How Obama Hit Bottom in 2011

By
Photo: Mary-Louise Price; Photos: 20th Century Fox (Speed still), Brendan Smialowski/Getty Images (Boehner), JEWEL SAMAD/AFP/Getty Images (Obama)

A week ago, the Washington Post published a lengthy, reported narrative of the failed negotiations over the budget deficit from last summer. That story was a prelude — anticipating  Matt Bai’s report on the same subject in The New York Times Magazine, John Boehner’s office rushed to push its version of the story out first in the Post. The Post story was indeed friendly to Boehner, though the facts in the story failed to support its own conclusion. Now Bai’s story is out.

The story, which has far more detailed reporting, is that Obama and Boehner both wanted to strike a big deal to reduce the deficit, but Obama was willing and able to deliver his party to support it in Congress, and Boehner was not. The deal was fundamentally killed by Republican opposition to higher revenue. Eric Cantor maintained all along that higher revenue was totally unacceptable and would spark a right-wing revolt against the party.

Boehner eventually concluded this as well, but he attempted to finesse the issue. This is the portion of the story that, again, confirms how poorly the administration negotiated. The story doesn’t explicitly spell out the administration’s horrendous bargaining, because Bai adopts the Washington bipartisan deficit-scold view that any deficit deal is good and any failure is per se a tragedy. But if you read between the lines of his story, you can see how badly the administration had handled the deal.

The problem begins with the setup. Obama’s initial offer asked for $1.5 trillion in higher revenue over a decade. The story presents this as a hopelessly ambitious request. (“The White House negotiators knew this had about as much chance of happening as a meteorite falling on the Capitol.”) But of course this was actually quite modest — a smaller amount of revenue than the bipartisan deals crafted by the Bowles-Simpson commission, the Bipartisan Policy Center, and, later, the Gang of Six, a bipartisan group of senators. A world in which this was an agenda-setting opening offer was a world in which no decent deal was possible. Yet the administration proceeded anyway.

Another problem with the dynamics of the negotiations. Obama and Boehner were trading higher revenue for lower entitlement spending. The two sides, and Bai’s story, treat these as rough equivalents. But they weren’t. The thing Obama was demanding, higher tax levels on the rich, was extremely popular with the public.  The thing Boehner was demanding, cuts to Medicare, Medicaid and Social Security, was extremely unpopular. More important still, Obama’s demand was scheduled to happen under current law anyway. In the absence of agreement, the Bush tax cuts would expire. The Gang of Six used the expiration of the Bush tax cuts as a baseline, assuming it would happen, and negotiating for any higher revenue above that level. Obama was negotiating to get to that baseline.

And even getting to, or near, that baseline required what seems to be a series of capitulations. First, Boehner essentially fired Obama’s chief negotiator, budget director Jack Lew, from the negotiations — because he knew too much about the budget:

In fact, when Boehner called back on that Thursday afternoon, the 14th, in hopes of restarting the negotiations, it wasn’t Obama but rather one of his chief aides who Boehner had decided was the problem. For weeks leading up to the breakdown in talks, Boehner and his top lieutenants — Barry Jackson, his chief of staff, and Brett Loper, his policy aide — had been talking principally to Jack Lew and Rob Nabors at the White House. But they had become exasperated with Lew, who, in their view, talked a lot but offered few concessions. Lew, whose detailed knowledge of the budget outpaced anyone else’s in the room, always seemed to have a better idea than whatever Boehner was proposing, and these ideas seemed to Boehner like more complicated ways of describing positions they had already rejected. The problem with Lew, Boehner bluntly told the president when he called, is that he just didn’t know how to get to “yes.”

Boehner thought he had a better shot with Bill Daley, the president’s chief of staff, and Timothy Geithner, the Treasury secretary. 

Now, Geithner is a smart guy, though not a budget wonk like Lew. Daley is neither a smart guy nor a budget wonk. His expertise seems to lie in manly handshakes and comfortable small talk. It's not like Lew was some flaming left-wing ideologue. He was a Clinton veteran known as a pragmatic deal-maker. (Politico headline of Lew profile from June 2011: "Jack Lew: A Liberal GOP Says It Trusts.")

And — what do you know? — kicking Lew out led to the two sides getting closer:

But now the speaker’s team suggested that the two sides come up with a framework of broad principles and specific target numbers on both the cuts and revenue, and then let Congress work out all the details at the same time. Using that template, the two sides quickly found a large swath of common ground. 

But why, you may ask, did the deal get closer? Did Daley’s back-slapping ways persuade Boehner and Cantor to abandon their party’s theological opposition to higher tax revenue? Here the story gets a little more vague — there were details to be ironed out. The administration has fiercely insisted it would never, ever have allowed any of the paltry revenue totals it was demanding to come in the form of “dynamic scoring,” which is the shaky assumption that lower tax rates increase growth. Bai reports:

But the White House made still other changes that were problematic. Most notably, Boehner’s 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 couldn’t be more than $800 billion, but it could be less. That’s because, as part of revising the code, Boehner intended to ask Congress for something called a “macro estimate” of the grand bargain’s 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 of supply-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 wouldn’t need to actually raise anybody’s rates to get it done. Boehner left that Sunday meeting convinced that Geithner, in particular, understood and accepted this condition.

The administration is emphatic that it never agreed to, or signaled any openness at all to such an arrangement. "There is no truth to any notion that the president or his negotiating team ever agreed or even opened the door to any type of dynamic scoring at any point in the negotiations," a senior administration official tells me.

So Boehner is either lying to Bai (to cover up for his willingness to raise revenue) or else this rock-solid opposition does not seem to have been clearly understood by the Republicans.

The broader picture here is that the administration negotiated from a position of disastrous weakness. It allowed Republicans to use the threat of crushing the global economy by refusing to lift the debt ceiling as leverage to force unpopular long-term policy changes. It utterly failed to use its own leverage (the expiration of the Bush tax cuts) effectively. And its desperation to strike a long-term deal seems to have driven it to plunge ahead, treating the fundamental impediment to any deal (Republican taxophobia) as a detail that could be ironed out later.

It seems pretty clear that Obama has snapped out of whatever stupor he was in during this period. Everything he has said and done since those negotiations collapsed indicates he now has a sound grasp of the nature of the problem — that Republicans are devoted to stopping his reelection above all, and that their opposition to higher taxes on the rich is an ideological barrier he can’t negotiate his way around. The debt ceiling negotiations were a true low point.

Bai concludes that the tragedy is that the deal failed despite coming so close. The story really shows how miraculous it was that Boehner strayed so far from any deal his members would accept, and that the administration blinded itself both to the awfulness of the terms it had to offer and the impossibility that even those terms would prove acceptable.