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CONTENTS

Author’s Personal Note

Note to Readers

Cast of Characters

Prologue

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12

Chapter 13

Chapter 14

Chapter 15

Chapter 16

Chapter 17

Chapter 18

Chapter 19

Chapter 20

Chapter 21

Chapter 22

Chapter 23

Chapter 24

Chapter 25

Chapter 26

Chapter 27

Chapter 28

Chapter 29

Chapter 30

Chapter 31

Chapter 32

Chapter 33

Chapter 34

Chapter 35

Chapter 36

Chapter 37

Chapter 38

Chapter 39

Chapter 40

Acknowledgments

Photographs

About the Author

Photography Credits

Chapter Notes

Index

To Benjamin C. Bradlee

AUTHOR’S PERSONAL NOTE

I had two terrific people assist me full-time on this book: Rob Garver, a

20-year veteran reporter and editor, spent just six months on this

project, coming to work for me in February 2012. I call him the

workhorse who energized and focused me. Determined and fair-minded,

he did at least two days’ work in each single day. He never wasted a

minute as best I can tell. His mature insights, skills and willingness to

tell me “no” when it was needed kept us on track. Rob, 43, is one of the

best natural editors and reporters I have ever worked with. He graduated

from the University of Vermont and has a master’s degree from the

Georgetown Public Policy Institute. His sophisticated understanding of

business, banking and policymaking guided me at every step. He quickly

grasped the story we were trying to get and went after it. He is a delight

in every way, enduring a long commute each day to and from

Springfield, Virginia, where he lives with his two sons, Ryan and

Andrew. Several mornings each week, he arrived at work by 6:30 a.m.,

before the newspapers. Without Rob, this book never would have been

completed—not even close.

Evelyn M. Duffy, who worked with me on two previous books, The

War Within and Obama’s Wars, continued on this third book. I will say it

again, Thank God. Now 27, she is a lady of balance and levelheadedness.

She again transcribed hundreds of hours of digitally recorded interviews

with President Obama and top White House and congressional officials.

Her editing skills have grown immensely. What seems a decent draft will

come back to me covered in countless marks as she identifies

inconsistencies, factual errors and grammatical problems. She can find

any person and almost any information. Evelyn graduated from George

Washington University in 2007 with a degree in English and creative

writing. Her work and presence are marked by grace, kindness and

integrity. She is smart, practical and knows how to enjoy a good laugh.

No one I have ever worked with of any age has more common sense. I

thank her with gratitude. Without her efforts and wisdom we would

never have finished.

NOTE TO READERS

Nearly all the information in this book comes from interviews with key

White House and congressional officials. Some provided documents,

contemporaneous meeting notes, working papers, diaries, emails,

transcripts and chronologies. Democrats and Republicans cooperated in

about equal amounts.

This book examines the struggle between President Obama and the

United States Congress to manage federal spending and tax policy for

the three and one half years between 2009 and the summer of 2012.

More than half the book focuses on the intense 44-day crisis in June and

July 2011 when the United States came to the brink of a potentially

catastrophic default on its debt.

Most interviews were conducted on “background,” meaning the

information could be used in the book but none of the sources would be

identified by name. Many sources were interviewed multiple times, and

nearly all allowed me to digitally record our interviews. These recordings

produced transcripts that run to thousands of pages. In all, more than

100 people were interviewed for this project.

Three key figures spoke to me on the record. I interviewed President

Barack Obama for 1 hour and 25 minutes in the Oval Office on July 11,

2012; House Speaker John Boehner in his Capitol office on June 8, 2012,

for 1 hour and 25 minutes; and Senate Minority Leader Mitch McConnell

at his Capitol office for an hour on July 12, 2012.

As much as possible, I have tried to preserve the language of the main

participants by quoting them directly or using their words to reflect their

speech and attitudes. Verbal exchanges were checked and rechecked

with participants as much as possible. No reporting can provide the

equivalent of a perfect engineer’s drawing of events. This is the best

obtainable version, and it is impossible to do this work and not realize—

and be humbled by—what you have not discovered and do not know.

Any attribution of thoughts, conclusions or feelings to a person

comes from that person directly, from notes, or from a colleague whom

the person told.

In the course of such an in-depth immersion in the decision making

during such a crisis, the attitudes of the players become clear.

Occasionally, a person said something was “off the record,” meaning it

could not be used unless the information is obtained elsewhere. In many

cases, I was able to get the information from others so it could be put in

this book. Some people think they can lock up and prevent publication

of information by declaring it “off the record” or by saying that they

don’t want to see it in the book. But in the White House and Congress,

nearly everyone’s business and attitudes become known to others. And

in the course of extensive interviews with firsthand sources about key

decisions, the role and goals of the major players become clear.

Bob Woodward

July 14, 2012

Washington, D.C.

CAST OF CHARACTERS

THE PRESIDENT OF THE UNITED STATES

Barack H. Obama

VICE PRESIDENT OF THE UNITED STATES

Joseph R. Biden

Ron Klain, chief of staff (to January 14, 2011)

Bruce Reed, chief of staff (January 14, 2011–present)

SECRETARY OF THE TREASURY

Timothy Geithner (January 26, 2009–present)

WHITE HOUSE ECONOMIC TEAM

Director, National Economic Council

Larry Summers (January 20, 2009–December 31, 2010)

Gene Sperling (January 20, 2011–present)

Director, Office of Management and Budget

Peter Orszag (January 20, 2009–July 30, 2010)

Jack Lew (November 18, 2010–January 27, 2012)

WHITE HOUSE STAFF

Chief of staff

Rahm Emanuel (January 20, 2009–October 1, 2010)

William Daley (January 13, 2011–January 27, 2012)

Jack Lew (January 27, 2012–present)

Senior adviser to the president

David Plouffe

Director of legislative affairs

Rob Nabors

Director of communications

Dan Pfeiffer

Dan Pfeiffer

Press secretary

Jay Carney

THE SENATE

Majority Leader

Harry Reid, Democrat of Nevada

David Krone, chief of staff

Minority Leader

Mitch McConnell, Republican of Kentucky

Rohit Kumar, domestic policy director and deputy chief of staff

Senators

Max Baucus, Democrat of Montana, chairman, Finance Committee

Kent Conrad, Democrat of North Dakota, chairman, Budget Committee

Dick Durbin, Democrat of Illinois, Majority Whip

Jon Kyl, Republican of Arizona, Minority Whip

Patty Murray, Democrat of Washington State, supercommittee co–chair

THE HOUSE OF REPRESENTATIVES

Speaker of the House (to January 2011)

Nancy Pelosi, Democrat of California

Speaker of the House (January 2011–present)

John Boehner, Republican of Ohio

Barry Jackson, chief of staff

Brett Loper, policy director

Kevin Smith, communications director

Michael Steel, press secretary

Majority leader

Steny Hoyer, Democrat of Maryland (to January 2011)

Eric Cantor, Republican of Virginia (January 2011–present)

Steven Stombres, chief of staff

Neil Bradley, policy director

Brad Dayspring, communications director

Members of the House

Dave Camp, Republican of Michigan, chairman, Ways and Means

Committee (January 3, 2011–present)

Jeb Hensarling, Republican of Texas, supercommittee co–chair

Kevin McCarthy, Republican of California, Majority Whip (January

2011–present)

2011–present)

Paul Ryan, Republican of Wisconsin, chairman, House Budget

Committee (January 3, 2011–present)

Chris Van Hollen, Democrat of Maryland, ranking member, House

Budget Committee (January 3, 2011–present)

NATIONAL COMMISSION ON FISCAL RESPONSIBILITY

AND REFORM

Co–chairmen

Alan Simpson, former Republican senator from Wyoming

Erskine Bowles, Democrat, former chief of staff to President Bill Clinton

PROLOGUE

The lavish dinner at the Capital Hilton Hotel in downtown Washington

on the evening of Saturday, March 11, 2006, was about the last place you

would expect to find him. But there was Barack Obama, age 44, the

junior senator from Illinois for only the last 14 months, in formal white-

tie with tails and very much at ease in the crowd of 600. His trademark

smile, broad and infectious, dominated his face as I met him for the first

time.

We were at the annual Gridiron Club dinner—a rite of passage for

national political figures such as Obama. The crowd included President

George W. Bush and most of the major politicians in Washington. It was

one of Senator Obama’s maiden voyages into the unsavory belly of the

Washington beast. Bush was to speak for the Republicans, and Obama

had been selected to speak for the Democrats.

Founded in 1885, the Gridiron—named because its motto was to

“singe but not burn”—had the reputation of being an old-school event of

in-jokes, skits and music that seemed more fitted to a bygone era.

“You’re from Wheaton, Illinois,” Obama said to me, referring,

unprompted, to the small town where I was raised in the late 1940s and

’50s. Wheaton, 25 miles west of Chicago, is home to Wheaton College,

best known for its alumnus evangelist Billy Graham, whose influence

permeated the town.

“I’ll bet you didn’t carry Wheaton,” I said confidently, referring to his

Senate race 16 months earlier. A bastion of Midwestern conservatism

and country-club Republicans, Wheaton was the most Republican town

in the country in the 1950s, or at least regarded itself that way.

“I carried DuPage County by 60 percent!” Obama responded, beaming

that incandescent smile. Wheaton is the county seat of DuPage.

I said that seemed utterly impossible. That couldn’t be the Wheaton

or DuPage I had known.

Obama continued to smile me down. The certainty on his face was

deep, giving me pause. Suddenly, I remembered that Obama’s opponent

for the Senate seat had been Alan Keyes, the conservative black

Republican gadfly. Keyes had substituted at the last minute for the first

Republican nominee, who withdrew from the race when divorce and

child custody records revealed that he had taken his wife to sex clubs in

New York, New Orleans and Paris.

“Well, everyone who runs for office should have Alan Keyes as their

opponent,” I said, trying to hold my ground.

Obama smiled some more—almost mirthful, yet unrevealing. The

conversation turned to Illinois politics, and Obama ticked off the areas

where he had strong support—Chicago, the labor unions—and weak

support, downstate and the farm areas. He defined the categories

skillfully, expanding on the state’s interest groups and voting blocs. He

made it clear he knew where he had work to do.

He sounded like a graceful old-fashioned pol. Though he had carried

DuPage by 60 percent, he had won 70 percent of the statewide vote.

His wife, Michelle, stood by his side in a stunning gown. But the

focus and the questions from people crowded around were all directed at

the dazzling new star.

• • •

When he appeared at the podium several hours later, Obama stood

perfectly erect, projecting radiant confidence.

“This is a true story,” he said. 1 “A friend sent me a clip about a new

study by a psychologist at the University of Scotland who says sex before

a public speaking engagement actually enhances your oratorical power. I

showed this clip to Michelle, before we arrived here tonight. She looked

it over, handed it back and said, ‘Do the best you can!’ ”

The laughter ignited instantly.

“This appearance is really the capstone of an incredible 18 months,”

he said, citing the keynote speech at the Democratic National

Convention in 2004, cover of Newsweek, a best-selling autobiography,

Dreams from My Father, a Grammy award for reading the audiobook.

“Really what else is there to do? Well, I guess . . . I could pass a law or

something.”

The self-deprecation played well.

Referring to Senator John McCain’s positive treatment by the press up

to that point, Obama said, “Some of my colleagues call John a prima

donna. Me? I call him a role model. Think of it as affirmative action.

Why should the white guys be the only ones who are overhyped?”

The self-awareness played smooth.

Noting the speculation that the 2008 presidential campaign could

come down to McCain, a maverick Republican, versus Senator Hillary

Clinton, he said, “People don’t realize how much John and Hillary have

in common. They’re both very smart. Both very hardworking. And

they’re both hated by the Republicans!”

This played bipartisan.

Obama turned toward President Bush, who was on the stage nearby.

“The president was so excited about Tom Friedman’s book The World Is

Flat. As soon as he saw the title, he said, ‘You see, I was right!’ ”

The joke played confident.

“I want to thank you for all the generous advance coverage you’ve

given me in anticipation of a successful career. When I actually do

something, we’ll let you know.”

The audience clapped and hooted in delight.

After dinner the buzz was like a chain reaction. Not only could this

young Obama tell a joke on himself, with the required self-effacement,

but he had remarkable communications skills. An editor at The

Washington Post once said that journalists only write two stories: Oh, the

horror of it all, and Oh, the wonder of it all. Obama was the wonder of it

all that night and he basked in the attention he had captured. Rarely

have I seen anyone manage the moment so well. He had frankly and

forthrightly trumpeted his lack of accomplishment, and the roomful of

egos ate it up. But if he had done nothing much so far, why was he

there? Why the buzz? The approbation? What exactly was being

measured?

It was the dramatic impact he was having on his audience. The

triumph was the effect.

Twenty-five years earlier in 1981, I had attended a Gridiron dinner

where the speaker for the Democrats was Senator Daniel Patrick

Moynihan, the bookish intellectual who had served in prominent posts

in both Republican and Democratic administrations. Moynihan, then 53,

made some good jokes, but his theme was serious: what it means to be a

Democrat. The soul of the party was to fight for equality and the little

guy, he said. The party cared for the underdogs in America, the

voiceless, powerless and those who got stepped on. It was a defining

speech, and the buzz afterward was that Moynihan was going to be

president. He wasn’t, of course. That was then, this was now.

Obama had not once mentioned the party or high purpose. His

speech, instead, was about Obama, his inexperience, and, in the full

paradox of the moment, what he had not done.

Two and a half years later, he was president-elect of the United

States.

1

Two weeks before their inauguration, President-elect Barack Obama

and Vice President–elect Joe Biden headed to Capitol Hill to meet with

the Democratic and Republican leaders of the House and Senate. It was

3:15 p.m. on Monday, January 5, 2009, and Obama was fresh from a 12-

day Hawaiian vacation.

The leaders gathered in the ornate LBJ Room of the Senate decorated

with a painting celebrating the laying of the first transatlantic cable. In

it, the allegorical figures of Europe and America joined hands in

friendship across the ocean.

As if in that spirit, Obama called on the group to work together across

the partisan divide to address the looming economic crisis.

“Action on our part is urgent,” he told them. Unemployment was at

7.2 percent and rising, and the economic situation was threatening to

get worse with the financial system in full-blown crisis. He wanted the

Congress to quickly pass an economic stimulus package in the range of

“$800 billion to $1.3 trillion.”

It would include some tax cuts—sweet music to the Republicans—

and some investment, such as spending on roads, buildings and other

job-creating projects. In addition, he said, they had to “build in medium-

and long-term fiscal discipline” to tame the growing federal deficit.

Looking at the four Republican leaders—the GOP was in the minority

in both houses of Congress—Obama reached out.

“I want everyone’s ideas,” he said. “But we can’t get into political

games.”

Nancy Pelosi, the California Democrat and speaker of the House,

interjected, “I come to Washington to work in a bipartisan manner.”

Both Republicans and Democrats stifled chuckles. Pelosi, a 12-term

veteran of Congress and the first female speaker, was notably partisan in

her leadership of the 257 House Democrats. She had been born into

Democratic politics. Her father was a congressman from Maryland and

both her father and brother served as mayor of Baltimore.

“We’re in a unique situation,” said Harry Reid, the soft-spoken but

combative Senate majority leader. The son of a miner, Reid had grown

up in the tiny town of Searchlight, Nevada, without electricity or indoor

plumbing. A former amateur boxer who had faced down organized crime

bosses while chair of the Nevada Gaming Commission, Reid avoided

declarations about bipartisanship, adding simply, “I want to work.”

The Senate Republican Minority Leader Mitch McConnell spoke next.

At 66, a veteran of five terms representing Kentucky in the Senate,

McConnell was known for the ruthlessness with which he ruled the

Senate Republican minority. He cut straight to his suggestions.

I like the idea of tax cuts, he said. But we should also take a look at

the money the federal government pays to the states for programs like

Medicaid, the health insurance program for the poor. Beloved by the

Democrats, Medicaid cost the federal government more than $250

billion a year. Perhaps, he suggested, we should treat that money as

loans instead of outright grants. Having to pay the money back would

make the states more judicious in spending it, he said.

Obama seemed receptive. “If it works, we don’t care whose idea it is,”

he said evenly.

John Boehner, the leader of the House Republican minority, came

next.

Tanned from many hours on the golf course, Boehner (pronounced

BAY-ner) spoke in a casual Midwestern baritone roughened by years of

incessant cigarette smoking. At age 59, he was beginning his 10th term

as congressman from his largely suburban district in southwestern Ohio.

The second of 12 children, Boehner had grown up working in a bar

owned by his grandfather, and was the first person in his family to

attend college, working his way through Xavier University in Cincinnati

to earn a degree in business administration. The minority leader was a

conservative and ardently pro-business, but not an ideologue. A force for

moderation, who had forged agreements with Democratic icon Ted

Kennedy on education, Boehner understood that the secret to getting

anything done in Washington was the ability and willingness to cut

deals.

Boehner knew how to tend to personal relationships and, unlike many

of his colleagues, was not a workaholic. Informal and on the surface

accessible to colleagues and press, he liked to tease fellow congressmen

and staff, and enjoyed a glass or two of red wine at the Republican

Capitol Hill Club in the evening.

A stimulus package would have to go through the congressional

committees to ensure transparency, Boehner said, but he agreed they

could not tolerate unnecessary delay. “The economy is in unprecedented

turmoil.”

No one needed to spell out the political risks of passing a new

stimulus bill, but Obama said he thought there was a lesson to be

learned from TARP, the Troubled Asset Relief Program, which had

passed in the last months of the Bush presidency. TARP was

controversial and dauntingly complex, a $700 billion temporary bailout

for the banks—money that was supposed to be paid back. “If the public

doesn’t know what the money is for,” the president-elect said, citing

TARP, “it’s a big problem.”

He pledged to personally sell the stimulus package to the American

people as something that would help everyone. At the moment, Barack

Obama, president-elect, was the most famous and possibly the most

admired political figure in the world. The Republicans were a dispirited

lot. Political writers were speculating that the GOP might devolve into a

regional party representing mainly Southern whites as the Democrats

ascended to permanent majority status. Obama held all the cards. How

would he play his first hand?

“There will be times,” he said cordially, “when we will want to

bulldoze each other.”

True, all knew.

“This isn’t one of those times,” he said.

“Time frame?” asked Boehner.

“Have to get it done before Presidents Day recess,” Obama said,

referring to a four-day break in the congressional schedule that was to

begin in six weeks.

“We understand the gravity,” added Vice President–elect Biden,

suggesting that they could work seven days a week on the stimulus

package.

Senators McConnell and Dick Durbin, the Democratic whip, joked

that they would not work weekends.

What about the thousands of homeowners who owed more on their

mortgages than their homes were worth? asked Durbin.

“We will not roll out an aggressive housing plan,” Obama said, and it

would not be part of the stimulus bill. The housing problem was

massive and baffling, and none of them had solid ideas for fixing it.

Then Virginia Representative Eric Cantor spoke up. Cantor was the

minority whip, and the title suited him—thin and taut, he was quick

with stinging partisan sound bites and was a fast-rising figure in

Republican national politics. He had trained as an attorney and worked

in his family’s real estate firm in Richmond for a decade before entering

politics in the early 1990s. Now he was the House Republicans’ vote

counter and disciplinarian. He made it his business to be closely tied in

to all the GOP House members and had especially strong links to the

ultraconservative wing of the party.

“Fear is grasping the country,” Cantor said, giving voice to something

everyone in the room already knew. People were worried that they might

lose their jobs. But there was a parallel concern that affected them all,

“A fear of Washington.” It was a familiar Republican talking point.

“We need to do something bold that says we are not wasting their

money,” Cantor urged. There was little public confidence in government,

so the only solution would be “full transparency.”

After the meeting, Obama approached the Republican House leaders,

Boehner and Cantor. “I’m serious about this,” he told them. “Come with

your ideas.”

Steven Stombres, Cantor’s chief of staff, left the meeting with

conflicting emotions. A former Army Reserve intelligence officer with a

shaved head and a military bearing, Stombres was impressed. If this

really was a bipartisan “coming together” it was precisely what the

country needed at such a critical time, and as a citizen he found it

genuinely inspirational. As a Republican, though, he was worried: If

Obama followed through on this promise of political togetherness,

Republicans would be in bad shape.

“Phew,” Cantor said afterward, “we may be in this minority for a

while.”

After the meeting, Senator McConnell told reporters, “I thought the

atmosphere for bipartisan cooperation was sincere on all sides.” 2 The

Republican leader said of Obama, “I think he’s already been listening to

the suggestions we’ve made.”

Reid and Pelosi seemed almost giddy. Pelosi announced that it was “a

new day in the capital.” 3

• • •

Obama’s stimulus package, meant to jump-start the failing economy,

had been in the works for weeks. His chief economic advisers had been

working on it since the election.

Larry Summers, the incoming head of the National Economic Council,

which coordinates all administration economic policy, supported instant

additional spending of hundreds of billions of dollars.

A former treasury secretary in Bill Clinton’s administration, the

brusque Summers was better known for his brainpower than his people

skills. He had hesitated to take the job as Obama’s NEC head, viewing it

at first as a step down from his previous job running the Treasury

Department. In the end, he had relented under the combination of

pressure from Obama and the urging of friends, including former

Federal Reserve Board Chairman Alan Greenspan, who assured him that

the job could offer him more influence than he realized.

In Summers’s view, the economic problem was lack of demand: Not

enough people were spending money on goods and services. The

administration had to stimulate consumer spending. He later described

it to others in simple terms: “We didn’t have jobs because we didn’t

have demand. And if we didn’t get more demand, we weren’t going to

get more jobs. And if we did get more demand, we would get more

jobs.”

Worried about the cost of a stimulus package, Obama wondered what

else could be done. What about accelerating job training, strengthening

employment services, and reforming unemployment insurance?

Demand is the big elephant in the room, Summers insisted.

Obama didn’t like that answer, but finally came to accept it.

• • •

In the weeks before the election, Obama was interviewing candidates for

the all-important post of treasury secretary. While in New York, he met

with Timothy Geithner, the head of the Federal Reserve Bank of New

York, who had been a key figure in stabilizing the U.S. economy after

the 2008 financial crisis.

The two had not met before. Geithner, who was 47 but looked a

decade younger, launched immediately into a well-rehearsed, five-point

argument on why he should not be picked.

One, I promised my kids I wouldn’t move them again. Two, we’re at a

moment of national crisis. I’m not a public figure. You need to have a

public figure people have seen before in this context, because it matters

hugely. Three, there are better-qualified people than me for this. Four, at

some point the U.S. will have solved the financial crisis, and you’ll be

left with a whole set of other challenges that I’ve not spent my life

thinking about. And fifth, he said, I’m up to my neck in this crisis, as

you know. And I’m going to carry with me all those decisions. And you

may need to have some separation from those decisions. It’s harder for

you if you choose me. Because I’m not going to walk away from them.

It was a brilliant case against himself—precisely the kind of analytical

power that appealed to Obama. After the election, he picked Geithner.

• • •

Obama selected Peter Orszag as director of the White House Office of

Management and Budget. Just a few weeks past his 40th birthday,

Orszag was a summa cum laude graduate of Princeton with a Ph.D. in

economics from the London School of Economics. He was tall, gangly

and brilliant. Obama had plucked him from his position as head of the

powerful and independent Congressional Budget Office, which Orszag

had held for nearly two years.

Unlike Summers, Orszag and Geithner did not believe the need to

increase demand trumped all other policy priorities. Both recognized the

need for a stimulus, but resisted the idea of a package that might last for

more than two years. They were facing contradictory policy

requirements: spend more quickly, but address the long-term deficit of

hundreds of billions of dollars per year.

In one early memo, the team advised Obama that there was no danger

of too much stimulus, or spending too much money in the first year. The

question was: How do you make it politically salable?

Once he accepted the need for a huge infusion of public spending,

Obama began to see it as an opportunity—a chance to invest in projects

like high-speed rail, visionary environmentalism and innovation-related

projects.

“A lot of that is going to take seven years to happen,” Summers

pointed out, splashing cold water on Obama’s big dreams. “Big visionary

things just take a long time.”

The Hoover Dam, which had employed thousands of workers during

the Great Depression, had taken five years to build, Biden reminded

them.

Obama wanted to pull the Band-Aid off fast, as he put it. “Let’s do

whatever needs to be done, but let’s not keep at this for five years.” He

made it clear he wanted to pivot as soon as possible from rescue to a

broad kind of economic renewal. He thought and spoke in terms of FDR,

and some in the White House wondered if he had Roosevelt envy.

Comprehensive health care reform, though, remained his priority.

The world knew that from his campaign. What the world didn’t know

was that his top advisers, led by incoming chief of staff Rahm Emanuel,

disagreed, arguing that it would require too much effort. Survival had to

come first.

But to Obama, health insurance for everyone as a new entitlement

was the major unfulfilled task of the political movement of which he was

a part and now led.

It was now or never, he said. So it would be now.

• • •

Later, Cantor approached Emanuel, who had been No. 3 in the House

Democratic leadership before joining the incoming administration. Is

this bipartisanship stuff for real? he wanted to know.

Wiry and intense, Emanuel was seen as something of a political

bodyguard for the relatively inexperienced Obama. A veteran of the

Clinton White House before his own election to Congress in 2000, he

had a varied background. He had been a serious ballet dancer as a young

man, and served as a civilian volunteer with the Israel Defense Forces

during the Gulf War in 1991. Above all, he was known for his quick-

draw temper, foul mouth, and killer political instincts.

“We want to work with you,” Emanuel said. “We’re serious.”

Cantor, the only Jewish Republican in Congress, and Emanuel, also

Jewish, had a history of working together on Israel.

“There are some things we’re going to disagree on,” Emanuel

explained, “but I think there’s a lot we can work on together.”

Cantor considered the incoming administration’s offer to work with

Republicans sincere, but finding common ground on how to jump-start

the economy would be tricky.

Obama and his economic advisers were economic Keynesians—they

believed that government spending could create jobs and grow the

economy. It was a philosophy Cantor and many young House

Republicans rejected. Instead, Cantor believed that entrepreneurs—

small-businessmen and risk takers—were the engine that would drive

the economy. Cantor realized that his 10 years in the family real estate

business made him the only former small-businessman in the group that

Obama had met with.

The 45-year-old Cantor, a workaholic even by Washington standards,

quickly set up what he called the House Republican Economic Recovery

Working Group, made up of 33 conservative members of Congress, to

map out an alternative to a traditional stimulus package.

The group insisted on what Cantor called “three ironclad criteria”:

Proposals had to be limited in scope and spending; they had to result in

real, long-lasting jobs; and small businesses had to be put first. They

solicited input from former eBay CEO Meg Whitman, former

Massachusetts Governor Mitt Romney, and anti-tax leader Grover

Norquist of Americans for Tax Reform.

• • •

Three days after his inauguration, Obama summoned the congressional

leadership to the White House Cabinet Room to discuss the stimulus

package.

Protocol dictated that the president control the agenda and

discussion, but Cantor spoke up immediately.

“Mr. President, with your permission I’d like to hand something out.”

Obama nodded, and Cantor passed out copies of a one-page

document entitled “House Republican Economic Recovery Plan.” It

listed five unambiguously conservative proposals:4

• Immediate reduction in the two lowest individual income tax rates.

Because all taxpayers pay some of their income at these initial rates,

taxes would go down on more than 100 million tax returns, saving

families between $500 and $3,200 in taxes each year.

• A tax deduction of 20 percent on the income of all small businesses.

• No tax increases to pay for stimulus spending.

• Make unemployment benefits tax-free.

• A homebuyer’s credit of $7,500 for those who make a down payment

of at least 5 percent of their home’s value.

Obama glanced at his copy, looked at Cantor, and said amiably, “Eric,

there’s nothing too crazy in here.”

But Orszag, the budget director, noticed that Cantor’s proposals were

all tax cuts.

And Cantor’s document declared that, furthermore, “any stimulus

spending should be paid for by reducing other government spending.”

Absurd, thought Orszag. The whole point of the stimulus was to

inject extra money into the economy. The requirement that all stimulus

spending be offset by cuts elsewhere would defeat the purpose. Meeting

Cantor’s goal would be impossible, Orszag concluded instantly. But no

one asked him, so he didn’t say anything.

Obama said his plan would include tax cuts, but not only tax cuts. He

seemed inclined to compromise.

“Mr. President,” Cantor offered, “I understand that we have a

difference in philosophy on tax policy.” But a massive stimulus package

would be too much like “old Washington,” he said.

“I can go it alone,” the president said, “but I want to come together.

Look at the polls. The polls are pretty good for me right now.”

Cantor chuckled and nodded. The polls certainly looked good for

Obama now. To Cantor, that meant there would be no easier time to

compromise and to disappoint some on the left. As he listened, Obama’s

tone seemed to change.

“Elections have consequences,” the president said. “And Eric, I won.”

On the table, some copies of the one-page document called “House

Republican Economic Recovery Plan” lay where Cantor had put them.

“So on that, I think I trump you,” Obama said.

• • •

In his short tenure as a senator, Obama had dealt with South Carolina

Senator Lindsey Graham several times. Now, in his early days as

president, he had Graham, a moderate conservative Republican, to the

White House to talk.

“Barack,” Graham said, dispensing with the formal “Mr. President”

when they were alone in the Oval Office, “can you believe this has

happened to you?”

“No,” the new president replied. “I mean, this is kind of one of these

things you think about, but it really doesn’t happen to you.”

“The power of this office is amazing,” Graham said. “Your worst critic

is going to be like a schoolboy coming into this office. Just the power of

it. They may shit on you when the meeting’s over, out in front, but

people are going to listen to you unlike any other setting in any other

time in your life. Don’t ever let that be lost upon you.”

2

The $800 billion stimulus bill of new spending and additional tax cuts,

introduced on January 26, was the first bill of the new Congress and the

Obama administration. It was called, appropriately, H.R. 1, and it

contained not one proposal from Eric Cantor and his conservative

Republican group.

The bill was drafted by the Democrats and whenever any Republican

tried to make changes, Emanuel’s response was, more often than not,

“We have the votes. Fuck ’em.”

This was the bulldozing that Obama had promised to avoid. Cantor

reached for the phone and his BlackBerry and launched a full-court

press. He was the Republican whip, and he was whipping his members

against H.R. 1.

The stimulus bill will not get a single Republican vote, he declared.

“Oh, man,” Stombres, Cantor’s chief of staff, said. “What are you

doing?” Cantor’s staff was horrified. It was a promise he would almost

certainly not be able to keep.

On January 27, Obama again came to the Capitol, this time to meet

just with the House Republicans.

He excoriated Boehner and Cantor for already being against the bill.

“How is it that we could be for your bill,” Cantor replied, “if we

weren’t a part of any of this?” It looked like a Democratic spending wish

list.

“It’s a bipartisan bill,” the president insisted, listing elements he

assumed Cantor’s caucus would support. “Republicans like business

expensing. They like bonus depreciation.”

Cantor resented Obama’s presumption that he knew what

Republicans wanted, and what their priorities were, without consulting

them. Cantor had served in the Virginia state legislature for years when

Democrat Douglas Wilder had been governor. Wilder, the nation’s first

African American governor, had taken the time to develop personal

relationships with Republicans and find common ground.

Rahm Emanuel told Cantor flat out that his pledge of zero Republican

votes for H.R. 1 was delusional. “Eric, don’t embarrass yourself.”

Despite Cantor’s promise, the White House exuded confidence. They

had won the election. They were winners. Ray LaHood, a Republican

and former member of Congress whom Obama had picked as his

transportation secretary, assured the White House that they could

confidently count on 30 Republican votes because of money allocated for

projects and contracts in Republican districts.

But as details of the bill emerged, it turned out there was less money

than expected, and support began to evaporate.

Soon, there were just a few House Republicans saying they would

vote with Obama.

Then there was only one.

The holdout was first-term representative Joseph Cao, Republican of

Louisiana and the only Vietnamese American in Congress. He planned

to vote yes on H.R. 1.

Cantor knew every member in his conference, and he judged that

changing Cao’s mind would be nearly impossible. Cao was an idealistic

41-year-old attorney whose 2008 victory was a fluke. Some 70 percent of

registered voters in his New Orleans district were Democrats, 19 percent

were independents, and only 11 percent were Republican.

Representative William Jefferson, the Democratic incumbent, effectively

handed Cao the win when FBI agents investigating charges of corruption

and bribery found $90,000 in cash in Jefferson’s freezer. He was indicted

on 16 felony counts, and Cao became the first Republican to serve the

district since 1891.

Emanuel and the White House worked hard on Cao, reminding him

that his congressional district was heavily minority—65 percent African

American—and Obama had carried the 2nd District by 75 percent in

2008.

Emanuel still worked out in the House gym, where he got up close

with Cao, and he got personal on the phone. According to Cao, Emanuel

“insinuated” that if he voted for the stimulus bill, he would be owed a

big favor—even help in a reelection campaign. 5

Meanwhile, Cantor also pressed Cao, making the standard Republican

pitch. Federal spending would not revive the economy, but it would

contribute to the soaring deficit. The Republican Party was about small

business, which created jobs. They had to put incentives in place for the

private sector. Small business first.

The mantra rang true to Cao, whose district was dominated by small

businesses that served the vast New Orleans tourism industry.

“Look,” he revealed candidly, “the White House is going to help me

with my reelection.” Obama’s endorsement—or even his neutrality—

could be critical in 2010.

Cantor was skeptical. “Why don’t you get it down in writing?” he

said, urging Cao not to believe any promises White House staff weren’t

willing to put on paper.

Cao never asked for anything in writing. He was still inclined to

support the bill, even if he were the only Republican to vote for it.

• • •

Meanwhile, the White House was dealing with a bigger problem.

The day before the stimulus was to come up for a vote in the House,

the phone rang in Emanuel’s office.

It was Baron Hill, a second-term Democratic congressman from

Indiana who served as co-chair of the House Blue Dog coalition. The 52-

member coalition had met at 11 a.m., and they were pissed.

Founded in 1995, the Blue Dogs were Democrats who defined

themselves as fiscal conservatives. Most came from politically split

congressional districts closely divided between Republicans and

Democrats. Many were freshmen who had won traditionally Republican

seats by touting their passion for spending constraints and deficit

reduction.

The Blue Dogs held mandatory weekly meetings, whipped their votes

intensely to ensure that they voted as a bloc, and were not shy about

bucking the Democratic leadership on fiscal issues. Obama’s stimulus

package cut against the grain of their anti-spending beliefs, and they

didn’t think they were getting anything in return.

As one member, Louisiana Representative Charlie Melancon, put it,

“We felt like we were getting pushed into a corner and we were damned

if we were going to stay there.”

On the phone with Emanuel, Hill said, “Look, we’ve got a problem

here. ”6 The majority of the Blue Dog coalition planned to vote against

Obama’s stimulus package—more than enough to kill the bill.

And this from Obama’s own party.

Emanuel erupted into a profanity-spiced tirade. “This is the first piece

of legislation that our administration is going to be voting on and you

guys are going to kill it?”

Hill waited out the storm of F-bombs—anyone who had worked with

Emanuel knew his technique—and said, “Look, I’m just delivering the

message. I’m trying to make this thing work. I don’t want to embarrass

the president. And I’m telling you that these guys are going to vote

against it.”

Emanuel asked Hill to arrange a meeting with the Blue Dog

leadership for later that day.

Hill had reason to hope that the White House would accommodate

the Blue Dogs. An early endorser of Obama during the election

campaign, Hill had spent time with him on the campaign trail.

More than once, in conversations about economic and fiscal policy,

Obama had told him, “I feel like I am a Blue Dog, Baron.”

For their part, White House senior staff recognized that the Blue

Dogs had some leverage—just not as much as the coalition believed. The

sense in the White House was that with aggressive arm-twisting,

enough Blue Dogs would vote to push the legislation through the

House. But just winning wasn’t enough. Emanuel wanted to win big.

“Win big” was a mantra he and Phil Schiliro, the White House’s chief

lobbyist and congressional liaison, kept repeating: Success breeds

success, one legislative victory leads to future legislative victories. This

vote needed to set the Big Win tone for the new administration. And the

Big Win had to come fast. Delay would break the positive momentum.

The focus on “win big” was more a product of Emanuel and Schiliro’s

legislative strategy than the president’s. Orszag could see the president

was focused on getting the deal done. He was in implementation mode.

The stimulus package found the president in a position similar to that

of the Blue Dogs—torn between competing priorities. Wanting to tame

the federal deficit, he nonetheless believed that, with unemployment on

the rise, the economy needed aggressive government support.

• • •

Later that day Emanuel, accompanied by Summers and Orszag, met with

the Blue Dog leadership in Majority Leader Steny Hoyer’s private

conference room just outside the House chamber. Things didn’t begin

well.

“You guys can’t do this,” Emanuel lectured. “You can’t embarrass the

president right out of the gate.”

His tone grated. Yelling broke out on both sides until Allen Boyd, an

influential Blue Dog from Florida, stepped in. A burly fifth-generation

farmer with a shock of white hair and a Southern drawl, Boyd tried to

calm everyone down.

Look, we want to try to get to resolution on this, he said. But we can’t

vote for the stimulus package because, first of all, we think it’s too big.

Secondly, there are things in there that we don’t feel are stimulative.

And thirdly, we want a commitment on PAYGO.

PAYGO was an enforcement mechanism previous Congresses had

imposed on themselves. The rule required that all new federal spending

be offset by cuts or new revenue.

Despite his anger, Emanuel understood the Blue Dogs. During his

tenure as head of the Democratic Congressional Campaign Committee

from 2005 to 2007, he had focused intensely on defeating Republicans in

swing districts, typically by recruiting and supporting candidates who

were moderate and fiscally conservative. He had personally persuaded

many of them to run.

Emanuel made them a threefold promise. The administration would

support cutting some of the nonstimulative items from the package,

Orszag would put the administration’s commitment to reinstating

PAYGO in writing, and the president himself would meet with the

entire coalition after the vote so that they could make their case

personally.

Hill looked around the room and hoped that would be enough.

• • •

On January 28, the day of the first House stimulus vote, the White

House sent Congress a copy of the projected stimulus spending in each

of the congressional districts. Since the bill now contained some $767

billion, Cao calculated that the average district would get about $1.7

billion—a welcome windfall for New Orleans, still recovering from an

estimated $81 billion in damage from Hurricane Katrina in 2005.

But when he reviewed the White House report, Cao discovered that

his own 2nd District would get only $330 million, about 20 percent of

the average. He was astonished. Given the billions the district residents

paid in taxes each year, he concluded the deal was no longer a good one

for his constituents.

On the House floor, Cao voted no.

Cantor almost couldn’t believe the good news. The House vote was

244–188. All 177 Republicans had voted against it. 7

“Not even one?” Emanuel said to Cantor. “What’s going on?”

“You really could’ve gotten some of our support,” Cantor said. “You

just refused to listen to what we were saying.”

Cantor might have admired Obama’s self-assuredness—the

confidence, the smooth articulation and eloquence—but the president

had taken it too far, to the point of “arrogance,” he said.

Obama had demonstrated that he believed he didn’t need any other

input. The Republicans were outsiders, outcasts. The president and the

Democratic majorities in the House and Senate would go it alone. There

was no compromise.

What really surprised Cantor, though, was how badly the White

House had played what should have been a winning hand. Though

Obama won the vote, he had unified and energized the losers. Not only

had he missed the opportunity to get the Republicans into the boat with

him, he had actually pushed them away. The failure was one of human

relations. There had been no sincere contact, no inclusiveness, no real

listening.

Soon after the vote, Cantor attended a White House reception and

met Michelle Obama for the first time. The first lady was gracious. But

there was a coolness toward him among White House staff that he

would remember for years.

• • •

Despite their reservations about government spending, the Blue Dogs

largely supported the stimulus bill. Of the 52 members of the coalition,

43 cast critical yes votes. Without them, the stimulus would not have

made it out of the House.

Walking through the tunnels beneath the Capitol after the vote, John

Tanner, a Blue Dog from Tennessee, playfully jumped on the back of

coalition co-chair Baron Hill.

“What the hell did we just do, Baron?” he asked.

“I don’t know,” admitted Hill.

• • •

At the White House senior staff meeting the next morning Schiliro and

Orszag received a loud round of applause. The bill had, at least, passed

by a comfortable margin, giving the new administration its first

legislative victory and the staff a huge sense of relief.

Emanuel was upbeat. Victory begets victory.

Obama, however, was surprised that no Republicans voted for the

measure. Emanuel had voiced utter confidence that they would get a

substantial number. His chief of staff was supposed to be an expert in

these matters, the practiced veteran.

But Rahm had been wrong. What was going on?

Summers, Obama’s chief White House economic adviser, was also

stunned. To win public support, the White House and the Democrats

needed to look like the reasonable people in the room, willing to

compromise. But the zero votes made them look the opposite—

unreasonable and partisan. Not a single moderate Republican would join

the new, popular president in a big spending program to save the

economy? Odd, he concluded, though in his view the massive stimulus

had been absolutely necessary in the effort to improve the U.S. economy.

But, Summers rationalized, if you were a Republican and Obama was

successful in reviving the economy, nothing good was going to happen

to you. On the other hand, if the economy stayed down despite the

stimulus, as a Republican you would not want to be implicated in

anything Obama had done, especially his stimulus and economic

recovery program. Had it come to that so early in the term?

3

On Capitol Hill, the final version of the stimulus package was being

hammered out, and negotiations were getting intense. In early February,

Reid and Pelosi summoned Emanuel and Orszag to the speaker’s office

in the Capitol.

Emanuel and others had been urging Obama to get involved, to weigh

in, engage with Congress. Yes, the final bill was going to be written on

the Hill—because legislation written on the Hill by the majority will

pass—but the tension was so high that it could unravel. The president

needed to show his commitment.

The president’s advisers arrived in Pelosi’s office, with its

breathtaking view of the National Mall and the towering Washington

Monument, to find Reid and Pelosi in full deal-making mode. The

economy was falling off the cliff and the Republicans were not

cooperating, so the Democrats at least had to come together.

Reid and Pelosi knew they needed to cut a deal on the actual numbers

that would avoid a Republican filibuster in the Senate while retaining

Democratic support in the House. It was the 11th hour, and they were

down to the details. Numbers were flying around the office. How about

$4.1 billion for school renovation? A little more? A little less?

At this moment, Obama called into the speaker’s office and Pelosi put

him on the speakerphone near the window so everyone could hear.

He delivered a high-minded message. They were going to save the

economy with this bill, everything was at stake, unity of action, unity of

purpose.

Thank you, Mr. President, thank you, said Reid.

Pelosi thanked Obama. We understand. We get that.

But the president wasn’t finished. Warming to his subject, he

continued with an uplifting speech.

Pelosi reached over and pressed the mute button on her phone. They

could hear Obama, but now he couldn’t hear them. The president

continued speaking, his disembodied voice filling the room, and the two

leaders got back to the hard numbers.

• • •

It took days more, but on February 13, both the House and Senate

passed the final $787 billion stimulus bill.8 All 177 House Republicans

again voted against it.* It included $288 billion in tax cuts, $224 billion

more for entitlement programs, such as extending unemployment

benefits, and $275 billion for contracts, grants and loans. The bill was

1,100 pages long.

At a signing ceremony in Denver three days later, Obama said, “Today

does not mark the end of our economic troubles. 9 . . . But it does mark

the beginning of the end.” The plan “will create or save 3.5 million

jobs”—squishy language, as it would be difficult to identify specific jobs

that had been saved.

• • •

“Absolutely, we need earmark reform,” candidate Obama had said in the

first debate of the presidential campaign in 2008. 10

A typical feature of most spending bills, earmarks are provisions

added by individual senators and congressmen directing specific

amounts of money to specific projects in their states or congressional

districts.

“And when I’m president, I will go line by line to make sure that we

are not spending money unwisely.”

Less than a month after he signed the stimulus bill into law, Obama

was staring at a massive appropriations bill that had passed Congress

and was awaiting his signature.

Reid wanted the president to sign it, but the bill had 8,570 earmarks

adding up to $7.7 billion in spending, much of it on easily ridiculed

hometown pork and pet projects.

The president balked. He wanted to take a stand.

Republican leaders in Congress were howling for a veto and claimed

anything less would be a violation of Obama’s campaign promise.

House Minority Leader John Boehner’s spokesman reminded

reporters, “The president has made some very specific promises when it

comes to earmarks, and in order to keep them he is going to have to

stand up to Democratic leaders on Capitol Hill.”

Reid was incensed. Members saw that spending as key to serving the

needs of their constituents, and Congress actually had reduced the

number of earmarks compared to previous years. Politically, a veto of the

bill would blow up months of painful negotiations, opening previously

settled issues to another round of debate.

In a meeting with Obama, Reid said, Look, this is our prerogative. I

understand you don’t like earmarks, but they serve an important

purpose, and if you get rid of them all, you’re not going to get anything

else done.

Reid’s threat left the president tense and frustrated. In public, he tried

to make the best of it.

He signed the bill, in private, on March 11, 2009. At the same time,

he issued a statement proposing increased safeguards against abuse in

the future. 11

Republicans hammered him for breaking his word. And the

president’s erstwhile allies, congressional Democrats, fumed over what

they saw as White House overreach.

House Majority Leader Steny Hoyer, a Maryland Democrat, all but

dared Obama to try reforming the process, telling the press, “I don’t

think the White House has the ability to tell us what to do. ”12

For the Obama true believers, those who saw him as a reformer, it

was, perhaps, the first hint of disillusionment. He had promised things

would be different.

To those members of the administration new to the executive branch,

it was an early indication that the inside game of governing was very

different from the outside game of campaigning.

• • •

On Tuesday, November 24, 2009, just before Thanksgiving, Senator

Kent Conrad headed down Pennsylvania Avenue for a private meeting at

the White House with his former colleague, now the president. It was

another step in a career-long effort of what could be called “The

Project,” or “The Mission.” Conrad, the head of the Senate Budget

Committee, believed the country was heading off a fiscal cliff. He could

prove it, and he was going to fix it.

His intense, scholarly look inspired one Senate colleague to refer to

him as “The Auditor.” But the 61-year-old North Dakotan also had an

honorary tribal name given by the Sioux Indians in his home state: It

translated as “Never-Turns-Back. ”13

From his five years as state tax commissioner to his 23 years in the

Senate, Conrad was the quintessential fiscal hawk. He had been the

second senator to endorse Obama for president, and the two had a

friendly, though not close, relationship.

In the Oval Office with Obama and his economic troika, Geithner,

Summers and Orszag, Conrad warned that federal debt and spending

posed a long-term threat, more now than ever. The country’s present

course was not sustainable. And that’s not just my view, he said. It’s the

view of your budget director, Orszag. It’s the view of the head of the

Congressional Budget Office. It’s the view of the Federal Reserve.

“Kent,” Obama said, “I’ve seen your charts.”

Everyone laughed. Conrad’s charts were notorious. He used so many

on the Senate floor and in committee hearings—more than all the other

senators combined—that he had earned his own printing equipment. He

could wear out even the most dedicated green eyeshade with his

presentations of the nation’s finances and their descent into oblivion.

“You convinced me long ago that we’re on an unsustainable course,”

Obama said.

The reasons to rein in the deficit were abundant and obvious. The

public debt was now approaching $12 trillion, about 85 percent of the

Gross Domestic Product (GDP), the sum of all goods and services in the

American economy. Just paying the interest on the debt cost the country

hundreds of billions of dollars per year. The question, the president said,

was how to do it? How to get the Republicans involved? And what is the

timing, since the short-term economic problems are hardly over?

Conrad didn’t want to impose fiscal austerity in the midst of a

downturn. That would only lead to a bigger downturn, more deficits,

more debt. The trick, he said, was to take steps to strengthen consumer

demand, as they had with the stimulus bill, and to improve job creation

and economic growth.

Standing in the way was a legislative process that, Conrad was

convinced, had completely failed. The Senate had been squabbling over

the federal budget for six months with no result, and government

funding was now dependent on stopgap, short-term continuing

resolutions. It was chaos.

“I believe so strongly in what you’re saying,” the president said, “I’d

be willing to be a one-term president over this.”

It was a stark private declaration that Orszag had heard from the

president before. But the president’s assurances weren’t enough for

Conrad.

About a dozen senators, Conrad warned, felt strongly enough about

the issue that they were going to take it to the next level by insisting

that Congress create a commission to tackle the problem. Until the

commission was in place, they would block any increase of the debt

ceiling.

It was a clear threat. The debt ceiling placed a limit on how much the

Treasury could borrow, and failure to increase it could lead to a

catastrophic default on U.S. debt. Raising the debt ceiling was normally

a routine matter, but Conrad was determined to change that. “Unless we

get a commission we’re just not” raising it, he said flatly.

“I agree with you so strongly,” Obama repeated, “I’m prepared to be a

one-term president. But we’ve got to deal with some practical situations

—of timing, of how we construct such a commission.”

The president and his senior staff had good reasons not to resist

Conrad’s pressure to create a fiscal commission. First, there was the

possibility that a commission might actually produce something. Second

was the president’s promise to set the country on a fiscal path leading to

deficits of less than 3 percent of GDP. The economic team couldn’t agree

on how to get there, and a commission would buy them valuable time.

4

Nearly a year into Obama’s presidency, the nation was not on the

strong path to recovery the president’s advisers had anticipated—and

that Obama had pretty much promised.

The economy had been in much worse shape than they realized when

Obama took office. Revised economic growth numbers for the last three

months of 2008—the end of the Bush administration—were now

showing negative economic growth of nearly 9 percent. A decline in real

growth of 10 percent is often considered an economic depression. Now,

in late 2009, the unemployment rate had risen to 10.2 percent, the

highest level in 25 years. Republicans were beating hard on the

administration, repeating their slogan, “Where are the jobs?” 14

Whatever bump the president’s stimulus package had given the

economy had been inadequate.

Geithner, Orszag and Summers went to work on a strategy for the

next year’s presidential budget request, which was due to Congress in

early February 2010. They had to produce something that would show

Obama was equally serious about deficit reduction and job creation.

Back and forth they went, debating, defining and calculating. It was

dizzying.

“Let’s sort of just gimmick it up,” Larry Summers said to Orszag at

one point.

In a memo to the president dated December 20, 2009, they grimly set

the scene for the president.15 Economic deterioration was so much worse

than anyone realized that since Obama took office the “unfavorable

economic and technical re-estimates have worsened the deficit outlook

by a total of $2.2 trillion” over the next 10 years—a whopping number.

The memo ran to eight pages, and included several ideas for achieving

federal budget savings.

Their first proposal for deficit reduction was to “impose a three-year

freeze” on the budgets of departments like Transportation, Agriculture,

Interior, Labor, and Housing and Urban Development. The freeze would

also hit smaller agencies, like the Environmental Protection Agency.

This was practically nothing—savings of $20 billion each year.

Orszag realized it was insignificant. It was a symbolic gesture that

would give the deficit hawks in the Democratic Party, like Conrad,

something to talk about without actually taking much money out of the

economy. It was one of the “gimmicks” Summers had proposed.

Summers thought it was a worthy gesture, if only that. In the end,

whatever the Congress decided could be undone by a future Congress

anyhow.

The president approved it, putting a check mark next to the proposal

in the memo.

Item two was “reduce the allowance for disaster costs to $5 billion

per year.” That would save $19 billion in 2015 “based on the statistical

probability of a major disaster requiring federal assistance for relief and

reconstruction.” In 2005, Hurricane Katrina had cost the federal

government $108 billion. The Obama team was now acting as a weather

forecaster.

“Pure gimmick,” Orszag declared. But they put it in the memo

anyway, and the president put a check mark beside it.

Item three was “assume a deficit neutral extension” of keeping

Medicare payments to doctors at current levels. The Balanced Budget Act

of 1997 had established the Medicare Sustainable Growth Rate (SGR)

formula, which was supposed to reduce government payments to

doctors who saw Medicare patients—“a blunt tool,” as the memo said. It

had been an ambitious cost-cutting proposal—overly so. Medicare

reimbursement rates were already low compared to private insurance,

and the SGR cuts turned out to be so draconian that Congress had

intervened every year to avoid implementing them—a practice that had

come to be known as the “Doc Fix.”

The Doc Fix would continue, but it would be “unpaid for” and

“without offsets.” On paper, it reduced the deficit by $25 billion, but it

left future administrations to find the offsetting cuts or revenue.

It was another gimmick, and it received a presidential check mark.

But this check mark had a distinctly unsteady wobble on the upsweep.

What did the president actually think about all of this?

“He’s come to the view,” Orszag later remarked to others, “that this

whole exercise is kind of silly anyway, so sure, let’s play the game.”

On the Doc Fix, the memo noted that the White House had at least

some political cover. Senator Conrad, it read, “has expressed the

possibility that the Senate could move toward a five-year unpaid-for-fix”

on the Medicare payments to doctors.

Orszag explained: “It’s almost like we’re saying, well they’re [the

Senate] cheating too, so we will. So we can follow their lead. Welcome

to sausage making.”

In all, the memo proposed deficit reductions totaling $85 billion. A

pittance. The Treasury had borrowed more than $1.8 trillion to finance

deficit spending in 2009 alone. Geithner was a near absolutist on the

need to reduce the deficit to an average of only 3 percent of the GDP.

The deficit was currently running at 10 percent of GDP and by their own

forecasts, included in a Budget Summary Table given to Obama, would

rise to 10.6 percent in 2010. Full-scale calamity was on the horizon.

There was a hole in the budget proposal where a serious deficit

reduction plan should have been and they needed a filler—a plug in the

budget to show there would be more cuts to reduce the deficit.

This was where the fiscal commission pushed by Senator Conrad

would come in.

The memo described a commission made up of members of Congress

and outside experts that would be charged with creating a plan to

achieve “deficits of about 3 percent of Gross Domestic Product by 2015.”

It was a version of what David Stockman, Ronald Reagan’s first budget

director, called the “magic asterisk”—an undefined solution to constrain

the budget without providing specifics. Instead of doing the hard work

of budget cutting within the administration, they would outsource it to a

commission.

“Identifying a goal of about 3 percent of GDP,” they wrote, “would

make the commission appear more credible by sending a signal about

the amount of deficit reduction that it is expected to recommend.”

The meetings on this went on for hours.

Orszag thought the commission was a fig leaf. Without it, the

administration’s lack of a solution to the deficit problem would be

exposed. The truth was their proposal did not put the deficit on a path

to that 3 percent level. Orszag suggested including exact numbers the

commission might contribute to deficit reduction.

Geithner vacillated. He wanted to get to 3 percent but he wasn’t really

convinced an outside commission would work, so he didn’t want to put

too much weight on it.

“Fucking figure it out,” Rahm Emanuel finally told them. Define what

you expect—or don’t expect—from the commission.

Despite their misgivings, they finally took the debate to the Oval

Office. Orszag argued for the 3 percent target—it would put more

pressure on the commission to be meaningful, give it teeth, and boost

Obama’s credibility.

The president looked at his budget director, who was supposed to

figure this stuff out, and said it was ridiculous that a question like that

should come to him.

In the end, the economic team punted. They put a large box in the

Budget Summary Table that mentioned the 3 percent but didn’t do

anything specific to get there. A commission “is charged with stabilizing

the debt-to-GDP ratio at an acceptable level once the economy recovers.

Under current Administration projections, that would require achieving

deficits of about 3 percent of GDP by 2015. The magnitude and timing of

the policy measures necessary to achieve this goal are subject to

considerable uncertainty and will depend on the evolution of the

economy. In addition, the Commission will examine policies to

meaningfully improve the long-run fiscal outlook, including changes to

address the growth of entitlement spending and the gap between the

projected revenues and expenditures of the Federal Government.”

Summers had proposed gimmicks, but this was a model of

obfuscation. The mouthful of budget jargon promised to practice some

tough love. But certainly not on any timetable, and certainly not now.

The box would come back to haunt Geithner when the House Ways

and Means Committee held hearings on the president’s budget request a

few months later. Given his three minutes to question the treasury

secretary, a relatively unknown young Republican congressman from

Wisconsin named Paul Ryan pointed out that while the budget explicitly

said it was essential to get the deficit down to 3 percent of GDP, it failed

to do so.16

“So you’ve got this warning under here; it’s like the warning on a

cigarette pack,” Ryan said. “You’ve got this little magic box underneath

your budget totals that says we’re going to have a commission to do it.”

Ryan demanded an explanation. “If you’re going to solve our fiscal

situation, why don’t you do that? Why don’t you give us a budget that

actually gets the deficit to a sustainable level?”

• • •

Orszag, the numbers and budget expert, saw a ticking time bomb in the

budget. Massive tax cuts enacted during the Bush administration were

scheduled to expire at the end of 2010, and the president was committed

to not extending them for the two upper-income brackets. This affected

only about 2 percent of those who filed income tax returns but would

increase tax revenue by up to $800 billion over the next ten years.

Obama was determined to extend the cuts for the middle-and lower-

income brackets. The cost would be $3.2 trillion over 10 years. Orszag

argued that by making the middle-class tax cuts permanent the

administration would be handcuffing itself. The federal revenue base

would be too low, and there would be no plausible way of raising it. If

they did make them permanent, he predicted, “we would have a fiscal

crisis at some point over the next decade with very high—I don’t say 100

percent—but very high probability.”

Was it possible that these middle-and lower-income tax cuts could be

ended?

Phil Schiliro proposed that they do exactly that—a daring suggestion.

They came up with a modified version that Orszag liked. Obama would

declare that the tax cuts should only be extended if they were paid for.

There was no way, of course, given the deficit problem, that they could

possibly be paid for. So that would end them, Orszag believed.

In one scenario imagined by the team, the president would say

something like, “I’m in favor of the tax cuts but they just can’t add to

the deficits. So if people can come up with offsets, I’ll sign that bill. If

not, I won’t.”

Obama seemed open to that idea for a while. But like many politically

risky propositions, when no one stood up as its champion, it faded away.

• • •

Summers saw the budget exercise on future deficits as pointless. There

might be political benefits to proposing deficit reduction for years such

as 2015, but Congress could easily unwind the cuts.

Orszag was less pessimistic. Looking back at past budget deals with

delayed implementations—the Social Security fix in 1983, and the

budget negotiations of 1993 and 1997—it was clear that the vast

majority of spending caps and cuts had stuck.

He was worried less about Congress than the judgment of history.

There was an opportunity for the president to do something about the

long-term deficit. It would be economically and politically painful. But if

he didn’t do something, and the country plunged into fiscal crisis later in

the decade, Orszag told others, “I think he gets blamed by history for

not acting.”

5

“Outrageous,” said Senator Max Baucus, 68, the Montana Democrat,

when he heard about plans for the fiscal commission. Baucus chaired the

Senate Finance Committee, which had jurisdiction over taxation. Taxes

had been his business since he first came to the Senate more than 30

years before, and he saw it as an end run around his committee.

Handing over a basic function of Congress to a commission that

would include business and union leaders who would never have to

answer to voters? Unacceptable. Even with some members of Congress

on the commission, likely including Baucus himself, it would be like

hiring a bunch of mercenary generals to lead the U.S. Army.

Baucus considered Conrad’s debt limit brinkmanship deeply

irresponsible. The extension of the debt limit was supposed to be

routine. This “vanity exercise” by Conrad to extend his role was a

dangerous game. It was no less than “hostage taking.”

• • •

The selection of someone to coordinate with Congress on the fiscal

commission came down to Biden and Emanuel. Obama decided to tap

the vice president.

Thank goodness, Orszag thought. This was pure Senate deal making,

and nobody was better at that than Biden, a 36-year Senate veteran.

Conrad had been pushing Harry Reid very hard on the issue of the

debt and the need for a commission that would work outside the regular

order. For Reid, in charge of the Senate process, this was difficult to

accept, but Conrad pressed, and the president’s backing seemed to tip

the balance.

“I’m a convert to your cause,” Reid finally told Conrad.

Biden brought Senate Democrats to his residence for breakfast. He

brought them for lunch. He visited them on Capitol Hill and worked

with them over weekends.

At one point, he asked Orszag to take notes during a speakerphone

call with Conrad. During the call, Biden and Conrad debated the

structure of the commission and how to manage the debt limit vote.

The vice president hadn’t told Conrad that Orszag was listening in.

After a while, Biden realized that Conrad thought it was a private talk,

but it was time for Orszag to enter the discussion directly because Biden

needed an expert voice.

“Oh, hold on a second,” said Biden into the speakerphone. “Peter

Orszag is just right outside the door. I think I could call him in. Would

that be okay? Please hold.”

Orszag went along with the ruse. Conrad was put on hold, and Orszag

made his “entrance” into the discussion.

• • •

Senator Conrad, meanwhile, remained more than a distraction for the

White House. As the debt limit vote approached, he kept pecking away,

demanding special favors for North Dakota. He knew that no one was

going to look out for his small state, with its population of less than

700,000, unless he did.

He was talking with staff at the highest levels of the White House

about payments for North Dakota hospitals. He wanted to negotiate on

Medicare provider reimbursements. And on education funding.

Obama’s team knew Conrad had them in a vise and they had to deal

with him. But it was nonstop, and it was starting to get to Emanuel.

In a flurry of nine terse emails on January 14, Orszag and Emanuel

went back and forth over one of Conrad’s issues.17 The senator thought

the White House had agreed to support indexing Medicare and Medicaid

reimbursements in North Dakota to rates in its higher-cost neighbor,

Minnesota.

Orszag: “I need to talk with you. Conrad believes you already

promised him the wage index.”

Emanuel: “What?”

Orszag: “Conrad believes that you already promised that North

Dakota hospitals would get the Minnesota wage index in addition to the

demo project, so he’s not willing to accept that in return for dropping

Frontier [another payment plan for North Dakota hospitals]. He believes

you already made a clear commitment . . .”

Emanuel: “I do not do details on that level.”

Orszag: “What do you want me to do?”

An hour and a half went by without an answer.

Orszag: “What do you want me to do on Conrad? They’re expecting

some response.”

Emanuel: “I have no idea.”

Orszag: “At this point, my calling back will probably backfire. So

when you’re free maybe you, me, [deputy chief of staff Jim] Messina,

Phil [Schiliro] should regroup on this quickly. We’ll have commission

language in a bit.”

But the Conrad issues wouldn’t go away, and days later an

exasperated Emanuel sent Orszag a stern directive:18

“You fix this now.”

Orszag did not. Soon Emanuel was emailing Orszag because Conrad

was threatening to change an important budget measurement on

education. He ordered in reinforcements, including Biden, who was

close to Conrad. He emailed Orszag, “Conrad is intending to switch. 19

Get the VP on this ASAP.”

• • •

On Thursday evening, January 14, 2010, the president loaded the

Cabinet Room with the key congressional Democrats for continuing

negotiations on health care reform. Included were Reid, Pelosi, their

deputies, committee chairmen wrestling with health care reform, and

senior White House and congressional aides. All shared essentially the

same view about the need for large-scale, transformational legislation

that would provide coverage to the nation’s more than 45 million

uninsured. This was the president’s big move. But the Senate and the

House had passed different bills. They needed to make them into one,

and they needed to do it quickly. Obama attempted to preside as House

members demanded more spending on prevention and extra subsidies

while senators pressed for Medicaid subsidies for states like New York.

It would go on for an hour or two, then the House people would break

and go into one room, and Senate people into another. They would then

come back for more, making little or even no progress.

“That’s it,” Obama said around midnight. “Stop this bullshit.” We’re

all Democrats, and we’ve all agreed to do this. “But you won’t come to

an agreement. I’m happy to stay here all night to help you, but none of

you are listening.” He was close to losing his temper. “It’s very clear that

there’s nothing I can do to help you. So I’m leaving. You can call an end

to this or you can figure out how to do this. I’m going upstairs and going

to bed.” He stood up and walked out.

Pelosi stood and began to gather her papers, as did the others.

“Nancy, sit down for a minute,” Emanuel said. “Let’s go through

these numbers one more time.” The real differences, as always, were

about money, in this case a difference of about $26 billion between what

the House and Senate wanted. Everyone returned to their seats.

“Humor me,” Emanuel said. “You have this number two here,” he

said, referring to one House item for $2 billion. “You have this number

four,” he continued for the Senate, which wanted $4 billion. “What’s the

number between two and four?”

“Three,” somebody said, falling for his question.

“Okay, three,” he said.

“I’m not going to do three!” someone shouted. Others protested.

“I didn’t say you were going to do three,” Emanuel said. “I didn’t say

that at all. I just wanted to know what was between two and four. It’s

three. Okay, we all agree. Three.”

It was juvenile and insulting, but they were all tired.

Emanuel found another number where the middle ground was eight.

“Now,” he continued, “what’s three plus eight?”

Another explosion. “I never said we’d do eight!” More protests and

head shaking all around.

“I didn’t say you’d do eight,” Emanuel said. “But I just want to know,

what’s three plus eight? It’s 11.” He continued through the list amid

growing protests and derisive comments. “This is not an attempt to

forge an agreement,” he said. “I’m just playing with numbers here. Just

humor me. No one’s bound by this. I’m not even saying anyone should

do it.”

By about 1 a.m. he had gone through the list and found the middle.

Everyone pretty much said they had not agreed at all, not to any of

these arbitrary numbers or alleged compromises.

“I didn’t say you did,” Emanuel replied. “But come back tomorrow

morning and we’ll talk about it.”

The next morning the president was back in the chairman’s seat.

“Okay,” said Pelosi, “we can do those numbers Rahm wrote down last

night.”

“We can do that,” Reid said.

• • •

The Democrats’ filibuster-proof 60-vote hold on the Senate was in

jeopardy as a result of the death of Ted Kennedy the previous August.

Under Senate rules, 60 votes were required to end debates, so a 41-vote

minority could block almost any legislation. Kennedy had been replaced

by a temporary Democratic appointee, but Republican Massachusetts

State Senator Scott Brown was campaigning for the seat. Brown

promised that he would become the GOP’s critical 41st vote, making it

possible to sustain a filibuster of Democratic initiatives, especially the

health care plan. He often signed his autograph “Scott 41.”

On January 19, 2010, he won 52 percent of the vote to become the

first Republican senator from Massachusetts in 36 years. 20 Brown was

sworn in on February 4.21 Even with the agreement over money, there

was no way Democrats had time to get a new version of the 2,700-page

health care reform law through the Senate before he was sworn in.

• • •

For weeks, Biden had been slowly building consensus on how to

structure Conrad’s fiscal commission. By late January, a plan had

emerged with support from Democrats and Republicans. The proposed

commission had been granted extraordinary power—so much power that

Biden worried the White House might lose control of the process.

He failed to persuade Max Baucus, the Senate Finance Committee

chairman, but he did get Harry Reid to bring the commission up for a

vote in the Senate on January 26. It needed 60 votes to overcome a

potential filibuster, but just before the vote, six Republican co-sponsors

withdrew their support and it failed 53–46.22

What a wonderful late Christmas present, Biden thought. Whew.

See? he told Conrad. The Republicans screwed you. You can’t trust

them. They talk tough about deficit reduction, but then vote against any

real effort to fix the problem.

In an interview, President Obama later recalled the Republican

decision to abandon the fiscal commission. 23

“At that point we’d already got a hint of things to come when the

sponsors of that commission, including Mitch McConnell and John

McCain, as soon as I say this is a great idea and we should do it, decide

to vote against it.”

But Conrad and his group would not go away. They wanted the

president to appoint a deficit commission through an executive order.

Biden promised to keep working.

• • •

Obama unveiled his budget proposal in a speech at the White House on

February 1, 2010.24 He called for $3.8 trillion in spending, which would

add about $1.3 trillion to the deficit. He said he hoped to save more than

$1 trillion, chiefly through revenue brought in by ending the Bush tax

cuts for the top two tax brackets.

He blamed the meagerness of the effort on decisions made during the

former administration. “We’re at war,” he said. “Our economy has lost 7

million jobs over the last two years. And our government is deeply in

debt after what can only be described as a decade of profligacy.

“Previous Congresses created an expensive new drug program [for

seniors], passed massive tax cuts for the wealthy, and funded two wars

without paying for any of it.” He presented a laundry list of modest

proposals—tax cuts for investors in small businesses, clean energy, some

commonsense cuts and efficiencies, new fees on big banks. He also

formally laid out his plan for a bipartisan fiscal commission, which he

would set up with an executive order.

As a measure of the problem, he opened the national suggestion box,

saying, “I welcome any idea, from Democrats and Republicans.”

Few were impressed. The president had put off anything that would

seriously address the problem. Senator Orrin Hatch, 75, the Utah

Republican who had served 32 years in the Senate and made many deals

with Democrats, scoffed publicly, “They are sending a toy fire truck to

combat a five-alarm fire. ”25

• • •

A fiscal commission set up by executive order would not have the force

of law, but it would be symbolically important. Biden was assigned the

task of recruiting a Republican co-chairman for the fiscal commission.

