smoldering in an ashtray at his side. Three aides sat

nearby.

You have to understand, he went on, there were hours and hours of conversation, and he

would tell me more about my political situation than I ever would think about it, all right?

So when you come in and all of a sudden you want $400 billion more he had to have

known! Boehner shook his head, as if he was still puzzled by it all.

Well, he didknow, the speaker finally decided. He had to have known that he was

driving this thing off a cliff.

And yet, in the end, while both leaders had profound reservations about a grand bargain

that would threaten their parties priorities, whats undeniable, despite all the furious

efforts to peddle a different story, is that Obama managed to persuade his closest allies to

sign off on what he wanted them to do, and Boehner didnt, or couldnt. While Democratic

leaders were willing to swallow either a deal with more revenue or a deal with less,

Boehners theoretical counteroffer, which probably reflected what he would have done if

empowered to act alone, never even got a hearing from his leadership team.


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Shortly before this article was published, Boehner issued a statement to me saying there

was zero chance of them actually making a counteroffer late that week. But when I asked

Boehner on the first day of March whether he had floated his counteroffer past Republican

leaders other than Cantor, his reply was more ambiguous.

I dont know that it ever got that far, Boehner said after a pause. Eric and I were

comfortable with where we were. Did we think we were out on a limb? Yes. Did we thinkthe president, if we came to an agreement, was going to be out on a limb? Yes. But I dont

think us sitting in this room with the rest of the leaders, discussing exactly where we were .

. . Im not going to say it didnt happen. But the reason I feel that way is because I had a

pretty good feel for what I thought the reaction was. Later, he told me flatly, I look at

what happened last summer as the biggest disappointment Ive had as speaker.

Now, with another debt battle looming, the chance of resurrecting some kind of grand

bargain doesnt seem very promising. Obama and Boehner have spoken only a handful oftimes. The administrations most driven dealmaker, Bill Daley, never recovered from the

episode, which poisoned his relationship with Harry Reid, who blamed Daley for having

kept him and other Senate leaders in the dark as the negotiations unfolded. Daley resigned

in January and was replaced by Jack Lew the guy whom Boehner and his aides tried to

sideline.

When I talked to Boehner about the two potential crises coming at years end (the

possibility of automatic budget cuts and, weeks later, another vote on the debt ceiling), hetold me he was placing his hopes on getting a new president. I dont see any real evidence

that this president has the courage to lead, he growled. He added that any comprehensive

deal might be even harder to sell to his members this time around.

And yet the failed attempt at a grand bargain wasnt necessarily an unmitigated disaster.

The ugly, months-long process of trying to avoid a meltdown over the debt ceiling may

have further embittered a lot of ordinary Americans, but it also forced policy makers on

both sides to wrestle with their own capacity for compromise. For weeks, in both theWhite House and in the speakers office, the most influential aides in the country burrowed

into spreadsheets and considered, in unusually specific terms, what kinds of budget cuts

and revenue numbers they could live with.

They didnt get the sprawling deal they were after, but they did produce a serious blueprint

for bipartisan reform, a series of confidential memos that left them just a few hundred

billion dollars apart. That may sound like real money, and it is, but when you consider that

the government can get some $25 billion back just by selling its broadcast spectrum, youbegin to understand how bridgeable that difference is. Whats clear now is that the only

thing holding Washington back from a meaningful step toward reducing debt and

modernizing government isnt any single policy dilemma, but rather the political dynamic


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that makes compromise such a mortal risk.

That dynamic could change after November. And however counterintuitive this may seem,

it may be more apt to change if the cast of characters remains the same. Assume for the

moment that Mitt Romney is elected president and is forced to confront, even before

staffing his administration or taking the oath of office, an imminent budget crisis. Romney

would have been elected despite the deep ambivalence of his own partys conservative base,whose support he would need in order to govern, and who would be watching his every

blink for proof of ideological fealty. Does anyone really think he could risk infuriating that

base, in his first move as president-elect, by hammering out a compromise that increases

tax revenue and cuts Medicare?

Should Obama win re-election, on the other hand, he would face the impending crisis

knowing that he had just run the final campaign of his life and that he had 18 months, at

best, to solidify his legacy. Boehner might well find himself, two years removed from theTea Partyelections of 2010, with fewer extremists in his own caucus. And for all their

residual bitterness and mistrust, they would both know that they still had a draft

agreement that left them about 80 percent of the way there.

Near the end of our interview, I asked Boehner what he thought would happen when the

two sides clashed again in several months. He took a drag on his cigarette.

Were heading toward a very big moment, where big decisions are going to have to be

made about the future of our country, he said blandly. Then he surprised me by rising

quickly to his feet and clapping his hands. All right! he said, reaching for my hand. He was

through talking, at least for now.

Matt Baiis the magazines chief political correspondent. He last wrote about theformer weapons

inspector Scott Ritter.

Editor:Joel Lovell

obama vs. boehner - who killed the debt deal_ - nytimes2

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