They needed a rare bird—a Republican who would go along with tax

increases in some form. Biden went after the rarest bird of all, former

Wyoming Senator Alan Simpson.

Colorful and outspoken at 78 years old, Simpson was a natural

showman who routinely shocked whatever audience he faced. He liked

to call others—senators, friends, reporters—“rascals.” But he was the

genuine rascal, albeit a good-government rascal, who would not and

could not hold his tongue. A critic was a “banjo-ass.”

Simpson had served in the Senate for 18 years with Biden. They didn’t

agree on much, but as full-fledged members of the Senate club, they

knew how to live in that chummy world, where even the starkest policy

differences were not to be taken personally.

“We’ve got a tough one here,” Biden said in a call to Simpson. After

explaining that the commission would be tasked with essentially fixing

the federal budget, Biden offered him the co-chairmanship.

“Boy,” Simpson replied, chuckling, “that doesn’t sound like anything I

want to do.”

“The president wants you,” Biden said, knowing that left Simpson

little choice. He explained that Congress had been expected to set up the

commission itself, giving its recommendations the full force of law, but a

group of Republicans revoked their support, joining to scuttle the effort.

Yeah, Simpson knew. “It was just ‘let’s stick it to Obama’ day.”

So a presidential commission, Biden said, is the only option left.

Simpson knew a commission appointed by the president would not have

the legal heft of one created by Congress—so Obama’s personal

commitment would be key to its success.

“I’d sure want to visit with the president first,” Simpson said.

“Everything has to be on the table, or it’s just a feckless cause.”

Okay, Biden agreed.

Simpson talked with Erskine Bowles, the former Clinton White

House chief of staff, who would serve as the Democratic co-chair.

He met with Obama’s economic brain trust, Summers and Orszag.

“You know this is a suicide mission,” Simpson reminded them. He

would be pilloried by his fellow Republicans for supporting Obama’s

effort. “Everything has to be on the table including Obamacare, as they

call it. I say you can call it anything you want. Call it Elvis Presley–care,

call it care-care. It’s totally unsustainable.” Obamacare can’t work, he

said, even though it had not yet passed.

Simpson dropped in on his former colleague Senate Minority Leader

Mitch McConnell. Simpson knew too well that the dour McConnell

wasn’t one for heart-to-heart talks, but he wanted to sound him out. He

didn’t ask for McConnell’s support, because at this point the

commission was so nebulous that no one could know what sacred cows

it was going to hit.

“Good luck,” McConnell said. “It’s a tough one.”

Three senators from McConnell’s side of the aisle would sit on the

commission.

“I’ll tell you one thing, Mitch,” Simpson said. “I know you pretty well.

You know how to keep your troops together. And that’s the awesome

strength of your leadership. I don’t know how you do it, what various

methods you use, but you’re a remarkable leader because you’ve got

them together.”

Of course, Simpson did know how McConnell managed his caucus.

He made threats and promises, used fear and cajoling. Take one tough

vote for me, he’d say, take two, and we’ll eventually win the majority

and I’ll get you a committee chairmanship.

“So,” Simpson said, “we know that whatever happens here, you’re

going to call the shots and that’ll be the way that is.”

McConnell didn’t agree or disagree.

• • •

These machinations did not meet Rahm Emanuel’s standards. There was

no agility in the White House, no ability to get organized and move fast

on critical issues like the fiscal commission. He emailed Summers and

others on February 8, 2010:26

“This does piss me off that we have debated this internally for months

ad nauseam and we are a day and a half before the announcement and

just now reaching out to a Republican senator.” Emanuel did not see the

appeal of Simpson. “He’s going to be a headache. Our internal process is

a fucking debating society.”

• • •

Obama had Simpson and Bowles to the Oval Office on February 18, the

day he would sign the order creating the National Commission on Fiscal

Responsibility and Reform.

Simpson sat down in the front chair, which was normally reserved for

the vice president, who hadn’t arrived yet. When he realized, he

apologized and started to move.

No, no, Obama said, you stay there.

After some preliminaries, Simpson stretched out his 6-foot-7 frame

and turned to Obama. “Mr. President, I want to make sure you’re

serious about this, because my Republican friends are going to take my

head off.” The commission would have to consider everything, all

spending, all taxes. “Everything has to be on the table, including all

health care spending and reforms.”

Everyone knew this would include Obamacare.

“Is it all on the table?” Simpson asked.

“Yes,” the president said.

“Rush Limbaugh, he’s just going to say I’m sleeping with the enemy,”

Simpson added. “Mr. President,” he continued, “that reminds me of a

joke. A guy goes and buys a really expensive car, but takes it back to the

dealer and says, ‘God damn it, I just spent $300,000 on this car and the

radio doesn’t even work.’ And the dealer says, ‘No, no, you have to

understand, you bought such an advanced car that your radio is the

newest. Just say what you want to hear and it comes on the radio. You

say jazz, and on comes jazz. You say country, and on comes the country

station.’ The guy, once again really proud of his new purchase, drives off

the lot and gets cut off by another driver. ‘Asshole!’ he yells, and Rush

Limbaugh comes on the radio.”

The Obamaites were used to profanity—they worked with Rahm

Emanuel—but this was new. An extremely tall Republican was telling

Rush Limbaugh jokes in the Oval Office. And they had worked hard to

get him there.

Bowles said it wasn’t good enough that he and Simpson knew that no

policy or program was off-limits. Everyone on the commission needed to

hear it, and they needed to hear it from the president.

In April, before the 18-member committee held its first meeting, the

members gathered in the Roosevelt Room in the White House, and

Obama obliged. He came into the meeting and said, “Everything is on

the table. Wish you well.”

Later, in the public signing ceremony, Obama introduced Simpson

and Bowles, saying they “are taking on the impossible.27 They’re going to

try to restore reason to the fiscal debate.”

6

Stymied on the health care bill by the loss of their 60-vote Senate

majority, the Democrats set out to exploit the Senate’s arcane

reconciliation process, which allows certain budget-related bills to be

brought to the floor for a vote without the possibility of a filibuster.

On March 21, the House held a series of votes that ended with the

passage of a bill identical to the Senate’s original legislation, followed

immediately by a reconciliation bill making the changes to it that the

Democrats had negotiated among themselves. No Republicans voted for

either bill.

It would take another four days for the House and Senate to finalize

the changes in the reconciliation bill, but with the Senate version having

finally passed both houses, Obama had something to sign.

At a ceremony in the East Room of the White House on March 23,

the president signed the Patient Protection and Affordable Care Act into

law.28

Vice President Biden introduced Obama, and before relinquishing the

podium, leaned over to whisper something to him. The microphones

caught his words and broadcast them live:

“This is a big fucking deal.”

• • •

“I know you guys are Republicans,” Obama told a small group of leading

chief executive officers at a White House dinner in early 2010.

“How do you know that?” asked Ivan Seidenberg, the CEO of Verizon

and currently the longest-serving CEO of a Fortune 500 company. He

considered himself a progressive independent among executives and was

surprised by the stereotype.

Seidenberg was also head of the Business Roundtable, the foremost

CEO association in the country, whose member companies had $6

trillion in annual revenue and 13 million employees.

There are natural and inevitable tensions between the business

community and a Democratic president. Both sides knew it, and it was

to the benefit of both sides to find channels of communication and

mutual interest. President Obama was an affable, sports-loving political

hero who promised hope and change. The powerful CEOs of America

were no longer isolated barons, but were themselves public figures,

subject to polls, the media scorecard, and even personal star treatment

when things went right or opprobrium when they didn’t.

Seidenberg worried that Obama did not appreciate the importance of

business. Sure, he understood it intellectually, but did he really admire

the guts and instincts that made corporations succeed, hire workers, and

grow America?

• • •

The White House invited Seidenberg and two other CEOs to the

president’s Super Bowl party on Sunday, February 7, 2010. Seidenberg

felt courted. Neither Clinton nor Bush had invited him to the White

House. There was a blizzard that day, which made travel unappealing,

but there was no way he was going to snub the president. At the White

House, Obama chatted with Seidenberg for about 15 seconds before the

game. But then he went down to the front row to watch the game with

his buddies. That was it. Fifteen seconds. Seidenberg felt he had been

used as window dressing.

He complained to Valerie Jarrett, a close Obama aide and longtime

family friend from Chicago, whose duties included managing relations

with business executives and the White House. Her response: Hey,

you’re in the room with him. You should be happy.

Seidenberg was not.

• • •

On May 4, 2010, Obama addressed the Business Council, another CEO

group, at a meeting in Washington.29 He used a TelePrompTer and took

no questions. Again, the CEOs were dissatisfied. It wasn’t

communication—he was just going through the motions. Orszag later

responded by suggesting the Business Council compile a wish list in

writing. What was it, precisely, they wanted?

The Business Roundtable and the Business Council on June 21, 2010,

sent in a 47-page report called “Policy Burdens Inhibiting Economic

Growth” that listed hundreds of complaints about regulations, taxes, the

new health care reform law, the federal deficit and massive debt. 30

Immigration policy is broken and corporate tax rates are too high, the

report said. The list of specific burdens ranged from Mexican trucking

tariffs “placing U.S. Businesses at a competitive disadvantage” to a new

credit card law that would require “millions of gift cards currently in the

stream of commerce” to be replaced.

Nine days later, on June 30, Seidenberg had a two-hour meeting with

Jarrett in the West Wing to receive the administration’s response to the

report.

Jarrett was furious.

This is total bullshit, she said, carpet-bombing the White House with

a 47-page inventory of complaints without singling out what was really

important. This was unfair, done without warning, not in the spirit of

collaboration.

Seidenberg was astonished at the reaction. After all, Orszag had asked

them to be specific.

• • •

Greg Brown, the president and CEO of Motorola Solutions, took a seat

on the couch in the Oval Office on Tuesday, October 12, 2010. Obama’s

outreach program had by now extended to seven lunches, each with a

trio of CEOs; attendance at key business group gatherings; and several

one-on-one sit-downs like this one.

Brown, 50, a cerebral executive, had at first found Obama personable,

bright and articulate in a previous meeting. Yet underneath the surface

polish, he sensed remoteness. Obama talked, then seemed to listen—but

Brown got the feeling that he was really just waiting to talk again, to

make his points, to win the argument.

Brown wanted to help close the widening divide between Obama and

America’s business leaders, so he was determined to be forthright. After

discussing the state of the economy—not bad, not good—they turned to

the question of how the president might improve relations with CEO

America.

Trust is low, Brown said. You come to meetings with us, use a

TelePrompTer, take no questions—or only prearranged questions—and

the media is in the room. Those are three things that are not conducive

to an open exchange. It would be viewed more favorably if the media

wasn’t there, you lost the TelePrompTer, and we just talked. Take

questions, give some short remarks, and follow them with a genuine,

unprogrammed discussion—both ways.

Obama didn’t say anything, just sat with his hand on his chin.

Second, Brown said, the rhetoric is inflammatory. It is not

constructive.

Give me an example, Obama said.

“Fat-cat bankers”—something the president had said on the CBS

program 60 Minutes a year earlier. 31 That was offensive to me, Brown

said. I’m not a banker or on Wall Street. Using that language is

polarizing. I’m not defending financial services or the banking CEOs. I’m

on a different point: It is not appropriate, it is not presidential.

“I’m surprised that you have such thin skin,” Obama replied.

I don’t, Brown said. It is not presidential, he repeated. We can agree

to disagree, and you can have a strong point of view, but I didn’t think

that was a presidential comment.

Okay, the president said.

Let’s assume you don’t change even one policy—nothing bipartisan or

Republican. No common ground with the business community. The

atmospherics are critical. If you changed the way you talk about

business, the way you talk with business—no TelePrompTer, more

casual, less performance, no photo op—you would generate better

feelings.

Then there was Larry Summers.

Larry Summers, I’m sure, is brilliant, Brown said. No question. In fact

I think he’s probably an economic savant. But he’s a pain in the ass to

deal with. He’s an obstacle. And nothing ever comes out the other end.

“Greg,” Obama said, “he’s leaving.” The administration had

announced in late September that Summers would leave at the end of

the year.

But he’s still here for a while, Brown continued. Summers was a big

issue with the CEOs. When they had questions about administration

policy or plans, they were told to see Summers. When I call, I don’t get

answers. I get cross-examined for even asking questions. And it’s not a

fun experience. So while he’s an economic savant, nothing gets done.

The president burst into laughter. “Larry’s leaving,” he repeated.

Brown felt he had at least achieved his goal of being frank with the

president. But would anything change? The president did not have to

agree with the CEOs, and since he was a progressive Democrat, there

was no reason to believe he would. But he had to show he was listening,

find ways to accommodate them, and demonstrate some empathy for

those running businesses in a down economy.

The abuse had to stop. It wasn’t just Summers, it was also Rahm

Emanuel, the chief of staff and the eyes, ears—and some would say

tentacles—of the White House.

Emanuel was in regular contact with Sam Palmisano, the CEO of

IBM. It was an opportunity for Palmisano, a major business leader, to

offer his thoughts on the reduction of government spending, stimulating

investment, creating jobs, pressing for free trade, reforming the

corporate tax code, and working harder to help businesses be more

competitive.

Often Emanuel didn’t like what he heard because it seemed to be the

standard business agenda.

Palmisano voiced his objection on one administration health care

proposal to Emanuel, saying it would cost IBM about $700 million over

10 years. “You got to understand how we work,” he explained. “My role

is to maximize profits. Yours is to get your guy reelected.” The $700

million in increased cost would mean he would have to lay off some

20,000 employees out of his workforce of 426,000 to offset the new

costs and keep profits steady.

“What the fuck!” Emanuel shouted. That’s not going to happen. Jobs

were a sensitive subject. What the fuck are you talking about? He

continued to drop F-bombs over the phone.

“It’s just math,” Palmisano replied. “Don’t get yourself crazy.

Economics is not politics.”

The phone call then ended abruptly.

Reports quickly circulated among CEOs that Emanuel had hung up

on Palmisano. But the IBM chief later said that he thought Emanuel just

had to leave the call in a hurry.

Palmisano, nonetheless, believed the Obama White House had a

bigger problem. Obama had no chief operating officer, no COO to

implement his decisions. He had people like Emanuel whose primary

focus was Congress. And Obama had Valerie Jarrett and David Axelrod

but they were advisers, and in Palmisano’s view “political hacks” and “B

or C players” who did not know how to get serious about fixing

problems and following through. There was no implementer. Thus the

country was adrift and was not serious about its most fixable problem—

becoming and staying competitive.

Whatever the analysis, however, it was clear the Obama business

outreach program needed work.

• • •

On December 8, 2010, Ivan Seidenberg released another Business

Roundtable manifesto called “Roadmap for Growth. ”32 It covered “the

deep recession and weak economic recovery,” high unemployment, the

federal deficit and “unprecedented” debt.

Seidenberg said publicly, “I think the president has shown a

willingness to learn. ”33

Jarrett immediately phoned Greg Brown of Motorola.

“The president is learning?” she asked. “Is Ivan the teacher and he’s

the student? This is offensive.”

She emailed Seidenberg directly just one word: “Learning?” Then she

called him and expanded on her outrage.

Valerie, Seidenberg wrote back, that was an extreme compliment.

Wasn’t everyone, the president and the CEOs, always supposed to be

learning?

Unappeased, Jarrett continued contacting other members of the

Business Roundtable to say that Seidenberg had insulted the president

of the United States.

• • •

The bottom line for Obama, as best Seidenberg could tell, was that the

president did not trust that anything he did with the business leaders

would ever work out for him. If he cut a deal with business, he was

going to look bad. Business’s interests were not his. And whenever

Obama was cornered, out would tumble the “fat cat” language.

Seidenberg felt that the president just didn’t think it was important to

address the complaints of the business leaders. That was a mistake, he

told Jarrett. He had been the CEO of Verizon throughout the entire

Clinton and George W. Bush presidencies.

“With all due respect,” he said, “we will be here when you’re gone.

I’m a perfect example of that. So you have to realize that this very

progressive agenda, and this once-in-a-lifetime moment for this man in

this world can be lost because guys like me can hunker down and wait

you out.”

So, the theory of the business case shifted. If Obama was going to be

a pain in the ass, Seidenberg calculated that maybe they should turn to

the GOP. “The best way to check them is McConnell and Boehner.”

Word of this soon reached the House minority leader, and it was not

long before Ivan Seidenberg’s phone rang.

“I’d like you to do a fundraiser for me,” Boehner said.

Seidenberg said he’d be delighted.

Two weeks later, at an event in New York City, the business

community raised $1.5 million for Obama’s main Republican

opposition. It was only the beginning.

• • •

After 16 months on the job as OMB director, Peter Orszag wanted out.

Obama and the other senior staff—Emanuel in particular—agreed it was

time for him to go. Emanuel thought Orszag was leaking to the media

and said he had too cozy a relationship with congressional Democrats.

Orszag delivered his final speech as a cabinet member at the

Brookings Institution on July 28, 2010. 34 Responding to a question, he

affirmed that it was the administration’s policy to push for extension of

the Bush administration’s tax cuts for middle-and lower-income

taxpayers, but to allow the cuts for the wealthy to expire.

“That’s the administration’s position, period,” he said.

But privately, Orszag was increasingly concerned that the

administration was going to move to make the Bush tax cuts permanent.

“A disastrous course,” he warned, because the Treasury needed more

revenue.

His last day as OMB director was to be July 30, and with his time in

the cabinet waning, Orszag had his good-bye session with Obama. His

kids had their photo taken with the president, and Obama made one last

request of Orszag.

“Can you write me another one of those memos?” the president

asked. He wanted a private recommendation, which Orszag had provided

before. Obama wanted no one else to see it. Independent, out-of-channel

communications could be more honest.

Why not, Orszag said. Yes, sir.

He began a fellowship at the Council on Foreign Relations, and from

there he went to work. The country was facing an unsustainable budget

deficit over the next 10 years and beyond. It just did not add up. Tax

cuts simply were not affordable. Yes, raising taxes in the recession

would impact consumer spending—the necessary driver of a recovery.

But the United States would not solve its long-term budget problem

unless revenue—meaning tax increases—was part of the equation.

In a draft of his memo for the president, Orszag made his case for

additional revenue, but noted that “Even with substantial fiscal pressure,

Republicans are extremely unlikely to affirmatively vote for revenue

increases.”

He proposed what he called “the best alternative among admittedly

very unattractive options.” The administration should move to extend

the Bush tax cuts for a year without offsetting them, and then demand

that the cost of any further extensions be fully offset.

Ideally, only the lower- and middle-class tax cuts should be

continued, but Republicans, of course, would want to extend them for

the high-income brackets as well. Reaching a deal on extending them all

would be worth it, but just for a year or two.

Orszag sent these thoughts in his memo to Obama, back-channeled

through the president’s personal secretary, Katie Johnson. He heard

nothing back.

By late August, Orszag had branched out. He was preparing for his

debut as a columnist on the op-ed page of The New York Times, some of

the most valuable and high-visibility opinion real estate in journalism.

He sent Katie Johnson an email saying that in a week he was planning to

write a column on taxes, and he planned to make the same arguments

he had made in his private memo to the president. Please, make sure

you tell the president about what I am going to do.

I have told the president, thank you, Johnson emailed back.

It was a delicate path, Orszag was aware. He wanted to alert the

president, but not give him veto power. Johnson’s response and thank-

you was all he needed. He took parts of the Obama memo and cut and

pasted them into his column, which ran in the Times on September 6.35 It

proposed a compromise: “Extend tax cuts for two years and then end

them altogether.”

At his press briefing the following afternoon, White House

spokesman Robert Gibbs attempted to distance the administration from

Orszag’s column. 36 “We certainly didn’t see Peter’s column before it

appeared today,” he said, adding, “nobody that I’m aware of saw the

column before.”

It’s not true that no one in the White House was notified about the

coming column, Orszag wrote in an email to Rahm Emanuel.

Are you saying you told me? Rahm emailed back.

No, I’m saying I told your boss.

The former budget director was slightly surprised that Obama would

hoard information, but Orszag often said that it was a mistake to think

you’ve got someone figured out.

• • •

Orszag continued his star turn in the op-ed spotlight and a month later

drafted a column to appear October 20, 2010, on the sensitive subject of

Obamacare.37 He wanted to focus on one of its weaknesses. The health

care legislation “does many things right,” he wrote. “But it does almost

nothing to reform medical malpractice laws.” The president himself,

Orszag said, had urged, at the American Medical Association in June

2009, that there should be “broader use of evidence-based guidelines”

for doctors treating a specific illness or condition. Orszag proposed that

any doctor who could demonstrate he had followed these guidelines

should not be held liable for malpractice.

Orszag later described the plan to others as a sort of Nixon-goes-to-

China moment. By proposing its own version of malpractice reform, the

Democratic administration could blunt one of the Republicans’ most

common attacks: the claim that Democrats were in the pocket of the

trial lawyers, who benefited immensely from medical malpractice cases.

Should he alert the White House? he wondered. Better not to surprise

them. With some discomfort, because a columnist is supposed to speak

for himself, not his former employer, Orszag sent his draft to Valerie

Jarrett. It was about three days before the column was scheduled to run.

Here’s a draft, he wrote in an email to her. Let me know if you have any

comments.

Thanks, Jarrett wrote back. She offered no comments on the draft.

The column ran as scheduled, unchanged from the draft Orszag had

provided the White House.

Orszag was in an airport when he got Jarrett’s email. How could you

have done this? It’s ridiculous. You’re so disloyal.

You have got to realize the health care bill is wildly unpopular, Orszag

replied. Every single speech I give, if I lead with this reflection on its

imperfections, the dynamic changes. People will then listen. You can’t

hold this law out as perfect. It won’t sell. People think it’s a piece of

crap. The weaknesses must be acknowledged. Then it’s credible to say,

here’s why it is good and why it is the only thing that will work.

Jarrett’s answer was delivered with Politburo finality: You have

burned your bridges.

7

On election night, November 2, 2010, the Republicans seized control

of the House, winning an astonishing 63 seats—the largest swing in 62

years.38

Protocol dictated that the president make a congratulatory call to

Boehner, the presumptive incoming speaker of the House. The trouble

was, nobody in the White House had thought to get a phone number.

Staff began to scramble. Who would know how to reach Boehner?

Finally,

someone

remembered

that

Brad

Woodhouse,

communications director for the Democratic National Committee, was a

fishing buddy of somebody who worked for Boehner.

Someone called Woodhouse. Could he help?

Woodhouse called his friend Nick Schaper, new media director for

Boehner, and relayed a number back to the White House.

At midnight, the phone rang in the Grand Hyatt in Washington,

where Boehner and his staff were celebrating.

Congratulations, John, the president said.

Thank you, he replied. Mr. President, he added, I’ve always been

straightforward and honest with you in the past and that’s the way I’ll be

with you in the future. I’m looking forward to working together to create

jobs and cut spending.

The conversation lasted only a few moments.

Thanks for the call, the speaker said.

• • •

The president had to reassess.

In the next Congress, the Republicans would have a majority of 242–

193. But it wasn’t just control of the House that had changed. The

election had altered the character of the Republican Party in Congress.

Dozens of incoming freshman Republicans identified closely with the

anti-tax, anti-government-spending Tea Party movement, shifting an

already conservative Republican conference further to the right.

In the days immediately following the election, White House staff saw

a different president from the man they had worked with the past two

years.

Obama had kept his cool through the auto industry bailout and the

struggle to pass the Affordable Care Act. But in the immediate aftermath

of the election, he chaired meetings in which he allowed staffers to

ramble on as he sat there, very quietly, very introspectively. He seemed

to be trying to absorb it all and figure it all out. He looked down and

withdrawn in a way the staff had never seen him. He’d been rocked by

the election. Gut-punched.

The “why?” of what happened was left to the pundits, columnists and

analysts—the talking heads. The economy was better but still not in full

recovery. Reports showed that GDP growth in the second quarter of the

year had fallen to 1.7 percent from 3.7 percent in the previous quarter,

and unemployment, though down from its peak, was holding stubbornly

at 9.6 percent.

The $787 billion stimulus had helped, but not as much as the

administration had implied it would. Obamacare was misunderstood

and unpopular, and the same, perhaps, could be said of the president.

One thing was plain. Obama had an immediate operational problem.

After largely ignoring the Republicans for nearly two years, he would

need to open up.

• • •

For nearly nine months, Alan Simpson had been flying back and forth

between Wyoming and Washington to work out of the nondescript

office space the fiscal commission had rented on F Street. Tall, and with

an artificial knee, he couldn’t cram himself into the coach seats that the

commission’s frugal spending rules required. He estimated that he had

spent upward of $25,000 of his own money upgrading to first class.

The 18-member commission had met five times between April and

September, but Simpson and co-chair Erskine Bowles were frustrated by

the lack of agreement among members. The president had set a

December 1 deadline for them to vote on a proposal, so on November

10, Simpson and Bowles took the unexpected step of issuing a plan of

their own.

The 50-page draft outlined measures to cut $4 trillion from the

federal deficit over 10 years through a combination of spending cuts and

increased tax revenue. The proposal included $200 billion in cuts equally

distributed between Defense and non-Defense spending in its first three

years. It offered several options for tax reform. The proposal that

received top billing was the so-called zero option, which dramatically

simplified the tax code by streamlining income brackets, eliminating all

deductions (including the popular exemptions for charitable donations,

mortgage interest and employer-sponsored health care), and by taxing

income from investments, capital gains and dividends at the same rate as

wages. The savings would be used to lower individual rates and reduce

the deficit.

The proposal cut payments to doctors under Medicare and increased

beneficiaries’ premiums. It left Obama’s Affordable Care Act in place,

and actually strengthened the authority of the controversial Independent

Payment Advisory Board, which was supposed to control costs by

identifying which treatments were effective and which were not. The

proposal also advocated the creation of a government-run health

insurance plan that would compete with private insurers on the law’s

health care exchanges.

All payments from entitlement programs that were indexed to

inflation were reduced by changing the way the Consumer Price Index

was calculated. The shift to the more accurate measure, called “Chained

CPI,” had been resisted for years because over time it would dramatically

reduce the growth of entitlement payments.

Finally, the proposal reformed Social Security by gradually raising the

retirement age to 67, making the benefit formula more progressive, and

increasing the amount of an individual’s wages subject to the Social

Security tax.

There was something in the plan for everyone to hate.

“Simply unacceptable,” outgoing House Speaker Nancy Pelosi said in

a statement, citing proposed cuts in entitlement spending.39

Americans for Tax Reform, the conservative lobbying group headed

by anti-tax activist Grover Norquist, warned the more than 275

members of Congress who had signed its Taxpayer Protection Pledge

that support for the plan would be considered a violation of their oath to

never raise taxes.

Simpson and Bowles had exactly three weeks before the scheduled

vote. Under the terms of the executive order creating the commission,

their proposal needed the support of 14 of the panel’s 18 members for

the president to send it to Congress.

They began meeting with commission members individually in an

effort to gather enough votes. Among the six senators on the

commission, two Democrats and three Republicans were on board. Of

the four outside experts, three supported it. But only one of the six

House members, South Carolina Democrat John Spratt, who had

recently lost his reelection bid, said he would vote for the plan. Counting

Simpson and Bowles themselves, that left them with 11—three votes shy

of the number needed to require the president to send it to Congress.

• • •

As part of his new effort to engage with House Republicans, Obama

called Boehner on November 17.

Happy Birthday! the president said. Boehner was turning 61 that day.

In a second gesture, Obama asked the Senate and House leaders of

both parties—eight in all, including Boehner and Cantor—to meet with

him and Biden for a summit meeting at the White House the next day,

November 18.

But when you need friends, it’s too late to make them. Boehner

hadn’t been consulted about the summit, and with the incoming House

Republicans deep in internal battles over realigning committee

jurisdictions, he had no interest in hurrying down to the White House

the next day. Along with Senate Minority Leader McConnell, Boehner

slapped the offer away. They wanted it postponed until after

Thanksgiving.

The tables had turned. They had the votes.

• • •

The delayed summit began in the Roosevelt Room of the White House

the morning of Tuesday, November 30, 2010. The outgoing Congress

had failed to pass a budget—only funding the government through

December 3—and because it was illegal for the executive branch to

spend money not appropriated by Congress, the country was three days

away from possible government shutdown.

“It was a hard-fought election,” the president began. “This is the first

of regular meetings between us.” It was a new world. They would meet,

talk and listen. “We’ve gone through tough times.” But they had a

responsibility, jointly, to grow the economy. There are “going to

continue to be serious political differences,” he said, but “let everyone

get something done.”

The Democrats got “shellacked,” he admitted, repeating what he had

said in a press conference the day after the election. 40 He focused on the

party, not on himself. But it wasn’t just Democrats. “People aren’t happy

with everything that is going on. We all read the polls,” a not very subtle

reference. Polls showed an approval rating of Congress at 17 percent and

Republicans at 31 percent.41

“I haven’t reached out as effectively as I should have,” Obama

acknowledged. “Let’s have honest cooperation, not just photo ops.”

He had a list of what needed to get done in the lame-duck session—

while the Democrats still controlled the House—and what could wait

until the Republicans took over the House in January.

The first big question was what to do about the Bush tax cuts, due to

expire at the end of the year. If the rates for all but the highest income

brackets were extended for another 10 years, it would cost the U.S.

Treasury $3.2 trillion.

They went around the room.

“Congratulations to John Boehner and Eric Cantor,” Pelosi said

graciously. “Two things we need to do: create jobs and control

spending.”

“I am a transparent guy,” Boehner said. He called for more direct

communication, saying they all “need to have more time together.” Jobs

and spending were his focus also.

“Thank you for the spirit in which you have welcomed us,” said

Cantor, whose connection to the Tea Party made him a new power

center in the House. “Thank you for the pay freeze,” he said, referring to

Obama’s recently announced two-year pay freeze on federal workers that

would save $5 billion. 42 He proceeded to list what he hoped would be

“common ground”—deficit reduction, spending and bureaucracy cuts,

and jobs.

On taxes, Cantor emphasized his belief that all the Bush tax cuts

needed to be extended. He urged the others to “look through the prism

of people that have to pay taxes.” Getting on his favorite hobbyhorse, he

said, small businesses are asking, “Where do we get the money?” They

had to let those folks who would create jobs keep their money so they

could invest in their own businesses and expand.

Cantor urged them to act on the Bush tax cuts during the lame-duck

session, and not start in January when the Republicans would control

the House. Otherwise, he more or less threatened, it would have to be

done “retroactively.”

“How do we get out of here?” Senator Reid half joked. How could this

be done before the December holidays? “Try to be reasonable,” he

urged. No one has “a magic wand,” he said, and reminded everyone that

the Senate was different, meaning slow and burdened with many

procedural hurdles.

McConnell, the Republican Senate leader, saw it somewhat

differently. “American people prefer periods of divided government,” he

said. “Sometimes divided government can be productive.” This was

because any deal that passed would necessarily have both parties’

fingerprints on it. The key questions, according to McConnell, were

what to do about tax cuts, how to come to an agreement on the budget,

and yes, how would they get out of town before the holidays? He said he

hoped that something productive would come out of the Simpson-

Bowles commission, and said he was prepared to do some business.

“The long term needs to be our goal,” said Jon Kyl, the Senate

minority whip.

Kyl, at 67, had been representing Arizona in Congress for 23 years,

first as a member of the House, and since 1995 as a senator. One of the

most conservative members of the Senate, Kyl also knew how to exert

political pressure.

Without any attempt at subtlety, he said, the “sooner we get to

agreement on taxes and spending, the more time we will have for

START.” Kyl was referring to a major strategic arms reduction treaty

that the administration had painstakingly negotiated with Russia and

which Obama had been pressing the Senate to ratify. It had support from

both Republicans and Democrats, but Kyl was concerned that the treaty

did not invest enough in weapons modernization.

The “this for that” suggestion was not lost on anyone.

“We have gotten some stuff done,” Obama interjected. He was

pleased they had agreed on setting aside $1.2 billion to compensate

black farmers who had faced discrimination from the Department of

Agriculture. And, he pointed out, they had toughened economic

sanctions on Iran.

Geithner said the economy was growing annually in the 2 to 2.5

percent range, “but not very strong,” noting there was “some risk of

double dip recession.” Next year “could be slightly stronger, 2.5 to 3

percent.” The economic conditions in Europe were “very messy,” and

Europe was the main risk that could damage the U.S. economy.

Larry Summers added that the economic demand for goods and

services was less than the capacity to produce. “Private spending is

sluggish,” he added. “Unemployment claims are dropping . . . not

terrific, but better than we have seen.”

Obama went to the nub, taxes, noting that Boehner and Cantor had

raised the issue. “I would love it to not tax anyone,” he added. “I’m not

hung up on the notion that we have to ‘sock it’ to the rich.”

Simultaneously reducing the deficit, spurring economic growth, and

adjusting tax policy was a complex blend of policies. They might not all

work together, he warned. Under Keynesian economic theory, cutting

government spending hurt economic growth.

So he had an idea that, not coincidentally, his 2012 campaign team

would endorse: “Not doing anything too drastic in 2012, then medium-

tough measures in 2013 in spending . . . then taking on long-term

entitlement.”

Turning to what would later become his campaign focus, he said,

“Our view is the middle class have been impacted” by the recession and

as a result those who make $250,000 a year or more should be taxed at

the old Clinton-era top rate of 39.6 percent, while everyone below

should be protected from any tax increase.

“This doesn’t negate the need for spending cuts,” he added, but “we

can’t cut our way out of this deficit.

“Why not decouple?” he asked. “Then have debate on higher

incomes?” He wanted Republicans to consider extending the tax cuts for

people earning less than $250,000 separately from the issue of what to

do with upper-income rates. “That way we can achieve 98 percent of

what we agree on.

“Unemployment insurance is very important,” he added. It benefited

small businesses.

He turned to Cantor. “Eric,” he reminded him, “Walmart says pass

the middle-class tax cuts . . . get unemployment insurance extended.”

The president suggested that each of them assign someone at the staff

level to meet with Geithner and Jack Lew, who had replaced Orszag as

head of the Office of Management and Budget.

“We need to extend the estate tax,” Kyl said, because the generous

exemptions were expiring also.

Obama said they had to get to “what are our options . . . what are

each other’s bottom lines?” Then they could set up a process for

implementing the agreed-on recommendations.

“We all need to step into the rowboat together,” Biden said, using one

of his favorite analogies, so it won’t tip and no one will fall in the water.

“I don’t see enough of the growth” coming from the Simpson-Bowles

fiscal commission, Pelosi said, citing “green jobs” as an example. On

taxes, she wondered if there should be a size limitation on small

business, “so we aren’t giving benefits to companies that don’t need it.”

She added, “We can reward success, but this is about fairness.”

Reid urged his colleagues not to “waste time” on other pending issues

like the DREAM Act, which aimed to create a path to citizenship for

certain illegal aliens brought to the country as minors, or the Zadroga

Act, which expanded compensation for rescue workers disabled as a

result of their actions in the aftermath of 9/11. They needed to focus on

“just taxes and funding,” he said.

Obama turned to Kyl about START. “This needs to get done. The

U.N. Security Council would not have gone along with Iran sanctions if

the Russians hadn’t come along. Can we turn Russia more towards the

West? This is worth doing on the merits. Absolutely vital to our national

interest.”

Missile defense, which used to be very controversial, had just sailed

through. It was all part of a larger strategy with the Russians, he said.

“No politics involved,” Kyl said. “The resolution or ratification needs

to be amended . . . priorities have to be established.” Then he reissued

his threat. “If we agree on taxes and spending, we will have enough time

to take up START.”

• • •

Just before lunch that morning, one day before the fiscal commission

was due to vote, Simpson and Bowles went into the House Ways and

Means Committee’s private library to see the fiscal commission’s three

Republican House members: Dave Camp, Jeb Hensarling and Paul Ryan.

Of the three, Ryan, a 40-year-old Wisconsinite, was the only one with

a national public profile. Six weeks earlier he had published the book

Young Guns: A New Generation of Conservative Leaders, with co-authors

Minority Whip Eric Cantor and Deputy Whip Kevin McCarthy. 43 Ryan

was seen as a major new deficit reduction force in the Republican Party,

a policy intellectual who would chair the House Budget Committee in

the incoming Congress.

Camp and Hensarling, though, would also play important roles in the

new Congress. Camp, from Michigan, would head the powerful tax-

writing Ways and Means Committee, and Hensarling, a Texan, would be

Republican conference chairman, placing him fourth in the ranks of

House leadership.

All three had told Simpson and Bowles that they would not support

the commission’s final recommendation.

The plan the commission was about to release had changed only

slightly from the chairmen’s earlier proposal, and nothing had been held

sacred. As Simpson later put it, everyone “had to agree to shoot one of

their favorite cows.” Democrats would still have to accept deep cuts to

entitlement spending, and Republicans would have to sign off on

increased tax revenue. Controversially, it proposed bridging the gap

between current policy and full implementation of the plan by, in part,

eliminating the Bush tax cuts for high earners.

“I hope and pray that you didn’t vote against this because of pressure

from Grover Norquist,” Simpson told the Republicans. “Because if you

did, I’ve lost all respect for all three of you.”

Norquist is the leading conservative anti-tax activist who successfully

elicits pledges from about 95 percent of the House and Senate

Republicans not to vote to raise income tax rates.

This is not about Grover, Ryan said. You’re broadening the base and

lowering rates. That’s the kind of reform we all agree with. The problem,

Ryan said, was the impact of the commission’s plan to eliminate the tax

deduction for employer-sponsored health insurance plans.

If you remove the tax exclusion for health care, then you’re going to

dramatically accelerate employers’ dumping their employees into

Obamacare, Ryan said. You will eviscerate the employer-sponsored

health care market. Everyone will be shoved into Obamacare and the

cost will explode.

Ryan feared the government would find itself with an open-ended

commitment to paying for the health care of more than 100 million

people. On top of that, he added, the commission hadn’t addressed the

increasing costs of Medicare and Medicaid.

We’re going to accelerate a debt crisis if we put this thing together,

Ryan said.

Camp and Hensarling said they agreed with Ryan. Camp was also

worried that the commission’s proposal was a backdoor method of

raising government revenue, which the plan envisioned capping at 21

percent of GDP—well above the historical average. He thought it should

be in the range of 19 percent.

If you’re going to do reform, you need to do reform, Camp said. If

you’re going to raise money, you need to raise money. And I think to try

to pretend that it’s reform when it’s really raising revenue makes the

reform harder to do.

“That’s a good answer,” Simpson told them at the end of the hour-

long meeting. “I sure will accept that answer. That’s honest.”

Stalemated at 11–7, Simpson and Bowles never called for a formal

vote on the plan, ensuring it would not be sent to Congress. The panel

held a final meeting on December 3, two days past its official deadline.

“The Fiscal Commission has been a success,” Ryan wrote in a

statement appended to the final report.44 “Although I could not support

the plan in its entirety, many of its elements surely are worthy of further

pursuit.”

The president was visiting troops in Afghanistan on the day of the

commission’s final meeting, and the White House released a statement

in which Obama praised the commission’s overall work.

“The commission’s majority report includes a number of specific

proposals that I—along with my economic team—will study closely in

the coming weeks as we develop our budget and our priorities for the

coming year.” 45

But he cited no specifics, and did not endorse the commission’s

conclusions.

In an interview on July 11, 2012, the president recalled that when the

fiscal commission’s plan was released, “none of the House Republicans

vote for it, including Paul Ryan, which also was a harbinger of things to

come.46

“A lot of people ask, well, why not immediately embrace Bowles-

Simpson? The reason that we did not was that the revenue that they

obtained involved eliminating the home mortgage deduction, health care

deduction, charitable deduction, etc.,” he said.

“If people knew exactly what that was, it could not pass Congress. It

would be wildly unpopular. We could not get that done. And the

Defense cuts were actually much steeper than, responsibly, I could sign

on to when we were still winding down the Afghan war. So what I said

to my team was, rather than just embrace, whole-hog, Bowles-Simpson,

let’s take the framework—which is the right one, a balance of spending

cuts and revenue—and let’s affirmatively present to the country what we

think would be a path to bringing down our deficit and stabilizing our

debt. And I said internally, let’s not have any sacred cows. Let’s look at

some things even if Democrats are uncomfortable with it.”

In his State of the Union address the next month, in which he focused

on the nation’s budget problems, the president barely mentioned the

fiscal commission. 47 His proposed budget, released in February, bore no

resemblance to Simpson-Bowles.48

The commission’s plan seemed dead.

8

On Thursday, December 2, Nancy Pelosi, who had a month left as

speaker, rammed a bill through the House extending the lower-and

middle-class Bush tax cuts without the high-income tax cuts the

Republicans considered essential. 49 The bill passed on a largely party-

line vote, 234–188.

The lame-duck force play agitated incoming speaker John Boehner.

“I’m trying to catch my breath,” he told reporters, “so I don’t refer to

this maneuver going on today as chicken crap, all right? But this is

nonsense. 50 All right? The election was one month ago. We’re 23

months from the next election, and the political games have already

started.” Pelosi’s move was contrary to the spirit of cooperation the

president had just promised, he said.

Each side had the same problem. Far apart on tax policy, they had to

agree on a way forward. Otherwise, the Bush tax cuts would expire and

taxes would go up for everyone, which neither party wanted.

The Democrats still controlled the Senate. But Pelosi’s tax bill would

not pass there because Minority Leader McConnell could order a

filibuster. And in the new Congress he would have 47 Republican

senators, up from the current 42, giving him even more of a stranglehold

on legislation.

Biden had seen this coming even before the House vote. If there was a

window to get something done, it was now. Sometimes it came down to

one man. He told Obama he wanted to make a back-channel call to

McConnell.

Sure, Obama said. Why not? Try everything.

Biden was known in the White House as the “McConnell whisperer,”

the person who knew the right combination of sympathy and gentleness,

never force, needed to work with the minority leader.

In an October 2010 interview with National Journal, McConnell had

said that for Republicans, “The single most important thing we want to

achieve is for President Obama to be a one-term president.” 51 The

statement was widely reported in the press and was cited by Democrats

as evidence that Republicans in Congress prized defeating Obama above

the good of the country.

But the coverage largely ignored the rest of what McConnell had said.

Asked if his strategy involved constant confrontation, McConnell said,

“If President Obama does a Clintonian backflip, if he’s willing to meet us

halfway on some of the biggest issues, it’s not inappropriate for us to do

business with him.”

“I don’t want the president to fail,” he said later in that interview. “I

want him to change.”

Working with McConnell would be tricky, but he and Biden had

served together in the Senate for 25 years, and both knew the foremost

Senate club rule: You get some, I get some.

Biden enlisted his chief of staff, Ron Klain. Klain had been an editor

of the Harvard Law Review three years before Obama became the Review’s

first black president. Laurence Tribe, a Harvard Law professor, said

Obama and Klain were two of the most brilliant students he had taught.

Klain, 49, saw the president’s economic philosophy as technocratic. It

seemed to him at times that Obama was seeking mathematical answers

to questions that did not always have them. The president was a

progressive but clearly had a Blue Dog streak. He saw the perils of

unsustainable federal spending.

Losing the House, Klain thought, put them in uncharted territory. At

times like this, Klain would say, “Scary Jaws music was playing in the

background.”

McConnell and his top domestic policy aide were direct with Biden

and Klain.

You’ve got a problem here, Joe, McConnell said. There are things you

want, like the START treaty, and for that to pass, you’re going to need

some Republicans. You don’t want a party-line vote, so the anti-START

people need five, six, seven days of Senate floor debate. If you don’t give

them a fair hearing, I have to round up the Republicans to vote down

START to validate their procedural rights. As their leader, my job is to

protect their right to be heard on this. McConnell said he would order a

filibuster if necessary.

Fine, Biden said. The START treaty would be held hostage until the

Republicans got their debate.

And there was another problem, McConnell explained. We can’t even

do the START treaty until this tax thing gets done. Because for my guys,

getting the tax thing done is the most important matter. If you guys drag

out this tax thing, I can’t get anybody to focus on anything else. “For us,

taxes is the thing.”

The “tax thing” meant the extension of the Bush tax cuts for

everyone. McConnell said that the tax thing was so important that he

would consider anything that Obama and Biden might want in exchange.

Okay, Biden said. A door had opened.

The vice president and Klain weighed the realities of late 2010. Larry

Summers and Biden’s own economic advisers said that raising income

tax rates while the recovery was still shaky would hurt the economy, and

failure to extend the tax cuts before the Christmas season could ruin it.

Even prolonged uncertainty would have a negative impact. And Biden

realized that the Republicans were more adamant in their position—no

one’s taxes should go up, especially in a down economy—than

Democrats were about ending cuts to the upper-income brackets.

Although raising taxes on just the upper brackets remained White

House doctrine—the president had reiterated the pledge before the 2010

congressional elections—Biden was sure the Democrats would cave.

“Our guys will blink,” he said. If they didn’t get a tax deal in the 30-day

lame duck, everyone’s taxes would go up and the economy would likely

take a hit. Republicans would quickly pass an extension of all Bush tax

cuts. In the Senate, a lot of Democrats would fold quickly. So, as long as

there was going to be a deal, Biden said, strike it now. Get that done and

they could get the START treaty ratified.

The president didn’t want to give up that easily. I still want to extend

the tax cuts for everyone but the wealthy, he told Biden.

Biden told him it wouldn’t sell to McConnell.

Let’s try, Obama said.

Biden tried, and McConnell repeated that it was not going to happen.

He wouldn’t budge on the tax thing. His feet were in cement. But, tell

me what else you want.

Biden wanted START. He wanted help for working people to send

their kids to college, help for the working poor, the very poor, the

unemployed. And he wanted to extend Making Work Pay, a program of

$400-a-year income tax cuts from the president’s original 2009 stimulus

program. The cost would be about $60 billion a year.

No way can I sell that, McConnell said. Making Work Pay was

refundable, which meant that it gave money to people who didn’t pay

any income taxes, either because they were poor or had a lot of

deductions. A married couple could get a check from the federal

government for as much as $800 even though they paid no income tax.

Won’t fly.

The deadline was running out on the tax thing, but McConnell’s

adviser Rohit Kumar proposed a solution.

A 37-year-old attorney, Kumar was a Boston native, educated at Duke

and the University of Virginia. An expert in taxes and financial policy, he

had served as an adviser to the two Senate Republican leaders who

preceded McConnell.

Suppose we adopt Making Work Pay, but just for those who pay

taxes? he suggested. No tax due, no check in the mail?

Klain took this idea to his old friend Gene Sperling. Sperling was a

veteran of eight years in the Clinton White House, the last four as head

of the National Economic Council—Clinton’s economic czar. Now 51, he

had played critical roles in the 1993 and 1997 budget deals and was one

of the strongest advocates of progressive causes in the Democratic Party.

Since he had supported Hillary Clinton in the 2008 presidential race, he

had not been given a top economic post in the Obama administration.

Uncomfortable on the sidelines, Sperling had accepted a position as Tim

Geithner’s counselor at the Treasury Department, handling much of the

White House business on deficits, taxes and jobs. He had an office just

down the hall from Geithner’s, and was a fount of new ideas. He had

hired a small army of young, hardworking number crunchers who

worked in a section of the Treasury Department that other staffers

referred to as the BoG, Bureau of Gene.

When Klain confided that they were considering dropping the poorest

citizens from Making Work Pay, Sperling went nuts. “That would be

immoral,” he said. If you do that, we’d be run out of town. No way could

Obama abandon those at the bottom.

All right, said Klain, but Republicans owe us. If the president gives in

on the high-income-bracket extension, that’s $60 billion a year. “So they

should give us $60 billion. That’s fair. McConnell knows that.”

The task now was to find another way to get what was theirs. Sperling

suggested payroll tax cuts.

He knew the tax code and federal budget inside and out. A famous

workaholic, Sperling believed in preparation. He and his bureau had

already gathered the research to show that many Republicans, including

McConnell and Boehner, had been proponents of cutting the payroll tax

that funds the Social Security Trust Fund. The payroll tax was currently

set by law at 12.4 percent, with half paid by the employer and half by the

employee. A cut in the tax would apply only to those who paid it, so

nontaxpayers wouldn’t benefit. Republicans loved tax cuts, and this one

would apply to 160 million workers.

Sperling went back to the Bureau of Gene and put together Power-

Point slides showing all the different Republicans who had been for a

payroll tax cut. Biden and Klain presented the idea to McConnell in a

conference call.

McConnell liked it, and he and his deputy, Jon Kyl, went to the soon-

to-be leaders of the new House majority, Boehner and Cantor.

McConnell announced that they were going to get an extension of the

high-income Bush tax cuts, holding the top rate down to 35 percent.

This was a big victory for Republicans. As their share of the pie, Obama

and Biden wanted a one-year payroll tax cut that would cost $60 billion.

Boehner was fine with the deal.

Wait, said Cantor. A payroll tax holiday was not great policy. Since

Reagan, the Republican Party had been about low income tax rates to

grow the economy. The $60 billion cut in the payroll tax would

technically come from the Social Security Trust Fund, which Reagan and

Tip O’Neill had saved in 1983. He looked down the road into the 2012

tax year. The White House would argue that the cut had to be extended

for another year. Republicans would have no choice but to go along.

They could hardly be for allowing taxes to go up, especially in an

election year.

McConnell and Kyl insisted, so Boehner again said fine. But given

Cantor’s hesitation, McConnell told Biden that if they went along with

the payroll tax cut, he needed something more to sweeten the deal. Kyl

wanted to change estate tax rates, which were scheduled to rise to 55

percent with a $1 million exemption when the Bush tax cuts expired.

The White House would have to accept a drop in the estate tax rate to

35 percent with a $5 million exemption for two years. This was a pet

plan of Kyl’s and of Arkansas Senator Blanche Lincoln, a Democrat.

“It’s just terrible,” Sperling said when he heard the proposal. Obama

and Biden were outraged. This was classic special interest legislation

that might apply to only 6,000 to 7,000 families and would cost the

Treasury $25 billion.

Geithner told the president there was a principle involved. “The only

way you can possibly do Kyl-Lincoln is if they give us everything.”

• • •

Biden knew House Democrats were anxious about the White House

cutting its own deal with the Republicans, so on Saturday night,

December 4, Biden had the Democratic leaders, Pelosi and Hoyer, and

Maryland Representative Chris Van Hollen, a top Democrat on the

House Budget Committee, to dinner at the vice president’s residence.

There as backup were Geithner, Lew and Schiliro. Biden mentioned that

all kinds of ideas were being explored with the Republicans. We’re not

really negotiating, he said. He did not mention extending the Bush tax

cuts, the most explosive issue. You’ll be in the loop, don’t worry about

it, there’s no deal yet.

As usual, there were a great many players to be kept in the loop, and

with the “tax thing” deadline coming closer each day, the loop was

beginning to feel like a noose.

The next day, Biden and McConnell agreed to a basic two-year

extension of all the Bush tax cuts ($544 billion), the payroll tax cut for a

year (now $112 billion), the Kyl-Lincoln estate tax plan (at least $25

billion), and extension of unemployment insurance for 13 months

($56.5 billion). Other provisions favored by the Republicans allowed

businesses of any size to entirely write off the cost of equipment or

other capital investments for the next year. Businesses would save an

estimated $150 billion in taxes. In addition, the highest rate on capital

gains and dividends would remain at 15 percent for two years. Other

details remained unfinished, but both men knew they were close to a

deal.

• • •

On Monday, Biden called Pelosi and other key House Democrats to the

White House Roosevelt Room to give them the good news.

“We got a good deal,” Biden said. “I told your leaderships on Saturday

night when they were at my house that we were working on this,” and

here it is. He attempted to summarize, mentioning now that the Bush

tax cuts for all would be extended for two years.

Blindsided, the House Democrats erupted. There were raised voices,

raw emotions, even shouts of anger.

“I thought we were going to be part of these negotiations,” said Van

Hollen. “I thought I was going to be at the table. We weren’t at the

table.”

This is brutal, thought Sperling, who was backstopping the vice

president. He knew it was a bitter pill, having to extend the Bush tax

cuts for the top income brackets. In the White House they were grieving

too, but they’d had time to come to terms with the idea.

“Speaker Pelosi,” Sperling interjected, “remember what we did in ’93?

Remember when we passed the Earned Income Tax Credit? I went back

and totaled up how much difference that made. It was like $150 billion

to $200 billion.” The EITC, a “refundable” credit, reduces the tax burden

on poor and middle-class families, and if the amount of the credit

exceeds taxes owed, the difference is “refunded” to the taxpayer. It will

be extended under the new agreements, he said, and they should

consider the power of that.

“In the Recovery Act [the stimulus of 2009] you fought to increase

the child tax credit of $1,000, and to increase the refundability. The

Republicans are saying they’ll extend it for two years. If they extend it

for two years, it could go on and on. This could be a great legacy for

you.”

Sperling rolled on. Under the deal, 2 million people would have their

unemployment insurance extended for 13 months, and 8 million

students and their families would see an extension of the American

Opportunity Tax Credit, which provided college tuition assistance.

Pelosi replied that the vice president was going to have to personally

present the deal to all the House Democrats. She wasn’t going to sell it

for him.

Ron Klain also sensed the grief in the room, and he knew it wasn’t

just the result of giving in on a fundamental tax issue. The sorrow was

amplified by the recent election results. Pelosi—just two years earlier

the first female speaker of the House—was suddenly going to be

minority leader. They would all be moving to smaller offices, giving up

committee chairmanships and the larger staffs and status that come with

being “Mr. Chairman.” And for the 63 Democrats who had either been

voted out or were retiring, passing this deal would likely be their last act

as members of Congress. The political setback was enormous.

When Obama entered the Roosevelt Room, having just returned from

a speech in North Carolina, the mood was still angry.52

“I’m drawing a line in the sand after this,” Obama promised, trying to

rally the group. This was his final compromise on taxes. “Let’s protect

the fragile economy. Come the next round when these things expire, I’m

holding. Not happening again.”

Biden had walked over to the Cabinet Room to break the news to the

leading Senate Democrats. Most seemed resigned, but not Senator

Chuck Schumer of New York. Schumer was a showman, and the joke

among reporters on Capitol Hill was that the most dangerous place in

Washington was between Chuck Schumer and a television camera. He

had personally engaged the tax issue with a so-called Schumer

amendment to continue the Bush tax breaks for everyone except those

who made $1 million a year or more. 53 That meant 315,000 Americans

would pay at the pre-Bush top marginal rate of 39.6 percent. McConnell

and the Republicans voted unanimously against opening debate, which

Schumer said was proof that they loved and protected rich people.

“Joe,” Schumer said to Biden, “you’ve got to let this go on.” Schumer

planned to make the Republicans vote again and again and again, to

embarrass them.

“Chuck, you had your vote,” Biden said. “You got your press release.

You’ve got whatever political gain we’re going to get out of this.” Time

to move on. “If we do this now, we can get the tax thing done. We can

also get START done. We can also get Don’t Ask, Don’t Tell done.” The

nuclear weapons treaty and the elimination of the ban on gays serving

openly in the military were two of the Democrats’ major goals. There is

too great a cost for waiting. Scoring political points two years before the

next election? Biden asked. No one would remember.

Biden’s most sensitive conversation was with Harry Reid, who had

not been included in the negotiations.

Reid was frosty. “You guys went and did this deal,” he told Biden.

“You go sell it. Not my deal, not my problem. Not telling you I’m

against it, not telling you I’m for it, not yelling at you, just saying you

guys made this deal. Hope you can line up the Senate Democrats behind

you because I’m not going to.”

Later, the president wanted Reid to come to the White House to

discuss the deal. Obama’s life and his operating style had been built

around avoiding confrontation. Reid’s had been about having

confrontations. “I’m not going to come in after the fact,” Reid said. “No,

Mr. President, you went and did this. You’re going to have to live with

it.”

• • •

At 6:30 that night Obama announced the deal from the White House. 54

The Republicans, he said, wanted to “make permanent the tax cuts for

the wealthiest 2 percent of Americans,” and he had held the extension to

two years.

It was spin. The Republicans would have liked to make the cuts

permanent, but it was never a serious part of the negotiations.

“There are things in here that I don’t like, namely the extension of the

tax cuts for the wealthiest Americans and the wealthiest estates,” the

president said. 55 “It’s not perfect.”

However, he said, the result would keep taxes from going up by

“$3,000 for a typical American family.”

“I’m not willing to let working families across this country become

collateral damage for political warfare here in Washington.”

• • •

In the end, Biden and Klain realized, it had been an easy deal to make.

Everyone had gotten what they wanted. “We walked in with a big bowl

of candy and said, ‘What do you want?’ ” Klain said. “Allocating goodies

in negotiations is a little easier than allocating pain.”

But not all Democrats were happy with the distribution of the

goodies. Many on the left viewed the president’s compromise as

tantamount to betrayal. Ohio Senator Sherrod Brown accused the

president of “blowing a $700 billion hole” in the budget in order to give

tax cuts to the rich. 56

It was in this atmosphere that Obama appeared before reporters on

December 7, and held forth on the necessity of compromise.57 He

sounded as if he had been robbed at gunpoint.

“The middle-class tax cuts were being held hostage to the high-end

tax cuts. I think it’s tempting not to negotiate with hostage takers,

unless the hostage gets harmed,” he said. “In this case the hostage was

the American people and I was not willing to see them get harmed.”

Looking back on the negotiation, the president later told me, “There’s

no doubt that the politics of it, as well as the substantive policy of

extending the high-end tax cuts as well as the middle-class tax cuts, was

very difficult and hard to swallow, partly because it was hard to justify

that [top] 2 percent contributing significantly to economic growth.58 But

we were in a political situation, having just gotten slaughtered in the

House races, and the Republicans feeling ascendant, where we felt that

what we did end up negotiating would give the best chance of

continuing to grow the economy. Essentially, we were willing to swallow

some stuff that was not as helpful to get all the stuff that was helpful.”

• • •

On Wednesday, December 15, the Senate voted 81–19 to approve the

tax deal, and the next day the House passed it 277–148.59 Most of the no

votes came from 112 Democrats.

What was noted only in passing in most news accounts was that the

cost was about $900 billion over two years, more than the controversial

stimulus bill. It would be funded by increasing the deficit and the

national debt by that amount.

In other words, it wouldn’t be paid for.

Bruce Reed, who had been the staff director of the Simpson-Bowles

commission and who would soon take over for Klain as Biden’s new

chief of staff, said, “The era of deficit denial is over. 60 They’re just having

a big year-end close-out.”

On December 15, Don’t Ask, Don’t Tell repeal passed the House, and

three days later it was approved by the Senate and went to the

president.61 On December 22, the START treaty was ratified by the

Senate 71–26.62

Privately, McConnell thought the Republicans got the better end of

the deal. If they had not taken over the House and picked up five seats in

the Senate, he reasoned, they never would have gotten the deal. The

victors didn’t roar into Washington and pillage like in the old days, but

they had momentum on their side.

Biden felt that in the 45 days since the staggering political defeat of

early November, Obama had stabilized his presidency. They were back in

the game.

On February 11, Biden spoke at the University of Louisville’s

McConnell Center, which had been personally endowed by McConnell. 63

A 1964 graduate, McConnell loved the university and was a self-

described “rabid” fan of its sports teams. He had invited Biden to speak.

The McConnell whisperer’s theme was that the political system was not

broken, that progress could be made, and that not only could

Republicans and Democrats work together, but they often like each

other. “They do,” Biden said. “They really do.”

At the White House, Biden’s Senate style of doing business had, for

the moment, supplanted the House approach, exemplified by Rahm

Emanuel’s “We have the votes. Fuck ’em.”

• • •

The administration’s success in getting several of the more controversial

items on its agenda through the lame-duck session of Congress gave rise

to criticism, from Democrats, that the White House ought to have

pushed to settle the upcoming debt ceiling issue as well.

“We saw coming that this debt ceiling could end up being a problem

because, historically, that’s always an unpopular vote. 64 Nobody,

certainly on the other side of, or in the other party to, the White House,

feels like this is a winner to them,” Obama later recalled.

“A whole bunch of people would say, Why didn’t you get a deal on

the debt ceiling back in December? Because you should have anticipated

this was coming. We knew it was coming,” he said.

“Mitch McConnell, who knew he was gaining seats, and John

Boehner, who knew they were gaining seats, were not going to go along

with a situation in which we got a free pass on a debt ceiling, or were

they going to put on a whole bunch of votes to let us off the hook on the

debt ceiling,” he said with a laugh. “They were very explicit about it. So

it wasn’t for lack of trying or lack of awareness. We just couldn’t get it.”

9

Summers resigned as head of the National Economic Council effective

the last day of 2010.65 Later, one night at Harvard, he gave an associate

his private conclusions about Obama and what was driving him. “I don’t

think anybody has a sense of his deep feelings about things. I don’t think

anybody has a sense of his deep feelings about people. I don’t think

people have a sense of his deep feelings around his public philosophy.”

He found Obama to be a judicious manager who did not have driving,

long-formed and long-held convictions on the issues. He was not

ideologically driven.

Once, in a conversation on the longtime liberal cause of disability

insurance, the president said he realized that sending excessive

payments to people who were not working would lead them to not

return to work. There was what Summers told others was an “excessive

pragmatism” in the president, causing him to have some difficulty in

taking a line and sticking with it. It is not a political triumph to have the

left outraged at you and the business community think you’re a socialist,

Summers said.

One day, he said, the president would decry the “fat-cat bankers,” and

then later call top bank CEOs like Jamie Dimon of JPMorgan Chase and

Lloyd Blankfein of Goldman Sachs “savvy businessmen,” adding that he

didn’t begrudge them their success or wealth.66 Summers said he

thought Obama should have taken a consistent line more reassuring to

business. Though he had been the chief business contact for the

administration, Valerie Jarrett was the ambassador, and Summers said

the president paid a price with the business community for keeping her

in that role.

“And she sure talked like she was speaking for [the president],”

Summers said, “and he didn’t disabuse them of that, so I think they felt

patronized and offended by Valerie.”

Summers found the president defensive in some interactions with

business leaders, which wasn’t effective. The Jarrett solution was often,

“We’ll just set up three more lunches with the president and business

leaders.” She had the view that if you simply arranged more meetings,

that would solve any problem. But the interactions had an emptiness

that made the problem worse. Sometimes, it’s not a good idea to have a

meeting and discussion.

According to Summers, “excessive pragmatism” meant Obama’s

views and actions were not easily pigeonholed, leaving the chief

advocates from both the left and right perpetually unsatisfied.

But the president was not satisfied either, Summers said. “Obama

really doesn’t have the joy of the game. Clinton basically loved

negotiating with a bunch of other pols, about anything. If you told him,

God, we’ve got a problem. We’ve got to allocate all the office space in

the Senate. If you could come spend some time talking to the majority

leader in figuring out how to allocate office space in the Senate, Clinton

would think that was pretty interesting and kind of fun. Whereas,

Obama, he really didn’t like these guys.”

• • •

Another problem for the president and his economic team was brewing

in the House. The new Budget Committee chairman, Paul Ryan, seemed

determined to challenge the president on basic federal budget issues,

especially spending on Medicare and Medicaid.

When he had first come to Congress in 1999 at age 28, Ryan had been

so youthful-looking he had problems getting into the House chamber.

His slight frame and a mop of dark hair led the Capitol police officer

guarding the door to assume he was staff.

Ryan believed his most important challenge was learning how to be

an effective lawmaker, and he began charting a path right away. Having

lost his father at the age of 16, he had always sought mentors, working

as a speechwriter for former Republican Congressman Jack Kemp and

former Reagan Education Secretary Bill Bennett. Now he reached out

again, asking a number of the House’s senior members to breakfast or

lunch, seeking guidance.

He sat down at one point with Representative Barney Frank, the

Massachusetts Democrat known for his biting wit and powerful intellect.

Though they were ideological opposites, Frank gave him what Ryan

considered the best advice he got about how to be an effective

congressman. Be a specialist, Frank told him, not a generalist. Focus on

one set of issues. Get on the committee that you care about, and then

learn more about the topic than anybody else.

Ryan also sought out Bill Thomas, the Republican chairman of the

powerful House Ways and Means Committee. Talk to all the experts you

can find, Thomas told him, and read everything you can. Know these

things inside and out.

Having majored in economics and political science as an

undergraduate at Miami University of Ohio, Ryan didn’t take long to

decide that the Budget Committee was where he wanted to be.

Following the advice of Frank and Thomas, he threw himself into the

world of economic policy wonks, consulting with experts and issuing

detailed legislative proposals for balancing the budget and getting the

federal debt under control.

Ryan had come into Congress thinking that health care was a

Democratic issue, and not so much a financial one. But the more he

pored over budget numbers, the more he came to believe that unless

drastic changes were made to health care spending, the United States

could never get its budget under control. This isn’t a social issue, he

concluded, this is an economic issue. On one level, it was not complex—

the drivers of runaway spending were Medicare, Medicaid and Social

Security. Spending on these three entitlement programs would double in

the next 10 years.

By 2007, the beginning of his fifth term, he had worked his way up to

the highest position available to a Republican on the Democrat-

controlled House Budget Committee: ranking member.

Some congressmen aim for such titles because they covet prestige or

authority. Ryan coveted computing power.

As ranking member, he gained access to the actuaries and economists

at the Congressional Budget Office. His research requests would be

honored, and he could test his budget plans against the powerful

computer models used by CBO staff to analyze federal spending.

In 2010, still in the minority, Ryan released his “A Roadmap for

America’s Future”—a plan he said would bring the federal budget into

balance by the middle of the century, eventually eliminating both the

debt and the deficit.67

The centerpiece of the “Roadmap” was a plan to replace the existing

Medicare system with vouchers that recipients could use to purchase

health insurance on the private market. The plan drastically cut federal

spending on Medicare in the coming decades. But the method raised

howls of protest. The value of the vouchers would grow at a rate lower

than the rate of health care inflation, meaning that unless growth in

health care costs suddenly slowed, recipients would have to use more of

their own money each year in order to maintain the same level of

coverage.

In a hearing on February 2, 2010, Democratic Representative Allyson

Schwartz of Pennsylvania said the Ryan plan would “end Medicare as we

know it,” a phrase that would become a standard talking point for

Democrats.68

• • •

But not all Democrats had trashed Ryan’s ideas. The president had

appeared at a House Republican retreat in Baltimore on January 29,

2010, where he praised parts of Ryan’s proposal.

Ryan posted a clip from the event on YouTube.69 What mattered for

Ryan was Obama’s tone. The president sounded like he wanted to avoid

partisan trench warfare.

Obama called Ryan’s Medicare plan “a serious proposal. I’ve read it. I

can tell you what’s in it. And there’s some ideas in there that I would

agree with but there’s some ideas we should have a healthy debate about

because I don’t agree with them.”

The president indicated that he and Ryan were on the same page

when it came to understanding the federal spending problem. “The

major driver of our long-term liabilities, everybody here knows, is

Medicare and Medicaid and our health care spending. . . . Nothing comes

close. That’s going to be what our children have to worry about.”

In the videotaped discussion, Ryan made it clear to Obama that under

his plan those currently 55 or older would see no change in conventional

Medicare, but those who were younger would pay more. “It has to be

reformed for younger generations,” Ryan said, “because it won’t exist.

It’s going bankrupt.”

“As I said before,” Obama continued, “this is an entirely legitimate

proposal. There is political vulnerability to doing anything that tinkers

with Medicare. And that’s probably the biggest savings that are obtained

through Paul’s plan. And I raise that not because we shouldn’t have a

serious discussion about it; I raise that because we’re not going to be

able to do anything about any of these entitlements if what we do is

characterize whatever proposals are put out there as, ‘Well, you know,

that’s the other party being irresponsible . . . the other party is trying to

hurt our senior citizens.’

“That’s why I say: If we’re going to frame these debates in ways that

allow us to solve them, then we can’t start off by figuring out a) who is

to blame and b) how can we make the American people afraid of the

other side. And unfortunately that’s how our politics works right now.

Every time somebody speaks in Congress, the first thing they do, they

stand up, have all the talking points, I see [pollster] Frank Luntz up

here, he’s already polled it. . . . I’ve done a focus group, the way we’re

going to box Obama in on this one, or make Pelosi look bad on that one.

That’s how we operate. It’s all tactics. It’s not solving problems. And so

the question is: At what point can we have a serious conversation about

Medicare and its long-term liability, or a serious conversation about

Social Security or a serious conversation about budget and debt in which

we aren’t simply trying to position ourselves politically?

“That’s what I’m committed to doing.”

It was a remarkable on-the-record olive branch, and Ryan took the

president at his word, hoping for a real dialogue and negotiation.

• • •

On April 5, 2011, Ryan, now chairman of the powerful Budget

Committee, released an updated version of the “Roadmap” called “The

Path to Prosperity. ”70 He highlighted stark differences between his plan

and the annual budget request that Obama had sent to Congress earlier

in the year.

The administration had claimed its plan would reduce the deficit by

$1.1 trillion over the coming decade. The Ryan budget claimed to cut the

deficit by $4.4 trillion.

The administration proposal would continue deficit spending

indefinitely. The Ryan budget would create a budget surplus by 2040.

Ryan had provided the plan to the Congressional Budget Office in

advance and simultaneously issued the results of the office’s analysis.

The CBO largely confirmed Ryan’s claims about cutting the deficit

and bringing the budget into balance.71 But it warned that Ryan would

accomplish that by pushing a large and growing share of health care

costs off the federal government’s balance sheet and onto individuals

and states.

“Under the proposal,” the CBO found, “most elderly people would

pay more for their health care than they would pay under the current

Medicare system.” Ten years into the Ryan program, total spending on

Medicare patients would be higher, because private plans do not hold

costs down as effectively as Medicare. The government would save

money only because its share of those increased costs would be much

smaller. The CBO found that the percentage of total costs paid by

seniors enrolled in Medicare would increase from 25 percent to 68

percent.

The Ryan proposal would also turn Medicaid into a block grant

program, with the amount of money given to the states each year

increasing at a rate slower than the expected increase in health care

costs. The proposal gave states more choices about how to spend the

money, the CBO found, but:

“Even with additional flexibility, however, the large projected

reduction in payments would probably require states to decrease

payments to Medicaid providers, reduce eligibility for Medicaid, provide

less extensive coverage to beneficiaries, or pay more themselves than

would be the case under current law.”

In the end, the elderly and the poor would pay more for their health

care, and the government less. Would this be manageable for seniors

and the poor? Ryan hoped that it would be made so by an economic

renewal that he expected to result from stabilizing the federal deficit and

cutting taxes.

But many Democrats, like Chris Van Hollen, the ranking member on

the House Budget Committee, thought it was fantasy.

The CBO had noted that when the plan was in full effect in 2022, the

average Medicare recipient would be receiving $25,560 in annual Social

Security payments. These would be retired seniors with few potential

sources of additional income. Even if an economic boom were to occur,

it was hardly going to change their circumstances. The Ryan plan would

increase their health care costs by more than $7,000 a year.

• • •

Congressional Republicans had their hands on a political atomic bomb.

The legal limit on government debt, which was currently set at $14.7

trillion, would have to be increased in the spring or summer. If not, the

United States would default on its obligations. Financial markets

considered U.S. Treasury securities the world’s safest investment.

Investing and trading strategies around the globe were built on the

assumption that they were essentially risk-free assets. If the U.S.

stopped paying its bills, confidence in Treasuries would be shaken, and

the economic turmoil that would result was almost unthinkable.

In a January 6 letter to Harry Reid, copied to all members of

Congress, Treasury Secretary Geithner warned, “Default would

effectively impose a significant and long-lasting tax on all Americans and

all American businesses and could lead to the loss of millions of

American jobs. 72 Even a very short-term or limited default would have

catastrophic economic consequences that would last for decades.”

For most of the past decade, increasing the debt limit had been a

routine matter. That had changed significantly in 2009, when Senator

Conrad’s group of Democrats held it hostage in order to force Obama to

appoint the Simpson-Bowles fiscal commission.

Now Republicans led the House, and the takeover had been

spearheaded by candidates affiliated with the Tea Party, whose

opposition to deficit spending animated their campaigns. With the

Treasury nearing the debt limit again, House Republicans were certain

to up the ante and use the extension to extract spending and tax cuts.

Boehner had for months made it clear that a debt limit increase would

only pass if it were accompanied by real spending cuts and serious

deficit reduction.

The White House had a more immediate problem: funding the

government through the rest of the year. Without a budget, the

country’s day-to-day operations were funded under a series of short-

term “continuing resolutions.” Each time one neared expiration,

Republicans warned of a looming government shutdown.

There was a new team at the White House. Emanuel had returned to

Chicago to run for mayor. He was replaced by former Clinton Commerce

Secretary William Daley, 62, an affable lawyer who had strong business

contacts and sympathies. 73 Born into the legendary Chicago political

family—his father, Richard J. Daley, served 21 years as mayor, and his

brother Richard M. Daley served 22—Daley’s background was business.

He had been president of SBC Communications and a member of the

executive committee at JPMorgan Chase.

Jack Lew was now head of OMB, a job he had also held during the

Clinton administration.74 A strong supporter of Hillary Clinton during

the 2008 Democratic primary, Lew had followed Clinton to the State

Department, where he served as deputy secretary for management and

resources for two years. Lew, 55, was a Harvard graduate who wore

round wire-rimmed glasses, and had a head of thick black hair streaked

with gray. He was a committed progressive, unafraid of wading into

political fights. A soft-spoken budget technician, he had been trained in

the office of House Speaker Tip O’Neill, where he had been deeply

involved in negotiating the 1983 deal between President Reagan and

O’Neill to save Social Security. The deal included an acceleration of a

planned increase in payroll taxes from 10.8 percent to 12.4 percent. Lew

had taken away a key lesson. O’Neill publicly described it as a tax

increase and Reagan as a benefits cut. As long as neither challenged the

other’s statements, the deal was accepted. Lew kept a picture of himself

and O’Neill in his office. Next to it, under the frame, was a personal

“Dear Jack” letter of thanks from Reagan, dated April 26, 1983.

After two years of struggling, Gene Sperling was elated when he

finally made it to the White House inner circle.75 Obama picked him to

replace Summers as head of the National Economic Council. After a

decade in exile, he returned to the second-floor West Wing suite of

offices where he had virtually lived during the Clinton administration.

Obama appointed Rob Nabors, 39, director of legislative affairs. 76 A

budget expert who had worked closely with Lew in OMB during

Clinton’s second term, and then as OMB’s deputy director under Orszag,

Nabors had been majority staff director on the House Appropriations

Committee during the Bush administration. His father, a Vietnam

draftee, stayed in the Army, eventually retiring as a major general. As a

child, Nabors lived in places as diverse as South Korea, Italy, Arizona

and Massachusetts. The family finally settled in Virginia, where Nabors

finished high school before going to college at Notre Dame and graduate

school at the University of North Carolina–Chapel Hill. His former boss,

David Obey, the ranking Democrat on the House Appropriations

Committee, once said of Nabors, “He understands the House, he

understands the committee, he understands the town, he understands

the bureaucracy, and he doesn’t take any crap from anybody.”

The White House now had four Clinton veterans at the top: Daley,

Sperling, Lew and Nabors.

10

For perhaps the most important role in the West Wing, the president

turned to someone he had worked with intimately for years, David

Plouffe, his 2008 campaign manager.

Plouffe, 44, replaced David Axelrod, the political adviser for the

administration’s first two years, taking over the most strategically placed

office in the West Wing.77 Though the office was small, it was closer to

the Oval Office than any other, including the chief of staff’s.

Small-boned and almost frail-looking, Plouffe (pronounced Pluff) was

a disciplined political tactician, brought in to align the White House’s

day-to-day policies with the long-term goal of making sure Obama won

reelection in 2012.

Plouffe had dropped out of college in 1989, after his junior year, to

work on his first political campaign. He completed his degree in 2010.

Now, after more than two decades of total immersion in Democratic

electoral politics, he knew the entire landscape—the Congress,

grassroots organizing, fundraising, messaging, advertising and strategy.

Within the West Wing he had the most orderly desk. All papers, files

and schedules were carefully arranged. He was in on every important

presidential decision, quick to anticipate the second, third and if need be

the fourth and fifth bounce of any move.

To any request that he deemed in Obama’s interest, he would say,

“I’ll facilitate that” or “I’ll make sure that happens.” And it then would.

In many respects he was running the White House.

Careful but occasionally profane, Plouffe seemed almost egoless on

the surface. But he was not modest about his accomplishments, skills

and place in history. His 2009 campaign book, The Audacity to Win, began

with an account of a conversation he had with David Axelrod, Obama’s

other top political aide. 78 “We had just elected the president of the

United States,” Plouffe wrote. 79 Not that they had managed it or that

Obama had won it, or that the voters had selected Obama. He and

Axelrod—the “we”—had won it. He also reported immodestly what

Obama had said to him when he told him he wanted him to manage the

campaign. “I’ve been impressed by your judgment, temperament,

organization and strategic sense. 80 . . . I can see you understand the

rhythm and contours of a race like this.”

Plouffe also wrote that when President-elect Obama spoke at the

Lincoln Memorial the Saturday before his inaugural, he asked Obama if

he was looking up at Lincoln. “Very observant, Plouffe,” he quoted

Obama as saying. 81

As Plouffe involved himself with war-room-like intensity with the

economic decisions before the president, he returned to a theme that

went back to the 2008 election about Obama. “He is, in his gut, a fiscal

conservative,” Plouffe said. “There is a Blue Dog streak in him.” And

that was likely to play against the president’s political interests within

the Democratic Party.

• • •

The current continuing resolution to fund the government was due to

expire on March 4, so Daley reached out to Boehner to open

negotiations. Daley’s appointment had seemed like a good sign to

Boehner, who knew and trusted the new chief of staff.

Hey, he told Daley, you ask for this much. I’ll ask for this much. We’ll

end up somewhere in the middle.

You know what? Daley reported to the president, Lew and Sperling.

Boehner is a partisan, but you can cut a deal with the guy.

The speaker wanted several billion dollars shaved off of federal

spending, and the White House complied.

But a longer-term agreement was elusive. Boehner seemed willing to

deal, but Lew and Nabors ran into problems as they tried to work out

details on the Hill. Barry Jackson, Boehner’s chief of staff, was not nearly

as accommodating. First he would send them off to different

congressional offices. Go deal with the members of the House

Appropriations Committee, Jackson suggested. Then agreements would

slide or get fuzzy. It was never-ending. Sperling joked that Jack Lew

swore more times in a day than he had in all his eight years in the

Clinton administration.

Late on the evening of April 8, Boehner and Obama met in the Oval

Office and settled on the terms of a final deal. But up on the Hill,

Republicans on the Appropriations Committee didn’t get the message.

Lew and Nabors found themselves in the Capitol until 4 a.m., being

asked to make changes to a deal they thought was done.

We’re not going to renegotiate what the president and the speaker

signed off on at eleven in the Oval Office, Lew said. The president and

the speaker are going to have to talk.

At eight the following morning, Obama called Boehner.

“John, you’re the speaker of the House, the leader of the Republican

Party,” Obama said. “I’m the president of the United States, leader of

the Democratic Party. The country depends on the two of us being able

to do our business together. When I give you my word, it has to mean

something. When you give me your word, it has to mean something.

And it can’t be that people go back and agreements that we make don’t

stick.”

Then, the president later told senior staff, the most perplexing,

troubling thing happened. Instead of denying that things weren’t going

as he’d promised, Boehner seemed to apologize. As if embarrassed,

Boehner told the president that, at the time, at least, he had meant what

he said. There were obviously things Boehner couldn’t control, the

president said.

Finally, on April 9, Congress passed its seventh and final continuing

resolution, and agreed on a budget that would carry the government

through the end of September. 82

• • •

The speaker thought the continuing resolution fight had given him a

chance to seize the moral high ground and force spending cuts. He got

the House to pass legislation that funded the Defense Department for

nearly six months while cutting an additional $12 billion from other

departments and only funding them for one week.

Finally, Boehner won $38.5 billion in cuts for the year. He was the

toast of the town at Republican dinners and fundraisers and in his own

conference, where more than two thirds of the Republican freshmen had

voted with him. In an internally circulated six-page chronology,

Boehner’s staff hailed the continuing resolution fight as “the first big

challenge of the new majority. ”83 Boehner touted the $38.5 billion in

cuts and said, “The agreement enacted the largest non-Defense spending

cut in dollar terms in American history.”

But on Wednesday of the following week, members of the Republican

conference got some unwelcome news. The Congressional Budget

Office, which produces nonpartisan analysis of federal spending, had

taken a hard look at the numbers. 84 The true savings for the remainder

of 2011 would be more like $352 million—less than one percent of what

the speaker was claiming. The speaker’s numbers hadn’t included

funding for overseas operations by the military and other agencies in

Afghanistan and Pakistan. Add them to the mix, and discretionary

spending would be $3.3 billion higher than in 2010.

Proponents of the deal, it turned out, had counted dubious sorts of

“savings” in the plan, including money that, by all accounts, was never

going to be spent in the first place. Once the gimmicks were swept aside,

it became clear that Boehner was asking Republicans to approve what

amounted to a spending increase.

The battle over the continuing resolution, Obama later recalled, had

been “somewhat painful” and “a little bit annoying.” 85 In the end, he

said, “We were able to avoid a shutdown. The only thing that happened

there was I missed, I think, a long weekend with Michelle, so I got in

trouble at home.”

What stuck with the president was how differently the deal was

perceived by Democrats and Republicans.

“Some of our friends on the left would howl and act as if we had

dismantled the New Deal in this continuing resolution deal,” Obama

said, “when in fact, in retrospect, actually, we did a pretty darn good job

of negotiating and protecting things that we cared deeply about.

Ironically, while the left thought we’d been completely outmaneuvered

by John Boehner, his caucus thought that he had been completely

outmaneuvered. That sets the stage, then, for the later negotiations.”

• • •

Another skirmish in the battle over the continuing resolution grew into

a well-fortified battle line. During the heated negotiations, Barry

Jackson, Boehner’s chief of staff, reported to David Krone, Reid’s chief of

staff, that Bill Daley, the White House chief of staff, said there was a

breakthrough.

“I talked to Daley,” Jackson said. “He told me that you guys could get

to at least $70 billion in cuts.” It was much more than the White House

had been proposing.

Reid and Krone were surprised. Daley said his statement had been

misinterpreted. But Krone and Jackson had developed a strong

relationship, and Krone believed the speaker’s chief of staff over the

White House chief of staff. So did Reid, who was outraged that Daley

would insert himself in the negotiation.

“Mr. President,” Reid said in a talk with Obama, “this has to be a

relationship between you and me.” Dealing with the new Republican

House majority was going to be difficult, and Daley was talking to

Boehner’s chief of staff. “What’s your chief of staff doing going around

and having his own conversations without telling us?

“I’ll tell you when I want your chief of staff coming up here. I’ll let

you know when I need him.”

• • •

Media reports cast the coming debt limit debate as a major showdown.

The business and financial communities issued dire warnings. Failure to

raise the debt limit in a timely manner would be “a recovery-ending

event,” said Federal Reserve Board Chairman Ben Bernanke. 86 It would

be “catastrophic and unpredictable,” said JPMorgan Chase CEO Jamie

Dimon. 87

Republican House freshmen vowed not to increase the debt limit, or

to do so only under the most stringent conditions. “The only way I

would even consider to vote for raising the debt ceiling,” said

Representative Raul Labrador, a Tea Party–affiliated lawmaker from

Idaho, “is if we have passed, in both the House and the Senate, a

Constitutional balanced budget amendment.”

A budget based on Representative Ryan’s “Path to Prosperity” was

expected to pass the House with the promise of cutting $4 trillion in

spending over the next decade. The administration had not responded.

The $1.1 trillion in cuts in its own budget request, sent to Congress

earlier in the year, looked paltry.

In the White House, Obama and his staff knew they needed a basic

framework to counter Ryan.

Lew and Sperling, reflecting their budget wonk roots, told the

president that the only way out of partisan gridlock was to propose their

own major budget, spending and tax deal with the Congress. The only

times in recent history when big deals like this had actually worked were

when the president brought together the key players—House and

Senate, Republicans and Democrats. They cited Reagan and Speaker Tip

O’Neill in 1983 on saving Social Security, George H. W. Bush and the

Democrats in 1990 on raising taxes, and Clinton and Speaker Newt

Gingrich on the budget in 1997.

“You bring everybody in the room,” Sperling said, “you hold hands,

and you jump together.”

The senators in the so-called Gang of Six—an unofficial bipartisan

group of three Democrats and three Republicans—had been promising

to put out their deficit reduction and tax plan. Maybe the White House

could adopt theirs somehow. But despite frequent promises that the

plan was imminent, the Gang didn’t get it done.

“We’re not waiting,” the president said in exasperation. He wanted to

rip into Ryan’s plan. He was holding several meetings a week with his

economic and speechwriting teams to figure out how best to do it and

on the weekend of April 9 and 10, the president summoned them to the

Oval Office. He wanted a credible alternative plan. Democrats didn’t

want him to cut Medicare. But to prove his seriousness about deficit

reduction, he said, he wanted to propose hundreds of billions of dollars

in Medicare cuts and additional cuts in other cherished programs. He

would also propose some cuts in Medicaid, the health insurance

program for the poor. But there was a line that couldn’t be crossed, and

Ryan’s plan had crossed it. The Ryan plan was a model of excess.

Obama was jotting notes as he talked. A speechwriter and aides also

took down what he said.

“I want to say this idea that we can’t get our deficit down without

brutalizing Medicaid, it’s a dark view of America,” he said. He wanted

that idea in the speech.

The Ryan view is that “we can’t afford to invest in our infrastructure.”

In mid-March Obama had visited Brazil, Chile and El Salvador. “Can you

believe in South America, they’re doing this stuff?” He had met with

heads of state and they said, “The main thing in our country is to build

up our infrastructure.” And these were the conservative leaders, he said

acidly.

Obama was getting fired up as he worked through what to say and

how to say it. He wanted a $4 trillion deficit plan too, but the cuts were

too severe. The progressive and liberal base would be deeply distressed.

Sperling suggested an old trick from the Clinton years: Stick with the

$4 trillion—that was easy to understand—but instead of projecting it

over the traditional 10 years, do it over 12. No one would really notice.

Few would do the math. By stretching the plan out and loading most of

the cuts into its final years, the early cuts were substantially smaller.

As the draft was being polished, Obama recognized that he had gone

past an opening offer to his final one. He had negotiated with himself

and was presenting a compromise. His Blue Dog had risen; under this

framework, there would be pain for all. When he announced the plan, he

realized, he couldn’t describe it as a starting point for discussions. The

framework was, simply, “where we have to be.”

He had been absent from the public debate for some time. It was now

time to let the world, and the Republicans, know where he stood. “I’m

not splitting the difference on Medicaid,” he said. He had gone as far as

he was going to go. The speech was ready.

11

In the White House congressional relations office, preparations were

under way for the president’s speech, scheduled for April 13, at George

Washington University. A junior staffer noticed that Alan Simpson and

Erskine Bowles, the co-chairs of the president’s fiscal commission, were

invited, and suggested in an email that the other members of the fiscal

commission should be too.

Including the seven who didn’t vote for it?

Well, someone said, that would be the polite thing to do.

Done. Do the polite thing.

So Ryan, Camp and Hensarling—three Simpson-Bowles no votes—

received invitations to Obama’s speech.

Aha! Ryan reasoned, Obama is going to pull a Clinton-type

compromise. He was going to “triangulate,” meaning he’d take ideas

from both sides and devise what he thought would be a higher order or

“third way.” Well, that was pretty much to the good, Ryan thought.

When he learned that Simpson and Bowles were invited, along with

all the commission members, he thought, “Obama’s going to endorse

Simpson-Bowles!” Maybe some health care entitlement and Medicare

reforms could be devised. “We can get an agreement,” he thought.

So, on April 13, Ryan, Camp and Hensarling piled into Hensarling’s

Jeep Cherokee for the trip across town to George Washington

University.

• • •

At 10:40 a.m., Obama gathered the eight top congressional leaders from

both the House and Senate in the Cabinet Room of the White House to

preview his speech.

“I will speak about long-term debt resolution today,” Obama said,

noting that the debate over the last few months on the continuing

resolution had been just a “warm-up.” Not being totally frank, he added,

“I feel good about how the negotiations proceeded.”

The president was going to urge repeal of the Bush tax cuts for the

wealthy when they expired at the end of the next year, and he would not

support Ryan’s proposals for Medicare change. Revenue and Medicare

were going to be areas of contention. When Congress returned from its

upcoming recess, they would have “a very short runway.”

Obama said he wanted the leaders to work toward a package that

identified $4 trillion in savings—similar in size to the Bowles-Simpson

plan. He wanted them to take a balanced approach, which would include

increased tax revenue. “For us to do nothing on revenues is not a

balanced approach.

“I’m calling on Joe Biden to lead a working group of House and

Senate members from both parties. I’m asking everyone to work

seriously to come to an agreement.”

Geithner reminded them that the federal government would run out

of money in just over a month. He placed the date at May 16, but

repeated what he had said in congressional testimony the previous week:

He had financial tools that could push the drop-dead date out a further

six to eight weeks, possibly to July 8. So the length of the runway was

not clear. “We can’t get too close to the brink,” he said. “It will be too

hard to undo the damage.”

It was a small window in which to act, Boehner agreed. “We need

more revenue,” he added, contradicting his party’s line that excessive

spending, not too little revenue, was the problem. Then he seemed to

catch himself and steered back to orthodoxy—“but we can get them

through economic growth.”

Boehner’s claim relied on so-called dynamic scoring of the federal

budget. The idea was that if the economy grew, people would make

more money and pay more taxes. It seemed logical. The problem,

however, was that the Congressional Budget Office could not calculate

hypothetical revenue and accordingly would not count it in the official

budget score. Even Congress’s own Joint Committee on Taxation gave

limited credit for expected economic growth.

Harry Reid was exasperated. “We have all these theoretical plans,” he

said, “but we need to figure out how to get this done.” They had a lot of

work ahead. “I don’t know how we get from here to there,” he said with

dreariness in his voice.

Biden turned to process, suggesting that each side appoint four people

each from the House and Senate. He believed that each side would want

someone from leadership as well as representatives of the Budget,

Finance (Ways and Means in the House), and Appropriations

committees. That would be a total of 16.

“Sixteen seems like too big of a group,” McConnell said.

Pelosi, to no one’s surprise, said she favored tax hikes for the wealthy,

and recommended a budget developed by Chris Van Hollen, the senior

Democrat on the House Budget Committee.

Obama said they could streamline or reduce the Biden group if

necessary.

“Politics should stop on the debt limit,” said Senator Dick Durbin, the

No. 2 in the Democratic Senate majority. To the president he said, “I

disagree with you on Defense.” They should be able to find another

$500 billion to cut over 10 years.

“I join the speaker,” Cantor said. “We don’t want to default on the

debt.” He projected a penetrating gaze from behind his glasses. They

needed to decide what parts of the budget were open to negotiation.

Referring to the Republicans in the House, he said, “I, we as a

conference, won’t raise taxes.”

It was a direct challenge to a main tenet of Obama’s proposal—that

taxes should go up on the wealthy. But to Cantor, the consummate vote

counter, it was also a simple statement of the facts. The new Republican

majority had dozens of Tea Party adherents who not only would never

vote to raise taxes, but were on the record saying they wouldn’t raise the

debt limit. Virtually all the House Republicans saw spending cuts as the

path to long-term resolution of the deficit. Obama didn’t have the votes

to raise taxes.

At first, Obama avoided answering Cantor’s comment and shifted to

what he said was a “very good point” on the need to define exactly what

would be on the negotiating table. Each side, he said, would “have to

give a little bit” to show the markets they were serious. Then he

returned to the revenue issue. “You have all said we can’t deal with

revenues.” That was “a thing that we can’t give on too.”

The president stated what everyone knew: Revenues and Medicare

would be “the central areas of disagreement.” Maybe a down payment

could be made, “with a little pain for everyone.

“Give Ryan credit. There is a choice; we can’t have everything and not

pay for it.”

Steny Hoyer, now the House Democratic whip, suggested they should

shoot for solving this in the next month—by June 8, not July 8. “The

more we hold the debt limit hostage, the worse off we are.”

“We can’t play chicken with the debt limit,” Obama agreed. But, he

added, “We can’t ask either side to swallow something that is

fundamentally irreconcilable with their beliefs.”

Biden laid out his theory of the case: “Find the sweet spot on what we

can get done and leave something to be resolved in the next election.”

You get some, we get some.

Geithner expressed his concern. “We can’t have a ‘Countdown to

Default’ on every TV station.”

The president made a final point. These talks would be serious.

“Whoever is at the table has to be able to speak for you.”

• • •

A few hours later, Obama headed half a mile down Pennsylvania Avenue

to deliver his speech at George Washington University. Sperling was

mingling with the crowd when someone waved at him. Who is that tall

man who waved at me? he wondered as he put on his glasses.

It was Ryan. And his two Republican cronies. None of the three had

voted for Simpson-Bowles. How had they been invited? And this was the

day the president was taking off the gloves. Sperling hurried back to

Daley with the warning, and Daley sprinted backstage to get to the

president.

Too late.

• • •

Michigan Representative Dave Camp, a tall, spare Midwestern

Republican, arrived sharing Ryan’s assumption that Obama was about to

endorse Simpson-Bowles. Camp, who had taken over the chairmanship

of the House Ways and Means Committee in January, had been

surprised when he received the invitation. But if the president was

endorsing Simpson-Bowles, Camp figured, it was important for him to

be there—to show that he wanted to be part of the process.

He took his reserved seat in the front row, on the end and next to

Ryan.

Waiting for the president to be introduced, Camp looked off to the

side of the auditorium and spotted Sperling peering toward him and his

companions. People were milling around the room, greeting one

another.

Why doesn’t he come over and say hello? Camp wondered. He’s

looking at us.

• • •

When the president took the podium he was only about 25 feet away

from the first row of the audience, but with the spotlights in his eyes, he

didn’t spot the three Republican House members. As Ryan took his seat,

he glanced over to his left and saw a photographer with a long telephoto

lens, on a unipod, aimed straight at him.

That’s weird, Ryan thought. Why me? It was like a photographer at a

football game zeroing in on the end zone.

Obama rolled gently into the subject, speaking of American unity.

“We’re all connected,” he said, and then he jabbed.88

The plan and vision, he said, “presented and championed by

Republicans . . . would lead to a fundamentally different America than

the one we’ve known, certainly in my lifetime. In fact, I think it would

be fundamentally different than what we’ve known throughout our

history.

“A 70 percent cut in clean energy, a 25 percent cut in education,” he

said. “These are the kinds of cuts that tell us we can’t afford the America

that I believe in and I think you believe in.”

Ryan sat stiffly in his chair, refusing to give the man with the

telephoto lens a hint of his chagrin. This wasn’t an olive branch. This

was not Bill Clinton, not triangulation, not Simpson-Bowles. This was

what he called “game-on demagoguery.”

Ryan’s worst suspicions about the president were realized: Obama

wasn’t just phoning it in for Pelosi and Reid, he really believed this stuff.

In one of the speech’s harshest sections, Obama attacked not only

Ryan’s plan but his entire vision. “It says that 10 years from now, if

you’re a 65-year-old who’s eligible for Medicare, you should have to pay

nearly $6,400 more than you would today. It says instead of guaranteed

health care, you will get a voucher. And if that voucher isn’t worth

enough to buy the insurance that’s available in the open marketplace,

well, tough luck. You’re on your own. Put simply, it ends Medicare as

we know it.”

He warned that “up to 50 million Americans” would lose Medicaid

coverage—grandparents, the poor, the middle class, “children with

autism or Down syndrome.”

Over the top, Ryan was thinking.

Camp felt the same way. Ryan’s initial plan had included vouchers.

But the Ryan budget that was on the verge of passing the House did not.

It offered premium support, which meant the amount of government

support would rise in response to premium increases—very different

from a flat voucher program, he thought.

Camp thought the president was deliberately mischaracterizing the

Republican position. It seemed the sort of attack that would have been

more appropriate on the campaign trail.

All these cuts, Obama continued, are offered in exchange for a $1

trillion tax break for the wealthy. “They want to give people like me a

$200,000 tax cut that’s paid for by asking 33 seniors each to pay $6,000

more in health costs. That’s not right. And it’s not going to happen as

long as I’m president.”

The Republican plan, he said, was “less about reducing the deficit

than it is about changing the basic social compact in America.”

• • •

As soon as Obama concluded, Sperling dashed to intercept Ryan. But

Ryan had gotten up quickly and headed out with Camp and Hensarling.

This is going to be a long two years, Ryan was thinking, a hard slog.

Obama had just doubled down on his ideology. The debt crisis was only

going to get worse. He prayed they could hold the bond markets at bay

“long enough to get somebody new to fix this problem.”

Striding out of the auditorium, Ryan heard someone shouting, “Mr.

Chairman! Mr. Chairman!” He thought it was a reporter. He was not

going to stop and answer questions, so he ignored the voice.

Then he saw it was Sperling running after him. Catching up with him,

Sperling practically grabbed Ryan’s coat.

This wasn’t planned, he said. This wasn’t a setup. Sperling saw that

Ryan was genuinely ripped.

“I can’t believe you poisoned the well like that,” Ryan said quickly,

and kept walking. Sperling kept talking and following. Ryan kept

walking and didn’t listen.

Back in Hensarling’s Jeep, the three congressmen vented. This was

outside the normal boundaries of partisan discourse—right between the

eyes from the president himself. Why did he invite us? Why did he

invite the whole Simpson-Bowles commission? What was he up to?

Ryan took out his BlackBerry and began punching out a statement

calling the Obama speech “excessively partisan, dramatically inaccurate

and hopelessly inadequate to address our fiscal crisis. ”89

Back at the Capitol, Ryan took a call from Alan Simpson.

“I’m going to go throw up in the tulips,” Simpson said. The

president’s words and demeanor, he said, were way over the line.

Then Erskine Bowles called. “I was disgusted,” the longtime

Democrat said. “I couldn’t believe that he did that. And I’m going to talk

to the president about it.” He said he was apologizing.

“It’s not your fault,” Ryan replied. “You don’t need to apologize for

anything.”

Ryan’s presence at the George Washington University speech

fundamentally changed the public and media perception of what the

White House had hoped would be a major budget moment. 90 Instead of

reshaping the debate, the speech widened the partisan divide. The

contrast between the cool bipartisan talk at the White House in the

morning and the attack on the Republicans was stark.

Ryan felt betrayed. He’d expected an olive branch. What he got was

the finger.

• • •

At the White House, there was no witch hunt launched to uncover who

in the congressional relations office had failed to tell senior staff and

Obama that Ryan and company would be at the speech.

Sperling waited several days and then called Camp and Ryan.

That’s our speech, Sperling said to Ryan. Proud of it. But it wasn’t a

setup. He tried to explain how and why the president didn’t know the

trio of Republicans was in the audience.

There are fights, Ryan said, and of course, we beat the hell out of the

president. But we’re just Congress. He’s the president. Isn’t he supposed

to be kind of above it all?

• • •

“I was not aware when I gave that speech that Paul Ryan was going to be

sitting right there,” President Obama later acknowledged in an

interview. 91

Had he known Ryan was in the audience, Obama said, “I might have

modified some of it so that we would leave more negotiations open,

because I do think that they felt like we were trying to embarrass him.

“We made a mistake,” he said.

• • •

For Dave Camp, the 57-year-old chairman of the House Ways and Means

Committee, the White House claim that the invitation to the George

Washington University speech had been an honest mistake didn’t sound

right. No White House did anything that wasn’t calculated. That they

had been given reserved front row seats by accident was hard to believe.

Camp was puzzled. This administration’s approach to Congress was

different from what he was used to.

He had first come to Washington as a congressional staffer during the

Reagan administration. Reagan had deployed administration liaisons all

over Congress. White House aides were everywhere on Capitol Hill.

Camp could remember Reagan getting on the phone with a lowly

freshman congressman to discuss legislation. Not coincidentally, Reagan

was often able to get things he wanted out of Congress, whether by

cajoling or muscle.

Camp was a congressman himself by the time Bill Clinton, another

president who often bent legislators to his will, took office in 1993. A

self-described “nobody” on the Ways and Means Committee, he had

gotten a call from Hillary Clinton about a bill he had introduced. As

Reagan had, President Clinton deployed congressional liaison staff

across Capitol Hill to develop relationships and create trust.

But from the Obama administration there was virtually no outreach

or contact.

During Obama’s first two years in office, Camp was the ranking

Republican on the Democrat-controlled Ways and Means Committee.

He was one of the more politically moderate House Republicans. Yet the

administration’s Hill staff didn’t even seem to know who he was. He

never saw them.

After Republicans won control of the House, the administration

didn’t seem to know how to connect with them on either personal or

policy terms. They hadn’t found their bearings. The Rahm Emanuel

approach to congressional relations—“We have the votes. Fuck ’em.”—

wouldn’t work anymore. They didn’t have the votes. Obama’s post-

election promise of regular meetings and better communication had

never materialized.

More than four months later, with Camp sitting in the Ways and

Means chairman’s seat, one of the most powerful and coveted positions

on Capitol Hill, nothing had changed. Polite and approachable, he was

the tax man in a time dominated by debates over taxes, and he still felt

like a stranger to the White House and the president.

The result was a lack of trust that made even the most bipartisan

legislative efforts impossible at worst, and a chore at best.

Not long after the April 13 speech, Camp spoke privately with

Geithner about three free trade agreements the administration had

negotiated, with South Korea, Colombia and Panama. They had broad

support from both parties—Republicans could sell them as good for

business, and Democrats could pitch them as creating good middle-class

jobs.

Roll out these trade agreements right away, he told Geithner, and I

can guarantee you, they will pass the House with a large bipartisan

margin. It wasn’t an idle promise. Camp was close to Boehner and knew

the importance of free trade to the Republican leadership.

Geithner didn’t have much of a response.

Camp raised the issue with Sperling. And with White House chief of

staff Daley. But the agreements still didn’t come to the Hill. It was clear

to Camp that the White House wouldn’t take him at his word. The

administration seemed paralyzed by uncertainty. Where were the

administration’s legislative representatives? Where was the president?

Does Obama want to chair the Democratic National Committee, or be

president of the United States? Camp wondered. Why isn’t Obama

doing what presidents are supposed to do?

The three free trade agreements didn’t come before Congress until

October of 2011, when they were introduced, passed and sent to the

president in the space of six days. 92 All three passed with large bipartisan

majorities in the House on October 12. The vote on the South Korea

agreement was 278–151, on Panama 300–129, and on Colombia 262–

167.

Two days later, on October 14, Obama traveled to Camp’s home state

of Michigan, where he touted the benefits of the agreement with South

Korea, noting that it “won support of business and labor, from auto

makers and auto workers, from Democrats and Republicans.93 That

doesn’t happen very often.”

12

Not long after the president’s speech at George Washington

University, Joe Biden tracked down Gene Sperling and deputy National

Economic Council director Jason Furman in the White House.

“Sperling, I know Furman’s your principal deputy,” the vice president

began. “For the next few months, he is my principal briefer. He’s mine;

I’m taking him.”

By way of explanation, Biden told a story about a confrontation he

had with Senator Russell Long, the son of the flamboyant populist

Louisiana Governor Huey Long, during Biden’s early days in the Senate

in the 1970s.

I was talking about a tax expenditure benefiting oil companies, Biden

explained. “I had a great staffer, and he wrote these great talking points

for me.” And he had delivered them with all the confidence of a new

senator.

A senator since 1948, Long was one of the old breed of larger-than-

life Washington pols. He chaired the Finance Committee, and was the

Senate’s preeminent tax expert. Being from Louisiana, he knew a lot

about drilling for oil.

“Son,” Long told Biden, “I know you’re from Delaware, so I’m sure

that you know all the details about how you get this type of oil out of

the ground.”

Biden obviously did not, and Long began defending the tax break,

going through the oil drilling process in excruciating detail.

“As I sat there humiliated,” Biden told Sperling and Furman, “I

thought to myself, I am never going to speak on something that I don’t

know about again.”

The president had asked him to lead a group of lawmakers in an effort

to deal with the mounting federal deficit, and the debt ceiling extension,

Biden explained, and he was going to need preparation. A lot of it. He

had once voluntarily given up his seat on the Senate Budget Committee

because he disliked budget work so much.

“I am not a budget guy, but you’re going to brief the hell out of me,”

he told Furman, a 40-year-old Harvard Ph.D. economist. Day after day,

the two spent hours poring over the budget with other experts from the

Office of Management and Budget and the National Economic Council.

• • •

On a sunny spring Thursday, May 5, 2011, at 10:35 a.m., Biden

convened a meeting of some 25 top congressional Democrats,

Republicans, senior Obama administration officials and staffers at Blair

House across Pennsylvania Avenue from the White House. The question

before them was whether they could forge a deal to prevent the United

States from defaulting on its $14.3 trillion debt. The only way was to

pass legislation to increase the debt ceiling.

The new reality was that the Republicans in the House had the

leverage. Democrats were going to have to agree to large cuts in federal

spending if the Republicans were going to support a debt increase. There

was no way around that central truth. But a large number of the new Tea

Party–affiliated House members had vowed not to raise the debt limit,

so Democratic votes would be needed to pass anything.

Biden saw the group as a sort of search party being sent out into the

jungle of federal spending. The key Republican at the table was Eric

Cantor, and all eyes, including Biden’s, were on him.

Biden began by clearing the room of everybody except the

congressmen and senators, the standard way to ensure confidentiality.

Their topic was the federal budget, but with the exception of

Representative Chris Van Hollen, the ranking Democrat on the House

Budget Committee, the members of the group were not budget experts.

Van Hollen, a 52-year-old attorney and a certified budget wonk, was a

favorite of Pelosi’s. He was a strong progressive voice in the Democratic

caucus.

Biden saw the group’s lack of budget expertise as an advantage. While

preparing for the meeting, he had told his staff that after 40 years of

dealing with politicians—and being one himself—he had come to the

view that “most elected officials don’t know squat about the details.

Because they’re doing so many things, they know the shorthand and

they know the talking points and they have a general sense.”

Politicians are always better when you push them off their talking

points, Biden said. You can spend a whole career on Capitol Hill without

ever having to defend the weaknesses of your positions. But when

everyone is learning together what the facts are, then you can see where

the real differences are and it’s a lot easier to reach agreement.

He was trying to create that atmosphere. He believed that the best

way to do it was to keep people in the same room for a long period of

time, give them a stake in the outcome, and make sure there were no

leaks.

When staff was called back into the room, Biden was soothing. “There

are no ultimatums here. Our purpose is to find agreement. Our

operating concept is that there’s no deal till there’s a deal.” That meant

that, even if they reached consensus on certain specifics, nothing was set

in stone until a comprehensive package was completed. “And we want to

keep it in the room,” he continued, meaning no leaks to the media. “The

objective today is to have no doubt where everyone starts out.” We will

have a set of marathon meetings over the next weeks, but now I want

opening bids.

President Obama’s and his: “We want $4 trillion in deficit reduction

over 12 years. Everyone else is very close to that. Our proposal is three-

to-one, cuts to revenue.” That meant roughly $3 trillion in cuts with $1

trillion in new tax revenue.

Tamping down expectations, he said, “We won’t settle the Bush tax

cuts here.” The across-the-board tax cuts were currently due to expire at

the end of 2012.

“We want a debt cap with enforcement that’s tied to spending and

taxes.” The debt cap would set a limit on government borrowing.

Exceeding it would trigger an enforcement mechanism that would

automatically cut spending and raise taxes in amounts equally painful to

both Republicans and Democrats.

“There’s mutual agreement that we need discretionary caps,” he said.

He was referring to a ceiling on spending by domestic departments and

agencies, such as Education, Defense, Transportation and the

Environmental Protection Agency, which then accounted for about 39

percent of the federal budget. “We’ll support that.”

Biden then took another popular idea off the table: generating savings

through tax code reform.

“We agree the tax code is broken,” he said. “And we want to produce

fundamental reform next year, but it’s really an issue for Ways and

Means and Finance,” he said, meaning the committees in the House and

Senate that handle taxes.

Geithner took the floor to describe what lay in store if they failed to

act.

“Our number-one objective is to avoid a catastrophic loss of

confidence. The debt is a more serious problem today than it was in the

’60s or the ’90s. If we don’t do something now, we’re jeopardizing the

future.”

If international creditors began to doubt the safety of U.S. debt

obligations, the country was in danger of losing its ability to continue

borrowing. If that happened, the Treasury would be unable to fund the

national debt.

They were facing “a test of our credibility,” he said, and issued a

challenge: “Weaker countries are doing tougher things, and we need to

do tough things.”

Geithner repeated his conclusion that annual deficits needed to be

reduced to 3 percent of the Gross Domestic Product, a level that a wide

range of economists had concluded was sustainable. It would

demonstrate that the United States was at least moderately disciplined.

It was a wildly ambitious goal. The current annual deficit was running

close to $1.3 trillion, or 10 percent of GDP.

Geithner laid out the administration’s ultimate goal. “We want to get

to primary surplus in 2015”—meaning a surplus excluding interest

payments on existing debt. “And the good news is, everyone does.”

The Simpson-Bowles commission and the House Republicans had

similar goals.

The treasury secretary reiterated Biden’s call for a strict enforcement

mechanism. “We have to have a real trigger” backed by the force of law,

which would force deficit reduction if we don’t reach agreement, he said.

It was not possible to postpone action until the next election cycle.

“Reforms have to be broad-based to be credible.” The chief audience was

the bond market, the global web of bond traders whose collective

decisions about the stability of the country’s fiscal situation dictated the

interest rates the Treasury paid on new debt.

“We can’t do it without more revenue,” Geithner continued. “If you

try, the world will laugh at us.”

The Republicans present resented his challenge.

Geithner had earlier publicly mocked the Republican refusal to extend

the debt ceiling, calling it “political theater,” and effectively deriding

them as showboaters and bluffers.

“We have to do something to reduce long-term health care costs,”

Geithner continued. “There’s a way to start without resolving all this,

but we can’t rely solely on targets and triggers” to force cuts.

Jack Lew, the budget director, took over. He wanted to make sure

everyone understood that this crisis was of a different magnitude than

debt crises in the past. “Now I’m always meeting with the bond

markets,” he said. “That wasn’t true in the ’90s. They want to know,

‘Are we serious?’ ”

They had to act decisively. There would be no partial credit from the

bond market for “a Band-Aid” solution. It had to be comprehensive. Lew

walked through the proposal the president had made at George

Washington University three weeks earlier. This was the plan Biden had

opened with: $4 trillion in deficit reduction over 12 years, rather than

the usual 10 years. It included spending cuts, Medicare and Medicaid

reforms, changes to the tax code, and limits on itemized deductions for

the wealthiest taxpayers.

On the national security side, including Defense, the State

Department, Homeland Security and Veterans Affairs, Lew said, “We are

beginning a strategic review—a fast strategic review is being initiated.

But it’s possible to talk about the numbers without Defense being on the

table.”

“Veterans Affairs,” Biden interrupted in some wonderment. The

military was sacred, and it could be political suicide for Democrats to

consider cuts for vets. “This is a dangerous area,” he acknowledged, “but

we should look at it.”

“Medicare,” Lew continued. “We should cover the Doc Fix.” They

should continue to stave off the dramatic cuts in Medicare

reimbursements to doctors as Congress had been regularly doing.

“Again, we’re going to treat Medicare and Medicaid separately,” Lew

said. The administration thought it would be possible to save $5 billion

on reimbursement rates for doctor-prescribed durable medical

equipment—in-home medical items such as wheelchairs, hospital beds

or diabetes-testing equipment.

There were lots of potential savings in other mandatory entitlements,

though Lew pointed out that the House had voted for significantly more

in the Ryan budget—$700 to $900 billion in such cuts. The distance

between the $5 billion for medical equipment and the $700 to $900

billion from the House was a long one—a Grand Canyon–sized gap.

But this meeting was about reaching agreement between the

Democrats and Republicans in the room. “There’s a lot of overlap

between where you are and where we are, but this isn’t going to be

easy,” Lew said. He cited agriculture subsidies and various education

programs that both sides agreed could be cut.

Lew said he was concerned about low-income taxpayers and the

impact cuts would have on the poor. Then he turned to tax reform,

despite the fact that Biden had pretty much taken it off the table only a

few minutes before. “We should have a tax expenditures discussion,” he

said, referring to deductions, such as mortgage interest, charitable

contributions and health insurance costs. He suggested the next step

should be laying out the White House and Republican plans side by side.

Biden then called on Sperling to talk about a proposed debt cap. This

would set a specific dollar amount for the national debt which, if

exceeded, would trigger automatic spending cuts and revenue increases.

It was the alternative to default. Including both spending cuts and tax

increases, he said, was intended to make the consequences of exceeding

the cap unacceptable to both sides.

“The goal is for it not to take place,” Sperling said. “The goal is for it

to be equally offensive [to Democrats and Republicans] so that we are

forced to act. Getting the debt under control is the ultimate target. It’s

not just me who says this.” Jim Nussle, a former OMB director, and

Doug Holtz-Eakin, a former CBO director, both Republicans, agree, he

said.

Geithner offered a positive spin on the situation, saying the “projected

deficit paths” that the administration and House Republicans were on

“are not that far apart, though revenue is the big issue.”

Eric Cantor was next.

“Our budget assumes a debt limit increase as well. So we’re both kind

of dealing with that. But we have a lot of savings. The Affordable Care

Act—” He kind of stuttered as he made a deliberate point of not calling

the 2010 health care reform legislation by its often disparaging name,

“Obamacare.”

“You’re not going to go there,” Cantor said. “So we’re not going down

the revenue path.”

It was a categorical statement. If Democrats wanted tax increases, the

only acceptable trade-off would be changes to Obamacare. He was taking

both off the table.

“We disagree on how to get revenue,” Cantor said. The Republicans

wanted revenue by growing the economy, the Democrats by raising

taxes.

“We deal with the safety net issues very differently. We block-grant

Medicaid.” Lump sums would be given to the states for medical care for

the poor. This left the states responsible for covering additional costs,

but also allowed them to set eligibility requirements. Medicaid would

cease to be an open-ended entitlement that guaranteed care to all who

qualify, regardless of cost. The Republicans, he said, also had a “vastly

different” approach to Medicare in Ryan’s premium support proposal.

“Ultimately,” Cantor said, “this is going to be for the next election to

decide, but we shouldn’t take everything off the table. There may be

areas in Medicare and Medicaid where we can come to agreement.”

“Areas of commonality” definitely existed in the approach to cuts in

military retirement programs and agricultural subsidies, he offered.

Responding to Sperling’s debt cap suggestion, Cantor stated bluntly,

“Our problem is we view your proposal as a tax trap.” If the Republicans

went along, the Democrats would have a strong incentive to hold out

because, at the end of the stalemate, there would be not only spending

cuts, but an automatic tax increase.

“That said, there’s plenty of commonality on the spending side. The

Government Accountability Office says the deficit won’t go away unless

we deal with the entitlement programs. Let’s start where we can agree.

We need real enforcement.”

Cantor said he concurred with Geithner that the need for action was

urgent. “I agree we need to get policies done and enacted by year end.

We can’t rely on out-year triggers.”

“There’s no deal without a debt cap,” Geithner retorted. “No deal

without specific savings. If we don’t solve the revenue, Medicare,

Medicaid problems, then we have to agree to debt targets . . . automatic

enforcement.”

Senator Kyl wanted them to explore other ways to curtail spending,

such as legislation introduced by Senators Claire McCaskill, a Democrat,

and Bob Corker, a Republican, that would mandate across-the-board

cuts to federal spending, or a balanced budget amendment to the

Constitution. “I’m deadly serious on Constitutional spending limits,” he

said.

“Without revenues, it will not pass,” Biden said. “There’s no

constituency for that to pass in the Senate.” Even if it did, Obama held

the hammer: “And it will face a veto pen.

“Let’s plan on the next three or four meetings. What can we do that

might pass the smell test? Each of us needs to bite the bullet. Keep

moving through each meeting and see what we can do.”

Geithner aimed at the heart of the Republican argument that growing

the economy would increase revenue. “One of the things we should do is

take off the table growth assumptions that help us wish away the

problems.” Growing the economy would increase tax revenue, but

nobody knew by how much. He was saying what they all knew. The

Congressional Budget Office refused to use assumptions about future

growth. Even Congress’s Joint Committee on Taxation, while slightly

more willing to consider the future impact of tax proposals, wouldn’t

base future revenue estimates on growth assumptions.

Senator Daniel Inouye, the Democrat from Hawaii who chaired the

powerful Appropriations Committee, had a single remark. The 86-year-

old World War II veteran, who had lost his right arm in combat, warned

about cuts to the Department of Defense. “We’re not assuming another

9/11,” he said. “We can’t assume that it won’t occur again.”

“You’re right, Mr. Chairman,” Geithner said.

Inouye, who was in his ninth six-year Senate term, lamented the

George W. Bush years. “We responded to two wars with tax cuts and

more spending. We can’t do that.”

Baucus interjected, “There’s waste in DOD.”

“Yes,” Biden agreed. “Military health care is a huge contributor.”

“We should do something there,” Lew agreed. But if military cuts

were going to be recommended, he said, “We’ve got to do it together” in

a bipartisan effort.

Representative James Clyburn, the third-ranking Democrat in the

House, said, “I agree we need to take a look at Defense.” Clyburn, whose

district in South Carolina is heavily dependent on military spending,

added that cuts to the military would be “very tough for me.”

Biden instructed the staffs to come up with an agenda for the next

meeting. “We’ll try to pull together one summary of what we all did.”

After a few pleasantries, the meeting ended.

Cantor was surprised. When he had been put on the Biden group,

Boehner had warned him it wouldn’t be a serious effort and that he

wanted him to just sit through each day, grin and bear it. Though the

first meeting had revealed big differences, he thought the vice president

was attempting to mediate. He told his top staff, “Maybe it’s not just

going to be a charade.”

13

Biden convened the next meeting on Tuesday, May 10. The goal that

day was to identify $150 billion in proposed cuts over 10 years, and by

the end of the meeting they had agreed on $123 billion in cuts, including

$9 billion from federal employee retirement programs.

“We could improve upon this,” said Jack Lew, “if we looked at

national defense.”

He got no immediate takers. With its annual budget near $700

billion, counting extra appropriations for the war in Afghanistan, that

was where the money and savings could be found. But it would have to

wait for another meeting.

“We’ve got to go to the big numbers if we’re going to get this done,”

Cantor said.

Reactions were mixed. It was a start, there had been some progress,

but they were not there. Yet Neil Bradley, Cantor’s policy director,

remarked, “Where else do you walk into a room and find $123 billion in

savings?” And it had only taken a few hours.

• • •

At the third meeting, May 12, Biden gathered the group at Blair House.

Early on they came to the Supplemental Nutrition Assistance

Program (SNAP), commonly known as food stamps. It covered some 44

million Americans and it was one of Cantor’s favorite targets. Significant

savings were available because of the number of “scams,” he said.

One such scam was connected to the Low Income Home Energy

Assistance Program (LIHEAP), which provided money for home heating.

In many states, qualifying for LIHEAP granted automatic eligibility for

food stamps. In some cases, the heat-and-eat policy meant that a $1

heating assistance check established categorical eligibility for food

stamps. Investigators had found that some LIHEAP checks were going to

people whose heating bills were included in their rent.

We believe states have too little incentive to prevent otherwise

ineligible individuals from receiving food stamps, Cantor said. He had

examples from New York and Vermont and, he whispered to Van

Hollen, he also had some from Maryland.

In addition to tightening eligibility requirements, Cantor wanted to

eliminate SNAP’s nutrition education funding, increase work

requirements, and eliminate duplicative job training programs. This

could add up to huge savings.

• • •

As the group gathered in Room S219 on the Senate side of the Capitol

on May 24, day four of their meetings, Jack Lew was seeking someone to

do some political wet work. Before everyone was seated, he pulled Van

Hollen aside.

Will you take on Baucus on farm subsidies? he asked. The White

House wanted to cut them, and Baucus, a 32-year Senate veteran, was

deeply committed to the special interests of farmers and ranchers in his

home state of Montana. A sign in his office read “Montana Comes First.”

He had said he was going to revisit the issue, and the White House did

not want to challenge the powerful Senate Finance chairman openly.

Would Van Hollen take on the task?

The House Democrats had $20 billion in proposed agriculture cuts,

and Van Hollen thought they should be higher. The House Republicans

had $30 billion in their budget.

Van Hollen agreed to do the deed.

“We’re not leaking!” Biden began in some wonderment as everyone

sat down. Three days of meetings and no leaks to the media! They must

be serious! It was a sign of their commitment. He was proud of them,

almost gleeful.

But then he dampened the mood by turning to Medicare. After Social

Security and Defense it was the government’s most expensive program.

It would cost $520 billion that year, and the price tag was expected to

double to more than $1 trillion a year in the coming decade. An April 11,

2011, Washington Post/ABC News poll showed that 78 percent of the

public “oppose cutting spending on Medicare as a way to chip away at

the debt.”

They talked about “reform”—avoiding the word “cut”—but no one

had much to suggest.

Talking about Medicare cuts was dangerous territory for Democrats,

and Biden moved them on to a topic at least as sensitive for Republicans.

“We’re going to insist revenue’s on the table,” he said. “We know you

don’t agree to that,” he added, looking at Cantor. “But the key from our

perspective is that we be very unambiguous about the need to have a

discussion about it.” It had to have an airing. “From our perspective, it

has to be part of a final agreement.”

Cantor and Kyl jumped in hard.

You have to understand, said Cantor, we need to get to 218 votes in

the House. “My guys don’t even believe default is a problem,” he said,

referring to the Tea Partiers in the Republican conference.

The Democrats knew that Cantor wasn’t kidding. The Republican

presidential primary debates were in full swing and Tea Party–backed

candidates such as Representatives Michele Bachmann of Minnesota and

Ron Paul of Texas were calling loudly for Congress to refuse to raise the

debt limit.

Biden stood firm: Revenues had to be part of the deal. You don’t get

to have a one-sided deal just because your side is more unreasonable

than ours, he said. We can’t take credit for our Luddites—neither can

you.

Kyl, who often called tax revenues “the subject which shall have no

name,” said he and Cantor had already agreed to some aviation and

pension fees.

“That won’t do,” Biden said. These collections were not counted as

tax revenue by the Congressional Budget Office and other experts.

Kyl disagreed. Fees are revenue. It was money going into the federal

coffers.

Biden asked Lew to go over some previously agreed-upon savings.

Lew raised farm subsidy savings. They were between the Democrats’ $20

billion and the Republicans’ $30 billion.

They were taking too much from subsidies, Baucus exclaimed.

That was Van Hollen’s cue. “Commodity prices are through the roof,”

he said. Farmers and ranchers were cashing big subsidy checks at the

same time their crops and livestock were selling for more than ever.

I might be willing to agree to the proposed agriculture subsidy cuts,

Baucus said, but only if other things took a big hit too. And, he noted,

the high commodity prices on corn and other produce were sure to drop

someday, so the overall issue should be put off.

It was finally agreed that Baucus would come up with a detailed plan

for agricultural cuts. There was skepticism among the negotiators that

he would provide a serious proposal, but they agreed to wait.

Lew raised the issue of drug reimbursements for those eligible for

both Medicare and Medicaid, the elderly poor. Under Medicaid,

pharmaceutical companies were required to sell drugs to the government

at a price equal to the best price offered on the private market or about

15 percent below the average private market price, whichever was lower.

If Medicaid paid more than that over a given period of time,

pharmaceutical companies were required to pay a rebate to the

government.

Lew asked if it were possible to get more rebates from the drug

companies.

Many Republicans, including Cantor, saw the attempt to reduce

payments to pharmaceutical firms as dangerous. We need higher prices,

he said, surprising many. Higher prices incentivize innovation by the

drug companies. If we make the drug companies pay more, we will kill

innovation, new drug development, it could even kill the industry.

Wait, said Van Hollen. The Medicare prescription drug benefit

program for seniors, so-called Part D, which had passed under the Bush

administration with some Democratic support, had been a boon to the

drug companies. More seniors could now afford drugs, a good thing, and

the drug industry sold a staggering number of additional drugs. They

should pay rebates.

“You’re getting into a big issue,” Baucus said. The pharmaceuticals

industry had already sacrificed a lot under the Obamacare legislation,

agreeing to take $100 billion less over 10 years from Medicare.

Senator Daniel Inouye showed his impatience. “Outside groups think

we’re not serious,” he said. His tone indicated that he didn’t necessarily

disagree. “We need to make cuts and vote on them next time.”

Yes, Biden agreed, they had to prove they were serious. But he

deflected the idea of voting in the near term.

After the meeting, Biden pulled Van Hollen aside. They agreed that

discussing Medicare reform had put them in the extreme danger zone.

“We started these talks in water up to our ankles,” Van Hollen said,

“and it is rising fast and is about up to our chests, but still not over our

heads.”

He wanted to make sure they didn’t drown. Later, he spoke with

Pelosi, urging her to tell Biden that the Democrats had to meet with the

president. They needed to be sure they knew where they were going.

On May 26, Biden called the group together for its fifth meeting, a

perfunctory session where little was accomplished.

By this point, the vice president was hoping to hit $2 trillion in deficit

reduction and then fight out the big Medicare and taxation issues in the

2012 election.

With $1 trillion in agreed-upon cuts to general spending over 10

years, $250 billion from mandatory programs such as food stamps, farm

subsidies and federal retirement, and another $250 billion in Medicare

and Medicaid cuts, they could get to $1.5 trillion. Add in 20 percent

interest savings over ten years—from not having to borrow that $1.5

trillion—and the deal would be up to $1.8 trillion.

If Biden could get the Republicans to kick in $200 billion in revenue,

they’d be up to $2 trillion. It seemed possible.

• • •

Biden convened the sixth meeting in Senator Reid’s ceremonial office,

S219, on Thursday, June 9. Once again, he insisted that revenue was

going to be necessary, and asked Baucus, as longtime head of the

Finance Committee, if he wanted to make the case.

The short answer was no. Baucus wasn’t used to having ideological

arguments during a negotiation, and on taxation issues he often voted

more like a Republican than a Democrat.

As Senate Finance Committee chairman in 2001, he was one of the 12

Democrats who voted for the Bush tax cuts (which passed the Senate

62–38). He was the only one of the six senators on the Simpson-Bowles

commission to vote against that $4 trillion deficit reduction plan.

So Biden turned the floor over to Geithner, who spent little time on

income tax rate increases, focusing instead on Obama’s plan to limit

deductions for people filing in the top brackets. It could raise $290

billion.

That should be considered part of overall tax reform, the Republicans

responded.

Kyl teased Van Hollen, who had apparently missed a meal, for

devouring an entire bowl of popcorn that was sitting on the table.

Baucus pushed for closing a fossil fuel tax loophole.

What about the loophole on mining activity, Max? Kyl inquired

mischievously. He knew Baucus didn’t want to close that. Mining was

big in Montana.

They kept coming back to the question of revenue, and the

Republicans’ refusal to address it.

“This is our come-to-Jesus moment,” Biden said.

“Yeah,” said Cantor, who is Jewish, “but I’m not very good on that

point.”

Cantor’s joke masked a serious point: Biden shouldn’t expect any

sudden conversions from the Republicans on taxes.

• • •

Biden was encouraged by the fact that he and Cantor seemed to be

settling into a comfortable working relationship, based in part on mutual

recognition that neither was running the show.

You know, if I were doing this, I’d do it totally different, Biden told

Cantor during one of the private asides they frequently had after the

meetings.

Well, if I were running the Republican conference, I’d do it totally

different, Cantor replied.

They agreed that if they were in charge, they could come to a deal.

14

Biden called the Democrats in his group to his Senate office on June 14

before the seventh day of talks. They were not happy.

The White House was changing the numbers, Van Hollen

complained. The president’s proposal in April had contained cuts of

$900 billion to general federal spending, including Defense, over 10

years. It was the largest number they had discussed. Now the

administration was suddenly talking about $1.1 trillion—$200 billion

more in cuts. What was going on? Were they measuring something

different?

No, it was an additional cut, Lew said.

That’s a very big number, Van Hollen said, and it would be difficult.

“I’m confident we can get to a minimum of roughly $1 trillion,” Biden

said.

Van Hollen was disheartened. It sounded to him as though the vice

president was beginning to adopt the Cantor-Kyl position. The

administration seemed to be retreating.

The sudden addition of $200 billion in cuts was a clear illustration of

how squishy all the numbers were. How could this big number appear

out of the blue at the same time as they were having niggling debates

over a $10 billion or $20 billion cut?

• • •

At the full meeting later that day, Kyl joked that he wanted to make sure

there was a full bowl of popcorn for Van Hollen.

The House budget, Cantor pointed out, had $1.7 trillion in cuts to

general federal spending. That was $600 billion more than the $1.1

trillion the White House was now proposing. Whatever number they

agreed to, they should have one number and no firewalls—partitions

between Defense and all other spending that assured a certain

percentage of cuts came from Defense. “Let the Senate and White House

battle it out,” he said. Since the Democrats controlled both, he was

telling the Democrats to negotiate with themselves.

Van Hollen said firewalls had a precedent. Budget agreements in

1991, 1993 and 1997 all had them. He said the 193 Democrats would

not go for deep general cuts without firewalls.

But the administration might be able to go without firewalls, Biden

interjected, eager to get an agreement.

Not helpful at all, thought Van Hollen.

Biden later backtracked some, suggesting a 50–50 Defense/non-

Defense firewall for just two of the 10 years.

Inouye repeated what he had told the Democrats in their pre-meeting:

Defense could be cut. Domestic programs needed protection.

A growing feeling of incredulity came over Van Hollen. The

administration didn’t seem to have a strategy. It was unbelievable. There

didn’t seem to be any core principles.

First Kyl, then Cantor, said they needed deeper cuts or they would

not be able to sell it to Republicans in either the House or Senate.

Some revenue, Baucus said, almost pleading.

“We really have members who don’t get the need to raise the debt

ceiling,” Cantor repeated. “It’s an existential question for them.”

“So you’re looking for Democrats to be more responsible than you?”

said Biden. “You can’t use the irresponsibility of your own members to

get your way.”

“I’m frustrated, because I think you don’t get our perspective,” Cantor

said.

“Republicans want Democrats to sell their sisters!” the vice president

said. They wanted Democrats to give up “everything we hold dear”

without making any sacrifices themselves.

Cantor threw his hands in the air.

“Why don’t you just say it’s the crazy Republicans made you do it?”

he asked.

• • •

After the meeting, Biden called a Democratic huddle. They agreed to say

something positive to the media—that these are tough issues but

everyone is still at the table. The whole enterprise was very tricky

politically, Biden conceded, and he was not sure how to navigate.

There was little show of confidence in the administration at Pelosi’s

message meeting that day. Most were skeptical that the president would

stand firm in the end, afraid instead he would cave to the Republicans as

he had in extending the Bush tax cuts six months earlier.

• • •

The eighth meeting was in Reid’s Senate conference room on June 15.

Biden opened with the enforcement mechanism that would kick in if the

budget cuts they identified weren’t imposed. The trigger should include

revenue, so everyone had skin in the game. The Republicans disagreed.

They certainly would not go along with a trigger that would mean

automatic tax increases.

A trigger requiring revenue would be more credible to the financial

markets, Geithner said. He pointed out that the new Conservative

government of the United Kingdom had included revenue in its deficit

reduction plan.

Saying he was speaking only for himself, Biden said if they included

sufficient revenue in a down payment, a chunk of money up front,

maybe they would not need revenue in the trigger.

Van Hollen argued that they would have to have revenue in the

trigger.

Kyl pressed for only spending cuts.

The retirement of the baby boomers would drive up all federal

spending, Biden said, even if costs were frozen.

Kyl kept hammering. They had to try to get more Medicare savings,

especially through increased co-payments from seniors or through a

process called means testing, which would raise the costs of care for

high-income seniors.

Some Democrats are opposed to means testing, Biden said. It could

erode the near-universal support for the program.

Kyl again urged more Medicare savings.

Medicare, Biden said, was going to be one of the big issues in next

year’s elections. Whoa! he blurted out, letting off some steam. They all

recognized that they were not going to resolve all this right here around

the table. Somewhat wistfully, he went through the possibilities for the

next year. Who might win the White House? The Senate? The House?

Each of them could dream of breaking the electoral bank and taking

all the chips home—the big prize of one-party government. With all the

chips, there would be no need for meetings and negotiations like this.

• • •

In a private discussion after the meeting, Biden and Van Hollen agreed

that the talks were getting difficult. Van Hollen noted grimly that

polarization had increased among the Democrats.

Ugh, Biden said, Pelosi had hit him hard on the issues the night

before.

Later, Baucus met with Van Hollen and Clyburn.

We have to limit agriculture subsidy cuts to $20 billion, Baucus said.

Clyburn said he would agree to that, but Van Hollen held out for

getting to $30 billion.

If it was not kept down to $20 billion, Baucus threatened, he would

walk away from the negotiations.

• • •

On June 16, day nine, at about 11:20 a.m., Biden had the group’s

Democrats meet in his ceremonial Senate office. He laid out his slightly

modified blueprint—$1 trillion in 10-year general federal spending cuts;

$200 billion from other programs, including food stamps and

unemployment insurance; and $300 billion from health programs. Add

in the reduction in interest payments—about 20 percent of the total

measured over 10 years—and it came to $1.8 trillion.

Van Hollen repeated the need for revenue. He said he could not

support a deal without significant revenue, maybe as much as $600

billion. He knew a figure that high would be a stretch without any

income tax rate changes.

Too much, not realistic, some countered. Van Hollen was worried

that the administration was wobbling on revenue and too eager to cut a

deal.

• • •

The full group was supposed to meet that morning, but a marathon

series of votes had been scheduled in the House, which meant half the

negotiators were unavailable.

With their bosses all busy voting, Biden called the group’s key

Democratic staff into his ceremonial office.

“Speak for your bosses,” Biden said. “What revenue can you live

with?”

The administration’s idea for limiting tax deductions in the upper

brackets might work, one staffer offered, but Republicans would never

go along. As Biden went around the room, the staffers made it clear that

their bosses would not support lots of revenue ideas.

Biden became increasingly annoyed.

“You keep asking us to ask for more revenue, but you have trouble

finding even $400 billion worth of revenue that you would be willing to

vote for,” he said. “We can’t ask for more than our side is willing to

support.”

• • •

At 4:15, the full group convened in Reid’s conference room.

Baucus had been waiting to launch his counterattack on the proposed

cuts to agriculture subsidies.

I will “walk away from any deal” with $30 billion in cuts, he

announced. It was a 20 percent cut—huge compared to what federal

employees were being asked to contribute, for example. This was the

clearest threat anyone had issued so far.

Baucus pulled out a three-page alternative, proposing cuts in other

programs that were technically part of the Agriculture budget but had

nothing to do with agriculture subsidies paid to farmers and ranchers.

His proposed 10-year savings included $3 billion from the ethanol tax

credit, $4 billion from eliminating duplicative job training in the food

stamp program, and nearly $7 billion from reducing the Strategic

Petroleum Reserve from 727 million barrels of oil to 650 million.

Participants in the meeting said it was difficult to tell whether the

Democrats or Republicans had a harder time containing their laughter.

Dodging the conflict, Biden said the chairmen and ranking members

of the Agriculture committees should work this out, but his frustration

boiled over. This was “Mission: Impossible,” he said, and adjourned the

meeting.

• • •

Biden called Van Hollen the next day, Friday, June 17.

Hope you and the president seal the deal on the links tomorrow, Van

Hollen said. Obama, Biden, Boehner and Ohio Governor John Kasich

were scheduled to play golf.

I’ll call you from the golf course if we get a deal, Biden promised.

Use the House and Senate Democrats as the bad guys with Boehner,

Van Hollen suggested. Tell him that the Democrats would not agree in

principle to any Medicare cuts or changes without an agreement in

principle on revenue. I’m afraid that if we leave revenue to the end, the

Republicans will say we had a deal on everything, but the Democrats

wanted to raise your taxes. The Democrats had to position themselves

so they could say the Republicans had demanded Medicare cuts but

refused to get rid of special interest tax breaks.

“I won’t screw you,” Biden said. “We’re all together on this.”

15

On Saturday morning, June 18, Boehner and Obama teamed up to

beat Biden and Ohio Governor Kasich in a round of golf at Andrews Air

Force Base outside Washington.94 “The president and I whupped ’em

pretty good,” Boehner said.95 “But it was just golf.” The president and

speaker, who shot a very respectable 80, collected two dollars each in

winnings, and the foursome was photographed enjoying cold drinks on

an outdoor patio afterward.

Later, the president recalled the conversation, noting that he and

Boehner had already agreed that they were both interested in pursuing a

“big deal”—something with deficit reduction of as much as $4 trillion

over 10 years. 96

“You know what, Mr. President? I meant what I said. I still believe we

can do a big deal,” Boehner said.

“John, I completely agree,” said Obama.

Boehner said he didn’t think trying to negotiate a deal with the entire

congressional leadership would be productive. “Maybe our teams should

start talking,” he said.

“John, I’m all there with you,” Obama replied.

• • •

Back at the White House, Obama took Nabors, the head of White House

congressional relations, aside.

“Rob, I just wanted to let you know, this is what Boehner said to me.”

The speaker thought they should get together, just the two of them, to

see if there was something they could get done here. “So he’s going to

come up to the White House.”

Obama seemed energized. Boehner was a type he knew well, he said.

“He reminds me of people I worked with in Springfield, Illinois,” he told

his inner circle, referring to his eight years in the state legislature. “John

Boehner is like a Republican state senator. He’s a golf-playing, cigarette-

smoking, country-club Republican, who’s there to make deals. He is very

familiar to me.”

Nabors and others in Obama’s inner circle knew that the president

believed that a large number of Boehner’s rank and file—the extreme

Tea Partiers—were dangerously irresponsible.

“John’s just not going to be able to force these people,” Obama said.

“You know, I have some sympathy for him.”

Several aides disagreed. Boehner might appear softer, but he was the

political opposition. The speaker represented the problem, and they had

to be careful.

“I have some sympathy for him,” the president repeated. “You see

how crazy these people are. I understand him.” Boehner was not one of

the crazies. “His motivation is pure.” He wanted to do the right thing.

“He just can’t control the forces in his caucus now.”

Plouffe thought Obama had developed a soft spot for Boehner.

“We’ll see what comes of this,” the president concluded.

• • •

Nabors had spent a lot of time analyzing the House Republican

conference, and had concluded that Boehner was struggling to find

balance among four distinct constituencies: the “Paul Ryan folks” who

wanted structural entitlement reforms; the Tea Party, who wanted to

shrink government and slash spending at almost any cost, but didn’t

really understand numbers and policy; the members who would face

tough reelection races in 2012, and didn’t want their fingerprints on

legislation attacking popular entitlements; and the old guard, in safe

seats.

In Nabors’s view, Boehner would never be able to balance the

concerns of the Tea Party with the concerns of Republicans in swing

districts. No matter what he proposed, Nabors told Obama and the

White House senior staff, the speaker “was going to have people who

were complaining that the cuts weren’t deep enough, or that they were

misplaced, or that revenue was part of the equation.” On any proposal,

Boehner would always lose a significant portion of his now 240-member

conference. It was hard to come up with precise numbers, but clearly

there were blocks of dozens or more that could sink any proposal.

• • •

On Tuesday, June 21, day 10, Biden told the Democrats that he had met

with the president and they had agreed that they needed to have

increased tax revenue. There could be no deal without it. But I want to

present it in a way, he said, that doesn’t prompt a Republican walkout. It

was sometimes “Kyl’s style,” he said, to just get up and leave, donning

the cloak of shock and dismay. That kind of stunt could overshadow the

important speech on the war in Afghanistan that the president would

make the next day. “Make sure if there’s a walkout, it’s not before

Thursday.”

Later, the meeting with the entire group was tense. There would be

no cuts to Medicare, Biden began, unless there was an agreement on

revenue. Period. He noted that McConnell had said on Face the Nation

over the weekend that if the group did not tackle entitlement reform,

“then we’ll probably end up with a very short-term” debt ceiling for only

a few months.97 “And we’ll be back having the same discussion again in

the fall.”

Biden wanted a debt ceiling extension that would take them through

the 2012 election.

I agree with the vice president, Cantor said. McConnell might

welcome another set of negotiations, but Cantor wouldn’t. Everyone

knew the House Republicans were going to hate voting to increase the

debt limit, and some never would. The difficulty of rounding up his

conference’s votes made Cantor eager to ensure he would only have to

do it once.

The vice president had mischaracterized McConnell’s statement, Kyl

said. It was not a wish, but a reflection of the state of their talks. I told

McConnell that based on the pace and progress here, I didn’t think we

could get a comprehensive deal that would justify lifting the debt ceiling

through the end of 2012, Kyl said.

I did not intentionally mischaracterize Mitch McConnell’s position,

Biden replied.

But Kyl’s assessment was both depressing and realistic. So they went

back to a new version of the old issue—Medicare cuts, with Democrats

repeating that they would go along only if there was real revenue.

Kyl, wagging his head, groused about the linkage of Medicare cuts and

revenue. As Van Hollen had warned, Kyl was saying that both sides had

agreed on a bunch of cuts which were now being held hostage to

revenue.

As they probed into rural health care cuts, Baucus, thinking of

Montana, said, “We need proportionality between urban and rural cuts.”

“Totally parochial,” Van Hollen scribbled in his notes.

• • •

“REVENUE” was the dreaded word at the top of the two typed pages in

Eric Cantor’s hand when he connected by phone with the vice president

the morning of Wednesday, June 22. 98

It was day 11 and the group was scheduled to meet later.

“What do you need?” Cantor asked. “I know you’re going to need

revenue. We’re going to need revenue neutrality.” Taxes raised in one

area would have to be offset by tax reductions in another. “There are

some things we all want to do that people want to get done.” Both sides

wanted the extension of payroll tax relief for the next year, a tax cut that

could cost between $100 and $200 billion, depending on how much the

rate was reduced.

Cantor had more than once told Biden privately that he understood

revenues would have to be part of a final agreement. Now he was

offering a deal, but only of sorts, because there would be no revenue

increase to the U.S. Treasury. He mentioned a $20 billion “guesstimate”

increase in revenue from limiting the home mortgage interest deduction

for some of the wealthy; eliminating the mortgage interest deduction for

second homes—another guesstimate revenue increase of $20 billion; and

tightening the tax treatment of retirement accounts.

Cantor’s proposed offsets for these increases were the $110 billion

from payroll tax relief, and another $50 billion guesstimate from

reducing employers’ contribution to the Social Security payroll tax by

one percentage point.

He also proposed some $50 billion in corporate tax raisers, including

the $3 billion for deductions related to corporate jets, and $20 billion in

oil and gas subsidies for large companies. That money would have to be

offset by an equivalent amount of corporate tax reductions.

Cantor felt he was being creative, offering proposals that would be

controversial with his House Republicans.

Biden was listening. It wasn’t much, but getting the Republicans to

say they would agree to revenue was progress. On the question of

payroll tax cuts, the Democrats would be happy to accept revenue

neutrality. It would pump money into the struggling economy in the

short term, and could be recouped slowly over 10 years.

The vice president said the most the Republicans would get out of the

administration would be increasing the age at which people became

eligible for certain entitlement programs, limiting access to entitlement

programs for higher-income beneficiaries, and a change in the way the

Consumer Price Index was calculated. And to get those, he added,

Republicans would have to give on the Bush tax cuts for the wealthy.

16

At 12:30 p.m., Pelosi met with Van Hollen, Hoyer and Clyburn to

discuss a meeting they had scheduled with Obama for the following day.

We should focus on insisting that the president ask for $600 billion to

$700 billion in revenue, Van Hollen said. He knew that would be a

stretch. His goal was now between $400 billion and $500 billion but he

needed to start the bidding higher because he was worried that the

White House would go for much less, something in the $150 to $200

billion range, the convoluted “revenue neutral” number that Cantor had

been floating. The question was: how to stiffen the administration’s

spine?

Pelosi’s biggest concern was Medicare cuts—especially co-payments

from beneficiaries. Half of Medicare recipients were receiving $22,000 or

less in yearly Social Security benefits. How could they afford to pay

more?

I agree, said Van Hollen, but if the Republicans give in any significant

way on revenue, we will have to include some savings from Medicare, by

both lowering payments to providers and requiring higher beneficiary

co-payments, at least in limited areas.

Pelosi said House Democrats would not know the details of Biden’s

talks because of the confidentiality agreement, and they would be

“swayed by perceptions and atmospherics.” If the perception was that

Democrats were caving on Medicare, it would be bad. She said she

would hang tough if the deal was balanced with real revenue. But she

needed to prepare her caucus.

• • •

That day’s Biden meeting started a little late. After the vice president’s

usual statement of the need for balance and revenue, Cantor began with

a proposal he called Option Two, to be implemented after the 2012

elections. It would increase Medicare premiums for the upper-income

bracket by 10 percent, saving $38 billion over 10 years.

I’m not interested in talking about Option Two, Van Hollen said,

unless Republicans engage on the revenue question. He turned to

Cantor. “We will address these issues with the same degree of

seriousness that you discuss revenue.”

“Oh, you know,” Cantor replied, “that’s theology.”

“You’re talking your theology.”

“Well,” Cantor said, referring to Medicare, “that’s your theology.”

“We’re not going to keep going down this road, Eric,” Van Hollen

said. “We will agree to these reforms, but we’re not going to keep

talking about them until you talk about revenue. Just tell us which of

these items you hate the least? Corporate jets?”

Cantor ignored the question but thought, Whoa! What was this new

aggressiveness on the part of the Democrats? Where had it come from?

Remaining on the offensive, the Democrats moved next to the drug

companies. They wanted more money in rebates for drugs purchased

under Medicare.

For God’s sake, said Kyl, the current system for purchasing Medicare

drugs is a model program that’s coming in under budget. More rebates

would screw up the program. Don’t touch it.

Under budget because of low enrollment, Van Hollen said, and all

drug prices had come down.

The Republicans swung back. What about the Medicaid provider tax?

It’s a scam, Biden agreed. The states were gaming the system, taxing

doctors and hospitals so they could get federal reimbursements and then

returning the money to the providers. Let’s call it like it is, and let’s just

do this. For a moment, Biden sounded like a Republican. It could save

$40 billion. “If we can’t do this—” the vice president said, “come on!”

Lew and Sperling said that it would force the states, which would get

less money, to provide fewer services to the poor.

Yeah, Van Hollen said, it would encounter resistance from House

Democrats.

We’re going to do lots of hard things, Biden said, pushing Van

Hollen’s concerns aside. We might as well do this, he said. The

administration would adopt the Republican view on this.

Cantor didn’t need to say a thing. This was a huge deal. Biden had

caved on the provider tax, agreeing they could save $40 billion.

After that peace offering, Biden and Sperling brought up the essence

of the problem: revenue. Sperling suggested limiting itemized

deductions to 35 percent for the upper-income taxpayers, potentially

raising $130 billion over ten years.

Cantor realized it was innovative, but he said he did not want to

discuss it at this point.

The other idea was on the corporate tax side—the possibility of

increasing revenue by changing the rules about how corporations’

inventories were treated for tax purposes.

None of these tax ideas are wild or over the top, Geithner said. They

weren’t trying to raise revenue for the fun of it, but to reduce the deficit.

The Republicans still refused to engage.

“We may as well call it quits!” Biden finally said, pushing back his

chair and starting to get up.

We should keep talking, Cantor and Kyl said.

That is my preference, Biden said, but it is hard to see us getting

anywhere with this impasse. All the serious bipartisan plans, such as

Simpson-Bowles, had included revenue.

Yeah, Kyl replied, and since Simpson-Bowles had about $1 trillion in

revenue and $3 trillion in cuts, they should just agree on the $3 trillion

in cuts first. If there were four things being negotiated and they could

agree on three, why not go ahead if the agreements on the three were

serious? The fourth could be addressed later.

To his increasing annoyance, there were no takers. At one point, he

turned to Sperling. “So you’re saying to me that even though there are

Medicare savings that you think are reasonable—that we could do—you

won’t do them unless we’re going to raise taxes on somebody?”

Sperling looked around the room for a few seconds.

“Well, yeah,” he replied. “We can’t agree to all your stuff without any

of our stuff.”

Under the Kyl logic, Cantor said, he thought they were gaining

ground.

No, Lew replied. “We are slipping today, clearly going backwards.”

Whatever the case, he said, they would need firewalls—the agreed-upon

division between domestic and Defense cuts—especially if the number

on general spending cuts was low.

Kyl, who hated Defense cuts, pushed back on firewalls.

Cantor said he also opposed firewalls and wanted a relatively low

number on the general cuts because he felt the serious cuts should come

from entitlements like Medicare and Medicaid.

While the House and Senate Democrats might disagree, Lew said, the

administration might be willing to live without firewalls if the number

on general cuts was on the higher end.

After the meeting, Biden gestured to Cantor to come out to the

hallway.

“What is going on?” Cantor asked, perplexed by the way the

Democrats had turned up the heat. “You think these talks are kind of

hitting their end?”

“Look,” Biden replied, “you’re right. There’s something going on.” He

had met with McConnell several times over the course of the spring, and

was trying to work something through a back channel. The word was

also getting out to rank-and-file Democrats that they were cutting health

care entitlements, and Van Hollen had asked for a meeting of the

concerned House Democrats and the president the next morning. But

the group should keep meeting.

“Yeah,” the vice president went on, “we’ve probably got one or two

left. Oh, by the way, that’s why Boehner and Obama are meeting now.”

Cantor was stunned. He had no idea that the speaker and the

president were planning to hold separate talks. He needed to get back to

his office to think this over. There were two ways out of the hallway

where they were speaking. One led directly to a throng of waiting

reporters, the other down a back staircase. Cantor and his

communications director, Brad Dayspring, took the back way.

Cantor explained what he had learned. He’d been blindsided.

“I get more information out of Joe Biden than I do my speaker,”

Cantor said.

He had spent five weeks in the Biden talks—on Boehner‘s direct

instructions—and now the speaker was making an end run around him

by negotiating secretly with the president.

Boehner had always been dismissive of the Biden group’s efforts. “I’m

sorry I’m making you go sit in a room for three hours and wasting your

time,” he told Cantor once. The speaker had repeated his conclusion

that the talks were useless on multiple occasions. But Cantor had

jumped into the process with a purpose, and he felt that he had forged a

valuable connection with Biden and that the group had made real

progress.

He had told Boehner all about it. They spoke every day, and Cantor

had always kept him up to date. And Boehner hadn’t even mentioned

that he was planning to meet with the president?

Cantor felt he had been lied to.

• • •

That day at 5 p.m., Boehner and Obama met privately at the White

House.

“I came in through the South Entrance. Very unusual,” Boehner later

recalled.99 “Went through the Diplomatic Receiving Room, waited for a

few minutes, they took me upstairs to the residence, and we went

outside on the Truman Balcony.”

They agreed to keep their discussions—even the fact that they were

taking place—confidential.

I want to look at significant structural reforms to all the major

entitlement programs, Boehner told the president.

You would have to give on tax increases before we consider

entitlement reform, Obama replied.

You can’t have tax increases, Boehner said. But he did offer a path to

increasing federal revenues: comprehensive tax reform.

“If we lower all the rates, clean out all the garbage in the tax code,

you know, there could be some revenue,” Boehner said.

The speaker believed they could get additional revenue from

economic growth and better tax compliance. It had been done with the

1986 Reagan tax code overhaul—the gold standard of tax reform—which

reduced the number of personal income tax brackets, cut the top rate

from 50 percent to 28 percent, and eliminated a host of tax deductions.

Obama said he was in favor of reform. They would have to work

together on it. If the Republicans insisted on reforms that made the

system less progressive, he would walk away and end the Bush tax cuts

for the two upper-income brackets.

“We’re not going to change progressivity, all right?” Boehner said.

“We’ve got a progressive tax code, people get it. You know, I see that as

being neutral, the issue of progressivity.”

As for the president’s threat to let the Bush tax cuts for the wealthy

expire, Boehner said, “We’re not going there. We’re just not going to go

there. You’re getting into an area where you’re tying my hands. We’re

never going to get anywhere.”

He got the impression that the president was focused on being the

one who got rid of the Bush tax cuts for the rich. He was acting as if he

had the leverage.

Boehner said he and Congress had the leverage because the president

only had about five weeks to get the debt limit extended.

You’re fighting on a playing field that cannot be resolved, all right?

the speaker said. We can’t work in this universe of the current tax code.

It’s too polarized. You caved in the 2010 lame-duck session by extending

all the Bush tax cuts. We’ve got to start from the premise that the whole

code is getting thrown out. Let’s try to work out a way to get reform

done. We’ve got to try to stay out of the mind-set of the battle over the

Bush tax cuts.

“It was a good start,” Boehner later recalled.

• • •

Asked about the conversation with Boehner, the president said in an

interview that it proceeded as follows:100

“I want entitlement reform,” Boehner said.

“John, I cannot ask seniors to make a series of sacrifices if people like

me are not making any to reduce our deficit. So I am willing to move on

entitlement reform—even if my own party is resisting, and I will bring

them along—as long as we have significant revenues so that people feel

like there’s a fairly shared burden when it comes to deficit reduction.”

“I can’t simply vote to raise taxes,” said Boehner. “I can’t get the

votes. But there should be a way of raising revenue.”

The speaker suggested using tax reform as a way to increase revenue

without increasing tax rates.

“John, I’m all for tax reform,” Obama said. “But I’m not going to have

a situation in which we have a vague promise of tax reform later—

because tax reform would take a year, year and a half to actually get

done, rewriting the tax code—but all the entitlement cuts are locked in

on the front end. I just can’t move my folks. So there would have to be a

mechanism in which we had a guaranteed amount of revenue that was

raised, and that revenue would have to be coming from not the middle

class, but would have to reflect the progressive principles that exist in

current tax policy.”

Asked if he felt that he and the speaker were on the road to a deal, the

president said, “Let me preface this by saying generally that I like John

Boehner. I genuinely think John wanted to get a deal done. And I don’t

think John actually is, in his bones, an ideological person. I think he’s a

pretty practical, old-school, country-club Republican.

“And I like him. I mean, by that time I’d quit smoking, but I was

making sure he had an ashtray,” he said with a laugh. “You know, he’d

be having a sip of wine. We could have a good conversation. And I

personally think he genuinely wanted to get something done. So I’m

feeling fairly optimistic after the meeting on the Truman Balcony.”

• • •

After the meeting, Obama briefed his staff.

Boehner seemed eager to do something, he said. And we’re not

getting anything done through the Biden talks or anything else. He and I

agreed, at least, on the need to take some sort of action.

Boehner would consider accepting some additional revenue through

tax reform, Obama said, mentioning that he had told the speaker that

retaining progressivity was a condition of any tax reform deal.

“We need to stabilize the economy. We realize that this is a crucial

moment in time,” Obama said. “See if you can make this happen.”

Afterward, Daley assembled Lew, Nabors, Sperling, Plouffe and Bruce

Reed, Biden’s chief of staff.

“Should we engage at all?” was the question.

It was all very well for Boehner to talk about ignoring the issue of the

Bush tax cuts, but within the White House they viewed their looming

expiration at the end of 2012 as the president’s sword in the debt limit

battle.

The thinking was that if they were allowed to expire, it would be an

automatic decoupling. The popular lower- and middle-class cuts could

be reinstated. That would be easy. But the high-income cuts would never

get through the Senate. The government would collect $800 billion in

new revenue, and the president would get credit for ending the Bush tax

cuts for the wealthy.

Politically, this was a big deal. Many Democrats hated the Bush tax

cuts and wanted them dead. This had been the single biggest fiscal issue

separating the Republicans and Democrats since 2001.

Did they really want to get into negotiations about trading

entitlement cuts for an unspecified amount of revenue that would come

from unspecified tax reforms?

They would get hammered by their political base, many of whom

thought Obama already had a clear path to $800 billion by vetoing any

legislation that extended the Bush tax cuts.

“Well, we all know it ain’t that easy,” Sperling argued. “Vetoing

means vetoing the whole thing.”

Plouffe agreed. It was “pure insanity, politically and economically,” to

let the cuts expire with no guarantee that the tax cuts for the middle

class would be brought back. “I’m not part of the Democratic Party that

signed up to raise taxes on working people $3,000 a year,” he said.

Plouffe wanted to negotiate with Boehner. His analysis of the politics

was that while the individual components of a deficit deal all polled

terribly, the whole was greater than the sum of its parts. People believed

Washington was dysfunctional. If they saw their leaders coming together

on a big deal to address a serious problem, there would be a huge

political upside in addition to the economic benefits.

Sperling and Reed, who had been at the Biden meetings, knew this

was their best shot at additional revenue. Cantor wasn’t going to give

much, if any, on the issue, and everyone in the room knew Cantor’s

position had the backing of a large element of the Republican

conference.

Boehner’s probably a little over his skis here, Plouffe said. But he’s

the speaker of the House, and historically, he’s been a good vote

counter. We have to engage, he advised. We can’t be naive about it, but

we have to engage.

The others agreed. Maybe they would get something bigger in scale

with Boehner.

And in the worst scenario—Republicans demanding that the tax code

be made more regressive—the president still had his sword. He could

veto an extension of the Bush tax cuts and hope it got them $800 billion

in revenue.

• • •

A few hours later, the president appeared in the East Room. 101 In front

of a nationwide television audience, he announced a drawdown of

33,000 U.S. troops from Afghanistan by the next summer.

“America,” he said, “it is time to focus on nation building here at

home.”

• • •

Back at the Capitol, Cantor called his senior staff together. One staffer

passed on what he believed was good intelligence about the Democrats.

They were pissed that the talks had gone into Medicare, had demanded a

meeting with Obama at the White House, and were planning to scuttle

the talks and blame the Republicans, especially Cantor.

Gee whiz, Cantor thought, it’s going to blow up. The Democrats are

going to blow up the Biden discussions and finger me.

Maybe he should act first. He talked with Paul Ryan, Kevin McCarthy

and Jeb Hensarling, his brain trust. It was late that evening when they

finished, too late to call the speaker, who was often hard to reach after 9

p.m.

• • •

After the meeting, Van Hollen ran into Representative John Larson, a

Connecticut Democrat, on the House floor. He neatly summarized the

Biden meetings to the third-ranking leader in the Democratic minority:

“We are all fucked.”

Later that night Van Hollen called Senator Chuck Schumer to hear the

Senate perspective on potential cuts on Medicare prescription drugs.

Baucus was lining up with the Republicans.

“Not just Baucus,” Schumer said. “If so, we could end-run him—but

also Harry [Reid].” The deal had been that the drug companies would

support Obamacare and not come after Senate Democrats—like Reid—

who had been up for reelection in 2010. The deal had held and Reid, for

one, had won reelection.

Baucus is using his perch as Finance Committee chairman to pursue

his parochial interest in agricultural subsidies, Van Hollen complained.

The problem, he continued, is that Biden is discussing the merits of

Medicare cuts while the Republicans refuse to engage in a serious

discussion of revenue.

Schumer and Van Hollen pretty much agreed that the White House

was talking about $2.4 trillion that would apparently include the $1

trillion saved from drawing down troops in Afghanistan and Iraq—the

Overseas Contingency Operations fund to some, “funny money,” to

others.

Van Hollen said he would be surprised if the Republicans went for

that. But if there was no revenue in the package, the use of funny money

might be the only way to get to $2.4 trillion in deficit reduction.

17

Early on the morning of Thursday, June 23, Cantor gave an interview to

The Wall Street Journal. 102 “We’ve reached the point where the dynamic

needs to change,” he said. “It’s up to the president to come in and talk

to the speaker. We’ve reached the end of this phase.”

He then sent one of his aides to the speaker’s office to see Boehner’s

deputy chief of staff. The Democrats are going to the White House at 10

a.m. They are going to blow up the talks, which are no longer useful.

They will blame us. Eric thinks we need to blow it up first and punt this

thing to the speaker and the president.

The aide then went to Kyl’s chief of staff and repeated the plan.

“Makes sense,” she said.

• • •

Cantor went to see Boehner, and told the speaker exactly what had

happened. “The meeting was vastly different yesterday. The mood was

bad,” he said. “I know that you’re meeting with the president now.”

Silence.

Biden had told him, Cantor said. If the president’s chief deputy knew,

why hadn’t he, as the speaker’s chief deputy?

Boehner said the president had insisted on absolute confidentiality,

which had obviously been breached by the vice president. They had only

met once, the day before.

The speaker apologized to Cantor. Boehner said he was sorry it had

happened this way. They agreed they needed to salvage something, save

face, move forward, and work together.

The Democrats are meeting at the White House right now, Cantor

said. There was a rumor they were going to blow the whole thing up.

We could use that as a reason to act first.

“We are going to do it on our own terms, so we don’t get blamed for

this thing,” he told Boehner.

Shortly afterward, Cantor placed a call to Biden, but the vice president

was in a meeting. Cantor wanted to give Biden the courtesy of telling

him personally that the Republicans were pulling out, rather than letting

him hear it from the media.

After several tries, he got through.

“We’re not going back in,” he said.

“Oh, my God,” Biden said. “I get it. Let me call you back.”

• • •

“It’s your meeting,” Obama said around 10 that morning, in the Oval

Office. “I’m here to listen.”

Hoyer, Van Hollen, Clyburn and Pelosi sat on chairs and sofas in the

office. Biden, Geithner, Lew, Sperling and Daley represented the

administration.

“This is an opportunity to do something big,” Pelosi began,

characterizing it as “a Nixon to China moment” in which they could do

the totally unexpected. At minimum, they could extend the payroll tax

holiday. If the Republicans agree to do bigger revenue, we’ll agree to

some significant reforms, she said. “And we need a jobs program,” she

added, reminding Obama of his call for investments in energy, education

and infrastructure.

Hoyer, the fiscally conservative Democratic whip, said he supported

the Simpson-Bowles approach and was actually against extending the

payroll tax holiday.

Nancy! Steny! the president interrupted sharply, you are

“contradicting” each other. “Practical politics” and the effort to boost

the economy now required action. “Only a payroll tax holiday will fly,”

he said.

Van Hollen said that though he was not thrilled with the extension of

the payroll tax holiday, “I agree it is the only politically viable option.”

However, a debt extension of only one year was a bad idea. “It puts us

right back in the soup, that’s for sure.” They would be having this

debate again in the middle of next year, right as the presidential election

heated up. They needed the big deal with large spending cuts and

significant revenue.

“We’ve got to get past the election,” Obama agreed emphatically.

Otherwise the Republicans could threaten to shut down the government

or stall out the economy every six months. He had to have an extension

of 18 months, at least.

He laid out his concerns. First was the soft economy, and the

economies of Japan and Greece. Second were the Republicans, who were

in “the political bunker with the Tea Party and taxes.”

If they could get the big deal, with the Republicans giving in on “big

revenue” and income tax rates “that would be accompanied by some

Medicare structural reforms,” the media could consider it a “game

changer.”

The congressional Democrats in the room wondered if the president

realized the danger of talking about “Medicare structural reforms.” That

was Paul Ryan’s language. But Obama insisted he would support a hard

line with the Republicans on “big revenue.”

Van Hollen had some specific revenue proposals: the previously

discussed “cats and dogs” of corporate tax loophole closers—oil and gas

subsidies and corporate jet depreciation. Second was an idea to phase

out income tax deductions for those making over $500,000 a year, and

giving a tax cut to those earning between $170,000 and $250,000. That

was appealing because they would be able to argue that the overall effect

was to give more people a tax cut than a tax increase.

The third idea was Sperling’s proposal to limit personal income tax

deductions for those in the highest brackets. It could raise $130 billion

over 10 years.

As the Democrats left the White House they got word that something

dramatic had just happened with Eric Cantor.

• • •

Cantor was having lunch at a Capitol Hill restaurant when Biden called.

“You’ve got to come back in,” Biden said. “We’ve got to go back into

that meeting just so we can say that we are agreeing to stop right now,

but we’re all on the same page.”

“There is no way,” Cantor said. They were not on the same page, not

in the same book, or even the same library.

“What do we tell the press?” Biden asked.

Cantor said they should just say the talks were in “abeyance,” not

necessarily over.

“I get it, I get it,” Biden said. Just one more try? “Any chance you

could come back in the meeting and take a photo?”

“I can’t,” Cantor said, “given the statements I’ve already made to the

press.103 I can’t go back in there.” There was some utility to the talks, he

added. “But again, I gave you the background about we don’t think you

go and put good money after bad if you’re not fixing the problem.

“The entitlement trajectory here is going to bankrupt the country.”

Biden hung up the phone. His search party had been a failure. They’d

discovered plenty of things they could agree on. But they had come

home empty-handed.

• • •

The breakdown of the Biden talks was treated by the press as an act of

willfulness by the House Republicans in general and by Eric Cantor in

particular.

“Deficit Talks in Danger as Cantor Bails,” read the headline on

Politico.104com that morning.

The next day, the New York Times editorial board, under a headline

accusing the House Republicans of pitching a “temper tantrum,”

observed that “this bit of grandstanding has brought the nation closer to

the financial crisis that Republicans have been threatening for weeks.” 105

Boehner tried to portray Cantor’s walkout as a necessary and

unremarkable part of the process.

“I understand his frustration. I understand why he did what he did,”

Boehner said publicly, “but I think those talks could continue if they are

willing to take tax hikes off the table.” 106

• • •

The following morning, June 24, Boehner effectively replaced Cantor as

the Republicans’ chief negotiator on the debt ceiling. In a press

conference, he laid out three criteria for a deal: It had to commit the

government to spending cuts greater than the increase in the debt limit;

restrain future spending growth; and contain no tax increase.107

“A tax hike,” the speaker said, “cannot pass the House of

Representatives.”

• • •

On June 29, 2011, President Obama appeared in the East Room of the

White House at 11:40 a. 108m. for a press conference on the economy and

the need to raise the debt limit. He went after Republicans for their

unwillingness to raise any revenue through tax increases. “I spent the

last two years cutting taxes for ordinary Americans, and I want to extend

those middle-class tax cuts,” he said.

Ridiculing Republican “sacred cows,” he said, “The tax cuts I’m

proposing we get rid of are tax cuts for millionaires and billionaires; tax

breaks for oil companies and hedge fund managers and corporate jet

owners.”

In John Boehner’s office on Capitol Hill, the president’s appearance

was met with anger and derision. The repeated references to corporate

jets—six in all—were particularly annoying. Eliminating the tax break

for corporate jets would have a trivial impact on the overall deficit,

saving perhaps $3 billion over 10 years.

A statement released by the speaker’s office said, “The President is

sorely mistaken if he believes a bill to raise the debt ceiling and raise

taxes would pass the House.109 The votes simply aren’t there—and they

aren’t going to be there because the American people know tax hikes

destroy jobs.”

• • •

Later that day, Obama met with Senate Democrats, who wanted to

introduce a short-term debt limit extension. Reid didn’t believe that a

large deal including spending cuts and revenue was possible, and he

thought a series of temporary increases was inevitable. He knew

McConnell felt the same way. Reid wanted to get started.

No, Obama said. The talks with Boehner are making progress. We’re

still going for the big deal.

That evening, Boehner left a message for Cantor, informing his

second in command that the talks with the president about a big deal

were ongoing. He had sent a proposal for a basic framework to the

White House.

• • •

At the White House, Nabors, Lew and Sperling began putting a formal

offer on paper to submit confidentially to Boehner. 110 The speaker’s

framework wasn’t specific. They knew any deal was going to be about

two things—Medicare and revenue.

They went to work on Medicare. It was, in some respects, the prize.

Paul Ryan’s budget had gone after it. Sperling’s sense was that the

Republicans were looking for something iconic—a clear, understandable,

structural entitlement change that they wanted, but didn’t want to do

without political cover from the Democrats. And not incidentally,

Sperling noted, it was a change that would cause Democrats the

maximum amount of political pain.

The starting point was raising the Medicare eligibility age from 65 to

67. It was a seemingly small change, but tampering with Medicare—

Lyndon Johnson’s Great Society contribution to the well-being of the

elderly—was almost forbidden among Democrats. The AARP, which had

spent more than $20 million on lobbyists in 2010 alone, would rise in

protest. But the president said it was Boehner’s requirement.

The Ryan budget had proposed increasing the age of eligibility by two

months per year beginning in 2022, so that by 2034, a senior would have

to be 67 to be eligible. “I don’t care what they say,” Sperling said.

“We’re not starting more aggressive than Paul Ryan is.”

Sperling thought they should raise the age more slowly than Ryan.

The White House team finally settled on raising the eligibility age by

one month a year, meaning the full two-year increase wouldn’t be

complete until 2046. Even putting such a proposal on paper was

dangerous for the White House, should it leak.

So, the total 10-year savings would be a mere $15 billion, with a few

small changes in cost to wealthy Medicare beneficiaries.

In addition, they proposed $1.1 trillion in general spending cuts,

spread over 10 years, plus another $490 billion in cuts to other programs

including the federal employee retirement program, Medicaid, and other

health-related cuts.

Sperling, Nabors and Lew decided to take a hard line on revenue and

proposed what Boehner would consider a $1.4 trillion increase. But

overall, the proposal cut the deficit by $2.7 trillion.

On July 1, the White House sent the offer to Boehner’s staff. 111

• • •

In his remote windowless fourth-floor office in the Capitol, Brett Loper,

Boehner’s policy director, sat down to read the proposal. Loper, age 37,

was one of those very important figures, little known outside

Washington, who did the excruciating detail work. He headed a team of

10 policy experts.

With closely cropped hair, at 6-foot-2, Loper was the ultimate

Republican efficiency man. Before coming to work for the speaker, he

had worked in the White House Office of Management and Budget

during the Bush administration and had been the Republican staff

director on the House Ways and Means Committee. Prior to that, he

served as deputy chief of staff and floor coordinator for Representative

Tom DeLay, the former Republican majority whip and majority leader

whose vigorous enforcement of party loyalty earned him the nickname

“the Hammer.”

In bold type on the first line of the White House offer were the words

“Medicare structural reform.” 112 Loper’s eyes flicked over to the right side of the page, where a column of numbers estimated the savings from

each part of the proposal. The Democrats were estimating $15 billion in

Medicare savings over 10 years.

Loper couldn’t believe it. Just $15 billion in cuts over 10 years?

Medicare was the single biggest driver of the country’s long-term debt

problem. The program would cost the government trillions of dollars

over the next decade, and the best they could do was $15 billion in

savings? This was almost too ridiculous to put down on paper.

Loper’s eyes plunged down the page.

Under the White House plan, the Medicare eligibility age would be

increased by two years, from 65 to 67, but not until 2046. That was 35

years away. Talk about kicking the can down the road.

Next on the list was “Medicaid and Other Health.” The number there

was $270 billion over 10 years. Okay, that was more like it.

But when Loper flipped to the third page, where the Medicaid cuts

were specified, he realized that much of the savings weren’t coming

from Medicaid at all, but from Medicare prescription drugs. It was a

confusing mishmash. Loper knew this would never fly with the speaker.

It wouldn’t even make it to the runway.

He turned to the section headlined “Revenues” and found yet another

surprise. The Democrats were proposing the government collect what

amounted to an additional $1.4 trillion in taxes over the next decade. It

was an eye-popping number. Boehner had expressed willingness to

increase revenue through tax reform, but there was no way to sell a

number this big to the House Republican conference.

The revenue number was couched in a discussion of “fundamental tax

reform” but included a wish list of changes to the tax code that the

White House wanted up front that would increase taxes by $510 billion.

Guaranteed to provoke Republican opposition, it targeted oil and gas

companies, the estate tax, business inventory accounting rules and

corporate jets.

If there were tax increases up front, where was their incentive to

follow through on tax reform? This was basically bullshit, Loper

concluded. He took the plan to Barry Jackson, Boehner’s chief of staff.

Jackson, heavy and rumpled, with shaggy gray hair and glasses, was

an Ohio native like the speaker. He had helped run Boehner’s first

congressional campaign in 1990, and served as the speaker’s first chief

of staff before taking over as the executive director of the House

Republican Conference. He had left Capitol Hill in 2000 to work on the

George W. Bush presidential campaign and spent eight years in the Bush

White House, the majority of that time as deputy to senior adviser Karl

Rove.

At 50, Jackson was the key figure in Boehner’s inner circle, often

serving as the speaker’s proxy in negotiations with the Democrats in

Congress. He knew a bad deal when he saw one.

He got on the phone with Boehner, who was back home in Ohio. This

is a step back, not forward, Jackson said. The paper offer did not match

the president’s willingness, as you perceived it, to make some hard

choices.

Boehner agreed and said he had to reject the offer.

He sent a simple message to the White House: Call when you’re ready

to get serious.

• • •

On Sunday, July 3, Boehner had a bunch of high school buddies and

their wives visiting from Ohio.113 He was scheduled to go out to dinner

with them that night, but the White House called. The president wanted

to meet with him to see if they could get the negotiation back on track.

“All right. Six o’clock. I can do that and still make my dinner,”

Boehner said.

It was a brutally hot summer evening when the speaker arrived in the

Oval Office, but Boehner wanted a cigarette and he knew there was no

smoking allowed inside the White House. 114

“Hey, why don’t we go outside on the patio?” he asked the president.

Boehner asked for a glass of Merlot and lit up a cigarette, sitting in

the blazing heat across from the president, who had publicly admitted to

his struggle to quit smoking. The discussion turned quickly to the

administration’s last proposal.

“Look, this isn’t cutting it,” the speaker said. “You’re way too high on

revenue. I can’t do all these tax changes up front because, one, I’m

opposed to them. But two, you will have no incentive to do tax reform.”

McConnell wouldn’t go for it. The House Republicans wouldn’t go for it.

“This is no good. If you need the revenue, we’ve got to find a way to

make tax reform work as part of this and not do this splitting out of

these other things.” And your entitlement reforms are inadequate. I can

do revenue. But we need to have structural reforms of the entitlement

programs.

I got it, I hear it, the president replied. Let’s make another run at it.

Boehner said that among their options—a small deal with minimal

reforms, a big deal with major reforms, or something in between—it was

the big deal that stood the best chance of passage. “We could bring the

votes together better if we are really accomplishing something. Just

going in and nicking everybody is going to be that: a whole lot of nicks

without a whole lot of success. The overall package wouldn’t be big

enough to really have accomplished much.”

By the end of their discussion, Boehner thought he had convinced

Obama that the big deal was the best option.

“The more I got into this, it became clear to me and frankly it became

clear to the president that the only way to actually do this was to do the

big deal,” he said in an interview. 115

Boehner also remembered the meeting as a moment that crystallized

his view of the difference between himself and Obama.

At one point in the meeting, he recalled, “I look at myself, I look at

the president, and I just started chuckling to myself. Because all you

need to know about the differences between the president and myself is

that I’m sitting there smoking a cigarette, drinking Merlot, and I look

across the table and here is the president of the United States drinking

iced tea and chomping on Nicorette.”

• • •

“That’s exactly right. And that’s true,” Obama said, smiling broadly and

unwrapping another Nicorette during an interview in the Oval Office.116

“And then it started raining, and so we had to move back in. And it was

very hot.”

Asked to recall the meeting with Boehner, Obama said he told the

speaker the same thing he had been telling members of Congress about

the debt limit.

“I want to take this issue off the table,” he said. “Because part of my

view is that even though we were not largely responsible for these

deficits and this debt, the public cared about it deeply. And we could not

move an affirmative agenda forward as long as this debt and deficit was

looming over the horizon.

“And I’m saying to them, look, there are three components to this.

There’s discretionary [general and Defense], there’s mandatory [for

instance, food stamps], and there’s entitlements [such as Medicare and

Medicaid]. I said, I’m game to do the discretionary, it’s in our budget

anyway. Biden and Cantor have done some good work on the

mandatories, the nonentitlement mandatories. And we should be able to

come up with something on that. And I said, the entitlement issues,

from our perspective, are co-joined entirely with how far you guys are

willing to go on revenue. So what I said was, you can—you have a menu

of options here. You can go small, and we’ll just do the discretionary.

We can go medium, where we also do some of the mandatories. Or we

can go large, with some of the entitlements. But if we do the large piece,

then you’ve got to have significant revenues with us.

“I said, here’s a menu of options. You guys can select whatever

options you want, and I’ll work with you to resolve this. We can go big.

Maybe you guys can’t deliver. Maybe we’ll go small.”

18

Inside the White House on the 4th of July, senior staff were irritated.

Daley, Lew, Sperling and Nabors had been talking with Boehner’s staff

for several days without making much progress, and now here they were

giving up family time for negotiations that still didn’t feel serious.

Nabors found the whole situation aggravating. Why weren’t they

getting to some point of closure? Every time the White House took a

step in one direction, the Republicans took a step in the opposite

direction.

• • •

On Tuesday, July 5, the president made a short statement in the White

House Briefing Room.117 Without offering any details, he said that talks

on the debt limit had continued over the July 4th weekend, and that

progress had been made.

There was still work to do, he cautioned, and solving the crisis would

require a balanced approach that included both spending cuts and

increased tax revenues. “This will require both parties to get out of our

comfort zones, and both parties to agree on real compromise,” he said.

He reiterated his opposition to a short-term debt limit extension and

announced that he had asked the top eight congressional leaders to

come to the White House for a meeting on July 7.

In a statement released later, Boehner said, “We’re not dealing just

with talking points about corporate jets or other ‘loopholes.118’ The

legislation the president has asked for—which would increase taxes on

small businesses and destroy more American jobs—cannot pass the

House, as I have stated repeatedly.”

Regarding the requested meeting, he said, “I am happy to discuss

these issues at the White House, but such discussions will be fruitless

until the President recognizes economic and legislative reality.”

• • •

Jack Lew and Rob Nabors went to Capitol Hill on Wednesday, July 6, to

meet with Jackson and Loper in advance of another private Obama-

Boehner meeting.

Loper handed them Boehner’s counterproposal for a $2 trillion deficit

reduction deal, which, they believed, offered $788 billion in new

revenue. 119 The proposal also insisted that yearly revenue not exceed

19.1 percent of GDP—a giant goal, given that government spending had

increased to an annual average of 23.2 percent of GDP.

The plan had been bouncing around Boehner’s office since the spring,

Boehner later recalled.

“When you look at current tax policy it produces about $35.5 trillion

plus over 10 years. If you look at current tax law, it produces $39-plus

trillion. Out of tax reform the goal was to hit $36.2 or whatever, and so

the idea was, and our proposal was that tax reform would produce up to

—underline a hundred times ‘up to’—$788 billion. And then roughly

19.1 percent of GDP. Which was a way for us to put revenue out there

and unlock my box and their box.”

Where the administration proposed saving $15 billion from Medicare

over 10 years, the Boehner proposal sought $250 billion. He wanted to

overhaul the system, combining Medicare’s various parts that covered

doctor’s fees and hospital care separately into a single plan that looked

and functioned more like a conventional insurance policy. The two-year

increase in the retirement age would begin seven years earlier, in 2015,

and be completed 19 years earlier than the White House proposed.

Combining the hospital care and regular medical care segments of

Medicare might be the right policy, Lew said, but it’s very complicated.

You’re going to create winners and losers. This can’t be sold as part of a

budget-saving policy. It’s got to be done on a no-cost basis, just for good

policy, because you’re screwing some of the healthy and creating more of

a safety net for the unhealthy. You have no idea what the political

ramifications are going to be, he added. This is going to be bad politics

for you.

This was the sort of thing Jackson couldn’t stand—the White House

telling House Republicans about their own politics.

“Jack, I know my politics,” he said. “I don’t pretend to know yours.

Don’t pretend to know mine.”

Boehner’s counteroffer applied the modified Consumer Price Index to

Social Security and made other changes to the Democrats’ treasured

retirement program.

Lew said the administration would consider the CPI change, but any

other changes to Social Security would need to be balanced with an

increase in payroll taxes. He suggested creating a “donut hole” system

for payroll taxes. Currently, everyone paid payroll taxes on their first

$106,800 of income. Lew suggested keeping the cutoff at $106,800 and

reinstating the tax on income over $250,000.

Loper found Lew obnoxious. The budget director was doing 75

percent of the talking, lecturing everyone not only about what Obama’s

policy was, but also why it was superior to the Republicans’.

Jackson found Lew’s tone disrespectful and dismissive.

Lew was incredulous when he considered the Republican proposal as

a whole. The changes they were considering sounded simple. But the

speaker’s office was laying down general principles and looking to apply

them to extremely complex programs. The devil was always in the

details. What mattered was what impact those general principles would

have on people’s lives if they were implemented.

When the speaker’s office made a proposal, Lew would return with an

analysis of what it would mean for the average Medicare retiree and

people at different income levels. It complicated the negotiations, and in

Lew’s experience, the answer “things are complicated” was not highly

appreciated by the speaker’s office.

Lew felt that Loper understood the issues and, if he had been given

the freedom to negotiate, would have been able to come to a deal.

Jackson, on the other hand, was a political strategist. He had little

interest in the substance of the debates—his eye was always on the

Republican conference, making sure Boehner wasn’t too out of step with

what they would support.

To Lew, it seemed the speaker and his staff were constantly

complaining about the problems they had with their caucus. It wasn’t as

if the White House would have an easy job selling the deal either.

Democrats in Congress weren’t exactly clamoring for cuts to Medicare

and Social Security.

Lew tried to explain the magnitude of what Republicans were asking

the White House to support. Their proposed changes to Social Security,

Medicare and other social programs would overturn decades of

Democratic orthodoxy. Even the Ryan budget, viewed as unacceptably

radical by the Democrats, didn’t change things so quickly. He said the

Republicans had fundamentally misread the politics of the budget

debate.

“You realize that all the Democrats think we’ve got you by the balls

because of that Paul Ryan budget you voted for? And we’re going to give

it up in one fell swoop?”

• • •

Later, at the White House, Nabors and Sperling looked over Boehner’s

offer.

We can’t do most of this Medicare stuff, Nabors said, and the

Medicaid pieces are completely unworkable. The Republicans were

pushing for funding levels that could only be reached by turning

Medicaid into a block grant program—something Democrats would

never accept.

The cuts to entitlements, in general, were higher than the Democrats

would tolerate. The proposed $788 billion in new revenue was a fiction.

It assumed a new and lower starting baseline.

“We can’t do this,” Nabors said. “And they have to know that we

can’t do this. This would be suicide.” He thought the Republicans were

pulling away from a deal.

“Oh, my God, why are we in this negotiation?” Sperling said. “It’s a

fraud.”

Sperling had focused on the requirement that government revenue be

tied to GDP. This was the killer line: “Projected revenue could be no

higher than 19.1 percent in any year.” It would be a potential revenue

cut of $600 billion, not a revenue increase. The 19.1 percent was

something the Wall Street Journal editorial board fantasized about, but

the federal government’s obligations to seniors through Medicare and

Social Security were skyrocketing with the retirement of the baby

boomers. There was no way to go back to the Reagan 1980s with some

arbitrary 19.1 percent cap. They wanted to cap revenues at an already

low percentage of GDP when the country was coming out of a recession?

“No fucking way,” Sperling said.

We can’t do this, Nabors told Jackson.

This is a fair deal. It’s reasonable, Jackson replied, pointing out the

offer of $788 billion in revenue.

As much as anyone in the White House, Nabors was eager to cut a

deal. But this was just insulting.

“If you can’t sell it to me,” he told Jackson, “there’s no way you’re

going to sell it.”

• • •

During the course of the week, the approximately $1.1 trillion in

discretionary cuts negotiated by the Biden group had become an

assumption. They would be part of whatever deal could be worked out.

When Boehner went to meet with Obama on the evening of July 6, he

remained convinced that the offer his staff had delivered the previous

day held the key that would unlock the box each side was trapped in. It

would allow the Democrats to say they were raising additional revenue

while protecting the Republicans from having to support a tax increase.

“Listen, $788 billion was real simple,” Boehner recalled. 120 “Flatter,

fairer code, you’re going to get more economic growth. Secondly, you’re

going to have a more efficient tax system.”

He said that Internal Revenue Service data shows that the current tax

system produces about 85 to 86 percent of what it’s supposed to.

Boehner’s staff had estimated that it could be increased to 93 percent

with a flatter, fairer code.

“Thirdly, I’ll call that opportunity savings, nobody knows what the tax

rates are going to be. We got [the Alternative Minimum Tax] hanging

out there, we got the Bush tax cuts all going to expire. There’s some

value into locking this down. Well, I was entirely comfortable—well,

entirely, that’s an overstatement—I was comfortable.”

The demand that revenue be limited to 19.1 percent of GDP would

have made it an easier sell to Republican hard-liners, but it “was not

something I was going to fall on my sword over,” Boehner later recalled.

“But the up to $788 billion, I was comfortable enough to put it on the

paper. I don’t want to say I was that comfortable, because I knew I was

going to have a battle here, but I was willing to do that if there were real

reforms in the entitlement programs. You know I think at this point

they were pretty excited about us putting revenue on the table and we

were making progress.”

But at the end of the meeting, despite their previous discussion about

pressing staff to find an agreement, they remained far apart on the key

issues of taxes and entitlement reform.

• • •

On the morning of Thursday, July 7, a New York Times story headlined

“President Looks to Broader Deal in Deficit Talks” revealed that Boehner

and Obama were engaged in secret negotiations. 121 The report said the

speaker had shown a “new willingness” to bargain over revenues, and

mentioned that a figure of up to “$1 trillion or more” was in play.

David Krone, Reid’s chief of staff, told Jackson that the White House

had briefed Pelosi and Reid, and it looked like the leak had come from

Senate Democrats.

On the $1 trillion figure, Boehner insisted to Cantor and others,

“That’s not accurate. I’m not doing that.” He was proposing tax reform

exclusively. It was the only way.

However, he added, “I want something big.” It would be easier to sell

than something small or at the medium level. “I want something big.”

“I don’t know that you can,” Cantor replied. “Our members aren’t

there. Maybe we should go for the Biden thing.” He was trying to convey

skepticism, even animosity, without rocking the boat too much.

Additional debate about a split between the speaker and majority leader

would generate headlines reading “Ambitious Cantor Wants to

Overthrow Speaker.”

The internal House Republican dynamic, as viewed by their staffs and

by the House press corps, was Cantor vs. Boehner. They were obviously

in different places, and any disagreement by Cantor was gauged in terms

of a leadership challenge. Cantor referred to it as “the soap opera,” but it

was real.

• • •

Boehner’s staff worried that the president thought if he got Boehner in a

room with the rest of the leaders and announced a deal, Boehner would

fold in front of everybody. Loper tried to get the speaker to beg off even

going to another meeting. It was ridiculous. The distance was too great,

and Pelosi would never agree to support a deal with big Medicare cuts.

Boehner and Obama spoke on the phone in advance of the scheduled

White House meeting.

I’m going to lay out three potential paths to an agreement, Obama

said. The choices would be: a smaller deal with roughly $1 trillion in

deficit reduction, a medium-sized $2.4 trillion plan, or a big deal that

would require tough cuts but provide close to $4 trillion in deficit

reduction.

“We aren’t there” on any agreement of any size, Boehner reminded

him. He was nervous. The deal was so unformed that he was afraid

discussing it in a meeting would only confuse people. Even the other

Republican leaders “didn’t have any clue” about what he’d been

discussing with Obama.

“This ain’t going to cut it,” Boehner said. Why have the meeting at

all?

“Well, we’ve already got it scheduled and I feel like I have to bring

them down here,” Obama insisted.

Boehner wondered if Obama was using the meeting as a means of

managing Reid and Pelosi, who were increasingly upset about being cut

out of the negotiations.

Boehner met with Cantor, McConnell and Kyl to discuss the White

House meeting that day, and then called the entire Republican

conference. Negotiations are ongoing on a number of options, he told

them, including structural entitlement reforms, spending caps, and

comprehensive tax reform. All of these things could be part of one

significant framework, but there will be no tax increases.

In case there was any doubt, Boehner spoke to the press after the

meeting. In the debt limit negotiations, he said, “Everything’s on the

table except raising taxes on the American people.”

• • •

As promised, Obama laid out his three options when the top eight

congressional leaders met at the White House that morning.

The big deal was impossible, Cantor and Kyl said immediately. The $4

trillion deal, which required $1 trillion in new revenue, would never pass

the House, Cantor said.

The president cautioned them that he wouldn’t sign anything that

didn’t get the country through the 2012 elections without another debt

limit crisis.

Boehner remained convinced that the president’s insistence on a

single-step debt limit increase was purely political.

“Okay, so, he wants to get reelected,” he recalled in an interview.122

“Doesn’t want to have to deal with it more than once. Okay, so, he kept

saying it. This had nothing to do with anything other than the

convenience of his own reelection.”

Did you say that to him?

“No, no, no. I didn’t have to state the obvious.”

They made little progress during the 90-minute meeting, but agreed

to meet again on Sunday evening.

The president spoke to the media at about 1 p.m., calling it “very

constructive,” but admitting that “the parties are still far apart on a wide

range of issues. ”123

Afterward, Pelosi expressed concern that cuts to Medicare, Medicaid

and Social Security were on the table.124 “We are not going to balance

the budget on the backs of America’s seniors, women or people with

disabilities,” she said.

• • •

Later, Boehner met with the rest of the House leadership: Cantor,

McCarthy and Hensarling.

They discussed options for a Plan B, in case the White House

negotiations didn’t pan out. They neared a consensus to pursue a

medium-sized package, based largely on the Biden group’s work.

Boehner’s decision to send the rest of the Republican leadership in

search of a Plan B had two purposes. First, he had no confidence the

negotiations with the president would produce a deal, and second, he

had to cover his own back by keeping McConnell, Cantor, McCarthy and

Hensarling busy doing something because they were really nervous

about what the hell he was up to. And he realized that was an

understatement.

Did they ask you? I asked the speaker.

“Oh, hell yeah!” 125

What did you say?

“Well, you know, I couldn’t get into what we were actually talking

about, because hell, you know, everything around here is like a sieve.”

So what did you say to them?

“I’m working on this, working on this. They kept saying we’re not

going to do a big deal, can’t do a big deal, can’t do a big deal, and so I

said why don’t we work on a deal that we think we can do. So there was

effort under way, one, in case this thing did fall apart, and two, to keep

them engaged in something.”

• • •

Late that day, Jack Lew went to the Hill to meet with an angry Nancy

Pelosi. She had asked him to brief senior Democrats on the debt limit

talks, but she also wanted to send a message to the White House.

House Democrats are being excluded from the talks, she said, and

obviously, we are going to be necessary to pass any bill. The contingent

of right-wing Republicans in the House will never vote for any debt

ceiling increase, she said. Everyone knew this.

The president had to deal with the House Republican majority, Lew

said, attempting to defend the secret talks as a strategy of necessity.

“Don’t insult us,” Pelosi retorted. “You guys don’t know how to

count.” 126

There was often theater in these meetings, Lew knew, particularly

when a leader like Pelosi was speaking in front of her extended

leadership team. He was being chastised in order to send a message to

the White House and to other House Democrats that she was asserting

her rightful role.

The Democrats had 192 votes in the House. “Next time around,”

Pelosi added, “you better make sure that you— we—use the leverage. If

you’re going to ask for House Democrats to put the vote over the top,

we want to make sure that our concerns are more fairly reflected.”

19

At 8:30 a.m. on July 8, the Labor Department announced that job

growth had slowed in the previous month and that the unemployment

rate was stuck at 9.2 percent.127 Within an hour, the House Republican

leadership was holding a news conference.

“After hearing this morning’s jobs report,” said Boehner, “I’m sure

the American people are still asking the question, ‘Where are the jobs?’

” It was a theme he had been pushing since the 2009 stimulus

package. 128

Asked about the prospects for a debt ceiling deal, he said, “There is

no agreement, in public or private.129 . . . It’s not like there is some

imminent deal about to happen. There are serious disagreements about

how to deal with this very serious problem.”

What were the prospects for progress in the meeting scheduled for

Sunday?

“I don’t know,” Boehner said. “There’s a lot of conversations

continuing, but I don’t—in all honesty, I don’t think things have

narrowed. I don’t think this problem has narrowed at all in the last

several days.”

• • •

Senator Kent Conrad sat down for a private meeting at the White House

requested by Obama and Biden.

Though Conrad had been the impetus behind the Simpson-Bowles

fiscal commission and had served on it and voted for the final product,

he had urged Obama not to endorse or embrace it because it would

mobilize Republican opposition and “House Republicans would

automatically oppose it. ”130 A longtime veteran of the budget wars,

Conrad was one of the six senators in the bipartisan group called the

Gang of Six that had been trying to come up with its own deficit

reduction plan that combined increased tax revenues and spending cuts.

How would the revenue piece for the Gang of Six, which had not

officially released its plan, actually work? Obama asked.

“You’ve got two pieces,” Conrad said. First, $800 billion in revenue

over 10 years came from not extending the Bush tax cuts for the upper

brackets; second, another $1.2 trillion, also over 10 years, came from tax

reform.

“You’ve spent all this time negotiating with Republicans,” Obama

said. “In all those hours of negotiation, what have you found works?” He

had to crack the code. How do you get revenue out of these guys?

“There is only one thing that works,” Conrad said. “And that is

fundamental tax reform that actually lowers marginal rates.” Reagan had

dramatically reduced income tax rates in 1982 and 1986, and it had been

a Republican obsession ever since. Most of them had signed a pledge

originated by anti-tax lobbyist Grover Norquist vowing never to raise

taxes. 131 It was holy writ. The extremist Tea Party wing of the party was

smaller and consisted of 40 to 60 “crazies,” or “barbarians at the gate,”

according to Nabors. Their power, however, was not within the House

Republican conference. Rather, it was the threat of a primary challenge,

which they could engineer and help finance.

Tax reform was a possible way around Norquist—eliminating

loopholes raised revenue, which in turn could be used to both lower tax

rates and reduce the deficit.

The reform would include elimination of tax deductions, including

those for mortgage interest and employer-provided health care

insurance. Technically these deductions were called “tax expenditures,”

as the president and Biden knew, because they cost the Treasury money

—more than $1.1 trillion, each year. It was an astonishing number: The

government lost more through the tax code than it spent through the

annual appropriations process.

The key to generating revenue through tax reform, Conrad said, was

not to raise the income or corporate tax rates, but to lower them while

eliminating deductions.

“Combined with entitlement reform and with going after wasteful

spending,” Conrad said, it was possible to get there.

One lesson, he said, was to look at Defense spending. Lift the veil

over there at the Pentagon, he said. Savings could be found that would

not compromise the military’s real capacity an iota. While serving on the

Simpson-Bowles commission, Conrad said, he heard a witness testify

that 51 percent of all federal employees, including uniformed military,

were at the Department of Defense.132 That did not count the Defense

contractors, so Conrad had asked how many there were. The answer had

an astounding range—1 million to 9 million. He had been unable to get

more precise numbers, though the Pentagon had acknowledged they had

a contractor problem.

“They’ve got a huge contractor problem,” Conrad said.

• • •

In his first meeting with the president-elect during the transition in

2008, Nabors, then an OMB expert, had spent 10 minutes discussing tax

reform.

“It’s a necessary part of our reform agenda,” Obama had said. “It has

to be, because it’s so screwed up.”

Since then, senior staff had spent many hours with Obama discussing

tax reform. Nabors considered them surreal conversations. “Let’s just

give them two to three months to come up with tax reform,” the

president said at one point. It only seemed reasonable, Nabors realized,

until they got into the details. He found himself walking the line

between his old role as a technician and his new one, as a political guy.

They called in the tax experts from the Treasury Department—Nabors

called them “the trolls”—who said even six months would be fast.

Realistically, it would be 12 to 18 months.

Later that day, Lew and Nabors went back to the Capitol to meet with

Loper and Jackson. They hadn’t brought any new paper with them, but

they were ready to talk about some of the details in the Republicans’

latest offer.

The White House was willing to compromise on some of the changes

the Republicans wanted to make to Medicare, such as transforming the

confusing Medicare Part A and Medicare Part B systems into a single

entity. They would agree to that if the change could be pushed off to

2021 or 2022, and if there were guarantees that the policies would be

affordable for low-income seniors. The net change in costs had to be

zero. Republicans could change Medicare, but they couldn’t generate any

savings from doing it.

The White House was willing to compromise on the Medicare

eligibility age. They still wanted to raise it at the slower rate of one

month per year, but would agree to start the process four or five years

earlier. The Republicans were asking too much. “We can’t do this,”

Nabors said. “You know we can’t do this. This would be suicide if we

did this.”

“Medicare is going to be tough on us as well,” Jackson replied, noting

that they had already voted, in the Ryan budget, for more radical cuts.

“I’m not stupid. Come on, guys.”

• • •

Despite their frustration with some of Boehner’s positions, White House

senior staff hoped there might be some substance to the negotiations.

They had to be hopeful to work this hard. They were exchanging

documents with Boehner’s staff, red-lining each other’s proposals, and

returning them for further discussion. Sperling said he took it as a sign

of seriousness that built confidence on both sides. “We both know

there’s shit on this paper that would kill either of us.”

On Friday, July 8, Nabors came to Sperling. “They sent their tax

principles and we’ve got to send a reply. Oh, and I need to do it by

tonight.”

He handed Sperling one sheet of paper containing Boehner’s goals for

tax reform. 133

“Go consult with Geithner,” Nabors said. “Consult with Reed. Get

back.”

Sperling went down Boehner’s list.

“Maintain an income-based system without adding any new tax

structures,” he read. They could agree on that and on trying to reduce

the number of personal income tax brackets to three.

In Sperling’s view, some of Boehner’s principles were standard right-

wing dogma. The speaker wanted to reduce taxes on investment income,

make the cuts to the estate tax implemented the previous December

permanent, and “exempt from federal income tax all or substantially all

dividends received from foreign subsidiaries.”

Sperling drafted a set of principles for the administration. It accepted

some of the Republicans’ proposals verbatim and ignored others. On the

question of the estate tax, the administration would propose reverting to

a system similar to what was in place before the Kyl giveaway from the

previous year.

Sperling knew the president was determined to keep the tax code

progressive. Had the White House made a terrible negotiating mistake

by leaving the definition of “progressivity” vague?

He decided to leave no doubt. Tax reform, he wrote, should “maintain

or increase the progressivity of the tax code, compared to the Fiscal

Commission baseline in 2013.134 Progressivity will be measured by the

percentage change in after-tax income for each quintile as well as the top

2%.”

• • •

In an interview, the president recalled that he had been concerned by the

Republicans’ tax principles because they didn’t appear consistent with

Boehner’s promise to retain the current level of progressivity. 135

“So we’ve got to do an evaluation: Can you maintain progressivity of

the sort that we have right now with only three rates?” he said. “And the

answer is no. So that all would have had to have been rewritten.”

• • •

Nabors sent the White House’s response to Boehner’s office that night.

Loper looked at it in disbelief. The White House had eviscerated the

Republicans’ tax principles. The section on progressivity stood out in

particular. The Democrats’ proposal would push progressivity to record

levels.

Loper knew this wouldn’t work. Republicans believed the burden of

paying for the government was already too concentrated on middle-and

upper-income earners, so changes that made the system more

progressive could be seen as not enough reform. Loper took the

administration’s principles to Jackson. The gap between us is too large,

they agreed. We’re not going to be able to close it. They began drafting a

pessimistic memo for Boehner. 136

20

On Saturday morning, July 9, the president was still determined to “go

big.” He would agree to sharp cuts in Medicare and Medicaid, adopt the

modified CPI measure, and get some revenue. He realized the

Democrats, especially in the House, were up in arms as details were

getting out. Yet he felt he was chipping away at the barriers to a deal. He

believed Boehner had agreed, for example, to big cuts of $50 billion or

more on prescription drug rebates, previously a Republican no.

Obama also believed he was gathering some important intelligence

from his talks with Boehner. First, the speaker acknowledged that

Cantor was working against the deal.

The president and Boehner joked about the tension between the

speaker and the majority leader.

You know Cantor’s trying to get your job, the president told Boehner.

He’s trying to screw you. He’s stirring up stuff inside your caucus, and

he walked away from the negotiations with Biden in part because he

doesn’t want the failure to be around his neck. He wanted you to take

the blame if this thing falls apart.

In addition, Boehner had confided that he believed another reason

Cantor had walked out of the Biden talks was because he learned of the

secret Obama-Boehner meeting. Eric, Boehner had said, considered that

an “end run.”

If they didn’t get a big deal, Obama realized they would have to go

back to some of the core ideas that came from the Biden meetings—not

a hopeful sign, given that the Biden work was tentative and had broken

down over the revenue question.

So where were they?

“You know what?” the president told Daley. “We’ve got a 50–50 shot

at getting something done.” But in phone calls that morning he had told

some Democrats it was only a 25 percent chance.

• • •

Most of Obama’s economic team gathered early that Saturday morning

in the West Wing. Nabors reported that he was somewhat optimistic.

Though there were big differences, the distance between Obama’s offer

of $2.7 trillion and Boehner’s $2 trillion ought to be something they

could bridge in a normal negotiation. “They’re looking at it,” he said.

The speaker, of course, wouldn’t take Obama’s first offer any more than

they would take the speaker’s. And they had exchanged drafts of tax

principles.

An immediate answer seemed unlikely. It was a hot summer

Saturday, and Nabors said he thought the speaker might be playing golf.

It wasn’t unusual, in complex negotiations, to unwind with a little time

on the fairways. After all, this—at least the current phase of this— had all

begun three weeks earlier at the Golf Summit.

Golf, a game of recovery, was a good metaphor for what they were

doing. A bad or unlucky shot wasn’t fatal. Follow it up with a good

second or third shot, and you could still find yourself on the green with

a chance at par, or even better. Negotiations were similar. If your first

offer is a bust, you can always follow with a second one.

Everybody should take time off, they decided. People fled to play golf

or tennis or spend time with family.

• • •

That same morning, Cantor read The Wall Street Journal, especially

focusing on an editorial headlined “Boehner’s Obama Gamble. ”137 The

Journal’s editorial page, with its hard anti-tax line, was a kind of Daily

Racing Form for Cantor and the new Republican, Tea Party–inspired

majority in the House.

“A tax increase now for the promise of tax reform later won’t fly,”

Cantor read. The Journal was issuing an explicit thumbs-down on the

talks aimed at a big $4 trillion deal. “Especially risky is his [Boehner’s]

willingness to ‘decouple’ the Bush tax rates,” Cantor read. “Taken by

itself this would be a tax increase pure and simple and violate the GOP’s

campaign pledge.” Talk of forcing tax reform over the next several

months with a “trigger” was an insufficient guarantee. “We’ll see a

unicorn first,” the Journal warned. “Republicans who embrace this logic

deserve the Tea Party’s disdain.” The worry was that Obama would

“bull-rush Mr. Boehner into a bad deal. . . . Mr. Boehner shouldn’t bet

his majority on Mr. Obama’s promises.”

This was more than a small fire alarm. The Journal had a lot of

influence with House Republicans. When it said their speaker was about

to agree to a tax hike they shouldn’t support, the members would react.

Boehner had told Cantor that if he got significant entitlement

reforms, specifically on Medicare, he would be able to sell what the

White House would call a tax increase as tax reform that would generate

revenue through economic growth.

Cantor begged to differ. A big number would be considered a tax

hike. To sell that to their members would require large entitlement cuts

that addressed the deficit problem—something transformational. And he

knew from the Biden talks that the Obama administration wasn’t even

close.

“I want something big,” Boehner kept repeating. “I want something

big.” He and Jackson talked about the Boehner legacy, and how fine it

would be to do something on the order of the dramatic 1983 Social

Security deal between President Reagan and House Speaker Tip O’Neill

or the tax reform deal of 1986.

“I didn’t run and become speaker to do small things,” Boehner told

Jackson. “I did it to do big things.”

Cantor spoke with some of the members. The Journal editorial

reflected their sentiments. Some of the members called the speaker’s

staff and the speaker himself. The message: What are you doing? Don’t

get too far ahead. Ease up. They would never agree.

Michael Steel, Boehner’s press secretary, thought the editorial was

incoherent, failing to make the critical distinction between pure tax

hikes and additional revenue through comprehensive tax reform, which

Boehner had made a precondition of any deal. But it was too late. Inside

information on the negotiations was unavailable. By stepping into the

vacuum, the Journal had defined the issues.

• • •

Paul Ryan spoke with Van Hollen. The New York Times story on $1

trillion in revenue has blown any chance of a grand bargain, he said. 138

Van Hollen appealed to Ryan for a big package.

“The window is already shut,” Ryan replied. “It just isn’t going to

fly.” They needed to go back to the Biden framework.

• • •

Boehner was not playing golf that Saturday morning. The speaker was at

his home in West Chester, Ohio, for the weekend, where he spent part

of the day riding his bike. Then he tended to his lawn mower.

This was a ritual the speaker enjoyed—often telling staff how much

he looked forward to it. He would tip the push mower over on its side,

remove the blade and sharpen it with a hand file, then, like any

suburbanite, mow the lawn.

That morning, Boehner looked over the three-page tax reform memo

that Loper and Jackson had sent the night before, and called them. The

memo was titled “Tax Reform Principles: Key Areas of Disagreement,”

and it highlighted several of them.139

The first was the overall level of taxation. Republicans wanted to cap

tax revenue at a percentage of GDP, which could require revenues to fall

in a slow economy. The Democrats wanted revenue targets set at a

dollar figure, which would preserve revenues at a specific level

regardless of economic conditions.

The White House memo was “cryptic,” its business tax proposals

“vague.”

The two sides also disagreed about what sort of enforcement

mechanism, or trigger, would be in place to assure that tax reform was

enacted, and whether the system should be made more progressive.

We’re too far apart to get to a big deal, Loper said.

Boehner said he was concerned that at the White House meeting the

next day, the president would announce that he and the speaker were

close to a deal. He didn’t want to be railroaded or to have to contradict

the president in front of the other congressional leaders, so he directed

staff to draft a statement taking the big deal off the table.

But his reluctance to embarrass the president wasn’t Boehner’s only

problem. Both the New York Times article and the Wall Street Journal

editorial had focused on tax increases instead of tax reform.

Boehner knew that the predominant school of thought in the

conservative movement held that you shouldn’t ever negotiate with

Obama. You shouldn’t do any sort of big deals, because Republicans

believed they were going to take the White House and the Senate back

in 2012, and then they wouldn’t have to negotiate with Democrats at all.

Boehner and Jackson viewed this as a high-risk strategy. The deficit

was too big a problem and with the country nearing the debt limit, they

had leverage.

They discussed how to reframe the negotiation.

No matter how much time you spend on the phone explaining what

the talks were really about, Jackson said, you’re losing that fight. The

story has broken out and gone viral. You can’t talk to everybody.

Boehner needed time to focus the debate for the House Republicans—

to get them to understand that the talks were taking place in the context

of his demand for real, measurable spending cuts and tax reforms.

It was time to make a tactical retreat to advance his strategic

interests, Boehner and Jackson agreed, to get out from under the “tax”

definition forced on the debate by the rush of media coverage.

Boehner called the president.

The big deal isn’t going to come together, the speaker said. I don’t

want you to walk into that meeting tomorrow thinking that it is. I’ll be

at the meeting, he added, but I think we’re going to have to find some

other way to get this done. The gap between us is too great.

Boehner said House Republicans needed to start looking for a Plan B,

and would start a second set of negotiations in Congress.

Disappointed, the president tried to talk Boehner out of it. “I still

want to make this pitch. I still think we can get there.” He was going to

present the big deal as a possibility anyway.

• • •

In an interview, the president recalled that he had been feeling “fairly

optimistic” about reaching a deal. 140 He had gone to Camp David for part

of the weekend, which was where Boehner reached him.

“He calls me and says, you know what? I’m going to have to walk

away from this right now. And to his credit, he said, I’m not closing the

door to ever doing anything on this, but right now, I’ve just got to pull

away from the negotiations. And I spent probably half an hour to 45

minutes trying to persuade him not to leave the negotiations.

“I said, you know what? The country is anxious and it is scared. And

we’d just gone through the worst financial crisis since the Great

Depression. And if you and I announced a deal, I think that the public

would overwhelmingly support it. And despite resistance from both your

caucus as well as the Democrats on Capitol Hill, we would win over the

American people. Because it would be stark evidence that government

can still solve big problems. So my basic pitch was—and I continue to

believe this—that if he and I walked out together and said, we have

arrived at a deal that is going to reduce our deficit, reduce our debt in a

balanced, fair way, that overwhelmingly we could have won the support

of the American people.”

Speaking to others in the White House, Obama had wondered if the

pullout was just another symptom of Boehner’s inability to control the

Republican conference. Boehner had realized that doing a deal with

Obama would put his speakership in jeopardy, and didn’t want to take

the risk.

• • •

Nabors, wearing shorts and sneakers, was out enjoying the beautiful

summer day when his phone rang.

“We’re going to go public,” Barry Jackson said. “We can’t accept the

offer. We’re pulling out.”

“What?” Nabors said. “But I sent you a piece of paper. And we

haven’t heard back from you on the piece of paper.”

They had just exchanged one set of overall offers and another set of

tax principles.

It was the decision, Jackson said. “Necessity.”

Nabors called the White House and gave Daley the news. Daley

ordered the senior staff called back in.

• • •

Gene Sperling’s BlackBerry was ringing, but the NEC chairman, playing

tennis, couldn’t hear it.

Eventually, he looked over at the phone and saw there was a message

from the White House. Everyone come back, it said. The tone suggested

big news—almost an Osama-bin-Laden-is-dead kind of urgency. Get to

the chief of staff’s office at once.

Whoa, thought Sperling, immediately starting to rush back. He

phoned the White House at once. “What’s this about?”

Boehner’s threatening to pull out.

Oh man, Sperling thought, this thing is accelerating! A threat was a

good, even necessary, sign. They were going to cut a deal. It was going to

happen. A veteran of the budget, tax and deficit negotiations during the

Clinton years, Sperling knew a threat to walk generally preceded serious

negotiations. It meant: Time to put your real cards on the table. He was

excited as he raced back to the White House.

By the time Sperling arrived in Daley’s office, Nabors was handing out

a single sheet of paper with Boehner’s statement:

“Despite good-faith efforts to find common ground, the White House

will not pursue a bigger debt reduction agreement without tax hikes. 141 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.”

What’s this? Sperling asked. Is this what they say they’re going to put

out? The threat? Clever making it sound so final.

They’ve put this out, Nabors said.

“What do you mean they put it out?” Sperling demanded. “It’s already

to the press?”

Yes and yes. The wire services had picked it up a little after 4:30 p.m.

Sperling was stunned. It’s just over? An exchange of paper and no

call, no contact, not even a word or a hint about how to get to a deal?

Was it possible that The Wall Street Journal had such influence? Was

the Boehner-Cantor tension so great that the speaker could not

construct a graceful, face-saving exit? Was it so tense that Boehner could

not even be seen as negotiating? Or was it that they didn’t have Grover

Norquist on board? What was clear was that Boehner had just got blown

up. If someone doesn’t come back to the table, they don’t want a yes in

any form.

Sperling was baffled. Hundreds of years of the history of negotiations

suggested, strongly, that this is not the way you do it. There is

discussion, an offer, then a counteroffer, and so forth, round after round.

How could you ever get to closing with these people if they wouldn’t

even talk? If Boehner wasn’t willing to come back to the table, it meant

he didn’t want to hear. God, Sperling said, I sure wouldn’t want to date

these people.

Or maybe Boehner knew it was going to blow up in his face, Sperling

thought, and he was going back to build support. Where? How? Was it

because Boehner seemed to be willing to play with this idea of

decoupling the Bush tax cuts, letting them all expire and then only

voting for a continuation for the lower brackets? Or had they misread

that? Obama still clung to the idea that Boehner and the Republicans

could then technically say they hadn’t raised taxes. They could say they

had not done anything but cut taxes again for the middle-and lower-

income taxpayers.

What the fuck? Sperling said.

The president’s estimated 25 percent chance of a deal with Boehner

now appeared to be zero.

Lew saw it differently. The Boehner offer of $788 or $800 billion was

their limit. It was the most they could do and still go back and say

“We’re not raising a dollar of new taxes,” he told a White House

colleague. “And they had to be able to say that.”

The Boehner announcement of a pullout was a bit abrupt, Lew

conceded. However, he said, “I viewed it through the lens of, what does

this tell you about where the House Republicans are? And not

necessarily where the policy is.”

• • •

Later Sperling questioned Jackson. “Barry, someday when this is over,

you’re going to have to explain to me how a negotiation is: Someone

gives their first offer, the other side gives their first offer, and you end it

with no discussion?”

“It’s not over yet!” Jackson said loudly, wagging his finger.

Jackson knew Boehner’s view was simple: They had no choice but to

succeed. “We will not default,” Boehner had said time and time again,

both publicly and privately. But they would falter if the debate was about

tax increases. The speaker had to shift the debate to the more abstract

issue of tax reform. But how, in the cauldron of the moment?

• • •

Boehner’s announcement had caused a separate but related set of

headaches for Nabors. The speaker had publicly announced the end of

talks that the White House had never publicly acknowledged in the first

place.

It wasn’t long after Boehner’s press release that Nabors’s BlackBerry

began lighting up with calls from angry Democrats in Congress.

“What talks?” they wanted to know.

• • •

In an interview later, Boehner described his decision to withdraw from

discussion of the big deal as a sort of strategic deception.142

“I was trying to push the president,” he said. “I always believed that

the big deal was the only way to get there and I still wanted the big deal.

But I was trying to make him understand, hey, this isn’t working, and

try to rattle him a little bit into getting serious.”

Boehner said he was concerned that they were running out of time to

act.

“It’s July. I know how long it takes to move a bill and to write a bill,”

he said. “This stuff doesn’t happen overnight. But they don’t have a clue.

He doesn’t have a clue and his staff doesn’t have a clue.”

Boehner said the upshot of his conversation with Obama was that “he

understood he’d better get serious. I think I’d succeeded in what I was

trying to accomplish.”

• • •

Asked about Boehner’s explanation for pulling out, Obama said in an

interview, “At this stage, I know what my bottom lines are.143 So I’m not

rattled, and I’m never overly optimistic. I just want to solve the problem.

So what I say to him is, John, we’ll keep on talking. And let’s see if we

can still get something done. Either way, we’re going to have to resolve

this debt ceiling situation.”

After speaking with Boehner, he said, “I’m disappointed, because my

feeling is we’ve missed an opportunity to resolve this in a way that

would have as much upside in the markets and for the economy and

world confidence as we ended up having on the downside when it didn’t,

when things almost came to the brink.”

21

Obama was being subjected, dramatically, to the long, torturous ways

of budget negotiations and Washington deal making. There is nothing

quite like it. But he also saw his particular responsibilities as president

constraining his ability to bargain.

“We have to acknowledge we’re governing,” he told his inner circle.

“It’s like King Solomon. We just have to accept we’re the mom who’s

not willing to split the baby in half. And we’re not going to have as

much leverage.”

To Jack Lew, the president’s analogy was crucial to understanding

Obama’s position in the debt limit battle. Obama was saying that, as

president, he had to be able to go out into the world and explain what he

was doing with the U.S. economy. Unlike some in Congress, he couldn’t

pretend that default was an option.

Obama was admitting that he was constrained. He would have to take

a worse deal than he would normally accept. The Republicans knew it,

and they knew he knew that they knew it. This gave them extraordinary

power. So they were pushing their agenda to its outer limits.

The question remained, just how bad a deal was the president willing

to consider? And how much could he allow Republicans to push before

defections from the Democratic side scuttled any chance of a deal?

And there was a broader problem, the president had warned them. It

was quite possible that some would be willing, consciously or

unconsciously, to drive the car off the cliff. There were Democrats who

would rather have the political fight than get a deal.

Too many were focusing on who was winning the political exchange

of the moment. Yes, Obama said, he would get support for the deal from

the business community, the media and the opinion pages. But was that

enough? Even at great political cost, he was going to have to be

responsible, be the adult.

There was the chance that the economy would go under. If that

happened, it would be on his head. The Republicans would bear some

responsibility, but the headlines and the history books would record

unambiguously that the economy sank during the Obama presidency.

Plouffe had been sitting in on the pre-briefs. There was no more

important business. He agreed with the president’s constant assertion,

“We can’t default.”

“By stipulating to that,” Plouffe said, “you’ve lost an enormous

amount of leverage.” He was worried that the economy was beginning to

deteriorate significantly. It couldn’t take much more of a beating. If there

was a default, it could take not weeks or months, but years to recover

from it. And it would sink Obama’s reelection.

If I get criticized by Democrats, Obama said, for taking a deal I can

defend on policy and substance, I’ll have to take it.

Senior staff were painfully aware that the Democrats in Congress had

caught the scent of some kind of political victory. Nabors would often

hear it: Just let the thing default, and we blame the Republicans.

“We’re actually running this country,” Nabors argued back. “We’re

not going to run it into the ground. We have a Constitutional

responsibility to solve this problem.”

• • •

In an interview, Obama later recalled using the King Solomon analogy.144

“That’s true. There’s no doubt that the challenge we had here was

ultimately I and Tim Geithner were responsible for averting another

financial meltdown, two years after we’d just had a financial meltdown.

And so my interest in not playing chicken, or seeing any miscalculation

here that leads to a default, was profound.

“And there’s one other context to all that, though. By the time you

read this quote—by the time I said those words—what’s already

becoming apparent is that this new House is not feeling a similar sense

of urgency. And you have very prominent members of the House

Republicans who are not only prepared to see default, but in some cases

are welcoming the prospects of default. Think it would be a good thing,

that it would be a tonic to shock the system. So I’m already at this point

getting concerned that Boehner may miscalculate and not be able to

deliver on his caucus even if we end up striking a deal. And as a

consequence, throughout these discussions, I am very concerned about

not making Boehner look weak. And I’m understanding of the fact that

he, every time he goes into his caucus, has to throw them a bone. And

they can’t see this as a victory for me.

“Which raises one other problem, and that is that there were very

prominent Republicans in the caucus who told me—to my face—that the

view in the caucus was that getting a deal with me would ensure my

reelection.

“Very reliable and prominent Republicans say to me, the view among

many in our caucus is if we give you a deal, you have taken a major issue

away from us. You are seen as the bipartisan leader, and you are a lock

for reelection.”

So inside the White House it was generally understood that you were

negotiating with Republicans from a position of weakness?

“True,” Obama said. “Now, keep in mind, I never said this to them.”

• • •

In a near-crisis atmosphere, Obama summoned congressional leaders to

the White House at 6:10 p.m., Sunday, July 10, 2011.

The feeling in the White House was that Cantor was perhaps the

single biggest stumbling block between them and a deal.

“Cantor needs to be in the room,” the president told his senior staff.

“I want to look everyone in the eye.”

But if Cantor was in the room, then Hoyer, the minority whip, needed

to be there, too. And if Hoyer and Cantor had to be in the room, then so

did the Senate whips, Durbin and Kyl.

So it was an unwieldy eight who gathered in the Cabinet Room with

three weeks to raise the debt ceiling or face the unthinkable prospect of

a debt default.

“We talked about options,” the president began soberly. “We need to

talk about what we should do. We need to talk about if there are other

alternatives. I asked you if there were other alternatives.” They were

practically starting from scratch. He seemed to be groping for a solution,

even something unconventional or against the grain. They had a lot to

do. “I want to talk about the process for the week and how we’re going

to get through this.”

He said he still hoped for the “big deal” of some $4 trillion in deficit

reduction. All the leaders in the room had said they were for the “big

deal,” except Cantor and Kyl.

On the agenda, Obama said, were “changes in Medicare, Medicaid,

potentially Social Security. We would keep the structure of these

programs, but bend the cost curve.”

The House Republicans wanted an overhaul: to change the structure

and concept of these entitlement programs. It was a profound difference.

The president continued, “A commitment to work for middle-class

tax cut extension, tax reform by a date certain that would capture the

revenue necessary to meet whatever target we set as part of the tax

reform exercise. Discretionary cuts of a significant amount, such as

those that the vice president’s been talking about in his discussions.

This would achieve a sustainable deficit and debt, even with CBO’s

numbers.”

He maintained that this would leave them with an annual deficit of

only 3 percent of the Gross Domestic Product in the out-years,

compared to the current 10 percent.

“If the goal is to solve the problem,” Obama said, “I don’t understand

why we don’t seize the opportunity. It would not violate either party’s

positions. Revenues wouldn’t come from a vote. I understand this

pledge that all these Republicans have taken.”

The Republicans thought he really didn’t understand at all. The

scheme to decouple the middle-and lower-income tax brackets from the

higher brackets was a transparent gimmick.

Obama said he had Speaker Boehner’s statement. “I understand Eric

and John anticipate this couldn’t be done. But I told John, ‘If not now,

when?’ Then let’s admit that we’re more into playing politics. And

maybe I overstated what the traffic will bear. We need to get this

through this year. It’s unacceptable to do this every three months. We

are not going to do this again.”

Biden jumped in. They all knew that the big deal was the way to go,

he said. “We’re not going to become a banana republic. So what is it

going to be? Or are we going to live or die on the election?”

“Everyone is being well meaning,” Boehner said. “We’ve been in

sincere discussions for weeks, but as I said, the cuts have to exceed the

debt limit increase. There is more than one challenge to the big deal. My

only concern isn’t just the revenue increase. This could be impossible to

draft, as far as my people understand, in terms of the time line of getting

this done. And since this has to pass, given the time frame we have,

simpler could be better. There might not be enough time for a big deal at

this point.” The Biden group’s framework is our most viable option, he

concluded.

Reid proposed they consider a procedure similar to that used to deal

with the complex and politically charged problem of closing military

bases around the country. In the Base Realignment and Closure (BRAC)

process, Congress had to vote to close all or none of the bases selected

by a panel of outside experts; the legislation could not be amended. The

process was more or less working, though he noted some key

Republicans had voted against some closures.

Warming to the topic of what he considered Republican

intransigence, Reid said, “We had Bowles-Simpson. The Republicans

walked out.”

They hadn’t walked out. Three of the Republican lawmakers on the

panel had voted against it, but so had three of the Democrats. And the

president had never embraced or adopted it.

“Then we had the Biden commission,” Reid said. “We had another

walkout,” referring to Cantor and Kyl’s exit from the talks the previous

month.

Biden knew it was not a walkout. Given the circumstances of the

speaker’s end run, Cantor had handled the matter straightforwardly, and

been a gentleman, Biden thought, but he didn’t say anything.

“Then there were talks between Boehner and the president, and there

was another walkout. Republicans can’t deliver the big deal,” Reid said

caustically. “They’re jeopardizing the future of the country. If

Republicans send something at the last minute, a three-month deal,

we’re not going to do it.”

“Thursday,” Pelosi said, “the speaker said a bargain was possible.

Now he says we don’t have time. Democrats won’t vote for anything

that the president won’t sign.”

She turned to Boehner. “Do you have the votes to do it on your own?”

Wouldn’t he need some Democrats?

Boehner didn’t answer. Votes were a touchy subject for the speaker,

and everyone knew it.

McConnell wanted to work something out. “Let’s see if we can build a

deal on what the Biden group did that passes the smell test.” He

mentioned a cap on general spending for fiscal years 2012 and 2013. But

then he added unhappily, “There’s just no time to put together the big

deal.”

“All of us want to get to 218,” Cantor said, ever the vote counter. The

Republicans had a majority of 240 seats. He praised the spirit of the

Biden group and how collegially they had worked together. He said he

agreed with McConnell that, “We have the blueprint that we can build

upon. We can exceed the amount that we raised the debt limit. We

wouldn’t have to raise taxes, and then frankly we could focus on jobs.”

He disagreed with the Senate leaders on timing. “And we could do it in

the next couple weeks.”

Cantor also said he could not accept the president’s notion of letting

the tax cuts expire and then reinstating them for the lower brackets.

“You’re asking us to fundamentally breach our position on the tax

issues. That’s where the difference is. For us, a vote to decouple with no

guarantee is breaching our position.” The big issues, such as taxes,

might have to be left for the 2012 election.

Durbin, the affable Illinois Democrat who was second to Reid in the

party leadership, threw some cold water. There was “no indication that

the Biden plan could pass the Senate,” he said. “Any indication

otherwise is misguided. With no revenue, it can’t pass.”

“Eric,” said Steny Hoyer, “I disagree with you. The oxygen will be

taken out of it if we don’t lead.” To Boehner, he added, “John, I want to

thank you for your leadership you’ve shown, and you’ve taken some flak

for it.”

Kyl tried to focus on the big numbers. “We’re not talking about short-

term solutions,” he said. “Mitch McConnell’s talking about entitlement

reform. That’s not a short-term solution. The vice president is saying

entitlement requires tax changes now, but let’s be clear: Social Security,

which people are now discussing, was never discussed in the Biden

group. The biggest change we talked about in the Biden group was

means testing for those who are already means tested.” That meant only

seniors who were well off would see reduced payments.

“So here’s the big question,” Kyl said. “Are you saying even with

Biden you have to have revenue?”

Biden responded, We’re going to have to agree not to agree on estate

tax or rates. We’ve had these discussions, but we didn’t agree. We can

get to $200 billion in revenue.

He seemed to be accepting Cantor’s insistence on revenue neutrality.

Cantor reinforced Biden. “I said yes we can do something on

loopholes, but it has to be revenue neutral. If you need to do something

on billionaires and corporate jets, etc., for $3 billion, then fine. Let’s just

find an offset, use it for some further tax relief.”

So the discussion had gone from Boehner’s $1 trillion, through tax

reform, to Cantor’s $3 billion. To anyone paying attention, there was no

progress, and the rift between the speaker and his majority leader was

plain to see.

“Listen,” the president said, “we’re going to go back at it tomorrow,

day after day, until we get it done. I’m not persuaded by the argument of

time. The work has got to be done by someone, somewhere. Let’s come

up with a term sheet tomorrow. Eric, you’ve quoted back to me about

the next election. I’m appreciative of that. But keep in mind the debt

limit was not my choosing.”

The Republicans were leveraging him. Addressing Boehner, he

continued, “You said the biggest problem is spending and the deficit. So

I am taking you at your word.”

Then, looking squarely at Cantor, Obama said, “You refuse to talk

about revenues. If the notion is that you’re going to pocket the stuff you

negotiated in Biden and set aside the stuff you have heartburn over, then

that’s probably not going to work. I’m not going to be under illusions

that the Biden package, that everyone agrees to it. Because that only

seems to have the stuff you like in it.”

“I want to make clear,” Kyl interjected, “to us, we look at that and we

think there is revenue from these fees and other things of about $150

billion. And 60 percent of the health care savings comes from providers,

not from beneficiaries. We believe that’s a real compromise.” The

Republicans wanted health care savings to be replaced by increased co-

payments from the beneficiaries, not cuts to providers, so business

would not take the hit.

Addressing Kyl, Obama said, “Jon, hold on. The point I’m making is

you guys got 70 percent of where we need to go, but nothing was agreed

to till everything was agreed to.” Referring to the Biden group, he said,

“You did not have a full package. It can start unraveling. The work has

not been completed on balancing it out. If we have to do dollar for

dollar, then without revenue, entitlements or OCO [Overseas

Contingency Operations—funding for the wars in Afghanistan and Iraq],

then that will be hard. Something has got to give. Eric, you said people

want to talk jobs. But you said the fiscal situation is the most important

thing to do. We weren’t asking you to vote on a tax hike. We would’ve

voted on maintaining the tax rates for 95 percent. You wouldn’t have

had to take a vote. There has to be some give from you guys.”

The president was still pushing for decoupling. Boehner, Cantor and

the other Republicans couldn’t believe it. Even the White House staffers

realized that the president still saw it as his sword.

Cantor rebutted at length. “Our meetings in the Biden group were

productive,” Cantor said sharply, defending himself, Biden and the

others. “We could get to $2 to $2.3 trillion,” he said, referring to the

$1.1 trillion in general spending cuts, $500 billion to $600 billion in

entitlement and other cuts, plus $300 billion in interest and perhaps

even some revenue. “We still have to work on caps and the control-type

mechanisms. This is a viable option. What other choice do we have? You

believe in more taxes. The vice president did say consistently that

nothing was agreed to till everything was agreed to. We can talk all day

long about who was right and who was wrong, but the bottom line is we

have a blueprint in place we could use to build off of to get a deal.”

The White House team saw clearly that Cantor did not want to be

responsible for scuttling a deal.

Biden turned to Boehner. “John, I believe you wanted a big deal, but

you don’t have the votes. Absent revenues from Medicare and Medicaid,

you can’t get something for dollar for dollar that can pass.” In addition

to the $1.1 trillion in general spending caps, he said, here’s where we

are: If we can get over $200 billion in revenues, then we’ll do $200

billion and Medicare and Medicaid. If $300 billion, then $300 billion. At

the very end, though, if we can’t do that, we refrain from leading here.”

“The big deal doesn’t look so good now,” said Reid, undermining the

president. He was upset that they were not counting the $1 trillion that

the independent Congressional Budget Office counted for OCO. “Here’s

what I resent: OCO is now apparently a piece of shit.”

“We always said we would do revenue neutrality,” said Cantor. “So

don’t say we wouldn’t do revenues; we always said we’d do revenue

neutrality.”

“Can we just go through the numbers?” Pelosi asked impatiently.

Cantor said $260 billion to $350 billion was available in health care

savings.

“There’s no agreement on that,” Lew said.

“The whole package, revenue and offsets, then,” Biden replied,

reaching very high, underscoring the necessity of revenue, “slightly over

$2 trillion.”

“I want paper tomorrow,” Obama said. He wanted it spelled out in

writing. What was real?

Lew joined Biden in pushing on revenue. “I can’t get to more than $2

trillion if you’re insisting on revenue neutrality,” he said. “We have to

have the revenues to get to $2 trillion. And that’s even at the outer limit.

$2 trillion is aggressive.”

“Okay,” Obama said, “well, $2 trillion. What happens after that in the

second 10 years?”

He knew the answer. He had seen the charts with the trend lines. But

Lew answered, “That’s $2 trillion for 10 years. Then what happens is the

deficit path trends back up.”

There was a sickening silence. This was the elephant in the room.

They were not addressing the long-term problem.

“I believe the larger deal still is achievable and preferable and is the

right thing to do,” the president said. “In the meantime, I will listen to

the ideas about a smaller deal. $2 trillion, it’s a lot of pain, it’s tough

votes, and we have not solved the problem. We’re going to reconvene for

an hour or two tomorrow. We’ll walk through what we are talking

about. We should all be explicit. The speaker has always said it’s easier

to do a big deal. In the meantime, I don’t want anyone trying to move

legislation to make points.”

Reid said he wanted to bring a couple of other members of Congress

to the meetings.

“If we do . . .” Obama replied, his voice trailing off. “No,” he added

politely, “we’re not going to expand. Then everyone else is going to

bring their people.” They would then have to move to a bigger room, he

added.

“If we have to offset the revenue,” Biden summed up, “then we can’t

get above $2 trillion.”

With $2 trillion in cuts, they could add an equivalent amount to the

debt ceiling. “How long would $2 trillion get us?” Obama asked.

Geithner said, “$2.4 trillion would get us to February of 2013. $2.1

trillion debt limit increase would get us to December of 2012.” That

would be a month after the election.

If they didn’t get to that $2 trillion, they could be bumping up against

the debt ceiling before the election, requiring another nightmare

negotiation at the worst possible political moment.

Afterward, Reid approached Cantor. “I don’t know you that well,” the

Senate majority leader said to the House majority leader. “I appreciate

your honesty.”

They didn’t agree but, perhaps meaning other than himself, Reid said,

“You were the one person in the room who said what you actually

thought.”

• • •

In Boehner’s office, his staff couldn’t believe the president’s demand that

congressional leaders meet daily at the White House until an agreement

was forged.

Boehner had already concluded that the whole thing was a pointless

dog-and-pony show. Was the president really naive enough to think that

he could get all those members in a room and come to an agreement on

a deal? That never happened.

Just the fact that Obama thought this might be productive was a sign

to Boehner’s people that the president simply didn’t understand how

Congress worked and didn’t know how to negotiate. Boehner said he

hated going down to the White House to listen to what amounted to

presidential lectures.

In McConnell’s office, the feeling was the same. Rohit Kumar, the

minority leader’s top policy adviser, thought the White House meetings

showed that the White House didn’t understand how legislative deals

were made.

These agreements aren’t struck by the president and congressional

leaders meeting face-to-face, Kumar said. They were done by people like

him. You have guidance from the leaders. You have principles you have

to adhere to. You’re given a set of red lines you can’t cross.

Watching his staff prepare for a series of White House meetings

frustrated Kumar. It was a waste of a dwindling resource: time.

22

During the eight years he spent working in the Bush White House,

Barry Jackson believed he had developed understanding and respect for

the office of the presidency.

“You do not be disrespectful of the office of the president,” he told

the staff in Boehner’s office. “You just don’t. It’s the worst job in the

world. They don’t need people kicking them in the shins for the heck of

it.”

But in the speaker’s office, respect for the office didn’t extend to the

man who occupied it.

Jackson believed that Obama lacked courage, was a poor negotiator,

and was completely out of his element in dealing with Congress.

When Boehner returned from some of his first private meetings with

Obama, he and Jackson discussed what they saw as the president’s

psychological motivations.

In one discussion of entitlement reforms, Boehner reported that

Obama said, “John, I make $2 million. You can’t expect me to ask

somebody to take a cut in their benefits if I’m not willing to take a cut.”

It’s almost like he’s ashamed that he’s been blessed and he’s made

money, they concluded. It’s as if he’s guilty of his success.

“Oh, my God,” they imagined the president saying, “I’m so

embarrassed that I’ve done well, and I need to make sure that I do my

self-flagellation.”

On top of that, Boehner felt that the White House underestimated

him. He had negotiated No Child Left Behind with Ted Kennedy in

2001. He negotiated the Pension Protection Act of 2006. He was a guy

who knew how to do big deals and how to work with Democrats.

The White House didn’t respect him. They dismissed him.

• • •

At 11:15 a.m. on July 11, the president appeared in the White House

Briefing Room for a long press conference to explain what was going on

with the negotiations. It was classic Obama. You had to listen very

carefully and read the transcript several times to spot the

inconsistencies.

“The things I will not consider are a 30-day or a 60-day or a 90-day or

a 180-day temporary stopgap resolution of the problem,” he said. 145 He

would not bend. But later he said the problem was the inflexibility of the

Republicans. “I do not see a path to a deal if they don’t budge, period. I

mean, if the basic proposition is, ‘It’s my way or the highway,’ then

we’re probably not going to get something done.”

Later, the president issued his equivalent of a “my way or the

highway” declaration. “I will not accept a deal in which I am asked to do

nothing. In fact, I’m able to keep hundreds of thousands of dollars in

additional income that I don’t need, while a parent out there who is

struggling to send their kid to college suddenly finds that they’ve got a

couple thousand dollars less in grants or student loans.”

At the end he temporized, “So this is not a right or left,

conservative/liberal situation.”

But everyone knew that was precisely what it was, try as the president

might to smooth the edges of the partisan divide.

Later that morning at the Capitol, Boehner held a press conference in

response, saying, “The American people will not accept—and the House

cannot pass—a bill that raises taxes on job creators.” 146 He reiterated his

requirement that any agreement include spending cuts larger than the

increase in the debt limit.

“This is the message we will take, again, to the White House today,

and hope that we can work our way through this.”

• • •

“We’re going to start by hearing from the Republicans on a possible

trimmed-down version, kind of the medium-sized deal,” Obama began

that day’s meeting in the Cabinet Room. “I’m in listen mode.”

Cantor handed out copies of a six-page PowerPoint presentation. 147

The Republican majority leader claimed there was agreement on some

$233 billion in cuts to various programs such as federal civilian

retirement plans ($36 billion), military retirement plans ($11 billion),

postal reform ($11 to $26 billion). Attacking waste and fraud could save

up to $40 billion and reducing agricultural subsidies could net $31

billion. Various other cuts or savings, such as requiring increased co-

payments for the retired military personnel covered by the TRICARE

health care plan, would save $17 billion.

There was at least another $30 billion in higher education and food

stamp cuts. They were highlighted in yellow on his PowerPoint because

the Democrats had not agreed, he said.

“Well,” Obama said, “my ranges are a bit different. When we look at

civilian retirement and military, you have bigger ranges. Some say that

should be more like $10 billion, not $36 billion. Let’s set aside higher

education and food stamps. If we do that, then the range is more like

$200 to $280 or $290.” It looked like a good start, but not bold. “So I

look at this and say we could pocket around $200 billion without much

controversy.”

Lew mentioned undergraduate student loans, higher education and

undergraduate food stamps.

“Maybe there’s something in there we could do,” Obama said.

On the food stamp program, Cantor said, “High error rates have been

associated with the program. Since the feds fund the program but the

states administer it, there’s not a lot of incentive to control for errors.”

So policies and reforms could be put in place to yield some significant

savings.

Durbin thought Cantor was being hypocritical. The only fraud Cantor

saw involved poor people. But when he spoke, Durbin tempered his

language, simply reminding Cantor that plenty of fraud existed in other

programs too. He specifically noted “gross abuse” in federal payments to

for-profit schools.

On food stamps, Obama said if there was error, “then let’s go after it.

If it makes it more complicated to get into the system, then I’m opposed

to it.

“So on military and civilian retirement,” he continued, “it looks like

there’s a wide separation. We would propose some additional savings

out of aviation [fees] and program integrity that’s higher than what you

said.”

Lew noted that the administration anticipated getting no more than

$2 billion out of food stamp error rates. The Republicans saw 10 times

that, up to $20 billion, but that included some $4 billion from

duplicative job training programs.

On job training, Lew said, “I’m a proponent of consolidation . . . so

I’m happy to have that conversation.”

• • •

In Cantor’s health care slides, the depth of the division was evident.

There was roughly $17 billion in agreement on a dozen small-scale

Medicare and Medicaid cuts, plus supposed agreement on $50 billion in

savings from home health care and skilled nursing facilities payments.

He identified another $38 billion in savings, but according to his deal,

these would not happen until after 2019—eight years hence. The two

sides disagreed on more than $208 billion in health care cuts.

Cantor had taken about 10 minutes. To experienced hands, it

sounded increasingly like a congressional subcommittee debate.

“It’s a reasonably fair presentation,” the president said in response.

“There are some ranges in dispute, particularly home health. We’re

more like 30 and you have 50. On [Medicare] bad debt, there’s no

philosophical objection here, but we have a difference in ranges. On

beneficiaries, we have a difference.”

Biden said the savings on Medicaid might only be $50 billion instead

of the $100 billion on Cantor’s chart. Some of the other numbers were

also too high. “So we look at this as that we’re closer to $200 billion”

than to Cantor’s $334 billion.

“Listen,” Cantor said, “this is a package that can get 218 votes.”

“Well,” Hoyer declared, “you’re not going to get any votes on our side

without revenue.”

Pelosi echoed Hoyer. “This is really hard to sell without revenue.”

“Time is of the essence,” Reid said. “I feel like we’re talking past each

other. Let’s face it, the Republicans won’t agree to the grand deal. The

Democrats in the Senate won’t do this middle-of-the-road with Medicare

and Medicaid, so the middle deal is gone. Then the only option is some

small package.”

It was an accurate, if bleak, summation of where they were.

“Hold on!” Obama insisted, putting the brakes on Reid. “Let’s just

complete this exercise.”

Reid was unrepentant. “We can do something for two years,” he

replied. “We’ll create a commission. Equal Republicans and Democrats.

Only members of Congress.” The committee would present a deficit

reduction package and both the House and Senate would give the

unamended package an up or down vote.

Cantor noted that the House-passed budget saved $1.7 trillion in

general spending and the administration had proposed saving $813

billion on domestic and Defense. Splitting the difference would be a

total savings over 10 years of $1.2 trillion. “We had talked about $1.1 in

the Biden. We can clearly get to $1.2, $1.3.”

“Partially correct,” Durbin said, “but we have to have equal cuts to

security and nonsecurity.” This was the firewall.

“We never agreed to firewalls,” said Cantor. Republicans did not want

equal cuts to come from Defense spending.

“In the absence of firewalls,” Obama said, “we wouldn’t even agree to

$1 trillion.”

“The Appropriations Committee is the place for these discussions to

choose between Defense and non-Defense,” Cantor said, “security and

nonsecurity.”

“If we did that,” the president said, “we’d have a shutdown on every

bill. We’d end up playing three-dimensional chess. Discretionary

[general spending] is the least of our problems. We can have that debate

later.”

Boehner seemed to agree. Simply put, the White House and the

Democrats were going to be able to sell a deal to their rank and file

because of Defense cuts. Republicans would sell the same deal on non-

Defense cuts. “Any kind of firewall creates problems on both sides,”

Boehner said. “Why are we creating problems for ourselves today?” In

other words, they could fight it out later.

McConnell urged them to “lock down numbers” for the next two

fiscal years.

Lew said they had to address the short-funding of the Pell college

grants, a Democratic and Obama favorite aimed at assisting college

students, because the annual cost was now more than $20 billion.

“Eric,” Obama chided, “it looks like there’s a page missing: revenue.”

“If you feel you need revenue,” Cantor replied, “then just offset it

somewhere else.”

“How about the payroll tax cut as an offset?” Obama said enticingly.

“You don’t have to answer that now.” In his secret offer five days earlier,

Boehner had proposed extending it another year. The payroll tax cut was

popular with both Republicans and Democrats. It reduced taxes for all

workers. The only problem was that it added to the deficit.

“Let me do some rough math here,” the president said. “If you take

health care mandatories that don’t fall on the beneficiary, with the

possible exception of means testing—which Pelosi and Reid have said

they will oppose—plus other mandatory, plus discretionary, you’re at

$1.4 to $1.5 trillion. I warned you about this. But maybe I wasn’t

explicitly clear. You came in on the high end and presupposed the high

end on all your numbers. So I’m going to take the lower end. I want you

to listen to me.”

Obama totaled up to “a little under a trillion,” and saw how they

could get to $1.7 trillion with interest savings and the $1 trillion general

spending cap. In budgeting, CBO allowed them to count interest that

would be saved by not having the debt. Interest savings generally were

calculated to be 20 percent of the debt savings. “If no revenue, then you

can’t get to” $2.4 trillion. “I don’t know how you’re going to do it

without going to revenue. That’s the reason why the big deal is better.”

Obama went on. They might need $2.7 trillion in the debt ceiling to

take them beyond the next year, the election year. Since the speaker

insisted on at least equivalent cuts, dollar for dollar, they were not going

to get there. “Either we’re going to do less than $2.4, $2.5 trillion in

cuts, so we’re not doing dollar for dollar, or we’re going to go back to

the big deal. But this isn’t just about politics. Imagine doing this in the

middle of a presidential race?” He added, “So I want you all to go back to

your caucuses and figure this out. We can probably get to $1.7 or $1.8

when you include interest, but that’s as high as we’re going to get.”

Obama, the precise technocrat, returned to his talking point. “Why

aren’t we asking more of the people who are making the most?”

“We ought to be clear that spending is the big problem,” Boehner

said. “Even if we wanted to, we couldn’t take it all from the rich. No one

here is jumping to cut Medicare.”

“You already did,” Obama replied, referring to the House Ryan

budget.

“Excuse us for leading!” the speaker snapped.

“I didn’t intend to get us started on a debate on taxes,” said Obama,

who had opened the subject. “What I’m saying is we’re at $1.7, maybe

$1.8. We still have to resolve the firewall, the Doc Fix and Pell. We

agreed to a trillion [on discretionary] but that’s about all the traffic will

bear.”

Looking ahead to the next day’s meeting, he said, “We need to go

back and figure this out. Everyone needs to give me specific ideas on

how to move forward.”

“We’re nowhere near agreement here,” Reid said. “I think we need to

do a commission with an expedited approval process.”

Addressing the Republicans, Biden said, “You keep saying it’s

possible to do revenue if neutral.” How was Pelosi, he asked, supposed

to do that with her Democrats?

Ignoring the question, Cantor replied, “We’ve got to get through this

and start talking about jobs.”

“If we’re cutting spending,” Obama said, “that doesn’t have anything

to do with jobs. We lost half a million jobs in the public sector, and if we

hadn’t put the [stimulus] money in, unemployment would be higher.”

Instead of being 9.2 percent we’d be half a percent higher, he

maintained. “We can have the macroeconomic debate at some other

point,” he said, postponing discussion over whether the stimulus money

had worked to boost the economy.*

“What is fair?” Biden asked. They could get at least $100 billion from

the wealthy with tax increases. “No economist will say that will impact

jobs. So what you guys have here is a political problem. Harry’s saying

he can’t get this deal done.”

“Give me something,” Reid pleaded. “Give me $250 billion in

revenue.”

Oh, no, the speaker said, “We’ve seen that before. The tax increases

are immediate and the cuts never happen.”

Pelosi said, “You’ve made a real commitment here to be the

president, Mr. President,” to lead and do the negotiations yourself. In

the Bush administration, during the financial crisis and bailout at the

end of 2008, Bush had been much less involved. “The White House

wouldn’t even let me call the president,” Pelosi said. “I mean, I love

President Bush,” she said. “I actually sent him flowers for his birthday,

and I called him and I thanked him” after Osama bin Laden was killed.

To Obama, she said, “But you, Mr. President, you listen to all sides.”

“I only get to $803 billion,” said Hoyer, after making some

calculations.

“Listen,” Obama said, “we haven’t agreed to anything.”

“Well,” Hoyer said, “I certainly haven’t agreed on $1.7.”

“I was only speaking for myself,” the president replied.

“We’re no closer to an agreement,” McConnell summarized.

• • •

That evening by 8:30, Politico had an article on its website headlined

“Cantor Ascends as GOP Voice. ”148

The debt limit talks with Obama had placed Cantor in the spotlight,

center stage, as he made the Republican presentation, the article said.

“Cantor has gracefully positioned himself as a guardian of the

conservative line while Boehner worked to find the kind of shared-

sacrifice deal Obama wants.”

23

The next morning, July 12, Boehner spoke with reporters. Wearing a

gray suit and an eye-catching lime green tie, he publicly stuck his finger

in Obama’s eye.

“Republicans have a plan,” he said. 149 “We passed our budget back in

the spring, outlined our priorities. Where’s the president’s plan? When’s

he going to lay his cards on the table? The debt limit increase is his problem. ”

He reiterated his position—spending cuts larger than the increase in the

debt ceiling, no tax increases, and real control on future spending.

Noting that he had been in conversations and meetings with the

president, Boehner said, “The president talks a good game, but when it

comes time to actually putting these issues on the table, making

decisions, he can’t quite pull the trigger.”

McConnell pulled no punches on the Senate floor that afternoon,

declaring the president guilty of “deliberate deception” by taking what

should be a deficit and spending debate and now insisting on more

taxes. 150

Sounding as though he was suggesting a coup, McConnell praised

Biden as “a man I’ve come to respect as a straight-shooting negotiator.”

But, he said, as long as Obama remained president, “a real solution is

unattainable.”

• • •

That afternoon, CBS News released excerpts of an interview with Obama

that would be aired on the evening news.

In response to a question about what would happen to Social Security

benefits if Republicans and Democrats could not come to a deal on the

debt limit increase, the president said, “I cannot guarantee that those

checks go out on August 3rd if we haven’t resolved this issue, because

there may simply not be the money in the coffers to do it.” 151

Asked about his relationship with the speaker, the president said he

liked Boehner personally. 152 “I think John would like to do the right

thing.”

Did he trust Boehner?

“I do trust that when John tells me something, he means it. I think

that his challenge right now is inside his caucus.”

The president criticized Congress for delaying action on the debt limit

and other matters until conditions reached a crisis.

He was asked for his reaction to McConnell’s statement that no deal

was possible while he remained in the White House.

“Well, then he’s going to have to explain to me how it is that we’re

going to avoid default, because I’m going to be president for at least

another year and a half.153 And I don’t think the American people would

expect that the leader of the Republican Party in the Senate would

simply say that we’re not going to do business with the president of the

United States.”

• • •

At 3:55 that afternoon, the president convened the closed-door meeting

at the White House with the congressional leaders. “John,” Obama

began, “you said this is my problem. I would be happy for it to be my

problem if I didn’t need votes in the House and Senate.154 As this

concerns all of us, we all have a problem. I continue to believe that we

ought to be able to do, we ought to take the approach of doing

something big. Raising dollar for dollar to deficit reduction is a

constraint. This is also a constraint on Nancy and Harry if we can’t do

revenue. We’re at $1.6 to $1.7 to $1.8. What is it people think they can

do?”

Geithner had some words of warning. In Europe, he began, “there’s

been a big escalation in panic. It’s spreading through Greece, Ireland,

Portugal. Italy’s seen a big increase in the price of default insurance on

their debt. Bank stocks are down 25 percent. They’re nowhere close in

Europe to a viable strategy.” In the United States, he said, “Rating

agencies are looking at, one, the risk that Congress fails to raise the debt

limit, and, two, the shape and contour of the fiscal restraints. If there’s

no clear path maybe this week, then we’re going to be put on negative

outlook or watch, downgrade if we don’t act by August 2.” They would

be kept “negative” if they didn’t deal with the fiscal problems.

“Europe’s a bigger problem with many fronts,” Obama said. The

financial markets need some solid underpinnings, and symbolic votes in

a show of party solidarity were dangerous.

“Default is not an option,” McConnell said. “We should be reassuring

the markets of that.”

Neither he nor Obama addressed McConnell’s assertion earlier that

day on the Senate floor that the president was guilty of “deliberate

deception.” 155

McConnell then introduced a proposal to put the entire burden of

raising the debt ceiling on the president. His complicated idea was that

Obama should first raise the debt limit on his own authority, and then

Congress would pass legislation disapproving of the increase. The

president would then veto that legislation, but the Democrats would

have enough votes to sustain the veto so the debt ceiling would be

increased.

It was confusing and complex—but similar structures had been used

in the past to provide legislators with political cover for difficult votes.

Some in the White House saw McConnell’s proposal as a realistic

approach to a thorny political problem. After the meeting Jason Furman,

Sperling’s chief deputy, sent an email to Rohit Kumar, who had helped

devise McConnell’s scheme. He jokingly thanked Kumar, on his wife’s

behalf, for his positive contribution to the discussion. His wife’s

birthday was coming up, Furman said, and he was worried he would

miss the celebration if the debt limit battle dragged on too long.

For his part, McConnell was direct about the thinking behind the

proposal to make the president the sole person responsible for raising

the debt ceiling.156

“I decided to make him own it,” McConnell said in an interview. “We

thought he ought to own it. It’s part of my job to protect my members, if

I can, against having to vote for it.”

Boehner returned to the issue of whose problem it was. “I feel like I

need to defend myself,” he said. “Tim [Geithner] sent me a letter two

days after I was sworn in as speaker talking about the need to raise the

debt limit. No one wants to vote to raise the debt limit. You requested

it. We said cuts, not taxes, and controls on spending. What is your plan

that you want us to pass?”

“John,” Obama replied, “as we’ve discussed . . .” Lew and the White

House congressional liaison have been “sitting with your guys. I want

the biggest plan possible. Revenue, entitlements, discretionary. We’ve

been talking about revenue changes or revenue neutral, payroll tax cuts,

$120 billion. That’s $1,000 per family.”

“How far are you willing to go on structural entitlement changes?”

Boehner asked.

“We would not be prepared to do some hard things on entitlements if

we don’t get net positive on revenue,” Obama said.

Suggesting he had read something in the newspapers, he added,

“Mitch has been clear on the revenue issue about not raising taxes. So

the conclusion I accept is you do not accept net positive revenue.”

“Is that correct?” Biden asked.

“Yes,” Cantor replied. He had been saying it—and meaning it—

forever.

Boehner had a qualifier. “If the deal was big enough, we could talk

about entitlements, corporate tax reform and individual tax reform,” he

said.

When Boehner said he was open to a big deal, Plouffe glanced at

Cantor. The majority leader was staring angrily at the speaker.

The disconnect between Boehner and Cantor was a topic of

conversation among White House staff. The tension was so obvious,

Nabors joked, that he felt awkward being in the same room with the two

of them.

To Sperling and the rest of the White House team it couldn’t have

been clearer. Cantor was a firm “No,” Boehner a qualified “Yes.”

On tax reform, Obama said, “I was willing to put my full weight

behind it.” But an enforcement mechanism would have to be put in

place in case tax reform didn’t get done.

“Fundamental reform would equal more growth and more revenue,”

Boehner said, offering the conventional Republican wisdom. “That’s why

we all have an incentive to do it.”

Obama said that whatever the assumptions about more revenue from

tax reform, “it wouldn’t be coming immediately. But if there’s an

appetite for that, we can return to that discussion. I would love to.”

“We need to spend more time on real enforcement mechanisms,”

Boehner said. “My members want a balanced budget amendment. It’s

the ultimate enforcement mechanism.”

Obama said he did not consider a balanced budget amendment

serious enforcement.

Some of Cantor’s presentation on health care from the day before had

shown up in Politico. “Witness what happened last time we came in and

brought paper, Mr. President,” Cantor said. “Witness what’s going on.

Totally inappropriate. It shouldn’t have happened. Our members keep

asking for what is going on. We bring it here and it ends up in the press.

So we keep asking you what’s going on. We’d like to see the specifics of

your plan. Let’s go through the same exercise that I went through

yesterday, line-by-line specifics on your plan. And that’s what our

members want. I came in here, I did it, it got leaked. Shouldn’t have

happened.”

“Completely agree,” the president said. “Shouldn’t have happened. I

will take responsibility for it. And if it happens again, we’ll have to kick

out the staff.

“What I propose doesn’t violate anything Grover Norquist says,”

Obama maintained. “These high-end tax rates are scheduled to lapse. I

proposed tax reform. We’d use that to make up the revenue from the

higher-end tax rates going away.”

“Where’s the paper on this?” Cantor asked tartly.

“Your speaker has the paper,” Obama disclosed. “My assumption is

you’ve been working with him. Nancy and Harry don’t have paper.”

“Let’s have the paper,” Cantor snapped.

“I’ll describe it,” Obama said. “It’s a big chunk of the Biden group.

Health care and non–health care. Minimum of decoupling [Bush tax

cuts] with tax reform of an equivalent amount. Raise the age on

Medicare.”

“What are the tax rates?” Cantor asked sharply.

“Maybe I was naive,” Obama replied. “You took a pledge. I’m offering

you the opportunity to lower everyone’s rates” with tax reform. “What

happens if tax reform breaks down?” Obama asked. “Which you all

think would be great for my politics.” Tax reform would be good policy,

but they needed a fallback. “What happens if tax reform doesn’t happen?

What’s the default? I’m saying revenues consistent with what we were

promised from decoupling. And you’re saying that’s not acceptable. So

here’s my question: If people want to discuss that, we are game. If not,

the clock is ticking.”

“Mr. President,” Cantor began more politely, “what you’re talking

about would actually be $1 trillion in additional revenue the way we look

at it.” Letting the upper tax brackets rise to 39.6 percent would raise at

least $800 billion. “So we’re going to end up with a higher tax increase

than what you’re saying.” Tax reform is about lowering rates. “What is

the top rate you’re willing to agree to on tax reform?” This was the guts

of the matter.

“If we’re making a deal on the deficit,” Obama said, “then the cuts

have to be scoreable, so you can’t count on economic growth. So I can’t

say growth and I have to have a default. If things played out and we

didn’t need the extra money, then fine.”

It was almost a joke to think they might have extra money.

“I only had this discussion because it was the only way to do tax

reform,” Boehner said, justifying his private conversations with the

president. “We’d need pain on both sides. We’re having problems with

the principles for tax reform. I want to lower, I want to go to three rates,

broaden the base. And we’re far apart on one principle—progressivity.”

“That’s accurate,” Obama replied. “We have to maintain some level of

progressivity. That doesn’t preclude going to lower rates. And we never

came to agreement.”

“If we’re talking about a top rate of 25, 28 percent, that would be one

thing,” Cantor said. “But if there’s no agreement and you automatically

get $1 trillion in tax revenue, where is your incentive to act?” The

Democrats would stall on tax reform and then the trigger would go off,

giving them a bonanza—$1 trillion in new tax revenue.

“We’ve been working with the speaker in good faith,” Obama said.

Bypassing Cantor, the president turned to the speaker. “John, if you

think your conference is open to the larger package, then let’s go back to

it. If so, we can pass the debt ceiling deal . . . or at least the stuff we

agreed to, along with some kind of deficit cap and the pathway towards

tax reform. This would not involve your guys raising taxes. But we’d

have an identifiable revenue source.”

“One concern I have on a small or big package,” Boehner said, is the

lack of consensus on payroll taxes, Pell education grants and food

stamps. “If we push the spending cuts off, then the markets will say,

there they go again. We need to spend less now.”

“You all want to go back to 1890 levels of spending,” Obama joked.

“But pulling that spending back has an economic impact just the same as

you claim raising taxes would.”

Biden chimed in, “If we don’t have time for entitlements and tax

reform, let’s pass the $1.7 in cuts now and begin the discussion on

entitlements and taxes.”

This, of course, was what the Republicans wanted—a cuts-only

agreement.

Reid addressed the president. “You are patient. I am not. There’s no

revenue. The Republicans won’t help.” He shook his head in disgust.

“And lower rates sure have helped the economy,” he added, in a snide

reference to the Bush tax cuts. “We need to now spend some time on

the McConnell approach.”

They turned to Sperling for details about a compulsory trigger if they

didn’t cut spending or raise taxes in an amount at least equivalent to the

debt ceiling increase.

“A trigger would lock in our commitment,” Sperling explained. “Even

though we disagree on the composition of how to get to the cuts, it

would lock us in. The form of the automatic sequester would punish

both sides. We’d have to September to avert any sequester”—a legal

obligation to make spending cuts.

“Then we could use a medium or big deal to force tax reform,”

Obama said optimistically.

“If this is a trigger for tax reform,” Boehner said, “this could be worth

discussing. But as a budget tool, it’s too complicated. I’m very nervous

about this.”

“This would be an enforcement mechanism,” Obama said.

“Are health care savings included?” Kyl asked.

“Could include some health care,” the president answered tentatively.

“If you subtract from the package,” Kyl said, “meaning you start

dropping things out of here, we’re going to subtract rural hospitals and

medical education.”

“I just said $1.7 as a number,” Obama said. “The staffs need to get

together and go through each one. That’s a rough estimate. Eric was at

$2.2 trillion. I already discounted that.”

“We’re not touching Medicare and Medicaid without revenue,” Reid

declared.

“We don’t have paper on your plan,” Cantor said again.

“I’ve been dealing with your speaker,” Obama said. “You all need to

talk to the Republican caucus. Eric, if you want to go to the big deal,

then we’ve got to talk about decoupling. Absent decoupling, no big deal.

Harry and Nancy may have different views.”

On the current annual spending level, Obama said, “Our proposal is

1048,” meaning $1.048 trillion for general spending for fiscal year 2012.

On enforcement, Kyl said, “There’s a huge gulf in there. We can’t

agree to a mechanism to reduce spending if it leads to tax increases.”

“There’s been no growth in the last 10 years in nonsecurity

spending,” said Senator Durbin. “Eighty-four percent of the growth has

been in Defense.” He pointed out that the pending transportation bill

had cuts of 30 percent. “That’s the first time in 56 years. Doing all these

cuts in the discretionary part of the budget is unfair.”

If they were limited to what his working group had done, Biden said,

addressing the speaker, “There’s no way we’re above $2.2.” So they

couldn’t stretch to the debt limit of $2.7 trillion or whatever it was and

get dollar for dollar.

“Unless it’s coupled with an idea like Mitch’s,” Obama said, meaning

the complicated scheme of legislation and vetoes that would put it all on

the president.

“What the president described as the work we have to do is right on

target,” Boehner agreed.

“We don’t need to go out and get our bases ginned up,” Obama said.

“No mandatory health care cuts without revenue,” Pelosi said,

speaking for her base. “And it’s got to be net positive revenue.”

As if it weren’t already clear, Biden turned to Kyl. “Are you saying

anything beyond revenue neutral is off the table?”

“It’s off the table,” Kyl said.

Cantor added, “$1.7 without revenue is all you say you can do. If

you’re talking about getting to above dollar for dollar, revenue neutrality

comes in. We can credit the revenue toward a corporate rate reduction,

for example.”

“That is ridiculous,” Pelosi said.

“Let’s try to end on a constructive note here,” the president

intervened. “One, let’s go find the areas of overlap. Two, let’s work on

firewalls. Three, let’s work on trigger enforcement. I’ll think about net

neutral revenue.”

Cantor said he would like to add health care mandatories and food

stamps to the things to do.

Obama said they could do those things if they got revenue. “Allows

us to do it, if revenue.” Could be done, the president repeated, “if

revenue.”

• • •

When Cantor got back to the Capitol, he spoke to reporters about the

progress of the talks.

“We both agree on entitlements,” he said, “and in fact we would both

agree on what the president’s prescription for entitlement reform is, and

we know what that is.157 So why don’t we do that?”

Asked about other plans, the majority leader said they were

stalemated. “Nothing can get through the House right now. Nothing.”

In an interview later, Boehner said he did not understand why the

president insisted on having the daily meetings.158 “It was all the small

ball little stuff,” he said. “All we were going to do was nick everybody

and irritate everybody and not accomplish anything. I just labored my

way through this, because it was a sideshow. It wasn’t the real deal.”

24

Before the meeting on Wednesday, July 13, the president gathered his

budget and economic team in the Oval Office for a pre-briefing. He was

fretting. There was an unusual edge in his voice.

The economy was shaky once again. They could feel tremors. The

stock market had been down for three straight days and with most

public companies preparing to report third quarter earnings, predictions

were for the lowest profit growth in two years.

Plouffe felt that confidence in the economy was beginning to unravel.

“I’ve decided that I am not going to take a short-term debt extension

under any circumstances,” Obama said. He looked around at Daley, Lew,

Geithner, Sperling, Reed, Nabors and Plouffe. What was occurring was

fundamentally altering the founders’ vision of the presidency. The

United States had always honored its debts—it was a tradition that

stretched back to the Revolutionary War—and for somebody to be able

to hold that tradition hostage was truly unfathomable and unacceptable.

He was not going to go through this again.

“I want you to understand, I am not going to do it. This is altering the

presidency. I am not going to take a short-term extension, no matter

what. I want everyone to understand it, and I want it to be in all your

body language when you talk. Because you need to understand: I have

made a decision. I am not going to do this.”

People, Republicans, anyone can criticize us, he said, they can fight,

they can shut down the government. He would not permit the

Republicans or anyone else to hold the creditworthiness of the United

States hostage, to threaten to put the country into default as a budget or

political tactic. “I am not going to do it. This hurts the presidency.” If

they did a short-term deal, they would be going through this spectacle

again in a few months—they’d have no time for anything else.

“This wasn’t why I came to Washington,” Obama said. “This wasn’t

why I was elected, to be forced into these situations. This is bigger than

me. This is about the presidency, and it’s about the nation. This is not

the way this situation is going to be resolved. I can’t let that happen.”

Plouffe, for one, could see his boss was out on a limb. No one,

including the president, was sure they could bring this in for a safe

landing. But Plouffe said they had to realize what a huge cave-in it would

be for Boehner and Cantor to agree to extend the debt ceiling beyond the

election. That was their leverage, and they would cling to it. If possible,

Plouffe said, it would be great if they could push the debt ceiling even

further into the fall of 2013.

Lew was astonished that raising the debt limit had acquired such

extraordinary power. A short-term debt limit would be terrible for the

economy, and allow the Republicans to run the same play again next

year, taking the whole economy to the edge of the cliff. “That’s not a

way to run a great country,” he said.

“It’s hijacking the presidency,” Obama repeated, “putting a gun to the

head of the economy.”

He seemed to be fortifying himself.

• • •

In an interview, the president said, “The one thing I’m not going to do is

a short-term deal.159

“The reason that’s so important is because, given how spooked the

markets already are about this whole process—which is unprecedented

in modern American history—for us to repeat this in increments every

quarter would be disastrous for our economy. And we will not do that.

“Now, they painted this as, well, he just wants to get past the

election. And I kept on trying to remind them,” he said laughing, “I said,

look, everybody in the world is paying attention. This is not just a U.S.

issue. This is a global financial issue. We can’t do business by

threatening to default every three months.”

• • •

“I’m comfortable that we’re up to about $1.7 trillion,” the president said

at that afternoon’s meeting with the congressional leaders. “We need to

talk about if there’s anything we can do to plus it up. Additional

mandatory, if there was net additional new revenue. By Friday, we need

to make decisions. Are we going big, small or Mitch’s proposal?”

“Moody’s has just put America on negative watch,” Geithner said.

The credit rating agency said the U.S. government’s sterling Aaa bond

rating was in jeopardy because of failure to reach a debt ceiling

agreement. The Moody’s report stated, “There is a small but rising risk

of a short-lived default.” 160

“What is meaningful to them?” asked Boehner.

A “comprehensive” deal, said Geithner. If it was only a down

payment, the agencies would look for “something substantive that is

complemented with enforcement.”

Boehner again said their focus should be to cut more than the

increase in the debt limit. “This is basically a turd sandwich with fries,”

he said. “So let’s just do the right thing.”

“Default would be a cataclysmic event,” Cantor said. “I want to go

back to Thursday. When we were discussing the Biden proposal, it was

roughly $2 trillion. On Sunday, questions were raised about the Biden

proposal. On Monday, Mr. President, you said it was $1.7 trillion.”

He wanted to know what amount of deficit reduction the president

really believed was possible.

“We’ve never cut it this close before,” Obama said. “Some folks in

your caucus don’t want to vote for it at all. I imagined the situation back

in February. I said the first time that you presented that we’re short of

the full package. Maybe the number’s smaller than what I said. Maybe

it’s $1.4 rather than $1.7. I find $1.7 achievable.” Answering Cantor, he

added, “No one is walking back on anything.”

“Well,” Cantor replied, “then the problem must be other folks on

your side.”

“The $1.7 doesn’t include anything you don’t like,” Obama insisted

again.

Reid had a different number. From the Senate Appropriations

Committee, he said, “I’m hearing, well, we can get $1.1 trillion” but

$300 billion would be cuts in security spending.

“Can we just walk through the numbers?” Obama said in

exasperation.

Cantor said there was “$1.1 to $1.2 trillion in discretionary” general

spending cuts.

Jack Lew said that “stuff was not nailed down.” He thought they were

at about the number from the Biden meetings but reminded them that

“the last meeting never happened” when Cantor and Kyl had refused to

meet again. But he threw the Republicans a bone: “We are open to a

higher number on civilian retirement.” Simpson-Bowles had

recommended $161 billion in savings over 10 years, more than five

times the administration’s $29 billion.

Hoyer, whose district was home to tens of thousands of federal

workers, balked, saying there had to be compatibility between federal

civilian workers and the military.

“We want to do more on military retirement,” Lew said without

giving a number, and dove even deeper into the weeds. “Nutrition

assistance is below what Eric says. It’s $2 to $5 billion, and I think we

have it at $20 billion.”

Obama noted the Republicans had not included unemployment

insurance, “which is something we don’t agree on. If I look at this sheet,

Eric and John, if you take out the nutrition and take out the education,

which is two areas of disagreement, you’re at 282 and we’re at 279 on

ours. So there’s a minimum area of agreement.”

Kyl objected that some of it had not been agreed upon, including

agriculture subsidies and how they would get there.

Did they all agree on unemployment insurance? Biden asked.

“I thought the idea was to cut spending,” Boehner lamented. When

you consider where we started from our end, it’s going to be difficult to

accept starting at $1.048 trillion, referring to that year’s annual

spending. “We’re in a different era now in the House. This is about

cutting spending.”

“Yeah,” Obama replied, “in the abstract everyone wants to cut, but

not when they get to these particulars.” He said that tax cuts were

effectively spending because they increased the deficit.

“Tax cuts aren’t spending,” said Boehner. He believed they spurred

the economy that would then yield more tax revenue.

“I’m not proposing any tax cut,” said Kyl.

“This is Bizarro World,” said the president.

“Let’s take Doc Fix and unemployment insurance off the table, since

those are spending,” Boehner said.

“What matters to the market is the long-term trend,” Geithner

interjected, noting that the financial markets wanted a demonstration of

serious engagement over the long haul.

“We need to deliver credibility to the American people,” Boehner

said. “We won’t be able to do this in later years.”

“Okay,” Obama said, “maybe we need additional negotiations. At a

minimum, we’re at $1 trillion or so in discretionary, $230 to $240

[billion] in other mandatories.”

“Let’s talk about $1.5 trillion,” Boehner said. “Does anyone believe

that is possible?”

“Can we add to it?” Obama asked. “Where can we plus it up? Those

are questions for tomorrow.” Getting to 1.5 would be hard, he said,

“without some health mandatory and some revenue and some targets for

enforcement.”

“Nancy made a good point,” Boehner said. “We’re nicking everybody

and we don’t have much to show for it.”

Kyl mentioned the firewall.

“The firewall shouldn’t be controversial,” Obama said. “Defense

spending went up 84 percent in the last decade. Defense without

firewalls would not be subject to constraints.”

“There have been four straight years of cuts to Defense,” Kyl said.

Lew said any Defense cuts over the next two years would only be at

the margins, and any freeze would not impact real strategic capabilities.

“The Pentagon is happy to spend,” the president said.

Hoyer said it would be easier to get money from Defense.

Kyl started talking about caps on spending again.

The president rubbed his eyes and looked at his watch.

“Having a firewall makes it difficult for both of us,” said Boehner,

noting that with no firewall, the Democrats could say the cuts were

coming from Defense, and they, the Republicans, could emphasize the

cuts from elsewhere. They could then work out the details later.

Obama knew the Senate and House better than that. “Well, then the

appropriators just add the money back later,” he said. The powerful

congressional appropriations committees had the final say on how

spending bills were handled in both houses of Congress, giving them

tremendous power within their areas of authority.

“We didn’t pay for the wars,” Durbin noted. The regular

appropriations process had been circumvented with giant supplemental

funding bills for Afghanistan and Iraq.

“You’ve got to constrain the appropriators,” Obama repeated.

“If we don’t have a firewall,” Biden said, “and Congress wants to go

over on Defense, then they wipe out agencies,” like the Energy

Department.

Durbin raised the issue of all the contractors who worked for the

Defense Department, and the president raised the issue of enforcement.

Without enforcement, Congress would just spend.

“I just met with a person today who’s just out of college,” said Pelosi

for no clear reason. “They were optimistic and hopeful and we need to

get this deal.”

The president put his chin in his hand and started playing with his

name card.

Pelosi went on with a long anecdote, finally lamenting their apparent

failure at negotiations. “I don’t know who is going to tell the children,”

she said.

Cantor and Hoyer, who were sitting next to each other, began a

private conversation while Pelosi told her story.

“We listened to Cantor day in and day out,” Pelosi said, “but he’s not

listening right now.”

The president burst out laughing.

“The problem with the automatic enforcements,” Kyl said, “is there’s

no exceptions except for military pay.”

Sperling noted that such an exception had been introduced by

Republicans. “So that’s you all who did that.”

“Okay,” said Obama, clearly near the end of his patience. “We’re

going to have to layer this cake,” he attempted to explain. “I said we’re

going to get to $1.7 and then add additional layers. Add a sequestration

mechanism, health mandatory and net neutral revenue. Mitch’s proposal

is the safety card for Friday if we can’t reach agreement on how to get to

$2 trillion. The spirit that we have right now is why we can’t do this

thing.” They did not have the right attitude. “We need to make a

decision.”

“Mr. President,” Cantor mildly taunted, “we are still a long way from

$2.4 trillion, which is where you need us to be” to reach equivalency

with a new debt extension. “Mr. President, we are moving in opposite

directions. Why don’t we take the wins where we can?” He proposed

doing agreed-upon cuts with just a short-term debt extension.

“I will explain and defend,” the president said, adding, “I am not

trying to cast blame,” as he cast blame. “I will take it to the American

people. You want cuts well above what is needed.”

Everyone knew what he meant: The gap should be closed with more

revenue.

“If you send me something that doesn’t go all the way through the

election,” he said, “I am not going to sign a short-term debt limit

increase.” The White House staff had rarely seen him so combative in

front of the Republicans. This was, to some, the Obama of the 2008

presidential campaign.

“I will veto it. At least Mitch, to his credit, gets rid of default. He says,

‘I’m going to make Obama wear this jacket.’ ”

The president wasn’t finished. “But that’s something almost just as

bad, because the people don’t trust that we can do anything. I’m not

proposing tax increases on every single American. I’ll take this on tour. I

want to be clear, Eric,” he continued, looking at his real adversary for

the moment. “My responsibility is to the American people. I’ve shown

myself as willing to compromise. Do you think Ronald Reagan sat here

like this? There comes a point where I say enough is enough. That point

has been reached.

“Get on board the dollar for dollar or the big deal,” he concluded. “I

promise you, Eric, don’t call my bluff on this. It may bring my

presidency down, but I will not yield on this.”

The president then stood up, pushed his chair back, and strode from

his Cabinet Room.

• • •

On the way back to the Capitol, Cantor called his communications

director, Brad Dayspring, a two-year veteran of the White House press

office under George W. Bush.

“Fyi,” Cantor said, “there was a little bit of a blowup in the meeting.

Obama really got stern with me at the end, so if you start getting calls, I

wanted you to know, okay?”

In a matter of seconds, Dayspring’s phone began ringing from

reporters who covered the White House.

“I heard Cantor pissed off Obama,” one said. “What did Cantor do?”

By the time Cantor was back at the Capitol, Dayspring had fielded

half a dozen calls, and more were coming in. He recommended that the

majority leader give his side to the press. Cantor agreed and a press

conference was quickly called in the Speaker’s Lobby.

Cantor described Obama as “abruptly walking out.” 161

“He got very agitated, seemingly, and said that he had sat here long

enough and that no other president—Ronald Reagan wouldn’t sit here

like this, and he’s reached the point where something’s got to give,”

Cantor said.

“I was somewhat taken aback, because, look, I was compromising.

We are very far apart right now. The progress we made seems to have

been erased now.”

• • •

In the speaker’s office, Barry Jackson, who had attended the White

House meeting, was thinking, “Huh, this certainly doesn’t bode well.”

The president had overdone it by losing his cool. He’d let the

Republicans see they were getting to him. Politics meant sitting across

the table from people you might not like or who were annoying. Keeping

cool was essential. In his eight years in the Bush White House and

during a decade on the Hill, he said, “I’d never seen anything like it.

Never heard of anything like it.”

But Boehner let Cantor twist alone. He said nothing to him

immediately afterward.

• • •

The president later recalled the confrontation with Cantor as a clarifying

moment. 162

“What was clear to me was they kept on thinking that somehow

sooner or later we were going to cave on this. And I think it was maybe

the third or fourth time when Cantor comes back to, why don’t we just

do a short-term deal, Mr. President? Essentially what he wanted to do

was pocket the discretionary cuts that we had already agreed to.

“And that would then buy us three or four months,” Obama said with

a laugh, “and then we’d go back at this thing again. So after the fourth or

fifth time that he’s repeated this, I say, Eric, I’m serious. Don’t call my

bluff on this. I’ve told you I’m not signing something like that. We’re

not going to put the country through an ordeal like this every three or

four months. That’s not how the greatest country on earth operates. And

we should be embarrassed if it gets to the point where our government

is running on three-or four-month patchwork agreements.”

And then you walked out?

“I think people say I pushed my way off the desk, or something. It

wasn’t that dramatic. I just said, you know what? So when we get

serious, and when you guys understand that that’s the case, we’re going

to have another conversation. But you probably need to talk about this

among yourselves. And I walk out of the room.”

Was there a lot of theater in this? I asked.

“I wanted to emphasize to them that it was time to stop playing

games and posturing. And there was just this constant sense of

gamesmanship involved that the country simply could not afford, given

the magnitude of what was at stake and what the country had already

gone through. I mean, part of what I would say to some, including my

own staff, was this wasn’t the equivalent of the government shutdown in

’95. When the economy’s growing at 5 percent, and you can afford to

have these Washington theatrics, but essentially the engine’s going full-

gear. This is a situation where we’d just come out of this tremendously

difficult time, and people are still hurting really badly. And in those

moments, you can’t play games. And a default on the debt is not a

government shutdown. This is not the same thing. And I think that

some over on Capitol Hill seemed to think that the consequences of this

would be similar. And you know, you close up the national monuments

and folks are on furlough for a couple of days, and then it all gets

resolved.”

He said he feared what he called a “global cascade.” The prospect of

default would begin to have serious effects on investors’ confidence in

U.S. debt. The Treasury needed to hold regular auctions of its securities

in the financial markets.

“If we have one failed auction, you don’t know if you can put that

genie back in the bottle again,” he said.

“Things might then spiral in ways that could have plunged us back

into a Lehman-type situation, or worse,” he added, referring to the

investment bank, Lehman Brothers Holdings, which collapsed in 2008

after investors lost confidence in its ability to pay its debts.

25

Obama’s exchange with Cantor at the previous day’s meeting sent an

angry Harry Reid to the Senate floor on the morning of Thursday, July

14.

“With so much at stake, even Speaker Boehner and Minority Leader

McConnell seem to understand the seriousness of this situation.163 They

are willing to negotiate in good faith, which I appreciate and the country

appreciates.

“Meanwhile, House Majority Leader Eric Cantor has shown that he

shouldn’t even be at the table, and Republicans agree that he shouldn’t

be at the table.”

He went on to call Cantor’s departure from the Biden talks the

previous month “childish.”

• • •

Boehner was sick of the White House meetings. It was still mostly the

president lecturing, he reported to his senior staff. The other annoying

factor was Jack Lew, who tried to explain why the Democrats’ view of

the world was right and the Republicans’ wrong.

“Always trying to protect the sacred cows of the left,” Barry Jackson

said of Lew, going through Medicare and Medicaid almost line by line

while Boehner was just trying to reach some top-line agreement.

• • •

Boehner wasn’t quite sure, but it didn’t seem like Cantor was on his

side.

The confrontation with Obama and Reid’s criticism of the majority

leader on the Senate floor focused a lot of negative media attention on

Cantor, and that gave Boehner an opening.

At a news conference in the Capitol, reporters were hitting Cantor

hard on his position on the debt limit talks. They were pounding the hell

out of him, Boehner later recalled. “I just went up and put my arm

around Eric and made it clear, listen, we’re on the same team.” 164

Boehner then said to the reporters, “Let me just say, we have been in

this fight together, and any suggestion that the role that Eric has played

in this meeting has been anything less than helpful is just wrong. ”165

Afterward, when Boehner and Cantor were waiting together to get on

an elevator, Cantor indicated he had needed that vote of confidence.166

“Thank you very much,” he said.

• • •

That day’s White House meeting was scheduled for late afternoon in the

Cabinet Room. Before it got under way, Pelosi and Hoyer spoke briefly

with Boehner.

“Look,” Hoyer, a fiscal conservative, said quietly, “if you can get this

nailed down, we’re going to be there.” He didn’t promise any votes but

Boehner assumed it meant he wanted a deal.

Even Pelosi indicated to the speaker that they were counting on him

to pull this off.

Boehner interpreted this to mean that the House Democratic leaders

were not confident in the president’s ability to negotiate a deal and avoid

default.

• • •

“Last meeting for this week,” Obama said. “We could potentially get to

$2 trillion or more if we did not do revenue neutral.” He was sticking it

to Cantor, pointing out that it was the House majority leader’s

insistence on revenue neutrality that was standing in the way of a deal

securing $2 trillion in deficit reduction. “Standard & Poor’s is putting us

on negative watch,” Obama added.

“It’s not public yet,” Geithner said. “It will come out in the next few

hours. S&P is going to issue a statement regarding deficit risks,” saying

there was a 50 percent chance that the U.167S. debt rating could be

lowered in the coming three months. The problem was the long-term

deficits.

“Nobody wants to be in default,” Boehner said. “The second point

Tim makes is valid.” The long-term deficit was the Republicans’ main

concern.

The speaker was wound up. “We’re one hiccup away from September

’08 or worse,” he said dramatically, referring to the onset of the financial

crisis. “We’ve got to get this done right. I’m upset by what happened

yesterday.” The press had reported on the confrontation with Cantor.

“But we’re all going to be polite. I’m not referring to you, President

Obama, relax.” It was awkward. He seemed to be trying to break the ice

and not get back into a pitched confrontation.

“I am relaxed,” Obama said.

“We are going backwards if there’s no new revenue,” said Reid,

getting back into it.

“Health and revenue are tied together,” said Lew, reminding everyone

that if the Republicans were not going to do anything on revenue, the

Democrats would not do much on Medicare and Medicaid.

“Medicaid,” said Durbin. “This hits the states hard back home.” In his

state, one in three children were covered by Medicaid. He said the

provider tax might be a contrivance, but it was a contrivance that

allowed Illinois to keep Medicaid afloat. Taking it away would damage

the system. Unlike some other states, Illinois was reimbursed only 50

percent of Medicaid costs.

“Here’s the upshot,” Obama said. “There’s some additional health-

care-related savings that aren’t structural. We could save about $200

billion, and we could use the revenue to offset extension [of the] payroll

tax holiday. An approach like this wouldn’t add to the gross savings but

it would benefit the economy” because workers would have slightly

more money from the payroll tax reduction.

“A down payment,” Geithner said, “if we could get somewhere close

to $2 trillion [total] savings, would be seen as credible if we combined it

with a trigger.”

“We could include next steps for tax reform,” Obama said. Everyone

was talking tax reform, the genie in the bottle that might be lured out to

fix all their problems—a project that surely would take six months to a

year or more and step on all the special interests.

Sperling then made another presentation on global caps and targets.

“This is mutually assured destruction,” Boehner noted unhappily.

They all knew it was designed to force decisions.

“Reagan, when he did cuts, weren’t they 50–50 domestic and

Defense?” Pelosi asked.

Lew and Geithner next walked through a presentation based on paper

they had presented to the group.

Kyl didn’t like it one bit. “He who controls the paper controls the

negotiation,” he said. “This paper excludes stuff we talked about, other

savings that are not on this list, that we ought to talk about. We

wouldn’t pay for the tax changes you talk about, payroll holiday, etc. If

you want to do those things for free, fine, but we’re not going to raise

other taxes to pay for it.” He wouldn’t even accept Cantor’s revenue

neutrality.

The president wanted to get back to the overall. “Let’s assume $1.7

with nonhealth, discretionary and interest,” he said. “We’ve discussed

some revenue raisers that don’t cause much heartburn.” He had

proposed capping itemized deductions—Sperling’s brainchild from the

Biden talks. “The 35 percent revenue may never materialize because you

guys,” the Republicans, “may be successful in replacing me, or we would

get tax reform done. That’s about as modest as it gets in terms of

revenue raisers and net neutral. If it gets us to about $2 trillion, it’d be

worth it.”

“There’s a better way to get to $2 trillion,” said Kyl. “The stuff we put

on the table that you took off. Discretionary caps. We could get

agreement among staff. Enforcement. If you think that ours will agree

that if Congress doesn’t do its job then taxes go up, that’s not something

we’re agreed to.”

“We thought about this,” Geithner said. They needed enforcement of

some kind.

“That’s not true,” said Kyl. “You don’t need enforcement to raise

revenues.” Don’t make it automatic. “Congress can raise taxes anytime

we want.”

“You also have the right to cut spending anytime you want too,”

noted Obama.

“We have less revenue now because of the recession,” Kyl said, “not

necessarily the Bush tax cuts.”

“We all have our own economic theories about what happened and

why we don’t have this revenue,” Obama said.

It was, however, an economic fact that the recession, with less

economic activity and income, resulted in less tax revenue. It was also an

economic fact that the Bush tax cuts had meant the Treasury collected

$1.5 trillion less in revenue in the last decade.

“Actually 50 percent of people don’t pay taxes,” Kyl said.

Hoyer protested, noting accurately that 50 percent of workers do not

pay income tax, but all workers pay the payroll tax.

Reid noted the proposal was to get about $75 billion from the high-

profit drug industry. “Let’s face it,” he said, “there’s no chance in hell

that Republicans agree to Part D rebates, so already we’re $75 billion off

of this.”

He went on, saying that he had read the press accounts of the

previous day’s meeting and clearly some of the issues were carrying

over. “Unless the deal has some revenue to it, I don’t know how we do

it.”

“Are there any other comments?” Obama inquired. There were no

more. “If not, here’s where we are. I’m prepared to do the largest deal

possible. Discretionary, health, mandatory revenue. Solve problems for

the foreseeable political future.” On the revenue question, he told the

Republicans, “I don’t expect a bedside conversion on your part. The

American people want a balanced approach. Two out of three

Republican voters want a balanced approach,” Obama added, providing

Republicans some raw polling data on what their voters wanted.

It drove Boehner crazy when the president told him what his party’s

voters wanted, but he didn’t say anything.

“So option one, big deal,” the president continued. “Option two,

fallback, $2 trillion. The fallback, we can get a little over $2 trillion in

savings with” what he carefully called “some gestures on revenue.”

Boehner, Cantor and most of the others wondered what that meant.

Gestures? They were still $200 billion to $300 billion short of the $2

trillion target.

“If we coupled that with a trigger,” Obama continued, “it would buy

us some credibility.

“Option three, some mechanism like Mitch and Harry. I’m happy to

take responsibility, as Mitch proposed, but that is suboptimal. We’ve

tried every angle. Hard to bridge the differences. The leaders all need to

go take 24 to 36 hours, come back and tell me what you can accomplish.

I prefer the big deal, but we’re running out of time.” He added that they

might need to meet next week.

“Last point,” the president said. “A short-term solution is not

something I will sign.” Just in case anyone had missed his message to

Cantor the previous day, he repeated that he would only go along with a

debt extension that took them past the 2012 election. A short-term

extension, he said, “makes it harder, not easier. Not for me, but for

you.”

Boehner again cringed, but remained silent. The president was telling

them again what was good for Republicans. It would be good for

Republicans to relinquish their leverage? Unbelievable.

The president’s assertion was highly debatable. He had acknowledged

that it rested on him. He was president. He was going to wear that

jacket.

Pelosi said, “I’m an optimist. I think we can tell you all right now

where we are. So why do we need to wait 24, 36 hours?”

“Mitch and I have a plan,” Reid disclosed, tantalizing everyone. “So

let’s just do that.”

“This is a complicated dynamic,” Obama said, understating the

problem. “Both between the parties, the leaders and the chambers.”

“Our caucus fully supports you, Mr. President,” Pelosi said, “your

bigger deal.” That evening, there was the congressional baseball game,

Democrats vs. 168 Republicans, so she joked, “How about whoever wins

the baseball game tonight decides?” *

• • •

Cantor had not said a word.

Durbin, a Chicago poker player, was watching him carefully, looking

for a “tell,” some cue that would betray what he was thinking. He

decided the silence itself was the tell. It was a sign that Cantor knew he

had been chastised. To Durbin, it looked like Cantor wanted to hide

under the table, become a mouse and disappear. He was sure Cantor

realized that, in holding the press conference, he had gone too far.

• • •

The consensus among Republican participants was that the White

House meetings had run their course and that despite the fact that they

had come to no solution there wouldn’t be any more. But Boehner

thought he saw an opening. Maybe they were closer than it seemed.

The president is scared, he told Cantor. He sees no way out.

The speaker asked Cantor if he would support one last effort to secure

a grand bargain with the president based on serious tax reform.

Cantor had his own worries. Default would be disastrous for the

country, but it would also be a political catastrophe for him. Media

coverage of the White House meetings had painted him as the

obstructionist standing in the way of a deal. Right now, if the country

went into default, he could wind up taking a disproportionate share of

the blame.

It would be easier to get to 218 votes with a larger package, Cantor

conceded. “Yes, let’s give it a try and see what happens.”

The media was focusing on the possibility that the McConnell plan to

allow the president to unilaterally raise the debt limit was becoming the

most likely option. Reid had, that day, expressed support and Boehner

had told reporters Thursday that the McConnell plan, while “less than

optimal,” might look increasingly attractive as the country neared

default. 169

• • •

Reid thought the group was getting nowhere. His idea was that they

push it off to a new special bicameral, bipartisan group, a kind of

supercommittee. It would be made up of members of Congress and

given the job of hashing out the details the high-level leaders were

failing to agree on. The supercommittee’s proposal would then be

submitted to the Senate and House. The recommendations would have

to be taken or rejected in their entirety. It would be an up or down vote

on an expedited basis.

• • •

Boehner’s old friend and golfing buddy, Ohio Governor John Kasich,

phoned him to offer help on the impasse. Kasich had been House Budget

chairman in the 1990s when Gene Sperling was Clinton’s NEC director.

“Hey,” Kasich said, “I know Sperling real well.” They had worked on

the 1997 budget deal together. “Can I help?”

Yes, Boehner said. Obama had to get serious. “I’m putting revenue up

there, but they’ve got to have real entitlement reform and we have

things on paper and it’s kind of like everybody understood and then we

get another piece of paper back.” The paper did not reflect the rhetoric.

So Kasich called Sperling at the White House, suggesting that he

meet with Boehner. Lew, he said, did not know how to get to yes.

Sperling realized it was not a compliment that they wanted him. It

essentially meant, “Lew’s being too tough. Can we get Sperling?” He

reported the Kasich call to Daley and Geithner. Both said that the

Republicans did not get to decide who they would negotiate with, and a

private meeting between Sperling and Boehner did not happen.

26

In the speaker’s suite on the second floor of the Capitol, they felt the

pressure of the clock.

“We don’t want to go through another three weeks of Jack Lew

nickel-and-diming,” Barry Jackson said, banging his fist on the table,

“and moving shit around when we’ve got to draft legislation.”

We’ve got to get this back on the track of regular order, Boehner said.

There was Senate process, House process. This had to be reduced to

precise legislative language.

Would the White House bite? What was the path?

• • •

On the morning of Friday, July 15, Boehner called the president to

follow through on Jackson’s promise that it was not over.

Mr. President, I want to reopen talks on the grand bargain. He had a

new offer, some big specifics. He was willing to do $800 billion in

revenue over 10 years if there was comprehensive tax reform. “I’m

willing to go this far on revenue. But I’ve got to make sure that the

entitlement side is big enough to justify it. We need to get real

entitlement stuff locked in, [so] nobody can touch it. That’s what makes

me comfortable.” Would the president send Geithner and Daley up to

the Capitol?

And Mr. President, the speaker added, please don’t send Jack Lew.

The budget director talked too much, was uncompromising, and

Boehner’s staff did not believe he could get to yes.

In an interview a year later, Boehner still had strong feelings about

Lew. 170 “Jack Lew said no 999,000 times out of a million,” Boehner said,

chuckling. Then he corrected himself, “999,999. It was unbelievable. At

one point I told the president, keep him out of here. I don’t need

somebody who just knows how to say no.”

For his part, Lew felt he could rest on his record of getting to yes in

every other negotiation over 30 years. He believed Boehner was

impatient with details, irritated when he asked hard questions and

insisted everything be fleshed out. “He wanted to be a speaker who

accomplished something great and important,” Lew explained to a

White House colleague, “but he wasn’t willing to go back to his caucus

and push on taxes.”

The president was not comfortable with Boehner picking his

negotiators for him.

“Look,” Boehner said, “we’re serious. We can do this.” They just

needed to sit down and hammer it out.

Okay, the president said.

Obama sent Geithner and Daley that evening, and with Cantor by his

side, the speaker presented an offer. The tone was very much, “We’ve

tried everything else. Let’s try to get this done.” None of them had taken

a day off in a month, and everyone was exhausted.

Boehner handed Daley and Geithner a two-page offer. 171

The proposal extended the debt limit past the 2012 election, but it did

so in two steps: an immediate $1 trillion increase in the debt limit

backed up by $1.2 trillion in savings achieved by capping general

spending over the next decade. The second step required cuts over 10

years to be negotiated in various programs: $250 billion in federal

retirement, agricultural subsidies, higher education and various other

programs; $200 billion in non-Medicare health programs; $250 billion in

Medicare spending and altering the eligibility age; and additional cuts to

Social Security by changing the eligibility age and reducing future cost-

of-living increases.

Though couched in budgetary alchemy, the Republicans offered what

amounted to $800 billion in new revenue over the next 10 years, to be

achieved through major tax reform.

The $800 billion number had been floated before, but here it was in

writing. It was a breakthrough. Geithner said the administration would

accept it. Daley and he said they were less receptive to the two-step debt

ceiling increase. As Boehner knew, the president was adamant on this

and had vowed not to agree to a short-term extension. Just ask Eric.

“Go back and take it to the president,” Boehner said. “Think about it,

whatever you’ve got to do, and give me your reaction.”

Geithner and Daley replied that clearly it was a serious offer, and

agreed to take it to the White House.

Nabors read the two-page offer. The two-step process was

unacceptable. The health care cuts were too deep, and why were they

throwing Social Security into the mix? It really had nothing to do with

the deficit. Doing so was just gratuitous piling on. It was a step

backward. So he sat down at his computer to red-line the draft.

• • •

Later that evening, Pelosi and Hoyer, at their request, met with Boehner

in his conference room. Pelosi had found out that Boehner and Obama

were negotiating again.

If this is going to get through the House, it’s going to need both

Republican and Democratic votes, Pelosi said. You’re going to lose some

of your guys. Tell us what you need, and we’ll tell you how involved we

need to be in the process.

Tell me what you’re willing to do, Boehner said. Would she and the

Democrats agree to changes in Medicare that actually impacted

beneficiaries?

Pelosi declined to answer. She fished for more details, but Boehner

was not forthcoming.

“Why don’t we let staff have a conversation about this?” he

suggested, a tactic he often used to extricate himself from unproductive

discussions.

• • •

It had been a tough week for the speaker. “There was one point before

this,” he later recalled, “in the week before this, the middle of July, when

my senior staff came in.172 And one by one described to me how I was

risking my speakership continuing this conversation” with the president.

“I looked at them. I just listened to all what they had to say, leaned back,

and said, ‘So be it.’

“I’m sure most of my staff was scared to death of what the hell I was

up to. Fine.

“I’m trying to use the debt limit to leverage the political process to

produce more change than it will if left to its own devices. It’s not rocket

science. This debt issue bothered me before I got here 22 years ago. And

I’m sure as hell going to do something about it. Because I need this job

like I need a hole in the head. And I don’t think what the president

understood or some others understood is that I didn’t really care.” If he

lost the speakership, he said, he would be comfortable.

27

Sunday morning, July 17, Boehner, Cantor and their senior staff

entered a Secret Service building, and walked through a tunnel to the

White House for a 10 a.m. meeting in Daley’s office. The White House

had two offerings. The first was fresh pastries from the nearby Corner

Bakery. The second was a four-page counteroffer. Nabors had finished

his changes to the proposal presented in Boehner’s office on Friday

night. 173

We appreciate the offer you made on Friday, Daley began. The White

House viewed it as serious and constructive. He then turned the

discussion over to Geithner.

The two-step debt limit approval process was not something the

White House could live with, Geithner said. The debt limit negotiations

were already having a negative effect on the financial markets. Why

would they want to set it up so that the country would have to go

through this again? “The president is just not bending on this issue,” he

said.

“We have to get this passed and out of politics,” Daley said.

Barry Jackson chuckled to himself. This was about the president’s

reelection. It seemed to be Obama’s only marker: How can I do this to

my political benefit?

They went through the White House’s counteroffer, beginning with

caps on general spending. This time, Jack Lew was in the room. Boehner

and he immediately started haggling.

The Republicans hadn’t been specific about a total budget number for

2012. Lew wanted $1.047 trillion. Boehner came back with an offer of

$1.040 trillion.

The White House agreed to the $1.2 trillion in spending cuts over 10

years, but added a firewall that required that they be split evenly

between Defense and other general spending. Republicans resisted. The

congressional appropriations committees ought to be allowed to make

those spending choices.

Geithner said that the savings from winding down the wars in Iraq

and Afghanistan—the Overseas Contingency Operations fund—should

be counted in the grand total. He conceded that this wasn’t real savings,

but it was a peace dividend and it made the overall total look bigger.

“We need to have this because the ratings agencies and markets believe

in this stuff.”

Fine, Boehner said. He was past arguing about OCO.

The White House plan offered a level of cuts to other general

spending that was comparable to what Boehner had proposed. But the

administration plan envisioned plowing a portion of that savings into an

extension of unemployment benefits. Boehner agreed to it.

The discussion moved to the debt limit. The White House wanted an

immediate increase of $1.6 trillion and a guarantee that an additional

$900 billion would be available to the president, subject to McConnell’s

plan that would allow Congress to express disapproval without actually

preventing the increase.

The increase would be offset by additional spending cuts that would

have to be negotiated by Congress, and the White House proposed a

trigger mechanism that would automatically cut spending and raise

taxes if Congress did not come to an agreement. The trigger was to be

designed so that its impact was equally offensive to both parties.

Why is the White House so insistent on a trigger? Boehner asked.

Wasn’t the looming federal default trigger enough? If that’s the hammer

hanging over us, we’ll find a way to get this done, he said.

The issue of a trigger unresolved, they moved on to additional

spending cuts. The White House wanted to halve Boehner’s $220 billion

in proposed cuts to other health programs to $110 billion. The White

House was willing to apply the modified Consumer Price Index to Social

Security and other programs.

Boehner found the new White House offer on revenue of $800 billion

as a minimum, or floor, unacceptable. He had previously made it a

ceiling, meaning they could do less.

“We need some wiggle room to be able to sell this to our guys,” the

speaker said. “We need some flexibility to produce tax reform. We really

need this to be a ceiling.”

“I think we can do that,” Geithner said.

Boehner said he wanted to maintain the lower rates on capital gains

and dividends.

“That just hits too many of our people right between the eyes,”

Geithner said.

When the discussion turned to corporate tax reform, Boehner and

Cantor thought they were onto something positive. The administration

had tentatively—everything was tentative, it seemed—stated that

corporations would only be taxed on domestic income and not from

overseas income. This was a giant issue for companies like Apple,

Microsoft and Google, any that operated abroad. Called a territorial

corporate tax system, the business community would be overjoyed if it

was adopted in an overhaul of corporate taxes. Not having to pay the

U.S. corporate rate of 35 percent on overseas income would be a

bonanza for corporate America.

“The goal is territorial,” Geithner said, starting to pull back. “I’m not

sure we can commit to completely territorial.” Maybe 95 or 96 percent.

He added pointedly, “We are prepared to move off decades of

Democratic orthodoxies.”

Treasury had been working on a corporate tax reform plan for some

time. Decisions had been expected earlier in the year.

Where are you? they asked.

“Well,” Geithner said, “we’re still working. But complete territorial

we may not be able to get. But we’re going to get close, and we can work

with you on that.”

Nabors said that the president would just not do $200 billion on

Medicaid. As they had said before, that would gut the program. It was

achieving a policy outcome through radical cuts in funding. “We’re not

doing that,” he said. He also had a table of $243 billion in cuts on 14

programs ranging from civilian and military retirement to agriculture

subsidies. If they were going to sell a deal to Democrats, he said, these

needed to be part of the package. They reflected the agreements reached

in the Biden meetings. They couldn’t have 14 negotiations, Nabors said.

“We’re not negotiating on the cuts, just agree to these cuts.”

Then, unexpectedly, in walked the president. “How are you guys

doing in here?” he asked. “You making progress? I was just at church.”

Obama, in a suit and tie, struck a sharp contrast to the others, who

had shown up for the Sunday session in khakis and blazers. Daley gave a

status report that was slightly more positive than negative.

“Let me talk to John and Eric alone,” Obama said.

The others wondered if they should leave. It was an awkward

moment.

“We’ll go down to my office,” the president said, leading the two

leaders to the Oval Office.

• • •

The president would later recall that he was pleased to see Cantor

there. 174

It was “a good move by John” he said, “to bring Cantor in so that he

could feel some ownership, but also because he was probably closer to a

certain wing of his caucus. And so I was glad to have him participate.”

Stombres and Bradley, Cantor’s top aides, had earlier expressed their

concern to their boss that the president was bringing him into the

discussions only to get him invested in the process. Beware of some kind

of pre-sealed deal Obama might slap down on the table and urge you to

sign. Don’t make any deals. Step out. Say you have to make a phone call.

Don’t get railroaded.

Now, in the Oval Office, Cantor told the president and Boehner that

while he wanted to see if something could be done on a big scale, he had

doubts, grave doubts, that he and the speaker had the capacity to sell

something that would be perceived as a tax increase by their members.

Cantor thought the president was saying in effect, you are the

impediment here. I know I could get a deal with the speaker.

Boehner pushed. He wanted a deal. With $800 billion as the revenue

figure, he said, even if our guys hate it, we can get it passed and cure all

sins with robust tax reform.

Cantor thought the speaker had symptoms of deal fever.

Faced with both Obama and Boehner, Cantor said it would be a hard

sell to their members, so it had to be made as easy as possible. In other

words, “the best worst big deal possible.”

Boehner later recalled, “We have an outline of a deal. It’s done.”

• • •

Meanwhile, in Daley’s office, the House Republican senior staffers sat

with their Democratic counterparts, eating muffins and watching the

British Open golf championship on television.

After about 20 minutes, Boehner and Cantor returned. The speaker

had just opened a door that led to a small outdoor patio, apparently

intending to have a cigarette, when the president unexpectedly returned.

Boehner stayed outside the door and lit up while the president spoke.

“I just talked to John and Eric and I think we’re in a really good place

here,” he said. “We need to start thinking about how we put this thing

together.” How long will it take to get this drafted? He was looking at

Geithner, but before Geithner could answer, he asked, “How much time

do we have before we reach the limit?”

As of August 2, Geithner said, the Treasury would no longer be able

to borrow money.

“Now,” the president said, “this is going to be very tricky for us

because you know the press will be climbing all over us. We may be

speaking one language to our people.” The Republicans would be

speaking their language to their people. “And as stuff gets out it’s going

to make things very difficult for us. So we’ve got to keep this real quiet.

My guys are under instructions not to say a word about any of this. We

need to get this done, locked down and rolled out.”

• • •

“I got ’em,” said Boehner, on the ride back to the Capitol in his official

car, running red lights and speeding through the empty streets of

Washington. “I think if we give on the debt limit and go to a trigger—a

policy trigger instead of a debt limit trigger—we’ll get them on

everything else,” he told his aides. He was willing to do that. Get Cantor

to my office as soon as possible.

In an interview later, Boehner said, “We’re there. 175 Now we’ve still

got to figure out what the trigger is, so that if tax reform doesn’t happen,

you’ve got to have a big enough trigger behind it.”

Boehner emphasized the importance of the trigger. “It had to be ugly

enough where nobody would go there, so we’d get tax reform done. I

knew we couldn’t have decoupling or other crazy things in there.”

• • •

Cantor left the White House with Stombres and Bradley.

It was crunch time, he told them, and it showed. He looked as though

the weight of the world was on his shoulders. If they—meaning mostly

he—screwed this up, it could be a disaster. If he or the speaker blew it

up again, they risked being seen as unreasonable, going to the brink of a

deal and then walking, yet again. He could see the headlines: There

would be a big deal with tax reform if not for these crazy Republicans

led by Eric Cantor. On the other hand, agreeing to a bad deal or one that

the Republican members would choke on could be worse. “Can this

work?” he asked. “Can this really work?”

One reality was his relationship with the speaker. In the House

hierarchy, Cantor was the subordinate. But he was also the one plugged

into the members, and that was why Obama and Boehner tolerated his

presence, barely.

The deal was hanging by the thinnest thread. And so was he.

• • •

In an interview, the president recalled that after the Oval Office meeting

with Boehner and Cantor, “What we have is a framework, not an

agreement,” he said. 176

“I have to say that Boehner could not have thought at that point that

we had a deal. And the reason is—and I’ll just give you one example—

the principles of tax reform were completely unsettled. And I was always

suspicious of the notion that tax reform, without an actual identification

of where the revenues were going to come from, would be real enough

for me to be able to extract what are very real changes to entitlement

programs. And so I can’t sell that.

“If Cantor’s reading is we didn’t have a deal yet, it’s more accurate

than John’s. And frankly, we did not indicate to him that we had a deal.

We were optimistic, though, at that point that we could get a deal done.

I mean, I think that the last—when he leaves our office, I think the basic

view is, you know what? This can get done. Here’s a framework that can

work. We’ve got to work out all these details and get an agreement.

“At this point, I’m probably feeling better than 50–50 that we’d get

this done. And I feel sufficiently good about the prospect of getting it

done that I start saying to my team, we’ve got to do some additional

consultations with the House and Senate Democratic leadership.

Because it is important that they don’t start feeling blindsided.”

• • •

Back at the Capitol, Cantor told his staff he had to make a sincere effort

with the members. How the hell are we going to sell this? How can we

get our members to support this? He couldn’t get too far ahead of them.

“Where is Paul Ryan going to be on this?” Cantor asked his aides as

they rode back to the Capitol. “What’s he going to say?”

Ryan would understand the numbers, Stombres said, and the $800

billion looked conveniently, suspiciously, like the revenue from the

expiration of the top Bush rates. Ryan’s first question would be: “What

have you committed us to? Have we committed to really bad policy that

we can’t support?” His second would be: “What have you locked us into

going forward? Have you put us in an impossible position where we’re

damned if we do, damned if we don’t?”

Ryan would worry that all this short-term deal making would retard

the real cause: addressing the “real problem,” as they called it, of

runaway, unsustainable entitlement spending.

They all knew tax reform would take six months to a year or more to

work out and negotiate. A complete or even partial transformation of the

tax code, larded with decades of special interest provisions, was a

monumental task. If a deal was reached and announced on the basis of

tax reform, what would be the enforcement mechanism or trigger that

would go off if tax reform did not work?

All the talk, Stombres said, would ultimately come back to that. The

trigger would be make or break.

Yeah, Cantor agreed, returning to his own personal problem. He was

living in a political no-man’s-land among the largest political forces in

the country—Obama, Boehner and the House Republican majority. He

felt like one of those stretchable rubber dolls. Obama and Boehner had

one arm and his 240-member conference had the other. “I want to find

the exact spot where both arms don’t get ripped off,” he said.

• • •

In the early afternoon, Cantor, Stombres and Bradley went to the

speaker’s office.

Boehner was positive, optimistic as always about what they were

working out. We are going to describe the deal this way, he said. Income

tax brackets would be collapsed into three rates, no more. The White

House had agreed. No rate would be higher than the current 35 percent.

The White House had agreed. Efficiencies in the tax code and economic

growth would lead to lower tax rates. The corporate rate was going

lower.

“They can’t say that Boehner is raising taxes by $800 billion,” Jackson

said.

Don’t worry if it is received poorly at first by the members, Boehner

said, we’ll fix it with tax reform.

Well, let’s see exactly what “it” was, Cantor said. After all the talk

with the White House, they would see “it” differently. Let’s get precise

details. The speaker agreed. Also, they agreed that if there was going to

be revenue in a trigger, the White House would have to agree to an

Obamacare trigger. Brett Loper, Boehner’s policy chief, and Neil Bradley

were directed to capture the details on paper, make sure they were all

comfortable with them, and then send them to the White House.

“Let’s see what they come back with,” Cantor said. One thing was for

sure, the White House would have a different take and spin on the

conversations.

So, Loper and Bradley drafted a proposal that stuck close to many of

Boehner’s original positions, but added a clause allowing for an

unspecified trigger made up of spending cuts and revenue increases.

Obama would get his full debt limit increase, up to $1.2 trillion right

away with an additional $1.3 trillion available through McConnell’s

convoluted approval/disapproval process.

Cantor went upstairs to his office with Stombres and Bradley. Tax

reform cures all sins? It was daunting to say the least, they agreed.

At 7 p.m., Loper sent a three-page offer to the White House.177 It gave

a $2.5 trillion debt extension under McConnell’s scheme. The trigger

was “specific spending reductions and revenue increases.” But, it noted,

“further discussions necessary to finalize.”

The White House said they could expect a detailed reply waiting in

their email inboxes on Monday morning.

• • •

Boehner and Jackson discussed where they thought they really were.

Obviously there were some worries about where they would get the

votes for a deal. But Boehner believed that if he and the president agreed

on something, they would get the votes. Joining together, going out,

standing together, declaring publicly they had a deal, he said, would

generate momentum.

“The president,” Jackson said, “is supremely confident in his ability to

deliver. You can’t be president of the United States without having that

sense of yourself.” Once a deal was announced, Obama would have no

choice but to rally whatever Democratic votes would be needed. Obama

couldn’t sign on and let it fail. He would be forced to use the power of

his office to get the votes.

Boehner knew he was in the same position. He too would have to use

the power of his office to rally the House Republicans as he had never

before.

• • •

“How many people do you think are going to vote for it?” the president

asked Nabors.

“How many people are you going to tell to vote for it?” Nabors

replied. There were no natural votes. “No one wants to vote for this. If

you throw it on the floor, it’s going to get zero votes. Because there’s

something in here for everybody to hate.” He believed he had an

accurate whip operation with the Democrats and could get a vote count.

“I have it name-by-name, this is who we’re going to get, this is how we

going to get them.” The Democrats are cranky about this, he said, as he

produced preliminary lists of House Democrats for the president. He

said that he, Pelosi and Hoyer would be able to take care of 60, 70 or 80

House Democrats. Some would come aboard out of loyalty to Obama,

some would have to be leaned on.

Obama seemed to agree.

“These are the members that you’re personally going to have to call,”

Nabors said. “If we are putting the full power of the White House

behind it, what can I get?” He had a list of about 50 House Democrats—

a big number, a healthy number—that Obama would have on his list.

Nabors would long remember exactly what the president said to him.

“At the end of the day,” Obama said, “this is more important than

health care, in terms of the fiscal condition of the country.” He would

have the meetings, make the phone calls. “I’ll get it done.”

So that would take them to about 120 or 130 Democrats, Nabors said,

well on the way toward the necessary 218. There were, however, two

questions.

Was the president going to put his political capital on the line, put

everything on the line? Frankly, Nabors said, they did not have a lot of

capital left, post–health care, post–loss of the House, and after the recent

battle over the appropriations bills.

But, he added, it was an odd dynamic. In a face-off such as this with

the Republicans and a willingness to double down with political capital,

the 120 to 130 votes was reachable. “It’s not a lot of votes to get.”

The other question was Boehner’s strength. “A speaker should be

able to stand up and say, ‘Vote for it because I’m the speaker. Don’t even

read it. I’m the speaker, vote for it,’ ” Nabors said.

The question, they agreed, was could Boehner deliver the additional

100 votes or more from the Republican side? Was that possible? Did he

have enough clout?

• • •

Boehner was a mixture of confidence and uncertainty. In an interview he

recalled a discussion with the president when they were alone. 178 “At

some point that week I said to the president, I said, ‘Mr. President, don’t

underestimate the difficulty in getting this thing passed,’ He must have

been sitting next to me because he reached down, touched my forearm,

and said, ‘John, I’ve got great confidence in my ability to sway the

American people.’ It almost took my breath away. It was just one of

those moments you never forget. And he was very serious.”

Asked about this, the president said, “I don’t recall that precise

conversation.” 179

Boehner told him he could persuade enough House Republicans.

It was really about votes? I asked.180

“It’s about votes,” Boehner said.

Did you ever talk to the president about votes and ask how many

votes are you going to get?

“Well, no, no, no. We never got into that. Never got into it.”

I said I understood that the president thought he could get 120 to 130

votes from House Democrats.

“We always assumed that they’d have to get half the votes and we’d

have to get half the votes,” Boehner said, adding that he was confident

he could deliver. “And I always assumed I could get half the votes.”

28

By Monday morning, the White House had sent nothing.

It’s coming, Daley and Nabors promised Jackson.

Boehner and Cantor kept their staffs at the office well into the

evening, ready to get to work when the White House offer arrived. They

had legislative language to draft. They had the responsibility of coming

up with the precise definition of the trigger. Jackson in particular was

focused on how they were going to sell this to the conference. Congress

was out of session so not too many people were around. There had been

no leaks that they were on the verge of a deal.

As a precaution, Jackson had begun discussions with staff from Reid’s

and McConnell’s offices on a fallback plan in case they weren’t able to

reach agreement with Obama.

Sometime between eight and nine o’clock, Nabors called Jackson. The

offer isn’t coming tonight. We’ll have it to you first thing in the

morning.

• • •

At nearly every White House senior staff meeting for months, Sperling

had said, “The Gang of Six might come out with something today.”

The Gang was made up of six senators—three Democrats and three

conservative Republicans—who had been working on a big, supposedly

dramatic, deficit reduction plan. The bipartisan makeup of the Gang

suggested it might have clout in the ongoing budget wars. The group

had been formed in the wake of Simpson-Bowles and included Senator

Conrad, the fiscal hawk and Budget Committee chairman, and Senator

Saxby Chambliss, a Georgia Republican who was one of Boehner’s

closest friends.

Sperling’s invocation of the Gang of Six had become a daily joke.

“You’ve said that every day for the last three months,” Nabors told

Sperling one morning. “Stop saying that.”

But suddenly, on the morning of Tuesday, July 19, it was no longer a

joke. Sperling reported that the Gang was going to have a meeting that

morning to announce its framework.

Nabors called Jackson.

“This may end up being a potential problem for both of us in terms of

votes,” he said. The Gang undoubtedly was going to be more aggressive

on spending cuts, thus appealing to the anti-government hard-liners

among the House Republicans. And it was also surely going to be more

aggressive on revenue, appealing to the progressive Democrats who

wanted more tax increases.

That’s weird, Jackson thought. Given Boehner’s closeness to

Chambliss and McConnell, he would have expected a heads-up.

They’re supposed to have a roll-out in the Senate in a little while,

Nabors told him.

• • •

The Gang—Democrats Durbin, Conrad and Virginia Senator Mark

Warner, plus Republicans Chambliss, Idaho Senator Mike Crapo and

Oklahoma Senator Tom Coburn—had been crashing around in the forest

since the previous December. But in a meeting with fellow senators that

morning, they announced a plan calling for $3.1817 trillion in deficit

reduction, including new revenue of at least $1.2 trillion.

Because it was bipartisan, it drew a great deal of media attention.182

Plouffe went to the president with the other senior staff. This is a very

important moment, he said. Perhaps a watershed, because it was the

first time Republicans were coming forward publicly and embracing the

concept of more revenue. Three Republican senators, including

Boehner’s close friend Chambliss, were out there with a big revenue

number. If Chambliss was coming out for more revenue, Plouffe said,

while the president was having these negotiations with Boehner, it was

probably not unrelated.

“Now, let me get this straight,” Obama said. “So Saxby is saying he’s

willing to vote for $1.2 in revenue? And they can bring the Republicans

along? Because if that’s true, we definitely have a deal.”

“We need to shape this for two reasons,” Plouffe said. “One, let’s

build momentum around Republicans wanting to do revenue.” It would

help Boehner, giving him room to maneuver in the Republican world.

Second, the Gang of Six was giving explicit support to the president’s

main argument that they should take a balanced approach to deficit

reduction—spending cuts and a big chunk of additional revenue.

Daley, Lew and Sperling were fine with the idea. Nabors agreed

strongly because they would look, he said, like “the weakest presidency

in the history of mankind” if Obama was proposing less revenue than six

senators including three Republicans. There was no further debate.

In the modern media age, it was important to act, get out there, be

part of the daily conversation, shape the perception. No one tried harder

at it than Obama. It was part of the permanent campaign, and at the

moment the message seemed more important than the sensitive

negotiation with Boehner. In the rapid-fire move and countermove of a

presidential campaign, no one tipped the other side to the next move.

One of the principles of campaign warfare was surprise. So, no one

thought to give a heads-up to the speaker or his staff. The instincts of

the former campaign manager carried the day.

At 1:32 p.m. Obama made a surprise appearance in the White House

Briefing Room.

“Some progress was made in some of the discussions, some

narrowing of the issues,” he said carefully, hedging about the meetings

with Boehner and the congressional leadership. 183 “The good news is

that today a group of senators, the Gang of Six, put forward a proposal

that is broadly consistent with the approach I’ve urged.” He went

further, “I want to congratulate the Gang of Six.” He also said that the

plan McConnell and Reid were working on was “necessary” to ensure

that the debt ceiling was raised if a larger deficit reduction deal could

not be reached. “We have to have that fail-safe that Senator McConnell

and Senator Reid are working on.”

Jackson’s head was almost spinning. “Why did the president come out

and do a press conference to wrap his arms around the Gang of Six when

they were in the middle of secret negotiations with us? We were so close

to a deal. Why would he come out and say that he wants something, he

applauds something that is so different than what we were so close on?

We were just trying to nail down a few last pieces.”

The Gang was the kind of high-profile, vocal and self-appointed group

that could dwell in the world of fiscal and budget abstraction, relying on

the high principle of less spending and more taxing. They did not have

to live in the real world of the present crisis, in which the administration

and Congress had about two weeks to avoid a calamity. That freedom

also gave the Gang plenty of time to stir the pot and cause trouble.

• • •

Asked about his reaction to the Gang of Six, Obama later recalled that he

had tried to walk a delicate line in discussing the revenue number. 184

“I did not endorse that number, precisely to protect that number,” he

said. “I praised the concept of Republicans being willing to actually do

revenue in exchange for some serious cuts. Now, to be honest, part of

the reason we didn’t endorse it was because we knew that whatever they

were coming up with in terms of revenue, over on this Gang of Six side,

was fuzzy. They hadn’t identified it, they hadn’t specified where it’d

come from. The cuts that they were looking for I think were

substantially greater in exchange for the revenues.

“And so the notion here was not to try to embarrass Boehner or to

force his hand. The notion was simply to lift up a principle, which was, if

Republicans are willing to move on revenue, I’m willing to move on

entitlements, and we can get a deal done.”

• • •

Cantor invited Paul Ryan to his ceremonial corner office to dissect the

Gang of Six plan with their staffs. With almost computer-like precision,

Ryan and the others clicked through the proposals. It was a mix of the

good, as they saw it, such as lowering the top marginal income tax rate

to 29 percent, and the bad, including a failure to address what they

believed were the budget-busting consequences of Obamacare.

The Gang of Six appeared to raise revenue of $1.2 to $2 trillion,

through tax reform. A tall order, Ryan said.

But in their proposed deal with Obama, Boehner and Cantor were to

raise “up to” $800 billion. They could not completely crap on the idea of

tax reform because they might be driving down a similar road.

“We might be making the same argument in a day or two,” Cantor’s

policy director, Bradley, said.

It also appeared that the Gang paid for cutting the top income tax rate

to 29 percent with a massive tax increase on capital gains and dividends

—Republican heresy.

So Cantor put out a statement praising the Gang’s “constructive

ideas” but voicing his concern about the revenue target and lack of

detail. 185

Through a spokesman, Boehner said the plan “shared similarities”

with the grand bargain he had been negotiating with the president. 186

Boehner and Jackson reviewed the situation. Boehner couldn’t see

why the Gang of Six plan should have any real impact on his discussions

with the president. It was just a handful of senators getting together and

making a point. It had no bearing on discussions between the White

House and the House of Representatives.

“Senators being senators,” Jackson said derisively. “We will come

rescue the day because nothing’s getting done and we’re all in a panic.”

Senator Tom Coburn, a member of the Simpson-Bowles commission

and one of the Six, thought Obama had made a mistake. Coburn was

one of the few in his party who regularly said that higher taxes were

necessary to balance the budget. He thought that Obama did not realize

how toxic he was to Republicans, who would see his embrace of the

Gang of Six as a prelude to a tax hike. He said it showed how

inexperienced a negotiator Obama was. He later told The Washington Post

that the president’s statement “absolutely killed anything we were doing

with the Republicans. ”187

• • •

Daley assembled the senior team in his corner West Wing office. The

president was at $800 billion in revenue, substantially less than the

Gang of Six’s $1.2 trillion.

That $800 billion itself could be a “killer,” Sperling said, because it

was dependent on the elusive white whale of tax reform. They could

chase tax reform all over the oceans and come back with nothing, as

many Democrats were warning. “We’ll say $800 billion,” he said,

“they’ll say zero.” So $800 billion might be too light, not enough.

Nabors agreed. “It’s either zero or $800 billion, depending on who

you are.” The Gang of Six had changed the playing field. The $800

billion, he said, “looks really low in a world in which you’ve got

Republicans who are willing to sign off on a higher revenue number. The

Norquist pledge sort of has a hole in it all of a sudden. And so in a world

in which President Obama needs to get 120 votes potentially, this is

going to be tough. How do we explain this to Democrats?” Many in the

party thought the White House cut bad deals, for example, the extension

of the Bush tax cuts the previous year. “Just this day Republicans signed

off on more revenue.” Or, at least, three Republican senators had.

How about an extra $400 billion? That would take it to $1.2 trillion.

If three Republicans—Chambliss, Crapo and Coburn—could go as high

as $1.2 trillion, surely the president could not be much lower.

Would Boehner freak out?

“Look,” Nabors said, “let’s just talk to them. Let’s just say, ‘Look, we

don’t have the votes here, can we talk about this?’ ”

It would be a feeler. Several of them mentioned that the $800 billion

number had been hard-won. They should not overplay their hand.

“You know what?” Nabors finally said. “I’m just going to float it as

my idea.” The son of an Army general, he knew about probing the

enemy lines for weakness. He would, of course, run it by the president

to make sure he approved, but by floating it as his own, Nabors would

give the president some distance. He would ask for $1.2 trillion as the

revenue number.

Daley gave the go-ahead, and Nabors explained his plan to the

president. He would present the $1.2 trillion in his voice as a former

deputy budget director and former House Appropriations Committee

staff director. His plan was to say, “I’m just trying to get a deal. Is this

something that can work? This isn’t big macro politics.”

Give it a shot, Obama said.

Nabors called Barry Jackson. He would prepare a formal offer under

his name suggesting an increase to $1.2 trillion in revenue.

“We have to see how this shakes out,” Jackson said, noncommittally.

“We don’t have any read of what’s going on yet.”

There had been no explosion from Jackson, Nabors told Daley. They

were considering it. “You know what?” They seemed okay. “They

understand.”

There was this weird dance with the offers going back and forth,

Nabors thought. They would want more entitlement cuts, and the White

House would want more revenue. Every time one would go up, the other

would go up. Enough crap, Nabors figured. Time to rip the Band-Aid off.

When he was done he had a three-page offer and sent it at 6:27 p.188m.,

clearly labeling it “Nabors draft.”

“Barry,” he said, “this is it. It’s just me.” He did not mention that the

president had approved it.

• • •

When Jackson and Loper read it, they saw that Nabors left the debt limit

increase blank. “$X Billion,” it said. On revenue, he proposed the $800

billion plus what amounted to about $400 billion more, for a grand

revenue total of $1.2 trillion.

“Whoa, whoa, whoa, whoa!” Jackson said. There it was in writing. He

was dumbfounded.

“We can’t do this,” Loper said.

“It’s a walk-back,” Jackson told Boehner. Here they were in the

middle of what were essentially secret negotiations with the White

House, and the president comes out and throws his arms around the

Gang of Six? Yes, it was the same framework—but these were very

different numbers. The Nabors offer would trigger a whole additional

round of offers and counteroffers.

Maybe the White House was trying to drag this out for some reason?

But that made no sense. Geithner had read them all the riot act. They

had a hard deadline.

Boehner was frustrated. He was willing to talk, and negotiate, about

revenues. But in his mind, it was really about getting the economic

engine of the country going again. It was about growth. And the things

hampering growth were out-of-control spending and entitlements. He

didn’t, of course, want to quantify the revenue number. It was too

explosive for his conference: Revenue meant taxes. But tax reform and

economic growth were the remedies. The administration’s demand that

they get specific on the revenue debate confounded him. Numbers were

poison. In the next 10 years the federal government was by all

projections going to collect at least $38 trillion in revenue. And the

debate had been about $800 billion—about 2 percent of that total. “It’s

minuscule,” he said. But now the White House was talking about $1.2

trillion.

“Look,” Boehner said, “we’re not going to have time. I don’t know

why the president’s walking back on this, but I’m done. We had an

agreement. He’s broken the agreement.”

Those were Boehner’s words, but he and Cantor decided that the best

short-term course of action was to wait it out. Obama had invited them

to the White House the next day.

In the meantime, Boehner had to make sure they did not default. The

president was not a productive player now, so the speaker told Jackson

that the focus would have to be on what could be worked out with the

Senate—Reid and McConnell. So Jackson kept working with David

Krone in Reid’s office, and Loper with McConnell’s key staff person,

Rohit Kumar, trying to line up a Plan B.

• • •

The conservative intelligentsia, as they are called in Cantor’s office, did

not react favorably to the Gang of Six deal, especially the revenue

number. It was panned by the American Enterprise Institute, the Club

for Growth, National Review and The Wall Street Journal.189 Saxby

Chambliss acknowledged it was a big number, but said they would make

it up through tax reform and growth.

Not possible, said the propeller-heads of the conservative movement.

That’s a tax hike.

29

On Wednesday evening, July 20, Boehner and Cantor came to the

Oval Office to review the bidding. The Republican leaders brought their

senior staff—Jackson, Loper, Stombres and Bradley. Biden, Geithner,

Lew and Nabors sat in for the administration.

They were close on a draft plan, Obama said, as he rattled off various

cuts and savings. They were close on the cuts to the non-Defense,

nonsecurity and nonentitlement spending. They hadn’t settled on the

final discretionary number, on language for entitlement reform, or the

all-important trigger. And the Gang of Six, Obama said, has made this

more complicated on the revenue front. Your buddy Saxby, he said to

Boehner, has put me in a hard position.

“Revenue,” Boehner said. “Mr. President, our necks are out as far as

they can go.” The “up to” $800 billion was it, the upper limit.

Nabors worried that they were again talking past each other. Boehner

kept calling it $800 billion but the Republicans were going to say it was

all through tax reform and so it would effectively be zero. How was the

president going to sell what House Republicans would call zero revenue

to Democrats when conservative Senate Republicans like Chambliss,

Coburn and Crapo said they needed at least to get $1.2 trillion in

revenue? But Nabors did not say anything, and his $1.2 trillion proposal

did not come up explicitly.

“Social Security,” Boehner continued. “I think there’s a way to stay

out of the problem.” He mentioned a 75-year solvency test. The concept

was they would avoid getting into particulars by just establishing a test

on solvency. If the Social Security system was solvent in 75 years, then

they would consider the problem solved.

“Let’s say it’s resolved,” the president said, jumping on an agreement

quickly. One issue settled, pushed off to a distant future.

On the trigger, the way to enforce an agreement, Boehner said, the

“ultimate trigger is the debt ceiling” but he had conceded that—a big

concession.

“We can’t do that,” Obama reaffirmed.

“Decoupling sends people over the edge,” Boehner said, meaning not

continuing the Bush tax cuts for the upper two brackets. Then the

speaker played his best card. “If you’re going to have decoupling, we

would need Obamacare.”

Awkward moment. Everyone tried to avoid the use of the pejorative,

but there it was.

Ooh, okay, Cantor thought.

The trigger would have to contain two key parts of the president’s

health care reform, Boehner said. If the trigger went off, these two

elements would be repealed. First, the controversial Independent

Payment Advisory Board (IPAB), which was supposed to find savings in

Medicare and curb costs. Second would be the individual mandate that

required all Americans to buy health insurance.

“Creative thought, John,” the president said. In other words, gut

health care reform. No.

“Our members see a disincentive to act in the Senate,” Cantor said. If

letting the Bush tax cuts expire is in the trigger, the Democratic Senate

majority could let the trigger go off and they would have killed the lower

rates for the wealthy, a big accomplishment. That might be worth

everything to them. “That is a nonstarter for us.”

Why don’t you just put in there that if it doesn’t happen, then I’m

impeached or removed from office? the president joked. Let me try to

clear out the underbrush, he said. Medicaid and other health cuts need

to be at $150 billion.

Cantor had been pushing for higher cuts, thinking they could do

more. But the president seemed to be holding at $150 billion.

On the revenue side, Obama continued, you guys said you can’t do

more. “The only thing I’m thinking about is, can we do some cats and

dogs? Corporate stuff, close loopholes.”

Everyone knew these were small—$5 to $10 billion—and would have

no impact except as symbolic political scalps. The president, apparently,

wanted some.

“How do you explain that revenue plug?” Cantor asked. This was the

$800 billion. The CBO score won’t help. CBO is going to score that as a

tax increase. It’s not going to help us sell it when we’re seeing CBO go,

that’s just a tax increase, and our guys are reacting negatively, obviously,

on the Gang of Six.

We have to figure out, universally, Boehner said, how we’re going to

talk about it. They had to know how each side was going to define and

market this “so we’re not totally undermining each other’s arguments.”

Though he had told Jackson he was finished with Obama, Boehner was

talking as if they were still on track. He had invested so much, and so

much was at stake.

“It has to be a jump ball for both of us,” the president said. He said he

wouldn’t try to claim victory. “I won’t spike the ball,” he pledged,

acknowledging the importance of perception. “I won’t dance in the end

zone. I guarantee you that I will get more shit from my base. I’m going

to get ripped for caving $1 trillion below where the Gang of Six was.”

Back to the trigger, he said, “You are right that health care spending

is as sacred to us as decoupling is to you. But Medicare is the ultimate to

us. Let’s talk crass politics: You will have Democrats that agree to

Medicare cuts. That helps you.”

Boehner and Cantor acknowledged his point. It was McConnell’s

constant theme. Republicans were being attacked for the drastic

Medicare cuts proposed in the Ryan budget. If Democrats agreed to cuts

in Medicare, that political argument was gone, or at least much less

effective. Because, look, both parties voted to reform Medicare.

A cut of hundreds of billions to Medicare beneficiaries is significant,

Jack Lew said.

Our guys don’t want to do it either, Boehner said. The pain isn’t

shared equally. If it’s decoupling and you’re just playing around the edge

of Medicare, this is not viewed as equal by our guys. “The trigger would

have to raise more than the debt ceiling.” Boehner had consistently said

that total deficit reduction would have to be greater than the hike in the

debt limit.

Obama began listing what he would be giving up. “We’re immediately

engaging in discretionary cuts” such as education and transportation.

Plus more cuts in the nonhealth mandatory, such as federal civilian

employment pensions. “Lots on the front end. Tax reform happens

later.”

The president summed up, “The balance is, we are putting a big down

payment with cuts but we don’t get the revenues until later.”

Boehner seemed to be nodding in agreement.

The cuts in education or transportation had to be set up front, Cantor

said. “We don’t believe that the caps”—the plan to put 10-year limits on

that spending in the law—“our guys don’t believe that they’re real after

the first two years, after the next Congress. So we’ve got two years of

caps at max.”

It was a point Larry Summers and others had always made to the

president. Future Congresses could change the laws on spending to

reflect their will. Instead of arguing with this fact, Obama tried to turn

the tables. “We say the revenues are not real,” he repeated. Tax reform

would be far downrange.

“We all want a broader base and lower rates. I’m concerned that there

are progressive and regressive cuts to reform the tax code. The trigger

ensures a regressive policy if hit.” From Obama’s perspective, the poor

and underprivileged on Medicaid and Medicare would be hurt the most.

So the trigger would be very bad for him if it went off. “I’m not trying to

get a scalp. I’m trying to ensure that the fallback doesn’t hurt those who

can least afford it.”

“Our guys want something real,” Cantor said. They wanted an

ironclad enforcement mechanism. “How do we ensure that it happens?”

No one had an answer.

“Decoupling is a huge issue for our guys,” Cantor continued. The

trigger was unbalanced because Obama wanted decoupling in the

trigger. If everyone has what is most important to them in this trigger,

then everyone is motivated to get this done, he said.

“Tax hikes are bad politics for us,” Obama said.

The Republicans did not believe this, especially Cantor. If so, why

were the tax hikes on the wealthy the very centerpiece of Obama’s

political attack? For Cantor and Boehner, the claim was phony.

“The debt limit is the ultimate solution,” Boehner repeated.

“No,” the president said sharply. “Can’t do that.”

“I would bet anything,” Biden said, “if there were secret polls of

Democrats, they would say you Republicans would trade decoupling for

the repeal of health care reform.” Getting rid of health care reform

would be too big an incentive for you guys. In other words, you’re asking

for too much. During his meetings with Cantor in the spring, they had

taken those issues off the negotiating table.

“I think this is constructive,” the president said. “The trigger needs to

be decoupling.” If it went off, the Bush tax cuts for the rich would expire

—anathema to the Republicans. “Medicare is not enough for you.”

Boehner said, hey look, cuts in Medicare aren’t exactly great for us.

“You have asked us to come up with something you think is painful

for us,” the president continued.

“The logic behind the trigger was equal pain,” Lew said.

“The trigger right now looks like you’ve been set on fire and stabbed,”

Obama said.

Laughter.

The Democrats had it better, he conceded. “We have just been set on

fire.”

More laughter.

“I think there’s a way to do that creatively.” So they needed to find

something to add to the trigger that would stab the Democrats also. “Is

there a way to work on the trigger?” A scalp for a scalp? He suggested

that their staffs work on it.

“Both of you have been very solid in these negotiations,” Obama

continued, complimenting Boehner and Cantor. “And I know it’s been

hard. Some of your guys are unreasonable.” He said nothing about his

own guys. “We’re running tight on time. John, how are you going to roll

out?” The president was talking optimistically, as if it was all or mostly

done. How would they publicly describe the deal and some of its

components?

He had one request. “Help us say that the economy is not going to be

in danger.”

It was an unusual moment. On one hand, it was an appeal to the high

purpose of his office and theirs to serve the larger national interest by

helping him build and hold confidence. They would collectively reassure

the markets, investors, businesses, and not least, the credit rating

agencies, Moody’s and S&P. It sounded high-minded. But it was also

personal, because everyone in the Oval Office realized precisely what

Obama needed to win reelection: public confidence that the economy

was strong and wasn’t on the verge of collapse.

Boehner turned to the next year’s discretionary cuts to education,

transportation and domestic spending, hoping to cut additional billions

more.

“We want 1.040,” he said, meaning $1 trillion 40 billion.

Obama jumped into the auction, wanting 1.048—$8 billion more. “I

can’t go to 1.040. Let’s not nickel-and-dime each other, John.”

Boehner said that $1.048 would not work.

“How about 1.045?” Lew suggested, adding another nickel.

Agreement was not reached.

It was almost funny. With the economy nearing disaster, the

president, the speaker and the House majority leader needed to reach

agreement on a deal involving trillions of dollars. But they couldn’t reach

token accord when positions differed by only $8 billion.

“All right guys,” Obama said, “let’s work on the trigger. See how

creative we can get.” Cantor interpreted this to mean, I’m keeping

decoupling in there. Let’s see what else you need to get there, but it’s

not going to be Obamacare.

The president continued, Work on the $150 billion cut in non-

Medicare health programs. Let’s work on the overall discretionary

number, the Medicare doctor fix, unemployment insurance, and the

payroll tax cut, which will expire at the end of the year.

And the all-important revenue number. Go work on it, guys.

• • •

Driving away from the White House, Boehner and Jackson had two

questions. What was the president trying to do here? Are we being

gamed or not? Neither had answers. Boehner indicated he was trying to

balance the interests and keep working the two tracks: one with Obama

and the other with the Senate leaders.

• • •

After the meeting, Biden pulled Cantor aside and hustled him down to

his office. He thought of Cantor as his contact, even his guy, in the

House Republican camp, much like McConnell in the Senate. They could

talk candidly.

“I trust you, Eric,” Biden said. “You trust me. We’ve developed this

relationship.” I think we’re close on a deal. Let’s keep the line of

communication open, let’s not screw this up now.

Cantor could see a path to agreement. If he could get Obamacare into

the trigger—and he was very skeptical—it was possible that he could

deliver the Republican conference, or enough of it.

Would the administration really buy into an Obamacare trigger?

Cantor later asked Stombres and Bradley.

Probably not, Stombres said. It was a fantasy. By discussing it, even

seemingly putting the Bush tax decoupling and Obamacare on the table,

they had identified the red lines for both sides. Didn’t that really mean,

let’s talk about something else, find some other trigger that would not

go over a red line? By defining where they couldn’t go, they might figure

out where they could, he added hopefully.

Cantor said it was clear the president was not open to doing

Obamacare—his signature achievement. But he seemed to comprehend

the political need of the Republicans. As a practical matter, Cantor could

sell repeal of Obamacare or of its major parts to his members, but

nothing else. But Obamacare in the trigger was just not going to happen.

The stakes were high for Cantor. Now that he had been brought back

into the direct talks with the president, the tom-toms would start

beating. Was he challenging Boehner? He concluded that if Obama and

Boehner were committed to this big deal—and they seemed to be, even

overly so—he would have to do everything possible to fall in line and

help them get it. He could not be seen as the spoiler. So, he asked, how

could he make the most of it, help get a deal that would upset the fewest

of his members while still getting the necessary votes? All without

violating the core anti-tax principle?

Though he was now majority leader, Cantor had never abandoned the

habit, developed during his two years as Republican whip, of constantly

staying in touch with the rank and file of the Republican conference. He

had every member’s contact information stored in his BlackBerry, and he

emailed them constantly. Communication flowed both ways. Members

came to understand that they were free to contact Cantor by email on

almost anything, and that they could often expect a response within a

few minutes.

His initial conclusion was that this $1.2 trillion would not fly. At the

Capitol that night, he went to Kevin McCarthy’s whip office, where a big

buffet of Chinese food was laid out for Republican members. The buffet

was a routine for nights like this one, when the House had late votes.

Cantor took McCarthy, Ryan and Hensarling aside. This trio was the

key. As whip, McCarthy knew the members better than anyone. Ryan

was the bellwether for policy in the conference. And Hensarling, the No.

4 in leadership, had been chairman of the Republican Study Committee,

an influential group of more than 170 conservative House Republicans.

Cantor told them that the speaker was getting too far out in front.

The White House was floating a revenue number of $1.2 trillion. It

seemed impossible to him, he said, but he didn’t want to be the lone

objector. “Tell me I’m not crazy.”

All three said they agreed. He was not crazy. The number was too big

to camouflage with tax reform.

So here was the bind, Cantor said. What if the speaker went for it?

What would they do? Boehner talked tough in private but down at the

White House he was acting as if they were on track. The speaker was

like a runaway horse, he said. How best to pull back on the reins?

No one had an answer, and soon staffers from the speaker’s office

began asking about the meeting that Cantor was having in the whip’s

office.

• • •

The president called some Senate Democrats after the meeting to bring

them up to date. They were getting anxious, not being part of the direct

negotiations.

With $800 billion in revenue, the president said they would have to

accept moderate entitlement cuts. But if the revenue could be increased

to $1.2 trillion, they would wind up with significant entitlement cuts.

30

Nabors gathered key White House and Republican staff around the

table in his large West Wing office the next morning, Thursday, July 21.

Lew, Sperling and Bruce Reed, Biden’s chief of staff, represented the

president. Jackson, Brett Loper, Steve Stombres and Neil Bradley,

Cantor’s main policy staffer, spoke for Republicans.

We don’t think we can get any more votes, Nabors said. We’re going

to need more revenue in order to convince more Democrats, and you’re

going to need more entitlement cuts to convince more Republicans. The

$800 billion was not enough to get the Democratic votes they would

need in the House. They needed $400 billion more in revenue, for a total

of $1.2 trillion.

No one said yes, no one said no, but it sounded positive to the White

House people. Jackson and the other Republican staffers said the

revenue issue was way above their pay grades. It would be decided by

Obama and Boehner.

They cleared away some underbrush, such as Pell Grant reforms. Left

on the table was the trigger, though Cantor’s staff said that if Obama

wanted decoupling to be part of it, their boss would require that some

major portion of Obamacare be included. That was the only plausible

way to sell it to his members.

They turned to the Medicare age increase. It would be raised

eventually over time to 67.

Yes, okay, everyone seemed to agree.

When would it start? In 2022 as Obama wanted? Or 2017 as Boehner

proposed?

Well, they would have to work that out.

When would they eventually reach age 67? In 2046 as Obama

wanted? Or 2029 as Boehner did?

That would have to be worked out also.

It seemed a century away to Jackson, and there was no agreement. He

thought they were bypassing all the important decisions.

Nabors said the prospective deal was about four matters—Medicare,

Social Security, Medicaid and revenue. As they went through them they

were a little skittish.

“This is above all of our pay grades,” Nabors said. “Let’s just put that

off on the side and keep working through the details.” All four major

issues would be left to Obama and Boehner. So they tackled some small

things and seemed to reach agreement and took some steps on writing

actual legislation. They discussed timing. Under House rules, legislation

had to be publicly available for three days, so they looked at a calendar

to calculate how much time was available.

“If we do this deal,” Jackson said almost conspiratorially, “you guys

have to wait till after the vote before you start describing it as raising

$800 billion.” If they did that, it was a deal breaker.

At one point Jackson accused Nabors and the White House of

engineering the Gang of Six’s decision to come out with their vague plan

two days before.

“I don’t know how you can say we engineered it,” Nabors replied.

“The speaker’s best friend”—Chambliss—“is on the Gang of Six.”

Republicans must have known or been involved somehow.

We were surprised, Jackson insisted.

Lew and Nabors were scheduled to speak to the Democratic Senate

policy lunch that afternoon. The weekly meeting of the Senate

Democratic caucus was an important communications forum for the

White House.

“I’m only leaving now because I have to be up on the Hill,” Lew said

as he got up to leave. He was being served up as the administration’s

“sacrificial lamb,” he added grimly.

Jackson turned to Lew. “We all agree we’re going to get to yes, right?”

Yes, Lew said.

The meeting ended after two hours. A good meeting, thought the

Democrats. It seemed like they had accomplished a lot, and Jackson’s

insistence they get to yes seemed to be a tip-off.

But there was no feeling of accomplishment on the Republican side.

Cantor’s staffers, Stombres and Bradley, and Boehner’s, Jackson and

Loper, felt the meeting was unproductive and that they were still not

close to a deal.

Loper, in particular, was extremely pessimistic. They had been near a

deal on Sunday. Then on Tuesday, the Gang of Six came out. Who cared

what six senators were saying? Not Loper. Their math didn’t even add

up. The power was with the president, the speaker and the Senate. The

Gang of Six was not a reason to step away from the deal. Maybe it was

an excuse? he wondered.

Jackson, who was the most bullish on a deal because Boehner wanted

one desperately, left thinking, perhaps for the first time, that they would

not get there. He gave his assessment to Boehner.

The speaker wanted to talk about options for avoiding default. How

quickly could they pivot to the plan they were working on with Reid and

McConnell?

There was a confidence level with them, Jackson said. And Pelosi and

Hoyer would deliver enough Democrats, he was sure. “The president

would, in the end, have to accept this,” Jackson said, “because when the

congressional leaders say, Mr. President, this is what we can do, and the

clock is ticking . . .” Well, it would be obvious. The president would

have to give.

What about the trigger? Boehner asked. They had to come up with a

better trigger and figure out how it would work. In the end, that would

be about trust, he said. Neither he nor Jackson was sure they trusted the

president.

Keep working with the congressional leaders, Boehner told Jackson.

• • •

New York Times reporter Jackie Calmes called Dan Pfeiffer, the White

House communications director, to say she and her colleague Carl Hulse

were about to post a piece on the Times website reporting that Obama

and Boehner were near a $3 trillion deficit deal. The story was not

precisely right, because it did not have the $800 billion potential revenue

figure, and their reporting seemed to suggest there was not much

revenue in the deal. Pfeiffer took the information to Bill Daley and the

others.

“They can’t report that,” Daley said. “We’ve got to try to stop that.”

Pfeiffer said it was impossible to stop; the horse was out of the barn.

• • •

On Capitol Hill, Lew and Nabors didn’t have a chance to eat much of

their lunch. They were accompanied by Plouffe because Harry Reid had

wanted Obama’s top political adviser to see firsthand the building wrath

among the senators.

The majority leader stood to introduce them.

“The White House is here to explain the deal that they cut with

Boehner,” Reid said. “I don’t know anything about it.”

Nabors and Lew looked at each other in wonder. They had briefed

Reid three days earlier. Reid had just thrown them to the wolves. As

budget director, it was Lew they attacked most.

A band of angry Democratic senators, including former and likely

future presidential candidates, cross-examined them on what kind of

deal the president was trying to cut.190 Where was the revenue

guarantee? Democrats had a winning hand, the public was with them on

higher taxes on the rich. Why do we have to cut any Medicare? Don’t cut

anything. You are playing on Republican turf. Talk of big spending cuts

was weak and played into Republican hands. This whole debate should

be about revenue. Stare them down. Why were Senate Democrats cut

out of the process? Force the Republicans to raise taxes on millionaires.

“You could raise all the taxes you want on millionaires,” Nabors made

the mistake of saying, and it would never raise enough.

It was about symbolism, and the political bounce, several senators

retorted. Clearly, the White House did not comprehend the dynamic.

“This needs to run through regular order,” Massachusetts Senator

John Kerry, the onetime Democratic presidential nominee, said. “Let the

committees do their business. Let the senators cut a deal. We can get

there.”

During the meeting, the New York Times story popped up on the

Internet. Headlined “Push Intensifies for Larger Deal on Debt Impasse,”

the story said “new cracks were appearing among House

Republicans.” 191 Boehner, it added, “has shown continued interest in a

deal if it can be done in a way that emphasizes lower tax rates.”

Lew and Plouffe told the senators it was premature and not really

true, but Plouffe was alarmed. The story would push Boehner further

into a corner.

Lew was less than forthcoming about the actual deal because of the

sensitivity of the negotiations—the situation could not have been more

delicate—and he knew that the senators would speak to the media

afterward.

When Lew was done, Senator Barbara Mikulski, the outspoken

Maryland Democrat, said to the others, “I haven’t seen a meeting like

this in my 35 years in Congress. ”192

Reid was so angry that he talked to reporters off the Senate floor after

the lunch, pleading for a deal with balance, fairness and necessary

revenue. 193 All the Senate Democrats agreed with that, he said. In a

mildly threatening tone, he added, “Hope the president sticks with that,

and I’m confident he will.”

Lew, Nabors and Plouffe returned to the White House and briefed

Obama. It had been a rough meeting, as anticipated.

“It was just one of the more awful experiences of my life,” Nabors

said.

“I’m glad it was you guys, not me,” Obama said.

• • •

In the wake of the New York Times story, Plouffe was trying to count

votes in the House. He thought Nabors’s original estimate of 120 to 130

Democrats was too high. They would only get 70 Democrats now, he

figured, so Boehner would have to come up with about 150 Republicans.

That meant losing maybe 90—a big number for any leader. Whatever the

count, they were dancing on a razor blade.

Nabors checked in with John Lawrence, Pelosi’s chief of staff.

Lawrence, who had a Ph.D. in history and been with Pelosi since 2005,

had known Nabors for years. They could cut to the chase.

“The only way this is going to work is if we—not jam it through—but

we have to move quickly,” Nabors said. “Because if this thing sits out

there, we’re just going to get picked apart a thousand different ways. We

need to cut the deal, we need to break the arms we need to break. We

need to get this thing passed and signed before people lock into

positions that will tear the package apart.”

Democratic House members were responding to rumors, Lawrence

said, because they didn’t have much information.

“Please don’t confirm or deny,” Nabors said, “please don’t let people

lock into positions quite yet.”

As Nabors talked to a few members, his theme was simple. “Holy

crap,” he said to one, “this is going to be really, really hard . . . 20 years

of incredibly hard policy coming together in one package.” On the table

were Clinton tax increases of 1994, Bush tax cuts of 2001 and 2003, and

big potential changes in Medicare and Medicaid entitlements. Possible

Postal Service reform, and the biggest change in federal employee

retirement in decades. The pay of millions of federal workers had been

frozen and now they were thinking of increasing their retirement

contributions. It was a big deal.

One Democrat told Nabors, “Let me get this straight. We are giving

up specific cuts to entitlements for the promise of getting revenue in the

future? If there’s going to be a process for revenue”—tax reform—“we

want a process for entitlements.”

As Nabors traveled through the White House, especially the West

Wing, the common question was, “Does this actually have a chance of

happening?”

“The best indication that it has a chance of happening is that people

are starting to panic,” Nabors answered.

• • •

Nabors and Sperling went to see the president again with good news

about the earlier meeting with Boehner’s and Cantor’s staffs.

“Had you been in that meeting,” Sperling said, “you would’ve bet

your house there was going to be a deal.” He had been doing these

negotiations for 20 years. Both sides had been told by their principals to

get a deal. “You can smell when people are trying to work it out. The

bullshit goes away. It was just totally honest.”

The president, Nabors said, would have to reach agreement with

Boehner on the big-ticket items—Medicare, Social Security, Medicaid

and revenue. “Everything else is locked down. We could have this in the

can in an hour.” It feels like a deal, he added. “So if Boehner calls, cut

the deal because we’re ready to go on everything else.”

Yeah, the president said. Fine. They were in good shape.

• • •

For about a year the president had had discussions with Geithner about

the overall fiscal picture.

“Geithner has two concerns,” the president later recalled. “He has an

immediate concern about the catastrophe of a default on our debt. 194 He

also has a longer-term concern about the markets and their assessment

of our debt. And those are—one is a very technical, immediate concern.

And we’re having meetings every week about, okay, what’s worst-case

scenarios? How do we manage this? He’s running fire drills inside of

Treasury to figure out how long can they extend it.”

He and Geithner had come to agree strongly that they had to try to

“break” the Republicans on revenue. Without more tax revenue the

administration would not be able to do much on infrastructure,

education and other spending the president deemed essential for the

economy and the country. While it was important for the president to

demonstrate that he recognized the country had to live within its means

and cut some spending, it was crucial to get that revenue.

Lew was all for increased revenue. There was no way to dance around

the need for new, real revenue—not just through tax reform, but

through tax increases. The unambiguous message from the Hill

Democrats was that new, real revenue had to be in the deal.

So rather than wait, the president picked up the phone and called

Boehner. It was time for a vote count discussion. In the end, that was all

that mattered. Did they have the votes or not?

According to one senior White House aide who was in the room

when the call was made and then heard the president’s description of

Boehner’s end of the conversation, this is what happened:

“John,” Obama said, “this is going to be really tough.” How many

votes do you need?

I don’t know, Boehner replied, it depends.

“If you need a decent number of Democratic votes,” the president

said, “we may need more revenue, in the $400 billion range.” I’d like you

to consider it.

Nabors had floated it but now the president was asking the speaker.

“I really think that could help us get the number of votes that we need.”

If they needed a lot of Democrats, Obama said, “I can’t have the Gang

of Six”—with their proposal for at least $1.2 trillion in revenue—“to the

left of me.”

Boehner agreed that would be hard for the president. But as he had

said the night before, his neck was out about as far as it could go.

“If you can’t,” Obama said, “I understand. Come back to me. We’ll

figure out another way. Maybe there’s another way we can lighten the

Democrats’ load to get some more votes.” If the additional $400 billion

was not possible, Obama said, “then we are going to have to look at the

entire package.” That meant, he said, “We’re just going to have to look

at the entitlements and we’ll obviously keep most of what’s in there.”

He was committed to the major entitlement cuts. “But we might have to

dial some of that back a little bit.”

The president said he was confident that the Democratic leaders, Reid

and Pelosi, would go along. “I can get Nancy and Harry to be for this.”

Boehner was skeptical. Reid was definitely in a different place.

Keeping his options open, the speaker gave a vague response, along the

lines of we should keep in touch.

“So think about it,” the president said, “come back. And if it doesn’t

work for you, let’s talk again. Get back to me.”

Obama had just had one of the most important conversations of his

presidency—one that he and Boehner later remembered very differently.

In an interview, Boehner, who was consulting notes of his discussion

with Obama, vehemently disputed the White House version, saying that

the president absolutely insisted on $400 billion more in revenue. 195

The Boehner version: “Then Obama finally calls me on Thursday and

wants $400 billion more. I said, ‘Mr. President, we’ve had this

conversation now for a month. You know there’s not a dime more on

the table.’ ”

The president’s response, “I have to have $400 billion more. I have to

have $400 billion more.”

“I said, ‘Mr. President, it just isn’t going to happen. No.’ ”

The president, according to Boehner, said three times, “I want you to

think about it.”

“So, I said okay.”

According to Boehner, “We had a deal. That was the real shocker.” He

said he reminded Obama that they had met at the White House four

days earlier. ‘Mr. President, remember Sunday? We have a deal.’ ”

Boehner said the president kept pushing and saying, “I‘ve got to have

more revenue. Got to have more revenue. I need $400 billion more.”

Boehner added, “I pushed back a couple of times, because he knew

there was not an extra dime on the table. But he was also, I’m sure,

getting a hell of a lot of heat from Reid and Pelosi. And so, I understood

the pressure he was under. But hell, I knew the damn pressure I was

under.”

I reminded him that the president later said he only asked that the

$400 billion be considered and had not demanded it.

“No, no, no,” Boehner said. “Hold on. No, no, no. No. No. I need $400

billion more revenue. I need. And I pushed back a couple of times. And

he said, ‘No, no, I need $400 billion more. You need to think about this.’

I said, ‘Okay, I will think about it.’ And the president said, ‘Call me

back.’ It was pretty clear to me then that he was blowing this thing up,

and we’d better figure out what Plan B is.

“I immediately picked up the phone and called McConnell,” Boehner

said. He said he told the Senate minority leader, “We better be thinking

about Plan B here.”

Boehner summarized his view, “If you’re going to drop your dance

partner, you’d better make sure you’ve got another one. But understand,

I did not want to get to August 2nd without an agreement.” He added,

“Eric and I believed we get past August 2nd, our leverage decreases, not

increases.”

• • •

Obama later told me that he presented the speaker with choices rather

than a demand. 196

“At this point, Boehner and I, we’ve been talking a lot. We’ve been

having a good discussion. And we think we’re coming close to a deal.

But now the question of votes is starting to come up. The Gang of Six

has made its announcement. It’s gotten a lot of attention.

“I say to John, here’s the situation. You are going to need some

Democratic votes to get this passed, no matter what. And at $800

billion, it is going to be hard to get the kind of Democratic votes that

you may need to pass this through the House. And so if you are

prepared to go up to $1.2 trillion, which matches more or less what the

Gang of Six has talked about, we can probably get more Democratic

votes. If not, you’ll probably get fewer Democratic votes. So you need to

give me a sense of, how many votes do you think you need for a deal?

How many votes do you need to get this through? And based on that,

we’ll have to calibrate what we can do on my side. So get back to me,

and let me know.

“We have two paths here. We can do the $800 billion and you’ll get

fewer Democratic votes. And I don’t know exactly how many we’ll get.

Or we could go up an extra $400 billion, in which case you’re going to

get a lot more Democratic votes. And it will have a much easier time

clearing the Senate if we can hang on to enough Republicans.”

Told that some of his senior staff in the room during the call believed

the two paths were $400 billion in more revenue or smaller entitlement

cuts, the president initially said he didn’t believe that was accurate but,

“It may be that that is in the context of the fact that we still don’t have a

deal yet. So keep in mind, for example, Boehner’s still asking for $125

billion or something in Medicaid cuts. So I may have said to him—which

I would have been saying anyway—we can’t go up to $125 billion. I

might, if we have [revenue at] $1.2 trillion, might be able to do a little

bit more and still hang on to Democratic votes. You see what I mean? So

you’ve got a fluid situation in which we have not yet determined what

kind of entitlement cuts are on the table. And we’re in a situation in

which the revenue has not yet been settled.

“You have at this point a set of variables. Variable number one is,

how much revenue? Variable number two is, how significant are the

entitlement changes? And variable number three is, how many votes can

Boehner provide? And we’re trying to see how this Rubik’s cube gets put

together. So that’s the context of the conversation that I had with

Boehner. I want to be very emphatic here: At no point did I say, John,

take it or leave it. At no point did I say, John, I’ve got to have $400

billion more or we don’t have a deal. What I said to him was, you have

to tell me how many votes do you plan to put on this thing? Because I’ve

got to then go back to Nancy and Harry and find out from them what it

is that they think they can do. Because there’s no point in us going out

there if it turns out that we don’t have the votes.”

• • •

Jack Lew, who was among those in the room during the call, heard the

president’s end of the conversation and gave this account to a White

House colleague: “I remember Thursday extremely well, actually. The

president called the speaker and said, ‘We can go one of two ways. We

could have a bigger package with more revenue or we could have a

smaller package with less revenue. What we can’t do is we can’t be in

the place we’re at—the high end of our tolerance on entitlement cuts

and at the low end of what is acceptable on revenue.”

Lew summed up: “After the Gang of Six came out, our ability to get

Democratic votes was just going to be different based on that. We still

could get Democratic votes. We go higher on revenue, we’ll be able to

do more on long-term entitlement reform. If not, we’ll still do changes.

We’ll still do things that are hard. But it’s not going to have as much.

And they were kind of path A and path B. I can go with either one.”

Plouffe’s version was still different. The president’s political adviser

believed the conversation focused on votes, with the president telling

Boehner, “If you need a decent number of Democratic votes, we may

need, for revenue, in the $400 billion range.”

And the president, in Plouffe’s version, was emphatic. He told

Boehner: “If you can’t do that, then we’re just going to have to look at

the entitlements and we’ll have to obviously keep most of what’s in

there, but we might have to dial some of that back a little bit. . . . The

president was very clear: If you can’t do more revenue, then we’re just

going to have to look at the entire package.”

Plouffe realized that no matter how the president had phrased it, he

had offered “a door Boehner could walk through to shut this thing

down. There’s no doubt it was a lifeline for Boehner to say, ah, this is

my reason to break this thing off—more revenue.” Maybe it was a risk

that had to be taken.

The Gang of Six was the stated reason, but it was also an excuse to try

to get terms more favorable to the Democrats. The president had started

the negotiations with one sword, the decoupling of the high-end Bush

tax cuts, but had just handed another one to the speaker.

• • •

The president then met with Nabors.

“Rob,” he asked, “what do you think our votes look like?”

In the House, Nabors said, instead of the 120 to 130 votes he had

previously hoped they could get, it was probably down to 75 to 90. But if

the president said he needed 120 votes, Pelosi would go into full

operations mode. She would get the bodies; she would figure out a way

to get to 120.

Nabors thought she was shrewder and tougher than anybody really

knew. She would kick ass. She was an old-school leader. Pelosi wanted

lots of hands—bloody ones if necessary—on the knife. “She is absolutely

nails,” he had concluded.

The president was in operations mode himself, acting like the chief

whip. What about the potential Republican votes?

Because Boehner was apparently not doing a vote count, that was a

bit of a mystery, Nabors replied.

How about the Senate? the president inquired.

“I think the Senate is going to be hard,” Nabors said. “Absent any

muscle, we’d be in the low 20s probably. But with some muscle, we’re

probably in the mid to high 30s to low 40s. As a result,” Nabors went

on, “we’re going to need 15, 20 Republicans to show up to get us to 60.

I don’t think we should put what we think we can get on the table. We

need to be prepared to go to McConnell and say—and overachieve

—‘Mitch, are you prepared to put up 30 people? Because we can put up

30 people.’ ” Then if we got 40 to 45 Democrats, that would be fantastic.

Added value, he explained.

Afterward, Obama said to Sperling and Nabors that he thought he

had a deal. Get Reid and Pelosi in here.

• • •

Asked in an interview whether the Gang of Six releasing their plan had

made it more difficult for Democrats to line up votes, Obama recalled, “I

think that’s kind of the buzz around Washington. 197 And look, there’s no

doubt that there’s a school of thought among some progressives that we

shouldn’t be even having this negotiation at all. And at this point . . . the

whole legend that somehow we got outmaneuvered in the continuing

resolution has taken root in the blogosphere among some folks.”

Was it correct that Nabors felt, prior to the Gang of Six, that you

could get 120 House Democrats?

The president disagreed. “The view was that if Boehner was willing to

settle for 120, 130 votes, that we would work to make up the difference.

I’m not sure we got up to 120. I didn’t think that he would ever go for

something where the Democratic minority in the House was supplying

most of the votes for this thing. I didn’t think that his caucus would

abide by that. But I did think that we could get to a point where, if the

deal had enough revenue, you could picture Boehner getting 120 or 130

votes, us supplying 90, or maybe even up to 100, and we could get

something done.” The magic number, of course, would be 218 total.

31

Pelosi was facing a rebellion among House Democrats. As just one

example, Representative Corrine Brown from Jacksonville had said

plainly and openly that Obama could kiss Florida good-bye if he messed

with Social Security and Medicare.

Pelosi and Reid arrived at the White House and met with the

president, Lew and Nabors in the Oval Office.

“I’ve got to do this,” the president said. As part of a 10-year package

he was offering Boehner over $1 trillion in domestic and Defense cuts

plus another $650 billion in entitlement cuts—Medicare, Medicaid and

Social Security. The minimal goal was $800 billion in revenue through

tax reform. He also explained that he was trying to get $400 billion more

on the revenue side, which would take it up to $1.2 trillion through tax

reform. “I don’t know if I’ll be able to get it. If I can’t, I’ll try to make it

more acceptable to us a bit.”

“You guys went off and negotiated a deal without me,” Pelosi said,

echoing what Reid had said earlier in the day, “and you expect me to

bring people along?” She rattled off a list of House Democrats, from the

liberal Sandy Levin to Steny Hoyer, the whip, who would “hate” the

deal.

“Why, Mr. President,” she said, “would you give these guys anything

for $800 billion in revenue? You’re going to get that anyway.” She was

referring to the prospect of ending the high-end tax cuts for the rich,

which the president had insisted to her and to others that he would not

extend. Time and time again he had told her, “Never again.” He would

not allow an extension of those Bush tax cuts as he had in 2010.

Putting Social Security cost-of-living adjustments on the table would

take away an issue that had defined the difference between the two

parties, she said.

“If we do anything on Social Security,” the president said, “we’re not

using any of that money for deficit reduction. We’re putting the money

back into the system.” This seemed contrary to the offer Nabors had

sent to Boehner two days earlier, which had included “benefit changes.”

Considering Medicare beneficiary cuts, she said, would allow the

Republicans to get well on the Ryan budget. They would claim that the

Democrats also wanted to cut health insurance for the elderly, again

removing the distinction between the parties.

We think we can get all the Medicare savings from the doctor and

hospital providers, Obama said, and not from the elderly beneficiaries.

The idea of raising the eligibility age for Medicare was a surprise, she

said.

It would not change the standard of living for the elderly in a

meaningful way, the president argued, and the change could give them

10 years to deal with Medicare’s skyrocketing costs. He acknowledged

that none of this was designed to fire up the party base.

What about Medicaid? she inquired.

It was under other health care savings, Obama replied, and the

savings would be a very small component. “We think we can get it from

sort of reducing improper payments.

“You need to understand how close we are to being downgraded,” the

president said, “and what the downgrade would mean, not just to us but

in the context of the world economy.”

“You have to understand how hard this is,” Pelosi said.

“Most of this is in the range of conversations that we’ve all been

talking about all along,” the president said. “And at the end of the day,

this gets us where we need to go. We all believe that we need to put the

budget back on track.”

Reid sat there stone-faced and hardly said a word.

“I totally disagree with this,” Pelosi said. “I don’t think you should do

this.” They were giving up way, way too much. But on the other hand,

she said, “You are our president, and we are in a time of crisis.” If he

decided he had to do it, she would make sure he had every opportunity

to present his case.

The president said he was expecting to hear back from Boehner.

“When I get John on the phone,” he asked, “can I tell John we can

produce Democratic votes?”

“I’ll see,” Pelosi replied.

Reid would not commit and was grumpy. “You guys went off and

talked to Boehner again,” he said, shaking his head in disbelief. The

administration had been screwed many times before. What did they

think would happen this time? Reid was also not going to go along with

a full 18-month extension of the debt limit, as the president was

insisting. He wanted the Senate to retain some leverage.

After Reid and Pelosi left, Nabors turned to the president.

“I’m nervous,” he said. In an understatement, he added, “I don’t

know where this is going.”

Lew concurred.

“Nancy has always been there for us,” the president said, and he was

confident she would be again.

Though her words fell far short of a personal commitment, Nabors

said he agreed. Her “I’ll see” meant she was just trying to figure out how

to get the votes. She would be all-in.

But they agreed they still had a Harry Reid problem.

• • •

The president later recalled the meeting with Reid and Pelosi this way:198

“Well, I lay out for them what we’re talking about. And then I say to

them, with great specificity, I say to them, I don’t know yet what

Boehner is going to do. He is going to come back to me and tell me what

his preferred path is. I need to get a sense from you, if he does not go

along with additional revenue, are you guys still prepared to put up

votes and work with me to go ahead and do a deal with $800 billion as

opposed to 1.2 trillion? And I asked Nancy, I asked Harry, and I asked

each of these folks. And I say to them, look, we’re at white-knuckle time

here, so you guys have to be straight with me. If you don’t think you can

do it, you let me know.”

He agreed that Pelosi worried that cuts to Medicare beneficiaries

could remove an important distinction between Democrats and

Republicans.

“Well, I think generally speaking, all the Democrats felt that for

Democrats to join with Republicans in anything that could be painted as

a Medicare cut when there was a huge difference between Democratic

and Republican positions on Medicare generally was bad politics. And I

think Nancy felt that. And in fairness, I think substantively, they also felt

—legitimately so—that these are very vulnerable populations.

“Now, what I told them is I had talked to my Medicare and Medicaid

experts. And I was not willing to do anything that I thought was going

to actually affect the care of vulnerable populations, and I felt confident

that the package we had come up with would preserve and protect

Medicare and Medicaid as the social safety net that we all care so deeply

about. But I also told them it’s an untenable position to say, we’re not

going to do anything on Medicare and Medicaid when that’s one of the

biggest drivers of our budget deficit.

“She was always open—all the Democrats were open to Medicare

changes that affected providers,” such as doctors and hospitals, he said,

laughing.

Reminded of Pelosi’s concern about changing the cost-of-living

calculation for Social Security, Obama replied, “Well, Social Security was

not on the table. There was discussion about Social Security,

conceptually. But by the end of this thing—we’ve always been very clear.

Look, Social Security is not the driver of our deficits. If you want to have

a separate negotiation about Social Security, we’re happy to. We’re

happy to listen to what your concepts are. But we’re not going to

collapse Social Security into this overall framework.”

This, however, was not the case. In the offers White House staff

exchanged with Boehner’s staff, changes to Social Security benefits had

been explicitly mentioned.*

Obama also recalled that during the meeting, “Nancy was fairly

emphatic throughout this process: I need to know what Boehner can do.

Because Nancy at this point has had the experience and witnessed

Boehner not being able to deliver his caucus. And so she says, ‘He’s not

having a conversation with me, but he’s going to expect votes from me.

He needs to know what it is that I can do.’ ”

The president said he was also concerned about Boehner’s ability to

produce votes.

“I think that even doing the $800 billion was a stretch,” he said. “I’m

not clear actually that he could have ended up delivering the votes that

were needed for the $800 billion. That’s part of the reason why the

conversation about how many votes was he going to need from Nancy

was so important.

“Now, keep in mind that that evening in the conversation, Nancy’s

not happy, Harry’s not happy, I’m not happy, nobody’s happy. But what I

say to them is, ultimately the worst thing that can happen is a default.

Then nobody will be happy, and the American people will be badly

damaged. So if that’s all they can do, are you willing to take that deal?

And at that point, both Nancy and Harry say, well, we’re not happy

about it. We don’t know how many votes it will take. But, Mr. President,

if you decide that that’s the best deal that we can do, we are willing to

work with you to try to get something done.”

Reminded that others in the White House reported Reid leaving the

meeting unpersuaded, Obama was insistent: “Let me say this. That was

Nancy’s position. And that was Harry’s position. Was he happy about it?

No. Do we know how many votes ultimately could have been gotten by

Harry or Nancy? We’ll never know, because it wasn’t tested.”

• • •

After Sperling was briefed on the meeting, he told some House

Democrats that “Reid sold them out on the 18-month extension.”

• • •

Boehner continued to put together his backup plan with Reid and

McConnell. Both seemed to be in agreement.

He called Cantor down to his office. The situation was serious. The

president had called him and said, “I got to have more revenue.” Obama

was no longer hiding behind Nabors; he had now personally floated the

idea of $400 billon more, taking the revenue number up to $1.2 trillion.

Boehner quoted the president saying, “We can make this deal work. I’ve

got to have just a little bit more revenue. I can’t sell it to the senators,

but I think we’re real close. Let’s make this final deal.”

As Cantor knew, Boehner had told the president their necks were out

about as far as they could go. That was his position. But the president

wanted more.

How many Republican votes do you think you can get for that $1.2

trillion? asked Stombres, Cantor’s chief of staff.

In the range of “170,” Boehner said.

“You are crazy,” Stombres said. It wasn’t polite. It was out of line,

almost unheard of, for a staffer to talk this way.

“John, can’t do it,” Cantor said, backing his chief of staff. The House

Republicans voted in blocks. The first block of about 50 was a group

they could get because of strong personal relationships with one of the

leaders, Boehner or Cantor. The leaders could call in the chits. These 50

or so probably wouldn’t have let even a $1.2 trillion revenue deal

supported by Boehner and Cantor go down with zero votes in the

House.

Another 100 House Republicans could be won with better

conservative policy, taking them to 150 or 170. With strong conservative

policy—great policy from their perspective, policy with a heavy Tea Party

flavor—they could reach 230 or the 235 that passed the Ryan budget

earlier in the year.

So, Cantor said, a deal with $1.2 trillion revenue might get 50 votes.

That was his count.

“Okay,” said Boehner, ending the conversation. “We’ll be in touch.”

Leaving Boehner’s office, Cantor felt they were done. The speaker

seemed to buy that they could not sell the $1.2 trillion. Cantor and his

staff had been counting votes for eight years, and experience had shown

they were pretty good at it. They couldn’t push this anywhere but over a

cliff, particularly in light of the Gang of Six proposal. Cantor’s

Republicans were already trashing that. It was odd. The Gang, whose

stated goal was a grand bipartisan coming together, could not have

picked a worse time to release its plan. But Cantor felt that a smaller

deal was still within their grasp. You don’t wind up in the Oval Office

unless you’re close, he reasoned. So they had been close. How close was

a matter of debate. But the president, who had to get a debt limit

extension, was surely out on a limb. They all were, weren’t they? Maybe

by defining where they couldn’t go, they had left some obvious areas

where they could.

Once you get close, Cantor realized, deal fever overtakes everyone.

Where was the middle ground? Where was the safe harbor? As

Stombres put it, they had to ratchet back. Cantor’s chief of staff looked

for an analogy. “Maybe you’re not ready to buy the Cadillac, maybe you

don’t want the Cadillac today, but can I put you in this nice sedan?”

• • •

Boehner was wrestling hard with himself. First, Brett Loper reminded

him that the $800 billion in revenue had been coming from tax reform.

Loper didn’t think they could get to $1.2 trillion through tax reform. It

would require the speaker to do what he had consistently said he would

never do: increase tax rates.

We’re not going to do that, Boehner said again. “Period, done, end of

story.” Obama was asking him to give up his principles for the

president’s political interest.

On votes, yes, he had told Cantor he thought he could get in the

range of 170. It was not a whip count by any means. But on something

major like this, they would get the votes. “If the president and I come

out and we have this agreement,” he said, “we will get it over the line.”

It was momentum.

It was a matter of votes as far as Jackson was concerned, and they

didn’t have an answer.

• • •

Sperling concluded that if the speaker could not go along with the $1.2

trillion, the $800 billion was nonetheless a salable deal. As was his

wont, he hypothesized that Boehner could make a potent political

argument. To his mind, Boehner could have gone to his Republicans and

said something like: “Guys, I’m giving $800 billion, but it’s a win for us.

That’s what I’m agreeing to. Let me tell you what I’m getting you for

that. Not extending the high-income Bush tax cuts is dead for the 2012

election. Big Medicare cuts are dead for the 2012 election. You agree to

this, we are in great shape. We have taken away their two best

arguments. So I know you don’t like what I’m doing. You trust me, you

follow me, we will stay in the majority. And if not—I hate to tell this to

you guys—but whether we like it or not, if they can run saying we are

for deep Medicare cuts and tax cuts for the high-income earners, we’re

going to have trouble in 2012. I am solving our problem.”

But as Sperling’s mind ranged across all the possible outcomes, he

realized that under any scenario, it might be that Boehner just did not

have, and could never get, the votes.

• • •

Obama called Boehner at 10:30 that night, leaving a message asking that

the speaker call him back.

Later still, the president remarked to Plouffe, “I still haven’t heard

from Boehner. But it’s fine. I guess I’ll talk to him in the morning.”

On his way home at about 11:30, Rob Nabors stopped to grab his

usual two-cheeseburger meal at the McDonald’s on 17th Street, a block

up from the White House. His cell phone rang.

“So what are you hearing?” the president asked.

At the sound of the president’s voice, Nabors instinctively stood up.

McDonald’s, at that time of night, was filled with two groups of patrons:

the homeless and Secret Service agents. Looking around, Nabors decided

it would be best to step outside.

“Where do you think we are?” the president pressed.

“Mr. President,” he replied, “given that I just left you two hours

ago . . .”

“What is the mood of the caucus?” Obama asked, referring to the

lunch with the Senate Democrats. He wanted more detail.

“They feel they were cut out of the process,” he said. Obviously the

Senate and House leaders wanted more involvement.

What do you think about that?

“I’ve got to be honest, sir. We weren’t going to get to savings by

doing a pass the hat. If we subjected this to everybody’s ‘I’m okay with

this/I’m not okay with this,’ the whole thing would’ve fallen apart.” He

said he thought the concerns about process were exaggerated. “It’s part

of the game. They always believe that the process would be better if they

would’ve negotiated this rather than you.” Nabors said he didn’t agree.

“Sometimes you just need the president to get this done.”

What was the vote count? Obama asked. Where are the bodies?

“Who do you think I’m going to need to call?”

One was Steny Hoyer, the Maryland Democrat who was Pelosi’s

second-in-command.

“Is he going to be okay with where we are on federal retirement?”

Obama inquired.

“I think so,” Nabors replied. “It’s going to be very hard for him.”

Hoyer represented thousands of federal retirees.

“Where are the progressives going to be?” the president asked.

“This is going to be a really hard sell to them because they’re going to

see Medicare cuts,” Nabors said. The cuts could total as much as $250

billion over 10 years. It was going to be a shock, and Pelosi was on the

record declaring she would not accept any Medicare cuts.

“Pharma is going to react negatively,” Nabors added, using the

shorthand for the pharmaceutical industry. “Pharma is going to think we

walked away from a deal.” In the health care negotiations, the drug

companies had agreed to a $100 billion cut on drug benefits for

Medicare, and now the administration was coming back with more cuts.

Both Obama and Nabors knew that Pharma had hooks into lots of

people in Washington.

“We just need to be prepared to talk to Pharma,” Nabors said, “talk

about Pharma issues ahead of time, and wrap our arms around the

members that we think we’re going to lose.” With an aggressive effort,

Nabors said, he was optimistic these members could be won over.

Nabors was used to giving a two-minute report to the president on

legislation, but this night, standing on 17th Street, he realized Obama

wanted a full lay-down.

Okay, Defense cuts were going to be a giant problem, he said,

especially with pro-Defense Democrats such as Ben Nelson of Nebraska.

They would also hear from Senator Kay Hagan, the first-term junior

senator from North Carolina and centrist member of the Armed Services

Committee.

Defense was key in states such as Florida and Virginia. They reviewed

the names.

Obviously Defense procurement was on the chopping block, Nabors

noted. “That means the Boeings of the world,” he added, “the Northrop

Grummans of the world, the Lockheeds of the world. They’re going to be

quite upset.” The senators and members from those states or districts

were going to call and ask if they were being protected.

To win over a majority they were going to have to play this very hard,

the president said, adding, “No sweetheart deals for anybody.”

It had been a wandering, uneasy 20-minute conversation that showed

how all the major elements—from revenue, to Medicare cuts, to the

votes—remained up in the air.

32

“Boehner never called back.”

The words rippled through the West Wing the morning of Friday, July

22. It was discussed at the morning senior staff meeting. Had anyone

ever heard of someone not calling back a president for more than 18

hours? No one could come up with an example. At 10 a.m., the

president called Boehner again. The speaker did not take the call, and

the White House left a message: Please phone the president. The second

failed call triggered a discussion of negotiating tactics within the West

Wing. Some thought the second call was a mistake, making it too clear

that the president was needy. No, others argued, Boehner already knew

that. What was the best approach to show a needy Obama but not a

desperate Obama? They were already in for two phone calls.

But why had Boehner not called back? The senior staff worried and, as

was their habit, theorized. Maybe Boehner was trying to come up with

his own plan? So they had to be patient. However, patience was not their

strong suit. So the core group of six or seven worried some more.

Plouffe, however, figured that Boehner was caucusing with the

Republicans. This was a big deal and it would obviously take time. He

didn’t feel very exercised.

But Jack Lew did. He was stunned. From his experience in Speaker

Tip O’Neill’s office during the Reagan years, O’Neill always got back in

touch with the president immediately. They had deep policy differences,

but it would have been unthinkable for O’Neill not to call Reagan back.

To Lew, Boehner’s radio silence was clearly bad news.

• • •

Boehner had concluded that there would be no deal with Obama. It was

over. But he believed he could not show his hand publicly. He had three

worries. First, the financial markets were now fixated on Washington,

and it wasn’t clear how they would react. Even the smallest signal,

accurate or not, could cause them to explode.

Second, he knew how Obama operated.

“The White House is brilliant at getting out early and defining things

their way,” Jackson said. Boehner had to make sure he had an

opportunity to tell his side of the story when it broke in public, before

the White House smothered it.

Third, and most importantly, Boehner had to have the congressional

plan in place, an agreement on how to proceed independent of the

president—a Plan B.

He spent the morning struggling to move forward. He met with

Cantor twice, with McCarthy, with McConnell, and then planned an all-

important joint meeting with both McConnell and Reid.

This was the crucial move.

“Reid’s an honorable man,” Boehner said. “And when he says

something I believe him.” One of the most important communications

back channels in Congress was between Boehner’s chief of staff, Barry

Jackson, and David Krone, Reid’s chief of staff.

So Reid and McConnell went over to Boehner’s office at 2:30 p.m.

“I’m out,” Boehner told them. “I’m done. I’m calling the president

this afternoon. I am done. There’s no deal.” Instead, he said he would do

the deal that Reid and McConnell had been working. Even though he

didn’t like it, he said he was willing.

The debt limit was a “Rubik’s cube” problem, as Brett Loper, his

policy director, put it. But they could solve it. The solution was obvious

and, in some respects, had been staring them in the face. It would

include four elements, all of which they had been discussing.

First, the $1.2 trillion cut to general spending for 10 years that

everyone, even the president, had agreed on for months.

Second, the supercommittee that Harry Reid had proposed more than

a week ago. It would be responsible for coming up with another $1.2

trillion in deficit reduction through additional spending cuts and

revenue through tax reform.

Third, McConnell’s complicated mechanism to increase the debt limit

so the Congress would not have to take an explicit vote to raise it.

Fourth, this would all be done in two steps. The first step would be

an increase of only about $1.2 trillion, so they would hit the debt limit

again in March. But the supercommittee deficit reduction proposal

would then be ready so they could approve the second $1.2 trillion.

Though this was exactly what the president had emphatically said was

unacceptable, it was the only way for Congress to maintain its leverage.

I agree with this, McConnell said. “John, we know you did your best.

You negotiated. Sometimes it just doesn’t work. So let’s go.”

Reid said he too would agree.

Boehner told me later, “Harry and I understand each other, like each

other.200 We don’t agree on a lot of things. But we trust each other. And

so when Harry says we got a deal, we’ve got a deal.” The deal with Reid,

Boehner said, was “absolutely” ironclad. “I reminded Harry that

afternoon, one last time. Harry, I’m only going to agree to the

supercommittee under one condition. And that’s if you and Mitch tell

me you’re going to work with me to make it work. That’s the only way I

would go there. And they agreed.”

Reid was irritated and disappointed with the White House. This could

do the job, and he could see that the two-step plan was critical if

Congress was to maintain its institutional role and leverage. He had

fought all his 24 years in the Senate to protect the chamber’s role and

prerogatives, even when the White House didn’t like it.

• • •

At 3:15 p.m., Boehner directed Jackson and his staff to prepare an

announcement that the speaker was breaking off talks with the White

House and would instead pursue negotiations with House and Senate

leaders.

Obama made a third call to Boehner and was told that the speaker

would phone back shortly.

“What happened to common courtesy?” Daley emailed to Jackson at

3:49 p.201m. “Or do you figure you guys can stiff us? If so, good luck.”

Six minutes later, at 3:55, Jackson answered Daley: “So, schedulers

are working on a time for our bosses to talk.”

At 4:06, Daley emailed: “It has been 24 hours since the President of

the United States called the speaker, and he is unavailable. You guys are

acting like amateurs.”

Jackson did not respond.

At 4:10, Daley tried again: “Barry, your friends are saying you are

walking away from trying to solve the deficit and trying to do a deal with

the Senate to kick the can.”

Jackson sent word through the schedulers that Boehner would call the

president at 5:30 p.m.

Boehner and Jackson had decided on a media strategy that would let

them tell their side of the story “before the White House went out and

accused us of raping and pillaging,” Jackson said.

Boehner’s press office called a single reporter from each of the news

organizations that regularly covered the speaker and delivered the

message: Come here. Big story. We can’t tell you why we are asking you

here.

By about 5 p.m., some 20 reporters had crowded into the speaker’s

secondary conference room in the Capitol.

• • •

Reid sent word to Rob Nabors that Boehner was pulling out. At the

White House the team gathered in the Oval Office.

“Reid just called,” Nabors reported, “and said there’s no deal, that

things are sideways.” It was bad if Boehner was talking to Reid but not

to them. They were still in the dark. Maybe it was just because no deal

had been finalized? But more news slowly started leaking out. Reporters

called the White House: We hear Boehner’s pulling out.

Oh, no. Not possible. Not again.

“Fuck,” said Nabors.

But it was true. Now word was flooding in. Boehner had a conference

call with his Republicans to inform them. He said he had delayed a

formal announcement until the financial markets closed.

• • •

“That’s bullshit,” Nabors said, when he heard the speaker’s reason for

not calling back. If Boehner was genuine about this he would not be so

willing to drive the entire economy off the cliff over what should have

been a relatively routine debt ceiling vote. No, not calling, Nabors

thought, was not just deeply insulting. It was the ultimate sign of

weakness. Why wouldn’t the speaker just call and say, “We can’t get

there. Sorry. Let’s figure out something smaller to do.”

• • •

Not long before that promised 5:30 call, Boehner went to his restroom,

passing the secondary conference room where the reporters were

gathered. He was smoking a cigarette and stopped. He wouldn’t answer

the reporters’ questions. One reporter joked about his famous tan.202

Was he having a bad day? another asked.

“Have you ever seen me have a bad day?” he replied in his confident

baritone. But then he recalled three years earlier when Congress had

been forced to bail out the banks with the infamous Troubled Asset

Relief Program (TARP), and the Dow plummeted 800 points.

“TARP was a bad day.”

Boehner returned to his office and braced himself for the call to

Obama at 5:30 p.m. He picked up the phone and was connected with the

president.

“We can’t go forward with this,” the speaker said. “I’m sorry. I think

we’ve run out of time, so we’re going to proceed up here with a plan to

make sure we don’t default.”

In the Oval Office, Lew, Nabors and the others watched and listened.

The president was gripping the phone hard in his hand as he listened.

“I’ve taken my hits and the arrows from my guys,” the speaker

continued. “I bent over backwards. But you wanted more revenue—$400

billion more—and then less on the spending side.”

“That’s not a reason to cut off the conversation,” Obama replied

angrily. “I asked you to consider it. And you never got back to me. I’ve

been trying to get in touch with you!”

Nabors would remember the look on the president’s face for a long

time. In years of dealing with Obama, it was the only time he had

actually seen him visibly upset. Normally, when the president showed

anger, he looked more like an average person who was merely perturbed

—grimacing, agitated. Not this time. He was mad. There was a flash of

pure fury. The president was looking up, holding the handset tighter and

tighter. So tight that Nabors thought he might break the phone.

“We can put this back together,” the president said. “How do we put

this back together again?”

“That’s the $64,000 question,” Boehner replied. He was proceeding

with the Senate leaders.

Wasn’t Boehner comfortable with the terms they had been trying to

agree on, the exchange of offers, the meetings? the president asked.

“I felt comfortable, or I wouldn’t have continued these

conversations,” Boehner said.

Getting angrier, the president demanded to know why Boehner hadn’t

returned his call.

“I was trying to figure out what the right thing to do is, what can

pass,” Boehner said. “I just couldn’t do any more revenue.” So he had

his plan with Reid and McConnell.

What about me? Obama asked. He was not exactly on the sidelines

here.

“I understand your problem,” said Boehner.

But Obama wasn’t finished. Boehner sat there, enduring what he

thought bordered on a presidential tirade.

“He was spewing coals,” Boehner later told me. 203 “He was pissed. I

said, ‘Listen, we’ve been round and round and round and round. And it’s

always the same thing. I told you I’d put revenue on there if we had real

changes in entitlement programs. Every time we get there, you and I

agree; all of a sudden you guys keep backing up, backing up, backing up.

And now you call me and you want more revenue. It ain’t going to

happen. I’m done with it.” Finally, at 5:42, they ended the call.

“Ooh,” Boehner said, turning to two staffers in the room, one taking

notes of Boehner’s end of the conversation. “He was hot.”

They asked for details.

“Wow,” Boehner said. “He’s really upset.” The speaker lit up another

cigarette. The president, Boehner said, had demanded that the combined

congressional leadership come down to the White House at 11 the next

morning.

Boehner later recalled, “He wasn’t going to get a damn dime more out

of me.204 He knew how far out on a limb I was. But he was hot. It was

clear to me that coming to an agreement with him was not going to

happen, and that I had to go to Plan B. And thank God, we’d been

working on Plan B.”

He recalled saying, “Trying to put Humpty Dumpty back together

again would be almost impossible.”

• • •

“I was pretty angry,” Obama told me. “And look, the reason is, here

we’ve got a national crisis that needs to get resolved.205 The entire world

is watching. I’ve called him probably four times that day.

“And the speaker of the House is avoiding my phone calls. And then

comes back to me, not saying, here’s the best I can do, but rather just

saying, I can’t do anything, so I’m just going to try to see if we can work

something out over in the House.”

He said you were “spewing coals” like a furnace.

“Well, I . . . I was . . . Well, look, there’s no doubt I thought it was

profoundly irresponsible, at that stage, not to call me back immediately

and let me know what was going on. Because this is the president of the

United States calling to try to resolve a national crisis, and he’s trying to

reach the speaker of the House. And if he had called me and said, look, I

don’t know yet, or, I’m still trying to work it out, or, here are the

problems that I have—any of those responses would have been

acceptable to me. Because I was sympathetic to how difficult it was for

him to manage his caucus. To leave us waiting . . . And it wasn’t simply

that he calls me back to announce that he can’t do it. It’s actually, we

don’t get the call until there’s a readout in the press that these

negotiations have gone down. Before I get the call.”

What did you say to him?

“I don’t remember my exact words. I think it’s fair to say that . . . I

think I was very insistent and very clear that I had not presented him

with an ultimatum. Because at this point, you’re already starting to hear

spin. And he was trying to spin me. And I said, John, that’s not the

conversation we had. And I said to him at that point, if $800 billion is

the best you can do, then you need to let me know, and I will be able to

tell you how many votes I think I can get out of the Democrats. But to

suggest somehow that I made a take it or leave it offer is not accurate,

it’s not the conversation that we had. And more to the point, I’m

prepared right now to have a discussion with you about the $800 billion.

So if you actually still think you can do that, you need to tell me that.

“At which point he just said, ‘You know what, Mr. President? We

tried. It got too close.’ ”

• • •

Plouffe saw Boehner’s pullout as an immediate political problem. The

president, he said, had to go out publicly and explain what he was trying

to do, remind everybody why the debt ceiling was important, and why

the deal fell apart. But politics aside, Plouffe had a larger worry. Like

Boehner, he used the nursery rhyme comparison: “How on earth are we

going to put Humpty Dumpty back together here?”

Within 45 minutes, Obama appeared in the White House Briefing

Room to open his veins and bleed a little in public over his

disappointment in the speaker. One White House aide said he seemed to

want to sound a bit like Michael Douglas in the movie The American

President: Damn the politics and full speed ahead on principle.

“I just got a call about a half hour ago from Speaker Boehner,” the

president began, “who indicated that he was going to be walking away

from the negotiations. ”206 Obama said his offer had been generous.

“What we said was give us $1.2 trillion in additional revenues.” He was

lumping the $800 billion from Boehner’s offer in with his $400 billion

request. This could all be done, he claimed, without raising tax rates and

was “compatible with the ‘no tax’ pledge” of Grover Norquist.

“I couldn’t get a phone call returned,” he said. “I’ve been left at the

altar now a couple of times.” The bottom line, he insisted, was no partial

extension of the debt limit. He would only sign onto a deal that

extended the limit past next year’s election.

He fired a broadside at the House Republicans. They had to take

“responsibility” for any problems that might arise. Then, after making it

clear that he blamed Republicans, he said, “Let me repeat, I’m not

interested in finger-pointing and I’m not interested in blame. I just want

the facts to speak for themselves.”

He insisted that the congressional leaders be at the White House the

next morning. “I want them here at 11 a.m tomorrow. We have run out

of time.”

Obama finished at 6:36.

“I’d sat here and watched his performance,” Boehner later recalled,

“which I thought was un-presidential. 207 Angry.”

Boehner and his staff thought the president had made a serious

mistake appearing so emotional in public—it was the wrong approach,

and could wind up scaring the country and the financial markets.

The message war was on, Jackson said, and he urged the speaker to

make his own statement on television.

Boehner was not eager to jump into a public shouting match with the

president.

“You’re going to go out,” Jackson insisted. “We’re going to get you

out. You’ve got to respond to this.” There was, he said, a theme here for

Boehner to adopt: “This isn’t Republican/Democrat, this is the Congress

versus the White House. We’re equal branches of government, and you

know, we’re big boys and girls too up here.”

So, 40 minutes after the president’s press conference, Boehner

appeared at the House Radio-TV Gallery. He wanted to appear calm and

cool.

“There was an agreement with the White House at $800 billion in

revenue,” he acknowledged, but only through tax reform. 208 The

breakdown was because, at the last minute, the president “demanded

$400 billion more.”

“The White House moved the goalposts,” he said. “Dealing with the

White House is like dealing with a bowl of Jell-O.

“It’s the president who walked away from his agreement and

demanded more money at the last minute. That is—and the only way to

get that extra revenue was to raise taxes.”

“Do you trust the president?” a reporter asked.

“I do trust him as a negotiator,” Boehner said carefully.

Later Boehner told me that he realized the importance of the

question. 209 “That’s a dangerous question,” he said, “considering the political climate we were in. I was more worried about how it would

sound to the Tea Party. So I was trying to answer the question without

getting myself in a whole lot of trouble.”

He told me that the Tea Party had no objection to his phrasing. “I

think it worked out pretty well. They were pretty happy about it.”

The speaker felt he had maintained his cool.

Friday night, he sent a letter to the House Republicans saying, “A deal

was never reached, and was never really close.”

• • •

At the White House, Plouffe, Sperling and the others were outraged. It

was a “lie,” Sperling said. The president had not “demanded” $400

billion more, but merely asked Boehner to consider it.

“Obviously a cover story for why it fell apart,” Plouffe said. “It wasn’t

true. It wasn’t true.”

They brought Jack Lew and others to the Roosevelt Room to tell

reporters they hadn’t moved the goalposts, but had only suggested

moving them.

In the briefing, recorded by the White House, Lew said, “There was a

great deal of zones of agreement and by the end we were really just

focused on a few areas where we had to close. And if Speaker Boehner

had called back and said yes, the American people would have a deal.”

Lew enumerated the issues that remained unresolved. First was the

trigger if the supercommitee did not find another $1.2 trillion in cuts,

second was the depth of Medicaid cuts, and third was revenue.

But Plouffe understood that this was just a battle within the broader

war. Boehner had taken the lifeline. He had walked through the door the

president had opened for him. Plouffe didn’t think the White House

could regret doing that—it seemed the only way to get more Democratic

votes—but the playing field had suddenly shifted.

Plouffe and Nabors talked. “They were going to find a door,” Nabors

said. “Because at the end of the day, the political difficulty of passing

this was not improved or diminished by the inclusion of more revenue.

It was still an abstraction” buried in some future tax reform. “Like $400

billion of revenue isn’t all that much—$40 billion a year over 10 years.”

But the president was in one of the biggest political and economic

jams of all time, and had no alternative way out.

33

Boehner scheduled a conference call with Reid, McConnell and Pelosi

for the morning of Saturday, July 23, to discuss moving forward without

the president.

Daley called Pelosi. You just can’t do this to us, he said. You’ll be

leaving us hanging out there. Don’t join the conference call. She agreed.

Leader Pelosi will not be able to join the call, John Lawrence, her chief

of staff, emailed Barry Jackson. 210

David Krone called Jackson. Reid would be dropping out of the

conference call too.

Jackson understood. “Poor Reid was left hanging,” he reported. “It’s

becoming a political thing, and now Reid’s got to go be a Democrat

rather than a congressional leader, which I appreciate. It happens.”

But that did not prevent Boehner from talking directly to Reid, so he

did.

Reid said he was still on board with the congressional plan—$1.2

trillion in 10-year spending caps, his special supercommittee idea to

identify the next $1.2 trillion in cuts, and McConnell’s convoluted plan

allowing Congress to duck a vote to increase the debt ceiling.

How do I get 60 votes? Reid asked. What can McConnell do? How

many Republican votes would there be? He was in execution mode now.

There was no time for philosophical debates. They weren’t his style

anyway.

Reid and McConnell talked, and the Rubik’s cube package was on

track. It was a deal.

Boehner spoke with McConnell, who said Reid was in.

As the president had requested, at 11 a.m. the four leaders—Reid,

McConnell, Boehner and Pelosi—arrived at the White House.

In the West Wing lobby, Boehner pulled Pelosi aside. “We are not

negotiating here,” he said. The four leaders would work this out among

themselves.

Fine, I agree, Pelosi said.

The four leaders went to the Cabinet Room. “We all came stumbling

in there,” Boehner later told me. “Nobody wanted to be there. The

president’s still pissed.”

The president had met with Biden, Geithner and some of the others

beforehand. It was agreed that Geithner would lay it on thick, reminding

the leaders how short of time they were and how damaging default could

be to the financial markets.

No congressional staff were admitted. Key White House players like

Nabors and Sperling were left waiting in the White House lobby.

In the Cabinet Room, Geithner issued another warning to the

congressional leaders, declaring there was a new deadline. This was not

a Monday morning problem. Instead, if they didn’t have a plan or a deal

by late Sunday afternoon when the Asian financial markets opened,

everything could begin to crack. Given the global importance of U.S.

Treasuries and the U.S. dollar, he reminded them, if the debt limit was

not extended and the country went into default, it could trigger a

worldwide meltdown. Things were that serious.

You need to move off the idea that the cuts be greater than the debt

limit increase, Biden told Boehner. As a starting point, to give them

more flexibility, you’ve got to ease off on that.

Boehner refused. That had been his bottom line from the beginning:

cuts equal to or greater than the debt limit increase. He was not

budging.

Pelosi, who had not played a significant role in the discussions among

the congressional leaders on their own plan, spoke up several times to

insist that entitlements be protected.

You’re not being constructive, Nancy, the president said, interrupting

her. We need to get something figured out in the next couple of days. I

have to have something that extends the debt limit past the election, he

said. I won’t take any kind of two-step process.

Boehner said that he believed he and the other three leaders had a

plan. We think we can work this out. Give us a little more time. We’ll

come back to you. We are not going to negotiate this with you.

Obama objected, saying that he couldn’t be left out of the process and

wanted the negotiation to continue. “I’ve got to sign this bill!” he

reminded them.

“Mr. President,” Boehner challenged, “as I read the Constitution, the

Congress writes the laws. You get to decide if you want to sign them.”

Boehner later recalled, “Oh, God, if you could’ve seen the look on his

face. I’m surprised he didn’t storm out of the room.”

Boehner’s approach was now clearly at odds with the deal-making

style he had employed for the past seven months. He had always

negotiated with the president and the administration. But his new

message was clear: We’re going to take care of this. Time is out. We’ll

figure out what can pass. And he said it with a certain amount of relish.

Then Harry Reid spoke up. The four congressional leaders want to

speak privately, he said. Give us some time.

This was it. Congress was taking over. The leaders were asking the

president to leave a meeting he had called in his own house.

Fine, talk, the president said, knock yourselves out if you can get a

deal. There is no pride of authorship here, just do it—if you can.

The president, vice president, treasury secretary and budget director

all left the room.

“I think he was pretty happy to get up and leave,” Boehner later

recalled.

Boehner felt it was as if the president was saying, “You guys are

children. You fix this.” Well, Boehner believed, they were going to fix it,

and they were well on their way to doing so.

When Nabors heard what had transpired in the Cabinet Room, he

thought it sounded overwrought. No way could the president be cut out.

They would need him to help get votes. On the Democratic side, if Reid

and Pelosi cut a deal, there would be no way to sell any entitlement cuts

to their Democrats without the president saying plainly that he was also

on board.

Plouffe saw how disappointed the president was. It was clear the

grand bargain was gone. So maybe it was best to let the congressional

leaders meet. “Let’s see what these guys can work out to get us out of

the jam,” Plouffe said. “Great opportunity missed. How do we salvage

this?”

• • •

How did the president feel, being voted off the island in his own house?

211

“You know, the truth of the matter is, at that point, all I’m concerned

about is getting this thing done,” the president told me. “And so I’m not

concerned about protocol. Essentially what I think McConnell and

Boehner had decided was, maybe we can go ahead and work out

something with Reid. And we can do an end run around the White

House.

“They didn’t like negotiating with Jack,” he said laughing, “who knew

the budget better than anybody. They didn’t like negotiating with Rob.

And they felt like they might be able to just get a better deal, for a short-

term deal, with Harry Reid.”

• • •

In the Cabinet Room, the four leaders didn’t have to do much. They

already had the three-part framework worked out. It had been the

subject of discussions among staff from Boehner, Reid and McConnell

for most of the week. They agreed to ask staff to continue working all

this into a two-step plan to raise the debt limit.

The framework remained generally the same: It would have

discretionary caps of $1.2 trillion over 10 years with a short-term debt

limit extension. The debt limit increase would include McConnell’s

“disapproval” process. A supercommittee would be created to find

additional savings by year end, and if it were successful, another increase

in the debt limit would be authorized. One new addition required the

House and Senate to vote on a balanced budget amendment to the

Constitution, a perennial Republican favorite.

It was a deal in which Boehner, McConnell and Reid got what they

wanted. Boehner got cuts greater than the increase in the debt limit.

McConnell shielded his senators from ever having to cast a vote on

raising the debt limit. And Reid got his joint committee on deficit

reduction. Pelosi’s insistence that entitlements be spared was not

honored.

The other person who didn’t get what he wanted was no longer in the

room. The deal, if it passed, would guarantee that the president would

have to revisit the debt limit during an election year.

• • •

Boehner arranged an afternoon conference call with his House

Republicans.212

“The administration says they need all of the increase up front so [the

president] doesn’t have to deal with this until after the election,”

Boehner told his conference. “He started the year asking for an increase

with no cuts. He’s trying to set this up so he gets a $2.4 trillion blank

check—or to end in default so he can blame us. We know how bad both

of those scenarios are.

“We have the opportunity to cut trillions instead,” he said. “To stop

him, we need a vehicle that can pass in both houses.” He was no longer

negotiating with the president.

The question was “What can we pass to protect the country from

what the president is trying to do?”

He went on, “The White House tried to create buzz by saying there is

some kind of grand bargain to be had. Let me be clear—that kind of

grand deal cannot be had with this president.”

He hadn’t meant to inflame anyone by mentioning, during a recent

public appearance, that there had been a deal on the table, he told them.

“An agreement with the president was not possible and is not possible.”

“There are no secret negotiations going on. So don’t worry,” he

added.

“No one wants to default. If we stick together, we can win this for the

American people. It will require some of you to make sacrifices. If we

stand together, our leverage is maximized and they will have to deal

with us.”

He described the state of the discussions with the White House.

“The president wants a $2.4 trillion increase with no spending cuts.

We won’t let that happen,” he said, despite the fact that the negotiations

had explicitly included large cuts.

“They think they can win because they can divide us. They can’t. We

must stand together and take action,” he said.

“When you get to town tomorrow, we’ll have more detail for you,” he

promised. “We’re doing the right thing. You all know the right thing

isn’t always the easiest thing to do.”

Then Cantor stepped in. “Thanks to the speaker for his patience in

working with the administration,” he said.

But then he quickly undercut the speaker’s claim that Obama had

demanded there be no cuts.

“We are where we are because the president and his party do not

want to cut anywhere close to what we do without raising taxes on

people and small businesses,” he said. “That has been the problem at

each turn. The president’s position of forcing us to give him a debt limit

increase through the election is purely political and indefensible.”

He echoed Boehner’s call for a show of unity.

“Let me tell you, though, he has the microphone,” Cantor said,

reminding them that the president had some advantages. “The only way

to overcome him is to remain united and insist that every dollar the debt

limit is increased, we have equal or more dollars in spending cuts

without any tax increases. Thank you all for your patience. This is a fluid

situation. Let’s stay united. We can do this.”

Finally, Majority Whip Kevin McCarthy spoke.

“You see the battle the speaker is in,” the California Republican said.

“The president is throwing a fit because he’s worried about the election.

He doesn’t want cuts, he wants increases. He lost his cool the other

night because he knows he won’t get what he wants if we remain

united.”

• • •

The speaker gathered Reid, McConnell and Pelosi in his office. No staff.

Even Jackson and Krone were excluded, so they went down to Jackson’s

office and watched the Cincinnati Reds baseball game on television.

The leaders had essentially reached an agreement, but there was still a

crucial question that had not been answered. What happened if the

supercommittee couldn’t agree on the second $1.2 trillion in deficit

reduction? What would be the trigger or enforcement mechanism to

make sure $1.2 trillion was cut from spending?

We would use the $1 trillion in imaginary savings from the Overseas

Contingency Operations, Boehner and McConnell said. The wars were

ending anyway.

Reid was particularly surprised; he had pushed dozens of times to use

this OCO money.

“We can never put that in writing,” Boehner said, “but you have our

word.” It can never even be talked about, McConnell and Boehner said,

never be repeated outside the room.

Reid and Pelosi agreed. Pelosi was happy to use the imaginary money.

It was better than more entitlement cuts.

The deal was done.

They began drafting a joint public statement that would report

progress on their talks, and optimism that they were moving toward a

solution.

At 5:21 p.213m. Michael Steel, Boehner’s press secretary, emailed a

draft of a joint statement to Reid’s and McConnell’s communications

directors, Adam Jentleson and Don Stewart. It read, “The leaders in both

parties and both Houses of Congress are working together and making

progress.”

Krone told Barry Jackson that Reid and he had okayed it.

At 6:05 p.m., Steel emailed Jentleson, “I’m told that Mr. Krone signed

off on this.”

“That’s a fact,” Jentleson emailed back at 6:20.

• • •

Boehner met with the rest of the House Republican leadership, Cantor,

McCarthy and Hensarling, to discuss the next steps.

There was a growing sense of urgency. Reid was under about as much

pressure from the White House as he could take. What congressional

leader could withstand a direct appeal from the president of his own

party? Maybe not even the independent-minded Harry Reid.

The Republican leaders agreed that if the president forced Reid to

step away from the deal, they would try to press forward anyway to pass

the congressional leaders’ three-part plan with 218 Republican votes in

the House. That would put pressure on the Senate, where the bill should

be acceptable, which would, in turn, put pressure on Obama to sign it.

At 8:11 p.m. Jentleson sent Boehner’s staff an email: “Senator Reid

will no longer be joining this statement. He will be releasing his own

statement tonight.”

“I will not support any short-term agreement, and neither will

President Obama nor Leader Pelosi,” Reid said in his statement. 214

Though Reid said this publicly, he was still riding both horses. His

staff had continued working with the Republican leaders.

• • •

Around 10 p.m., Obama called Boehner, who was at dinner with friends.

I am not going to sign a bill that requires me to deal with this a

second time before the end of 2012, Obama said. He was furious.

“Listen,” Boehner recalled telling the president, “I understand it.215

All right? But you’re not going to have a choice. We’ve got an

agreement.”

Obama said if the trigger could ensure a full debt limit extension,

taking the country through 2012, he might support it.

That’s not the agreement the congressional leaders have, Boehner

said, despite what Reid might be saying publicly. The speaker wasn’t

interested in discussing it with the president.

Boehner recalled, “He was moaning and groaning and whining and

demanding .216 . . threatening. . . . He was pretty desperate.” Obama

again said he would veto such a bill. Boehner said if the leaders could get

the bill on Obama’s desk, “I knew there wasn’t a damn chance he was

going to veto the bill.”

The president repeated his offer. He would back off on the request for

an additional $400 billion in revenue if the Republicans would give

elsewhere.

We’re too close to default to reopen the talks, Boehner said. Congress

is going to move forward on its own.

Boehner believed that he had found a recipe that would work,

especially for Harry Reid. If he could get it through the House in the

form that Reid had agreed to, the president would be forced to accept it.

In a statement to the press, Boehner’s spokesman, Michael Steel, said,

“The Democrats who run Washington have refused to offer a plan.217

Now, as a result, a two-step process is inevitable.”

• • •

Asked about Boehner’s description of his late-night call, Obama said,

“Listen, anybody who knows me knows, I don’t moan, I don’t groan, I

don’t whine.” 218 He laughed. “I’m not desperate. I was very angry about

how he had behaved, and more concerning was the fact that we were

now only a few days from there literally being $5 billion left in the

Treasury for the United States government.”

This was how precarious the fiscal situation had become. Just $5

billion was about half a day’s worth of the federal government’s

expenditures. It had come down to the wire.

• • •

At the White House, the president told his senior staff that the call with

Boehner had led nowhere. Boehner had said he had chosen his course,

and insisted the congressional leaders were going to get this worked out.

“I don’t think he’s going to bite,” on the old $800 billion revenue plan,

the president said. “So we’ve got to figure out Plan B. Which is, how do

we get out of this thing?”

The problem was that they did not have a Plan B.

• • •

It was increasingly clear that no one was running Washington. That was

trouble for everyone, but especially for Obama. Though running things

was a joint venture between the president and Congress, Nabors

thought a president had to dominate Congress—or at least be seen as

dominating Congress. If the president succumbed it could be fatal.

Reagan and Clinton were seen as presidents who had gained and largely

held the upper hand with Congress. The last president to fold was

George H. W. Bush, who gave in to Democrats’ demands that income

taxes be raised in a 1990 budget deal. And Bush had been a one-term

president.

34

On Sunday morning, July 24, Boehner appeared on Fox News Sunday

with Chris Wallace and said that if congressional leaders could not come

up with a bipartisan plan, the House Republicans would move forward

on their own.219

He accused the White House of failing to offer a plan to deal with the

debt limit.

“The conversations I was having with the president . . . there was

never any plan from the White House,” he said.

Senior staff members at the White House knew this was not true. The

voluminous paper exchanges and meetings were proof.

“The whole plan came from us,” Boehner continued.

Not true either, the White House knew.

“We laid out the framework,” Boehner said. “And at some point they

have got to lay their cards on the table.”

Obama had laid out exactly what he would do, the White House

believed, but so many numbers were fuzzy.

Boehner had been preceded on the show by Geithner, who had

alluded to the possibility of reviving the grand bargain.

Chris Wallace asked, Would Boehner consider going back to his

original offer of $800 billion in additional revenue?

“I have never taken my last offer off the table and they never agreed to

my last offer,” Boehner said.

“So your last offer, $800 billion in new revenue and entitlement cuts,

spending cuts, that’s still on the table?”

“It is still on the table,” Boehner affirmed.

In an interview nearly a year later, Boehner said the purpose of his

statement was not to reopen negotiations with Obama over an $800

billion revenue deal.220 “There were a lot of people panicking,” the

speaker said. “The goal of the appearance was to reassure people that—I

know the president’s having a meltdown—but Congress is getting this

done.”

• • •

At 11:30 a.m., Obama called Boehner to ask, How are we going to

resolve this?

The congressional leaders are working on it, Boehner insisted. That

was the answer, that was the solution, that was the path they were on.

Their talk lasted less than two minutes.

Did someone hang up on the other? I asked Boehner.221

“No, no, no,” the speaker answered, “No, no, no.” He added, “It was

clear to me they had no Plan B. Clear to me, frankly, for weeks they had

no Plan B.”

Later in the day, Boehner held another call with the Republican

conference. He was holding them close. Though he had nothing to

announce, he promised he would have something for them at the

conference meeting scheduled for Monday at the Capitol Hill Club.

Boehner hoped that he could still keep Harry Reid on board with the

congressional plan because the majority leader had kept his staff

working with the Republicans.

Throughout the day, negotiations on finalizing the congressional plan

continued, with a focus on language outlining the general spending cap

and the firewall between Defense and other general spending.

• • •

David Krone called Nabors to explain the deal. It was now simple: the

$1.2 trillion in general cuts over 10 years; the supercommittee backed up

by a trigger of $1 trillion from the Overseas Contingency Operations;

$400 billion in interest savings; and $100 billion in other mandatory

savings, such as military retirement and health care, and also civilian

retirement. The total came to $2.7 trillion. It was still in two steps.

“I don’t know if the president’s going to go for that,” Nabors replied.

“I don’t know what else I’ve got, Rob. I just don’t know.” Senator

Reid, Krone noted, was hell-bent on OCO.

Nabors then briefed the president, Daley and Lew.

“The one thing I said I actually needed,” the president noted, “they

didn’t get. I needed this to go past the election, and they didn’t get it for

me. This can’t work.”

Obama sent word to Reid and Pelosi that he wanted them at the

White House at 6 p.m. No purpose was given.

Reid arrived with Krone. All were dressed informally, Krone in

khakis, a button-down shirt and a pair of loafers without socks. To the

president’s personal assistant, Anita Decker Breckenridge, Krone looked

tired, pasty and emaciated. Your boyfriend needs to eat a sandwich, she

wrote in an email to Alyssa Mastromonaco, Obama’s deputy chief of

staff and Krone’s girlfriend.

Pelosi and her chief of staff, John Lawrence, also arrived and went to

the Oval Office. Obama, Biden and Geithner were there. Krone sat

between Lew and Nabors.

“Harry,” the president began, “I hear you have kind of an outline, a

framework of something.”

Reid began to lay out the two-step $2.7 trillion debt limit extension,

then stopped. He was not a details guy. “Well, let David just tell you

what it is,” he said.

So the 44-year-old chief of staff began. It was highly unusual for

someone to pass the ball so completely to a staffer. In all his years in

Washington, Nabors had never seen a staff person from the Hill so on

the hook.

Krone had always been nervous about the White House’s ability to

get a deal on the debt ceiling. He didn’t think the Republicans wanted a

deal in the first place, and warned everyone to be prepared for failure.

“Okay,” Obama said.

Krone started reading.

“Do you have copies?” Obama asked.

Krone handed them out. The plan included the $1 trillion from OCO

as the trigger for the second step. Boehner and McConnell had secretly

pledged to honor it, Krone said.

“I don’t trust these guys,” the president said dismissively. “How can I

trust their word that they’ll agree to use OCO? I don’t like it.”

Sitting there on the Oval Office couch, Krone either would not or

could not conceal his anger.

“Wait a second,” the president said, interrupting someone else who

was about to speak. “David has something else. I can tell David has

something else to say.” It wasn’t hard to reach this conclusion. Krone

was tightly wound.

“Mr. President, I am sorry—with all due respect—that we are in this

situation that we’re in, but we got handed this football on Friday night.

And I didn’t create this situation. The first thing that baffles me is, from

my private sector experience, the first rule that I’ve always been taught

is to have a Plan B. And it is really disheartening that you, that this

White House did not have a Plan B.”

Several jaws dropped as the Hill staffer blasted the president to his

face.

“So I don’t have a lot of options, in the past 36, 48 hours, to put

together,” Krone continued. All the leaders agreed on this plan. “So I’m

going by what they said. You may not like it. But we are now finding

ourselves in a situation where we’re supposed to be the good guys.

We’re supposed to be the ones that fend off an economic catastrophe.

And what we find ourselves is now, with no deal, we’re going to have to

root for the worst possible things to happen in order to prove to the

Republicans that you cannot be so callous and let the debt limit expire.

“That is a horrible position that we’re in,” Krone continued. “And so

this may not be the perfect deal, but it’s the only deal that we have on

the table right now in the situation that we find ourselves.”

Nabors was watching Krone, whom he knew well, during his

discussion with the president. Krone was extremely protective of Reid

and of the Senate. But Krone’s closeness to Boehner’s chief of staff,

Barry Jackson, meant that Krone was speaking through a big

megaphone, essentially for the leaders of both the Senate and the House.

What Nabors read on Krone’s face seemed genuine. It said, I can’t do

any better. This is it. This is the best that we can get out of these guys.

“I understand what you think you’re doing,” the president said. “I’m

not going along with that. I’m not doing that. The one thing that we

need to bring stability to this economy is not throwing the debt limit

increase back into the political arena. I’m not doing that under any

circumstances. So if that means that I’m not signing this bill, I’m not

signing the bill.”

Krone wasn’t finished. “If we’re not going to come to an agreement

on this two-step plan,” he said, “then we’re going to find ourselves

saying, gee, hope really bad things happen.” This would prove how

immature the Republicans are, and the Democrats would be able to say

look at what the Tea Party Republicans have done.

“David,” the president said, “I get what you’re trying to accomplish

here. I can’t trust these guys.”

Reid believed he could trust them, although he didn’t say so. He

could trust them, he believed, because Boehner and McConnell were

more scared of Harry Reid than they were of Barack Obama. And

Republicans’ reluctance to expose their secret agreement on OCO would

only be another reason for them to make sure the trigger for the

supercommittee never went off.

John Lawrence, Pelosi’s chief of staff and a 40-year veteran of the Hill,

realized that Krone’s monologue, besides being extraordinary, revealed

the extent to which Reid could not be controlled by Obama. Reid was a

loose cannon. Though he would probably come around and succumb to

party and White House discipline, at the moment he was flying on his

own and jeopardizing a deal at the most delicate time.

• • •

Jack Lew agreed with Reid that the administration should take the

counting of OCO more seriously. The Republicans had counted it as

savings in the Ryan budget, after all. In this case, however, with verbal

promises rather than something in writing, it was not acceptable. “Mr.

Leader,” he said to Reid, “we have to know what we are agreeing to. It

can’t be ‘subject to.’ It has to be something that we agree to now. It can’t

be ‘trust me, we’ll do it later.’ If people aren’t willing to say now what

they’re willing to do, there’s reason to doubt that they’ll be able to do it

later.”

As presented, the two-step debt limit increase relied on some absurd

kind of double-secret promise that OCO would be okay later, but not

now. It almost guaranteed another showdown.

Nabors agreed with Lew and told Krone, “If they could do OCO in the

future, they can do OCO now.”

Plouffe had an idea. If Boehner was introducing his bill, then Reid

should introduce one also. That way the news stories the next day would

say both Boehner and Reid were in the game with competing bills.

• • •

After the meeting, Obama made a beeline for Krone. The others, not

knowing what might happen, stepped back so the president and Krone

could talk, but they still overheard Obama’s words.

“I’m sorry,” Obama said, putting an arm around Krone’s shoulder.

“You didn’t deserve that. I know how hard you’re working, and I know

we wouldn’t even have a chance without you.”

Obama later suggested to several staff members that he ought to call

Krone and apologize.

“David doesn’t get upset,” Nabors said. “Don’t worry about it.”

• • •

Reid and Pelosi left the White House and said nothing to the crowd of

reporters who, as The New York Times reported, “had been encamped

there for the third consecutive weekend, awaiting an agreement. ”222

Reid gave Krone a ride back to the Capitol. The majority leader was

almost like a father to him.

It was a tough situation, Reid said, and Krone had handled himself

well. There was no other path, no other option. “You stood up to him,”

Reid said. “He needed to hear it, and nobody was telling him.”

• • •

Asked about the meeting with Reid and Krone, Obama said, “What I

said to them is essentially, any short-term deal is not going to be

acceptable.223 We can go back to the drawing board, but we’re running

out of time. They need to understand we’re not going to do a short-term

deal.”

Obama also remembered having a conversation with Reid about a

short-term deal, apparently later.

“Harry told me that he had never arrived at an actual deal that would

involve a short-term debt ceiling increase. He did say that that was

offered to him. I think he was sounding out whether I thought that was

the only way to break the impasse. And I told him, ‘You know what? It’s

not worth breaking the impasse to do that.’

“There were just practical elements to this. We would have already

used up all the discretionary cuts that I thought, in good conscience, we

could do. We’re now in a situation where those have been pocketed, and

now we’re having a whole new negotiation about arriving at a whole

other $1 trillion.”

• • •

After more pressure from Obama, Reid changed course.

Late that night, the majority leader released a $2.7 trillion deficit

reduction plan. At least publicly, it looked like he had given in. 224 It

differed from the plan put together by the congressional leaders in two

key respects. There was a single-step debt limit increase that would last

through 2012 because the OCO savings of $1 trillion was counted

immediately. No second debt ceiling vote would be needed.

The plan, Reid said publicly, met the two key Republican criteria. “It

will include enough spending cuts to meet or exceed the amount of a

debt ceiling raise through the end of 2012 and it will not include

revenues.” 225 These appeared to be big concessions because there was no

new revenue or tax increases. But it also contained no Medicare cuts.

And OCO was no longer going to be treated as a piece of shit.

Using OCO, Boehner later told me, “Just did not pass the straight-

face test.226 I told Harry and Mitch and Jon Kyl and God knows how

many others who looked at this, I said, guys, we aren’t going to do any

gimmicks here. No gimmicks. I told Harry, we’re not doing gimmicks.

Harry must’ve asked me a hundred times whether he could use that

money. No. Oh, I know he believes in it. Oh, I know he does. It’s an easy

out. It’s the same old Washington kick the can down the road. But he

thought when it got down to the end, maybe I’d buy it. But I never did

buy it. Reid’s liberals were all over him.”

This was not quite the full story. Boehner had made a secret deal with

McConnell, Reid and Pelosi to use the OCO money.

35

On Monday, July 25, at a meeting of the House Republican

conference, Boehner floated the congressional proposal, christened the

Budget Control Act. It called for the $1.2 trillion in 10-year cuts, and

established a supercommittee to come up with what he initially set at

another $1.8 trillion in deficit reduction. The plan would increase the

debt limit by about $1 trillion right away—the short-term extension

Obama loathed—and would allow a second extension of $1.2 trillion

only if the committee was successful in identifying the additional $1.8

trillion in cuts.

Boehner asked for support even as he admitted the deal was “not

perfect.”

The announcement set the House Republicans on a collision course

with Reid’s $2.7 trillion plan, which had been released the night before.

The White House publicly endorsed Reid’s plan. 227

“Senator Reid’s plan is a reasonable approach that should receive the

support of both parties,” said White House spokesman Jay Carney.

Urging House Republicans to adopt the Reid plan, he added, “The ball is

in their court.”

On the Senate floor, McConnell said that Reid had gone back on his

word. He said the majority leader had given his approval of the

congressional plan over the weekend, and had only turned against it

after Obama forced him, an accusation Reid vehemently denied.

• • •

In an interview later, McConnell said that he didn’t think the president

wanted a deal.228 “The president chose not to get a deal done,” he

claimed. “And the irony of it is, I remember saying this to the president

himself, ‘This would actually help you. Because people think you hide

under your desk all the time and never do anything tough. And

everybody who’s knowledgeable in the country knows that a long-term

solution to the entitlement problem is the key to the future of our

country. I would remind you, Mr. President, that Ronald Reagan carried

49 out of 50 states the year after he raised the age for Social Security.

I’m not asking you to commit political suicide here.’ ”

What did the president say? I asked.

“He just smiled,” McConnell said, adding that he didn’t think that the

president could count on Pelosi and Reid. “It would have taken some

political courage on his part. But I do know the way this town works,

and when a president decides to make a big deal, his party falls in line.”

But it was “a failure of presidential leadership. He was not Reagan. He

was not Clinton. At a critical moment, when we had a process in place to

get solved the single biggest long-term threat to this country . . . It was

very disappointing.”

On Monday afternoon, Brendan Buck, part of Boehner’s

communications team, got an email from a White House correspondent

for one of the major television networks.

The president is asking the networks for broadcast time tonight, it

said. You guys need to do the same.

Boehner’s staff quickly got on the phone to the television networks. If

the president gets to make his case, we should get to make ours, they

argued. The networks agreed.

Boehner was not pleased. Major public speeches were not his

preferred forum, but he realized he had to do it.

Kevin Smith, Boehner’s communications director, was worried. Even

with time to prepare, delivering a response to a presidential speech was

fraught with peril. On the day after the State of the Union address,

nobody talks about the person who delivered the rebuttal unless they

didn’t do a good job. Boehner had only hours.

• • •

In dueling speeches, Obama and Boehner appealed for public support.

Default and credit agency downgrading would have a direct impact on all

Americans, Obama said. “Interest rates would skyrocket on credit cards,

on mortgages and on car loans, which amounts to a huge tax hike on the

American people. 229 We would risk sparking a deep economic crisis—

this one caused almost entirely by Washington.”

Boehner called for real spending cuts and decried the Reid proposal as

“filled with phony accounting and Washington gimmicks.” There was no

stalemate, and the House had a plan that he expected to pass and send

to the Senate and the president.

Reid insisted his plan was the only option that the president might

approve. “This isn’t a game of chicken,” he told reporters that night.230

“This is a game of reality. We’re about to go over the cliff.”

• • •

“The debt limit vote sucks,” Eric Cantor admitted.231

He was addressing a closed meeting of the Republican conference at

the Capitol Hill Club on Tuesday, July 26. Cantor told the members that,

while they might not like the Boehner plan to raise the debt limit, the

alternatives—the plan being pushed by Reid or outright default—were

far worse.

So, he said, members needed to “stop grumbling and whining and to

come together as conservatives” in support of the speaker.

“This is a different fight now,” Kevin McCarthy, the whip, said. “This

is a much bigger fight. This defines who wins or loses. The whole nation

is watching. The president is afraid of this bill. That’s because in the

end, this will be the bill.”

McCarthy, a movie fan, had the lights dimmed. A short clip from the

2010 Boston crime drama and box office hit The Town appeared:

Ben Affleck: “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.”

Jeremy Renner: Pauses and then, “Whose car are we gonna take?”

The Republicans roared their approval. But the speaker did not have

their votes. Not even half of the 218, McCarthy reported.

Boehner’s Budget Control Act, with a vote on the House floor

scheduled for that day, faced significant resistance from the far right

wing of the Republican conference. Many members elected with Tea

Party support were saying they would not vote for a debt extension.

Later that day, the White House issued a warning that fell just short

of a veto threat: “The president’s senior advisers would recommend that

he veto this bill.” 232

Pelosi and Hoyer made public statements of support for the Reid

proposal, and took all 193 House Democrats with them, which left

Boehner scrambling to find 218 votes from the 240-member Republican

conference. His job became more difficult that afternoon when the

Congressional Budget Office reported the Budget Control Act would

save not the $1 trillion Boehner had promised, but only $850 billion.233

The combination of lack of Democratic support, resistance from Tea

Party Republicans, and the CBO report forced Boehner to pull the bill off

the floor rather than face a losing vote.

• • •

“Get your ass in line,” Boehner told the House Republican conference in

a closed-door meeting the next morning, Wednesday July 27. “I didn’t

put my neck on the line and go toe-to-toe with Obama to not have an

army behind me.”

Pulling the Budget Control Act from the floor the day before had been

an embarrassment the speaker did not intend to repeat. Boehner and the

rest of the Republican leadership spent the day furiously whipping votes,

but were unable to get to 218, and Boehner pulled it again.

• • •

“The president,” Biden told Pelosi, “is becoming increasingly fixated on

this idea that Congress can hold him hostage anytime they want.” Yes,

they needed to compromise. “But instead of making it look like we are

being held hostage we just have to change public opinion about what’s

happening here.” They needed to identify the problem. “We have to get

people to turn against the Republicans.”

• • •

At 2:30 p.m. Lew and Nabors went to the Senate to meet with Reid and

his chief of staff, David Krone.

“We have an idea for the trigger,” Lew said.

“What’s the idea?” Reid asked skeptically.

“Sequestration.”

Reid bent down and put his head between his knees, almost as if he

were going to throw up or was having a heart attack. He sat back up and

looked at the ceiling. “A couple of weeks ago,” he said, “my staff said to

me that there is one more possibile” enforcement mechanism:

sequestration. He said he told them, “Get the hell out of here. That’s

insane. The White House surely will come up with a plan that will save

the day. And you come to me with sequestration?”

Well, it could work, Lew and Nabors explained.

What would the impact be?

They would design it so that half the threatened cuts would be from

the Defense Department.

“I like that,” Reid said. “That’s good. It doesn’t touch Medicaid or

Medicare, does it?”

It actually does touch Medicare, they replied.

“How does it touch Medicare?”

It depends, they said. There’s versions with 2 percent cuts, and

there’s versions with 4 percent cuts.

“I can’t do that.”

Once they started pulling things out of the sequester, they would

never be able to stop. The idea was to make all the threatened cuts so

unthinkable and onerous that the supercommittee would do its work

and come up with its own deficit reduction plan.

Lew and Nabors went through a laundry list of programs that would

face cuts.

“This is ridiculous,” Reid said.

That’s the beauty of a sequester, they said, it’s so ridiculous that no

one ever wants it to happen. It was the bomb that no one wanted to

drop. It actually would be an action-forcing event.

“I get it,” Reid said finally.

• • •

At 5 p.m. Thursday, July 28, Geithner appeared in the Oval Office with

two senior aides. They had come to lay out the latest update on how

they would handle a default and what it might mean.

A team at Treasury had been working steadily to try to understand

the implications of a U.S. default. Some called their work “The

Armageddon Project.”

Geithner did not look so young anymore. He sounded like a general

warning that the battle was coming and they were going to take heavy

casualties. A U.S. default would be a first. A perfect credit rating, like

virginity, couldn’t be restored once it was lost. Going forward, American

creditworthiness would bear the scar of default as long as the United

States existed.

Cass Sunstein, the Harvard Law professor and Constitutional scholar

who headed Obama’s regulatory office in the White House, had been

invited to offer his views on whether the 14th Amendment offered a way

out of the crisis. The amendment reads, “The validity of the public debt

of the United States, authorized by law . . . shall not be questioned.” The

issue was the phrase “authorized by law.” Could the Treasury issue

bonds that pushed the United States past its debt limit? It was not clear

but everyone—including the other Constitutional law professor in the

room—agreed it would not work. There would be lawsuits. The new

bonds would be immediately downgraded. It would be a mess.

Mr. President, Geithner said, there are no more options left. The

details were sickening. The federal accounts will be dry next week. He

could sell assets, property, buildings, you name it, but it would look like

a fire sale. He could delay some payments, juggle and shuffle. But all this

would look like semi-default, which might be as bad. Even the

perception of a U.S. default would change things permanently.

The economy was already weakening. What would happen in the

markets? What would it do to job creation? Unemployment? Consumer

confidence? Overall confidence? The moral authority of the government?

The moral authority of the president? “Catastrophic,” Geithner said.

The treasury secretary said he had a bottom line: A default could

trigger not just a recession but a depression, one worse than the Great

Depression of the 1930s.

One participant arched back in his seat, threw his head up and stared

at the ceiling.

Plouffe found the projections harrowing. If that was his reaction, he

wondered, how acutely was the president feeling it? As best Plouffe

could tell, it was as if Obama had been seared.

A number of those in the Oval Office that day felt their stomachs turn

to knots.

• • •

In an interview, Obama later said he had recognized that the stakes were

high, which was why he and his advisers rejected ideas such as the 14th

Amendment option. 234

“I am not prepared to put the country in a position in which a

miscalculation results in default. And I think that one of the major

arguments that would be lodged against us later was this notion that we

gave leverage away. That we should have been prepared to say, we’ll do

this in the 14th Amendment route, and so forth,” he said.

“And what I would have to explain to my folks is that the world

financial markets, having already gone through trauma two years earlier,

cannot afford to have uncertainty about what the world’s reserve

currency and its Treasury notes are worth in this environment.”

• • •

Boehner brought his plan to the House floor again that afternoon. After

nearly two hours of debate, which was supposed to culminate in a vote,

House leadership abruptly shifted gears. At about 6 p.m., the House

unexpectedly took up a series of bills to rename post offices.

Behind the scenes, Boehner had determined that he was still short of

votes. It was down to 10 or 15 members who were resisting. The

speaker pulled some of the most conservative members of the House

into his second-floor offices for a late-night meeting. But only minutes

after walking in, several of the members walked out.

We’re going to the chapel to pray for our leaders, two of them told

waiting reporters.235

Shortly before 11 p.m., without voting on Boehner’s bill, the House

went into recess.

36

By Friday, July 29, Boehner was desperate. He was three votes short.

He met with about a dozen House freshmen who were voting no. In

exchange for their yes votes, they wanted a provision that made the

second step of the debt limit increase contingent on both the House and

Senate not just voting on, but passing a Constitutional amendment

requiring a balanced budget. Okay, the speaker agreed, and brought the

bill to the floor. It finally passed 218–210. 236

A clearly frustrated Boehner said after the vote, “I would say we tried

our level best.237 We’ve done everything we can to find a commonsense

solution that could pass both houses of Congress and end this

crisis. . . . But some people continue to say no.”

Where was the White House? he asked. Where was the Senate? He

demanded they “put something on the table! Tell us where you are!”

Two hours later, the House bill was brought up in the Senate, where

it was promptly tabled—meaning its chances of reaching the floor for a

vote were slim.

• • •

What’s next? Obama asked in a call to Boehner. I think we should meet.

Boehner wasn’t interested. He said he would have Barry Jackson

contact Nabors.

Jackson found that every time they went to the White House the

result was unproductive. He took comfort from the fact that David

Krone agreed with him. It was a pattern. Obama always wanted the

principals to get in a room. It was another sign of the president’s

inexperience, Jackson believed. Putting the president and the speaker in

a room together just increased the pressure. It was now down to detail.

If Obama wanted to negotiate, he should send something in writing.

So Jackson called Nabors.

A meeting would not be productive, Jackson said, unless you send

over a proposal.

We will, Nabors replied.

• • •

Rohit Kumar, McConnell’s most senior policy adviser, went home about

8 p.m. Friday night, July 29.

“What are you doing here?” his wife, Hilary, asked. It was almost as if

she was asking, Who are you? Are we still married? She had barely seen

him during his past month of late nights and weekends. He’d often been

rising before anyone, and arriving home after everyone was in bed.

“The fact that I’m here at eight o’clock,” he said, “tells you how

screwed we are. We’re nowhere. We have no deal. I don’t see how we

get one.” There was no path to a deal, he told her. Everyone was dug in.

No one was moving; no one was blinking.

• • •

At the White House two hours later, 10 p.m., Daley, Lew, Nabors,

Plouffe, Geithner and Dan Pfeiffer, the communications director, had

not gone home. Daley called them to his corner office. The president was

up in the residence.

Everyone was exhausted, wrung out, sleepless. It was so bad that at

one point during the endless weeks of negotiations Lew had stayed at

the office working until 6 a.m., gone home to shower and change, and

been back at his desk by 7:30 a.m.

The situation was grim. The House Republicans had finally—after a

week-long debacle—passed their bill. The group in Daley’s office

thought the final product was so ridiculous that it had no chance of

passing the Senate.

But Nabors knew that there was a chance the Senate Democrats

would fold, because the fastest solution would be to pass the House bill

and get out of town. The House bill had the second debt ceiling vote,

which was the president’s final red line, and Reid had been wobbly on

that issue. The subject for discussion: Would the president really veto a

two-step process as he had promised? Was there an alternative?

“You can’t veto,” Geithner said. “You cannot be responsible for

default.” That would be a calamity, as they all knew. Anything had to be

done to prevent it. Anything to preserve the global economy. They could

not foreclose such an option, awful as it might be, if that was all that

was left. Remember where they were: Europe burning, world economy

very weak, young U.S. recovery.

“If he caves,” Plouffe said, “it will have long-lasting political

repercussions that we may never get out of. If we draw a line in the sand

on something this important”—as the president had done unsparingly

—“and cross it, we may never be able to come back.” They all knew that

Obama was under tremendous fire from Democrats. The view widely

held by Democrats on the Hill was that the president caved to the

Republicans. The evidence was his agreement to extend the Bush tax

cuts the previous year. Those in the room might think it was an unfair

description of what had happened, but Plouffe reminded them that they

were not in a particularly good place politically.

So, accepting a two-step deal would not work, the senior White

House political adviser said. “It’ll be potentially devastating. We will not

get credit for doing anything. We’ll look like we got bullied by a bunch

of very unpopular and irresponsible people.”

Nabors said he basically agreed. “We are paying a heavy price now,”

he said, both politically and economically. “We will pay an even heavier

price later” if the president signed the House bill. They would be buying

a little short-term stability for a lot more long-term instability.

Lew reminded them that in the battles at the beginning of the year for

the routine funding of the government through stopgap continuing

resolutions, the Republicans had demanded more spending cuts every

two or three months.

Nabors called it “paying at the pump,” meaning the Republicans

would insist on more and more cuts. Lew and Nabors had negotiated

continuing resolutions for months. The president had held four Oval

Office meetings with Boehner on them. The situation had been hell.

“You can’t send us back into that room,” Nabors half joked. “I don’t

know how we get out of that room alive.”

Pfeiffer saw the dilemma. On one hand the president could not cave,

and on the other he could not knowingly trigger an economic disaster.

“Here’s what we have to do,” Pfeiffer said. “We have to do everything

we possibly can to make sure that this never gets to the president’s desk.

He can never face this decision. We have to talk to every Senate

Democrat, call everyone we can, hold as many press conferences as we

can, we can never let this get to the president’s desk.”

Republicans, Geithner said, some in the Senate and many in the

House, did not understand the risk of default. Some of these people

talked openly and publicly about how a default was the only way to get

Washington to change, and how a downgrade in the nation’s credit

rating would be good. That wouldn’t matter if Boehner and McConnell

were stronger leaders, willing to leave those guys behind. But the leaders

were trying to have it both ways and extort changes from the president

that he would never make. The Republicans thought there was some

kind of parachute at the end.

Geithner had to deal with the possibility that the House bill could

reach the president’s desk. “My recommendation to the president would

be, we’ve got to sign this. If that’s what they offer us, we sign it.”

Because there were no parachutes.

“What’s going on?” said Obama, appearing unexpectedly at Daley’s

door. “What are you guys talking about?”

He knew, of course. They quickly reviewed where they were.

Could I actually veto it? Obama asked, adopting his law professor

manner. What would actually happen the day of the veto? The day after?

“It would have massive effects,” Geithner said. Treasury had to

conduct a bond auction in the open market in about five days, the

regular Tuesday auction, with settlement on Thursday. That first auction

could be a kind of trip wire, setting off a chain reaction. The federal

government couldn’t pay its bills. “Why would anyone buy U.S. bonds if

it’s an open question whether we are going to have the authority to pay

for them?”

Another possible outcome, he said, was perhaps worse. “Suppose we

have an auction and no one shows up?”

The cascading impact would be unknowable. The world could decide

to dump U.S. Treasuries. Prices would plummet, interest rates would

skyrocket. The one pillar of stability, the United States, the rock in the

global economy, could collapse.

The reality was that if the debt limit wasn’t increased, Geithner would

have to call off next week’s auction. That would surely start a panic.

As he had told them before, the world financial system rested on the

foundation of a risk-free asset, and that asset came in only one form:

U.S. Treasury securities. They were the only place of safety in a storm.

The 2008 financial crisis had been manageable for the United States

because the world’s confidence that we would solve the problem kept

investors buying U.S Treasury debt.

“Every financial asset in the United States, every financial asset in the

world, rests on that basic foundation,” Geithner said. It would not just

be that Social Security checks would not go out, or that the government

would not pay businesses on time. Bank deposits, homes, stocks, any

investment—anything of monetary value—would be affected.

“So you put that in question, everything comes crashing down and

you cannot rebuild it. It’s something that will be lasting for

generations.” Default could trigger a worldwide economic depression

worse than the 1930s.

Lew, the most experienced of the group, a veteran of decades of

budget wars, had always thought this was scary. Now it was very scary.

The witching hour was much closer than many thought because of

these auctions. Treasury would have to sell short-term notes worth

about $51 billion next week. Even if signing a short-term debt extension

got them past the auction, it was not as if the financial markets would be

calm, several noted.

“So,” the president said, “if we give $1.2 trillion now in spending

cuts”—the amount in the House bill to get the first increase in the debt

ceiling for about six to nine months—“what happens next time?” The

Republicans would then come back next year, in the middle of the

presidential election, and impose more conditions on the next debt

ceiling increase. “Are they going to demand the Ryan budget? Are they

going to ask us to make massive cuts in Medicare just to fund the

government? Just to keep the government from defaulting?” He could

not give the Republicans that kind of leverage, that kind of weapon. It

was hostage taking. It was blackmail. “This will forever change the

relationship between the presidency and the Congress.

“Imagine if, when Nancy Pelosi had become speaker, she had said to

George W. Bush, ‘End the Iraq War, or I’m going to cause a global

financial crisis.’ This would forever change the president’s authority if

Congress can hold a president hostage every time.”

So the president said they had to break the Republicans on this.

Unless the administration broke them, they would be back whenever it

suited them politically.

“We’ve lived through government shutdowns,” Geithner noted. Lew

was budget director in 1995 when Newt Gingrich shut down the

government during the Clinton presidency. The world had survived. “If

you can’t get into a national park,” Geithner said, that was sad—a large

inconvenience.

“It’s one thing to have a government shut down,” he said. “It’s

another thing to have an economy shut down. We just don’t know what

happens.” No one knew the mechanics. “No one has ever seen what the

economic ramifications would be.” It was so far outside anyone’s

thought process, he said, that the Congressional Budget Office had never

done an analysis of what might happen if the U.S. government defaulted.

It was beyond the threshold of the conceivable. It was almost like trying

to predict what would happen if aliens landed.

What about selling assets? someone asked. Selling government

property?

“You can’t sell federal property that quickly,” Lew assured them.

What about gold? The U.S. government owned about $275 billion

worth. Could they sell it? Would that buy time?

No, said Geithner. One reason, it doesn’t buy you very much time.

The other reason, it’ll scare the shit out of everybody. Besides, dumping

that much gold on the market would trigger a dramatic drop in price.

They were out of options, Geithner said. The only one might be

accepting the House bill, loathsome as it might be, if it passed the

Senate. “If the U.S. government can’t borrow money,” he said, “the 2008

financial crisis will be seen as a minor blip if we default.

“This is uncharted territory of a magnitude that none of us can even

imagine,” Geithner added, making perhaps his strongest argument. The

financial problems in Europe, most immediately in Greece, were much

more severe than people realized. He and the president had been

focusing on them intensely.

“We are single-handedly propping up the Western financial system

right now,” he said. “Play with fire, and it might take you past the point

of no return.”

Greece came up again.

It is one thing for Greece to be Greece, Geithner said. “It’s a different

thing for us to be Greece. No one would be able to save us.”

What about next week? the president asked.

Tax collections only covered about two thirds of what the federal

government spent, given the $1.3 trillion annual deficit on a $3.8 trillion

budget, Geithner reminded them. That meant $25 billion a week more

had to be borrowed; refinancing of the existing debt required another

$100 billion a week for a total of $125 billion of new Treasury debt every

week.

Some minor arrangements could be made with the Federal Reserve,

Geithner said, but they would not have any real impact. In theory, they

would not default until Thursday, when the debt sales cleared, but as

soon as it was obvious default was coming, the dam would burst.

“Tim,” Nabors chimed in, “is there any way that you can slip this to

Friday? Because Congress works towards deadlines. Thursday is not a

deadline. They won’t get done by Thursday. They’ll get done by Friday.”

Doesn’t this really boil down to two things? the president asked. “If

the Republicans believe they can do this to us now, they’re going to

believe they can do it to us later on. And where are we? Under any

scenario we risk a default. That’s not my control. The Republicans are

forcing the risk of a default on us. I can’t stop them from doing that. We

can have the fight now, or we can have the fight later on, but the fight is

coming to us.” What would be gained by delaying the fight until the

next summer? And what might be lost?

Discussion turned to the Republicans. Are they really that crazy? The

answer around the room was probably yes. Boehner himself understood

the consequences, they agreed. But did he have enough control over the

Republican conference to get his share of the 218 votes that would be

needed for any deal? No. This could spin wildly out of control.

So, no, the president said, he was not going to cave. Period. He said

good night, got up and left. He was very agitated.

The others talked some more, reviewed, weighed, but eventually they

all went home. There was nothing more to do that night. Not only did

they not have a deal, they did not have another option.

Geithner thought there was one other consideration. He did not

mention it to anyone, not even the president, but he had thought about

it a great deal. It was not just that the president faced an economic

choice or a political choice. He faced a moral choice. That was the most

difficult decision a leader ever faced. Suppose the Republicans and

Democrats banded together and passed a bill so the White House could

not keep it from the president’s desk? What then? Veto and start a

global trauma?

The White House political people said a default would be blamed on

the Republicans. Oh, yeah, it would fall on those intransigent, crazy

Republicans. But Geithner knew they couldn’t be sure. He certainly was

not sure. And the president couldn’t be either.

The president should not put himself in the position of saying

unequivocally that he would veto, Geithner concluded, for one simple

reason. No one could be sure how to put the American or the global

economy back together again. The impact would be calamitous.

“And the people who would bear the pain of that would be the people

less prepared,” Geithner told others, “less able to absorb that cost. It

would be something you could not cure. It is not something you can

come back and say, a week later, oh, we fixed it. It would be indelible,

incurable. It would last for generations.”

37

In several discussions with the president, the question was raised, Do

you think Boehner was acting in bad faith?

“No,” Obama said. “He wouldn’t have exchanged paper with us.” The

conclusion was that Boehner was just not strong enough or skilled

enough to deliver. Perhaps his staff was too inexperienced. Or maybe

Cantor, whom Obama said he did not have a feel for, was undermining

the whole process.

As in the past, the president’s response to Boehner’s unwillingness to

deal was, “I have some sympathy for him.”

• • •

Lew, Nabors, Sperling and Bruce Reed, Biden’s chief of staff, had finally

decided to propose using language from the 1985 Gramm-Rudman-

Hollings deficit reduction law as the model for the trigger. It seemed

tough enough to apply to the current situation. It would require a

sequester with half the cuts from Defense, and the other half from

domestic programs. There would be no chance the Republicans would

want to pull the trigger and allow the sequester to force massive cuts to

Defense.

• • •

Around noon on Saturday, Nabors went to the Capitol to meet with

Jackson. He proposed using a Gramm-Rudman-Hollings sequester as the

trigger if Republicans would agree to eliminate the second-step debt

limit increase.

We’re meeting with Reid and Pelosi later this afternoon to try to get

them on board with the sequester, Nabors added.

Appreciate it, said Jackson. This might work.

Jackson and Loper took the White House idea to Boehner, who was

amenable. The White House wasn’t demanding tax increases, and the

sequester would be large enough to guarantee that the savings were

greater than the debt limit increase.

• • •

Once again, the real negotiation was between Biden and McConnell. As

the McConnell whisperer, the vice president’s primary task was to move

McConnell off the idea of a two-step debt limit extension. They talked

early that afternoon.

Biden stated flatly that the extension had to last 18 months, to take

them beyond the 2012 election. It was a nonnegotiable demand, he said.

As McConnell himself had heard two weeks earlier, the president was

not going to give on this even if it brought his presidency down. He was

not going to be blackmailed on the debt ceiling every six months.

In effect, the president was saying he could be blackmailed, but only

once. They were not going to go through these exhausting, hair-raising

negotiations twice a year, Biden insisted.

McConnell had a bottom line also. Of course, it was about taxes.

There could be no automatic tax increase in the trigger or sequester. If a

joint Senate-House committee could not reach agreement on $1.2

trillion, the trigger could go off but the money would not, under any

circumstance, come from a tax increase. It would have to come from

spending cuts.

Biden and McConnell, both suffering from severe cases of deal

maker’s fatigue, finally agreed: a full 18-month debt limit extension and

no automatic tax increase in the trigger.

One for you, one for me.

They had staff work out the details. Reed, Lew and Sperling

represented the White House. McConnell’s chief policy aide, Rohit

Kumar, represented McConnell.

But there were lots of other details.

“Is there any way we can have Medicaid on the table?” Kumar

inquired in a telephone conference call between the Senate and the

White House later that day. “It would be important for us if we could

have Medicaid in the trigger.”

“We can’t do that,” replied Sperling, trying to stay calm. “This is a

core.” Medicaid provided health insurance and services to more than 50

million poor people. “There has never been a low-income program in a

trigger before. This would be the first ever. There’s no way we can do

it.”

Lew had been listening carefully. Back in the 1980s he had negotiated

the low-income exemptions in the Gramm-Rudman deficit reduction

law. In all the discussions with Boehner, McConnell and their staffs it

had been clear that low-income programs were not going to be part of

any deal. Lew could not believe that this was being raised at the 11th

hour.

“Gene,” he said to Kumar and Sperling, who were on the

speakerphone, “I don’t mean to interrupt you, but we’re not talking

about Medicaid.” Suddenly he was shouting into the phone. “You don’t

have to explain this to him, Gene! No! No! No!”

“Okay,” Kumar said. “We’re not going to have a conversation where

people are yelling. So we will continue.” He said good-bye and hung up.

• • •

Lew decided to report to the president on the Medicaid dispute. He was

deeply offended that the Republicans who had been unable to move an

inch on taxing the wealthiest citizens would propose automatic cuts to

the poorest. Over the decades, he felt he had learned how to be flexible

and cut reasonable deals with Republicans. There was, however, a line

that should not be crossed. It wasn’t as if the administration had spent

the last three months of negotiations proposing some confiscatory tax

policy. All they wanted was for the wealthiest to pay the tax rates from

the Clinton years, when the United States had had the longest period of

economic growth in its history. If everything, including taxes, had been

on the table, this would not have been hard to solve.

So here was Rohit suggesting that if Congress couldn’t do its job and

reach agreement on a second $1.2 trillion in cuts, those who would pay

would be the poor, the disabled, the mentally ill? Was that the kind of

country they were?

He went to the Oval Office. Mr. President, I just absolutely blew the

idea of Medicaid in the sequester out of the water, he said, and provided

the details of his explosion, exactly what he had said.

It was the right thing to do, the president said.

Lew and Kumar soon resumed their conversation. Lew would not give

on Medicaid, and Kumar finally dropped the idea.

• • •

Reid’s bill to use $1 trillion in Iraq and Afghanistan “funny money” to

fund the debt limit extension still hadn’t passed the Senate, but Boehner

was already planning a vote in the House. He wanted to demonstrate

that Reid’s bill couldn’t pass. After all, the Senate had already tabled

Boehner’s bill.

Pelosi called the House Democrats together to review Reid’s proposal.

Though they were a weak minority, Reid wanted the House Democrats

to stick with him, arguing that a strong vote in the House would

strengthen his hand.

The first person who would say he didn’t like the Harry Reid bill

would be Harry Reid, Van Hollen said, but the next piece of legislation,

written by House Republicans, would be worse.

As an indication of their distrust of the Senate’s Democratic majority

and its leader, many of the House Democrats protested that their

support would be interpreted by Reid as a license to give more. The Reid

bill had no tax increase. They agreed finally to let Reid know the margin

for error was very small. A number of the Democrats also said they

would vote for the Reid bill because it would give them an opportunity

to vote for lifting the debt ceiling and to demonstrate how responsibly

they were acting. It would be useful political cover if they wound up

voting against the next debt limit bill, which would likely be worse and

have Medicare cuts.

The House defeated the Reid bill at about 3:15 p. 238m. by a vote of

246–173. No Republicans voted for it, and Reid lost 11 House

Democrats. It was, however, one more meaningless exercise. The bill

had been soundly defeated. But Reid, unhappy because he was being left

out of the Biden-McConnell negotiations, was going to soldier on.

McConnell went to the Senate floor that afternoon and, after offering

the usual pabulum about “my good friend, the majority leader .239 . .

there is nobody in the Senate I respect and admire more than my

counterpart,” said he had just delivered a letter to Reid signed by 43

Republicans saying they would not vote for his bill. Gnawingly, he

quoted the majority leader’s own words from 2007: “In the Senate, it has

always been the case, you need 60 votes.”

So, dead in the House and dead in the Senate.

• • •

Obama invited Reid and Pelosi to the White House.

I’m going to give on the tax trigger, he said. He had concluded that it

was an absolute red line for the Republicans. Reid and Pelosi said they

were not ready to concede.

• • •

McConnell knew how to rub it in. He and Boehner were working closely,

and they decided to appear together at a press conference that afternoon,

underscoring Republican unity. Fox News broke into its regular

programming with a “Fox News Alert” as McConnell seemed to suggest

congressional Democrats had been cut entirely out of the negotiations

with the president.

“We are now fully engaged, the speaker and I, with the one person in

America, the one in 307 million, that can sign this bill into law,”

McConnell said.240

Later that afternoon, Reid, still furious, went to the Senate floor to

say that McConnell’s claim was false.

“Members of the Senate, that’s not true,” Reid said.241 The White

House had talked to McConnell, but “not in any meaningful way.”

Standing some 10 feet away from Reid, McConnell responded. “The

fact is that the only way we are going to get an agreement before

Tuesday is with the president,” McConnell said.242

Despite the “my good friend” language, the two leaders might as well

have been spitting at each other.

“While the Republican leader is holding meaningless press

conferences,” Reid said, “his members are reaching out to me.” 243

McConnell said they should just vote.

“We are here today,” Reid said, “right now, for this reason: It’s

spelled f-i-l-i-b-u-s-t-e-r. 244 It’s unconscionable that the Republicans

would filibuster us to default.” He continued, “You can put lipstick on

it, a nice suit, even a skirt sometimes. It’s still a filibuster.”

But he had a bill that could not get out of the Senate, and surely,

definitely, would not ever pass the House.

• • •

The president and Daley were on the patio outside Daley’s office with

Plouffe, Geithner, Lew and Sperling when they got word that Biden was

making progress with McConnell. It looked as if Republicans were ready

to agree to a Defense/non-Defense sequester in the trigger.

Plouffe couldn’t believe it. These guys are so afraid of increasing

revenues that they’re willing to put Defense on the chopping block?

Republicans’ revenue phobia was so intense that they would sell out the

Pentagon.

“This is a deal we can probably live with,” Obama said, willing to do

almost anything to salvage something and prevent catastrophe.

Plouffe thought the president seemed genuinely surprised. Okay,

Plouffe said to himself, maybe we’re going to avoid default.

• • •

At Treasury, Geithner was planning a press conference that afternoon

that would outline the payments that would get priority if the U.S.

government went into default. The bottom line was that some bills

would not be paid. It was going to be alarming to the world, and the

press conference could induce a panic all by itself. There was a big

debate that included the White House as to whether Geithner should

appear before the cameras or do it off-camera. He would be explaining

technical issues, but the main message would be that the United States

was about to go through a financial typhoon in which the treasury

secretary did not have the means to limit the damage. It had the

potential to be one of the more memorable moments in American

history.

Geithner even considered preemptively leaking out the gruesome

details to the media in hopes of pressuring the Republicans.

When it looked like McConnell was making headway, however,

Geithner decided not to have the press conference. He was getting

increasingly sick of what he called “the extortion game” the Republicans

were playing. As the former New York Fed president and current

treasury secretary, he had direct pipelines to Wall Street. The current

masters of the universe there reported to him that Boehner was making

calls to reassure the markets—and the Republicans’ growing campaign

finance base—that everything was going to be fine.

“Boehner was calling New York,” Geithner reported to his senior

staff. “They were calling all the guys in New York who were fucking

tearing their hair out saying, ‘Don’t worry, it’s just a bunch of politics.

We’re not going to take it to the edge, and we’re not going to default.’ ”

Geithner said he was trying to tell Boehner, “Don’t take it to the

edge? We’re at the edge.” Even the perception that default was close

could unleash the catastrophe.

Geithner considered himself a very calm person; he had been through

lots of trauma and crisis. Despite the turmoil, he was able to sleep at

night. He accepted, but hated, that politics was driving the crisis. He

told his staff that in a recent meeting in the Oval Office, Boehner had

told the president openly, “Most of my people don’t think I can do this

with you because it’ll be too good for you. You benefit more than we

would.”

• • •

At 9 p.m. on Saturday night, Boehner’s staff got their first real look at

the proposal negotiated by Biden and McConnell.

Loper had been in regular contact with Rohit Kumar about the

progress of the negotiations, but now he had paper, so he drafted the

Republican staff from the House Budget Committee and they pulled an

all-nighter trying to understand the plan and to identify its

shortcomings.

It was a challenge, because nobody in the office had operated under

the Gramm-Rudman-Hollings rules, which dated back to the 1980s.

Loper spent the night trying to get his arms around the proposal. What

was exempt from cuts? What was the impact on Defense versus non-

Defense spending?

At 11 p.m. they held a conference call with staff from Lew’s office to

walk through the proposal and ask questions about how it would work.

But the basics were still the same as the Rubik’s cube that Boehner

had negotiated a week earlier—$1.2 trillion in general caps, Reid’s

supercommittee to find the other $1.2 trillion, and McConnell’s complex

“disapproval” arrangement.

38

By about noon, Sunday, July 31, Biden and McConnell had reached a

tentative agreement that the deal would not be linked to a vote on a

balanced budget amendment to the Constitution. Many House

Republicans still wanted the vote, but Biden pointed out it had no

chance of passing the Senate.

Is everybody okay with that? McConnell asked. You need to talk to

Boehner about that.

Biden checked. Boehner was okay. Though it was still a big issue with

his Tea Partiers, he had a three-part deal that could pass the Senate, and

a balanced budget amendment was not part of it.

Nabors, who was closely monitoring Biden’s McConnell whispering,

thought that it was instructive to watch McConnell. The minority leader

loved to be the one doing the negotiating. “But McConnell never wanted

to have his hand on the knife,” Nabors remarked. “A whole series of

books could be written about McConnell.”

Biden and McConnell also agreed that none of the cuts in the $1.2

trillion, 10-year cap on general spending would begin in the next 18

months. They would not hit until January 2013. Again, both sides would

postpone any real, immediate cuts to federal spending.

• • •

In Congress, they had been working on reestablishing regular order.

“Let’s set the 302s for this year and next,” Jackson said. The 302(a) and

302(b) are the legislative allocations for general spending. He was

particularly interested in how much would go to Defense in the budgets

for the next two years.

Soon Boehner’s staff and Jack Lew got in a wrestling match over the

Defense numbers. The White House wanted less Defense spending in

those two years. It also wanted a so-called firewall between Defense and

other budget categories. By stipulating that a specific portion of cuts

come from each side of the firewall, this ensured that Defense absorbed

what Democrats considered a fair share of the cuts.

Too much, Boehner decided. Not enough for national security, and

the House Republicans would never accept such limits on Defense,

though it probably only amounted to between $2 and $4 billion. He

passed word to McConnell. It fell to Rohit Kumar to call Jack Lew.

“This is bullshit!” Lew said, exploding. “We’re not bending.”

Nabors, who had known Lew for more than 15 years, had never seen

his friend so exercised. “Jack just went nuts,” Nabors said. Everyone was

exhausted. Nabors found himself yelling at his colleagues in the West

Wing, or screaming at an imaginary Boehner or McConnell. “Screw

you!” he’d bellow. “You’re willing to throw the global economy

overboard? We’re really going to fight over what amounts to $2 billion?

Then fine, let’s have this fight.”

Nabors was now focusing on the doomsday scenario, and he went to

his computer to check on the opening of the Asian markets. Nearly

everyone in the West Wing was staring at one computer screen or

another, looking at Asia. The markets opened slightly higher and

remained in positive territory throughout the day.

When Asia didn’t tank, Nabors said, “All right, we’ve got a couple of

hours.245 We’ve got a little bit of time to make this work.” If the markets

had dropped severely, he didn’t know what the president would have

done.

Bruce Reed, Biden’s chief of staff, thought it felt like a modernday

Cuban Missile Crisis. But instead of the fate of the planet being at stake,

it was the fate of the economy. It was harrowing. Reed, a Rhodes

Scholar, former chief domestic adviser to President Clinton, and

executive director of the Simpson-Bowles fiscal commission, was soft-

spoken and known for his calmness. But he wasn’t calm this day. They

didn’t dare tell anyone on the outside how bad it looked, he concluded,

but it looked pretty bad. He felt they were staring into the abyss with no

idea what the outcome might be.

But worse, he had received word from McConnell’s inner circle that

the Senate minority leader thought it might be to his and the

Republicans’ long-term advantage to rattle the financial markets. That

was why they only wanted a short-term debt limit extension. A shock to

the markets, according to this reasoning, would strengthen their hand in

the second debt limit negotiation.

Again, it fell to the vice president to speak with McConnell.

The Defense firewall was critical to Pelosi, Biden told McConnell and

Rohit Kumar in a call from the West Wing.

“There’s got to be some way to resolve the firewall,” Kumar said.

“We can’t yield,” Biden said. “It’s like you and revenue.”

In a second call, McConnell told the vice president, “I didn’t realize

this firewall issue was there, frankly.”

“Look,” Biden said, “we’ve given up on revenues, we’ve given on

dollar for dollar. All the major things we’re interested in we’ve given up.

So basically you’ve pushed us to the limit.”

Biden had gone into the negotiations assuming that the smarter,

wiser, cooler heads among the Republicans would not want to do this

twice. Now, however, he had to consider that he was being manipulated

for just that purpose.

• • •

Boehner was facing his own rebellion. The deal would mean real

Defense cuts for the next two years. There were no abstractions. People

cared about what was going to happen that year. They were not going to

live with a specific number coming out of Defense only.

Buck McKeon, California Republican and chairman of the House

Armed Services Committee, was raising hell. “You can’t do this to

Defense,” McKeon was saying, and he threatened to bring dozens with

him to vote against the deal.

In the afternoon, Boehner finally called the president.

I’m not going to sign off on new lower Defense numbers for 2012 and

2013, he said. I need my Defense guys to vote for this, and I’m going to

lose their votes.

Plouffe, who was in the room, was stunned.

“So, we’re going to default essentially because a bunch of members of

Congress wanted to look after the Defense lobby?” he said. “That is not

a defensible place for them to be. God love them, we’ll go to town over

this.”

Plouffe was thinking about how they could frame this in the message

wars, but at the same time, he was apprehensive. “So it’s all going to fall

apart over this?”

“This is insanity!” Geithner could be heard saying as he went out into

the hallway outside the Oval Office. These guys are willing to burn the

house down over this? He was appalled.

Obama told the others that he had run out of road. The Republicans

really wanted to have this argument? No, he said. This was principle.

Defense had to play its role, in both the sequester, which had been

agreed upon, and the proposed Pentagon cuts for the next two years.

The president called Dan Pfeiffer to the Oval Office. “We think

Boehner is not going to take the deal,” the president told his

communications director. “We’re going to need a statement about their

rejection.”

Pfeiffer went back to his office and pounded out a draft saying that

Boehner had walked away again. It was very harsh. He went over the

draft with Daley, Plouffe, Lew and Nabors, who all offered suggestions

and edits. Everyone was worked up—angry, disbelieving, stunned.

It felt more and more like the Cuban Missile Crisis, only this time,

the bombs were going to go off.

The president told Biden to call Boehner.

“The firewall to the Democrats is religion,” Biden said to the speaker

in a call at about 5:22 p.m. “You can’t pass a deal without it.”

“On the firewall my Defense guys take a huge hit,” Boehner said.

This is absolute political reality, Biden said. “The president and I are

being as flexible as we can be without being broken.”

“Oh, come on, Joe,” Boehner said. “It’s all going to come down to

plus or minus 2 percent? The president is getting his money” to raise

the debt ceiling.

Biden called McConnell.

“There is absolutely no chance of changing a word in the firewall,” the

vice president said.

McConnell wanted to discuss it further.

No, Biden said.

The vice president then spoke with the president and gave his

recommendation. He thought the Republicans could be bluffing. “I’d

take it to the brink,” he said.

“We can’t move on the firewall,” the president said. “Now we just

wait.”

• • •

Boehner was still insisting on smaller Defense cuts.

“We can’t give there,” Biden finally shouted at Boehner. Then he

pulled out his trump card. He said he had authority from the president

to call off the deal and go to default if the Republicans did not agree on

the Defense proposal. The president was now inflexible, Biden claimed.

“This has to be the deal.”

No, Boehner said. He had decided. His voice came through the

speakerphone in a high-pitched whine. To Biden’s staff he sounded

trapped and unsure.

“You’re going to bring the world economy to its knees over this?”

Biden shouted.

Boehner said again that he had decided, and that was it.

They hung up.

Was this a bluff? Boehner and his staff immediately wondered. How

could the president allow default?

Boehner did not want default under any circumstances. If it

happened, the administration would try to blame the Republicans, and

they might succeed.

Biden sounded sincere when he claimed that the president had been

pushed to his limit. What was Biden up to? And what about the

president? Had he really been pushed to the end of the road?

• • •

In Boehner’s office, they knew they had to find a way out of the Defense

spending impasse. The agreement was at a pretty high level of

abstraction and it had to be reduced to specifics in writing. Brett Loper,

the policy technician, said there was a different way to divide up the

spending pie. They could define Defense spending more broadly as

“security” so it included money for the State Department, Veterans

Affairs and the Department of Homeland Security. If they arranged it

right, he figured, they could end up having the other departments absorb

most or all of the belt-tightening. Defense itself might even get a little

bump in spending.

Loper wanted Boehner’s office to stay one step removed from the

process, so in a meeting with Boehner, McConnell and their key staff, he

suggested that McConnell should recommend to Biden that instead of

placing the firewall between Defense and non-Defense spending, it be

placed between security and nonsecurity spending.

McConnell had Rohit Kumar call Bruce Reed.

We need to figure out a way to get out of this stalemate, Kumar said.

What if instead of considering Defense alone they used a broader

“security” category that included State, Veterans Affairs and Homeland

Security?

Reed liked the idea. The administration had used the

“security/nonsecurity” definition in its own budget.

McConnell signed off quickly. The question was Boehner.

“I can’t get it done,” McConnell told Biden. “You’ve got to talk to

Boehner directly.”

• • •

Meanwhile, House and Senate Democrats met. Though there were some

who were satisfied, many were intensely chagrined at being forced into

another high-stakes game of chicken. They were operating with partial

knowledge while the United States sat on the edge of default. They were

the lawmakers and they were going to be partners in the final

breakdown, igniting God knew what kind of reaction in the national and

global financial markets.

Reid, ever suspicious of the minority leader, said he thought

McConnell was getting Boehner to stall for time so they could make new

demands. The president should give McConnell and Boehner a firm

deadline, demand a final answer on deal/no deal.

A sense of alarm engulfed them. It was possible this was getting away

from them. Reid and Pelosi called the president.

Was McConnell stalling? they asked. What about a deadline?

No, the president said, he didn’t want to do that. “Let the

Republicans work it out.”

The meeting at the Capitol finally broke up with this lingering

question: If the Democrats voted a new agreement down, would they be

better off, or worse?

It was going to be a tough sell to the House Democrats, Pelosi knew,

and she wanted Lew to meet with them on Monday if there was a deal.

Jack was going to have to be out front.

• • •

McConnell then spoke with Boehner, who was in his office watching the

Greenbrier Classic golf tournament on television. It was time to

approach the president.

In the early evening, Boehner called the president.

Would you agree to redefining the firewall as security/nonsecurity?

the speaker wanted to know, presenting it as his own idea. Obama said

he would get back to him.

Jack Lew examined the security/nonsecurity proposal. Since it was in

the administration’s own budget, it was a progressive concept. It had

come out of the international development community seeking more

funding for poor people and for AIDS programs in Africa. The thinking

was that they would get more if it was labeled part of the security

operations of the U.S. government. Now the question was whether the

State Department foreign assistance programs would be more vulnerable

to cuts competing with Defense or other federal domestic education and

health programs. Foreign assistance was important to Secretary of State

Clinton, Lew’s former boss. He went to the Oval Office.

“Mr. President,” he said, “before we commit to this, I just want to

make sure that the numbers that I’ve done on the back of an envelope

have some relationship to the real numbers.” It was a clever idea, but he

wasn’t sure if they should be for it or against it. Just because someone

offered you your own idea didn’t mean you should immediately and

uncritically accept it.

“We’re not going to dick around with this?” Geithner asked

impatiently. “It’ll be okay. We can manage this.”

But the president agreed with Lew. “Step back,” he said. “Let’s think

about it.” He wanted skepticism. Defense cuts were taking the place of

revenue in some perverse way. It was what the Republicans were giving,

and the president wanted to make sure they couldn’t wiggle out. Making

Defense pay its share was critical for the Democrats. No last-minute

tricks.

The State Department foreign assistance programs could be

eviscerated, Lew worried. It took him more than an hour to check on

what precisely had been in the administration’s previous proposal, but

he finally told the president it looked okay.

The president then phoned Pelosi to say that the Republicans wanted

to change the Defense firewall to security/nonsecurity. Reid had signed

off, he said, and Boehner was about to start briefing his House

Republicans. It was the last thing holding up a deal.

Pelosi checked. No one liked it, but the House Democrats could live

with it.

“We’re not compromising on the firewall,” Biden told Pelosi in a

phone call. She then told the president it could be a problem but it

would not be a deal breaker.

Pfeiffer, an unnerving presence at this moment, was standing outside

the Oval Office holding a final version of the statement announcing the

breakdown in talks and blaming Boehner.

At 8:15 p.m. the president phoned the speaker.

“John,” the president said, “if this can help you get there, I’m okay

with it. But I can’t do anything else. It’s got to be

security/nonsecurity . . .”

The White House team in the Oval Office was listening to the

president’s end, and it seemed like Boehner had interrupted the

president. What now? Hearts sank. Not again. Why had Boehner

interrupted?

“Do we have a deal?” Obama asked.

Boehner said they did. “Congratulations,” he said.

“Congratulations to you too, John.”

Then Obama turned to the staffers in the room. “Let’s not do this

again,” he said. “We’re not going to negotiate on the debt limit ever

again.”

• • •

That night the 74-page “Budget Control Act of 2011” was posted on

congressional websites. Though it had odd procedural twists, it

effectively guaranteed that Obama would get $2.4 trillion added to the

debt ceiling. Nearly $1.2 trillion would be cut over 10 years, beginning

in 2013, and a new 12-person committee from the Senate and House—

the supercommittee—would have until November 23, 2011, to find at

least another $1.2 trillion in deficit reduction. If the supercommittee

failed, the trigger would go off, sequestering another $1.2 trillion in cuts

over 10 years.

Monday on the House floor, Minority Leader Pelosi rose to say she

would vote for the bill.246 “I urge you to consider voting yes, but I

completely respect the hesitation that members have about this.” She

added, “I hear that our Republican colleagues have said they got 98

percent of what they want in the bill. I hope that their votes will reflect

that.”

The House passed the Rubik’s cube by a vote of 269 in favor, with

174 Republicans joined by 95 Democrats.247 The Senate followed the

next day with a vote of 74–26 that included majorities from both parties,

and the president signed it. 248

House Budget Committee Chairman Paul Ryan blasted the deal in The

Wall Street Journal for its failure to address the “scary, yet simple” math

showing that Medicare, Medicaid and Obamacare spending were out of

control. 249

Less expected was former Obama economics czar Larry Summers’s

attempt to blow a hole in the deal with a Washington Post op-ed in which

he made the same arguments he had in the White House: “Despite

claims of spending reductions, the agreements reached so far are likely

to have little impact on actual spending over the next decade. ”250 This

was, he noted, because “the current Congress cannot effectively

constrain” a future Congress, which would do what it wanted.

Summers also noted the failure in the legislation to address whether

the Bush tax cuts, especially for the upper brackets, would be extended.

As a practical matter, not extending the tax cuts for the wealthy would

add nearly $1 trillion to the U.S. Treasury over 10 years, making it easy

for the supercommittee to reach $1.2 trillion in deficit reduction.

“But this is an unlikely outcome given the likely composition of the

12-member supercommittee,” he wrote.

• • •

Lew knew the deal didn’t get the whole job done, yet by avoiding default

they had done important work. The American economy had been pulled

back from disaster. So, there had to be some sense of satisfaction. In his

view, it had always been inconceivable that the Republicans would push

the economy over the cliff. “After 30 years of this,” he told a White

House colleague, “high-wire acts get resolved by landing.”

The president told me, “In the final three weeks, it was as intense a

period as I’ve had in my presidency.”

39

Zero. David Plouffe couldn’t believe it. The monthly jobs report came

out the morning of Friday, September 2, 2011, and there it was, on the

very first line: a zero. 251 No jobs had been added to the U.S. economy in

the month of August.

Zero, Plouffe repeated to himself. Not 100. Not negative. In a way,

negative would have been better. Zero. You couldn’t make this up.

Unemployment was stuck at 9.1 percent, meaning 14 million of the

153.6 million Americans in the workforce were unable to find a job.

Digging into the numbers only made it worse. The number of people

classified as “involuntary part-time workers,” meaning they wanted full-

time employment but could not find it, was another 8.8 million. Nearly

one million people had given up looking for work, meaning they weren’t

even counted among the 9.1 percent unemployed. In all, 15.4 percent of

the workforce was unemployed, underemployed or had given up.

To Plouffe, with his eyes on the 2012 elections, this was terrible

news. No president since 1940 had been reelected with unemployment

above 7.2 percent.

Plouffe had watched Obama struggle through a brutal August. The

debt limit fiasco had driven public opinion of both the president and

Congress to new lows. Inside the Democratic Party, the White House

was being blasted for failing to take the lead on the economy.

Within the White House, the senior staff was anxious to begin

rebuilding the president’s reputation as a strong leader.

• • •

On September 8, Obama appeared before a joint session of Congress to

push the American Jobs Act, a $447 billion package made up of tax cuts

and stimulus spending meant to spur job creation.252 The speech was

delivered in prime time to a national television audience.

The centerpiece of the plan was another year-long extension of the

very popular payroll tax cut. Obama was back in the role of tax-cutter-in-

chief.

“It will provide a jolt to an economy that has stalled and give

companies confidence that if they invest and hire, there will be

customers for their products and services,” Obama said. “You should

pass this jobs plan right away.”

Pass this bill. He repeated the demand 17 times in the 32-minute

speech.

• • •

Eric Cantor was not surprised that the payroll tax cut was back. He had

predicted it in 2010. Republicans couldn’t oppose it. Raising taxes on

working people would be against their economic philosophy, and would

get them shredded politically.

“Let’s just rip the Band-Aid off,” Cantor said in a meeting with

Boehner, McConnell and Kyl. Let’s just agree with the president and

take the issue off the table.

Cantor also had a personal reason for wanting to avoid this fight. He

was in the midst of an image improvement project. He had taken a

beating during the debt limit battles. He had been seen as inflexible and

demanding. His staff was urging him to show at least some visible

willingness to work with the administration.

But McConnell had other ideas. He was convinced that the payroll tax

cut gave Republicans leverage to get big things.

• • •

The American Jobs Act speech marked the start of an intense media

campaign by the president and a shift in strategy. Instead of trying to

work with Congress, he would attack. He would take the issues to the

American people. He had looked weak, always going back to Boehner,

seeking deals. Now it was going to be a new war. In speech after speech,

he pushed for Congress to take up the bill, hammering particularly on

the issue of the payroll tax cuts.

On September 12 in the White House Rose Garden, Obama

surrounded himself with teachers, veterans, firefighters, police officers

and others who would be helped by continuing the tax cut. 253

Stressing the fact that the payroll tax cut would reduce the taxes paid

by small business owners, he ridiculed Republican resistance to his jobs

plan.

“Instead of just talking about America’s job creators, let’s actually do

something for America’s job creators,” he said.

Inside the White House, Plouffe was reasonably sure the Republicans

wouldn’t prolong the fight over the payroll tax cut. The president was

scoring points all over the media by slamming Republicans, noting that

their unwillingness to extend the payroll tax cut meant they would be

raising taxes on all workers.

“They’ll be too smart to keep letting us do this,” Plouffe told senior

White House staff. “They’ll agree to it quickly. Take the energy away.”

• • •

Meanwhile, the other budget issue was still pending. Boehner and Reid

continued to voice utter confidence that the new congressional

supercommittee would be able to find the additional $1.2 trillion in

deficit reduction over 10 years required by the Budget Control Act that

passed in August.

In an interview, Boehner said, “The supercommittee is going to

work. 254 I’ve got Reid’s and McConnell’s commitments the

supercommittee is going to work.”

It was a sure thing. All Reid and Boehner had to do is appoint the 12-

member, bipartisan supercommittee and make sure the committee

found the cuts before the November 23 deadline.

If it reached agreement, the supercommittee’s plan would be

guaranteed a filibuster-free up or down vote without amendments. If

there was no agreement, Congress would face a mandatory trigger that

would automatically cut or sequester that amount of money.

Boehner told the House Republican leadership and other key

members not to worry about the sequester, which would take half the

spending cuts from Defense and the other half from domestic programs.

“Guys, this would be devastating to Defense,” he said. “This would be

devastating, from their perspective, on their domestic priorities. This is

never going to happen.”

• • •

Reid, who had conceived of and pushed for the supercommittee, named

Patty Murray, a Washington State Democrat who had been in the Senate

18 years, as the co-chair. She was a Reid loyalist and the fourth-highest-

ranking Democrat in the Senate.

For the Republican co-chair, Boehner chose Jeb Hensarling, the 54-

year-old Texan who described himself as a movement conservative. The

fourth-highest-ranking member of the House Republican leadership,

Hensarling was much closer to Cantor than Boehner. He was joined at

the hip with Paul Ryan on economic philosophy, and he believed that

dramatic structural reform of the entitlement programs was the central

governing problem of the day. If Hensarling could get an agreement with

the Democrats, it would get the approval of the House Republicans.

Murray reached out to all members of the committee, * including Jon

Kyl, the hard-line Republican whip and one of the group’s three Senate

Republicans. She phoned him at his home in Arizona.

Oh, Kyl’s wife, Caryll, said, Jon is out working in the yard with some

rented equipment, so he can’t come to the phone. Ever the fiscal

conservative, Jon would call back when the machine had been returned

and the meter was no longer running. Kyl called Murray the next day.

“You know I was renting it by the hour,” he explained.

• • •

Meetings began in September and by the end of October various

proposals and offers were flying around. The vast divide over the size of

a deficit reduction deal and its particulars, apparent during the summer

in the Obama-Boehner negotiations, still existed.

• • •

“I have gone way out on a limb,” Reid said in a meeting with Boehner.255

“We have all made pledges and commitments.” Then he offered the

standard cliché about such bipartisan deals: “The only way this will work

is if we all jump off the bridge together.” In order to agree to changes in

the cost-of-living adjustments for Social Security and age eligibility in

Medicare, he said he had to stick with a proposal made by the

Democrats on the supercommittee for a substantial increase in tax

revenue. “If you can’t agree to it, then no hard feelings. This is hard for

both of us.”

Soon Reid concluded that the Republican tax phobia was going to

prevent any supercommittee agreement. The reason, he said, was not

Boehner. “These Tea Party nuts are never going to let him get there.”

• • •

By November, the supercommittee had made little progress. So Boehner

made an end run around Hensarling. He reached out in private to

another supercommittee member, Representative Dave Camp, the

chairman of the House Ways and Means Committee. Boehner and

Camp, two Republican Midwesterners who shared a moderate streak,

had both come to Congress in 1991, were on their 11th terms, and had

developed a close working relationship and even a friendship.

Boehner told Camp to make a secret offer of $600 billion in revenue

over 10 years as part of a broad tax reform package. It had to stay secret.

The leaks of his $800 billion revenue offer to Obama had been part of

the summer debt ceiling disaster.

That $600 billion seemed right, Camp said. It was half the $1.2

trillion deficit reduction goal and should be achievable.

At noon on Sunday, November 13, Camp made the $600 billion offer

to Senator Max Baucus. A member of the supercommittee, Baucus was

also chairman of the Senate Finance Committee, making him Camp’s tax

counterpart.

Thus began a series of seemingly endless discussions between the two

tax chiefs. One major obstacle was the Bush tax cuts. In the tax reform,

all the income tax rates would supposedly be lowered, Camp argued, so

the Bush tax rates would be irrelevant. There would be a whole new tax

code. Say you have won, killed the Bush tax cuts forever, Camp said.

“You can tell them you ended the Bush tax cuts.”

Camp finally suggested they duplicate what Reagan and Tip O’Neill

had done in the 1983 Social Security deal. “You say what you need to say

to your folks. And I’ll say what I need to say to my folks.”

Baucus was unconvinced, thought it was gimmicky, and refused to go

along.

• • •

Boehner told Reid several times that he had no confidence that Baucus

had the ability to close a deal.

Several days before the supercommittee approached its November 23

deadline, Murray told Hensarling the Democrats would be willing accept

$250 billion in revenue.

We can’t do a penny in revenue, Hensarling replied, unless we get the

cost-of-living adjustment on Social Security and increase the age of

Medicare eligibility. In addition, as he had always said, he had to have

serious Medicare structural reform, and he had not seen any detailed

plan.

You have to consider this, she pleaded.

He didn’t agree.

• • •

By Monday, November 21, Hensarling was convinced no deal was

possible, and he got on a plane for Texas. Some of the committee

members continued, with increasing desperation, to look for a deal, but

by the 23rd, there was still no agreement. With Hensarling gone, Murray

realized that she alone was going to have to tell the country and world

they had failed.

At 4:45, she put out a press release she and Hensarling had previously

agreed upon.256 It was a model of avoidance:

“We end this process united in our belief that the nation’s fiscal crisis

must be addressed,” it said. Left unsaid: Just not by us, just not now.

• • •

“Washington’s Super Failure,” read a Washington Post editorial headline

the next morning.257

“The lesson of the supercommittee is not a happy one,” the editorial

board wrote. “The committee found itself paralyzed. . . . The gridlock, it

turns out, was not a product of procedural failings in the system; it was

a result of ideological rigidity.”

A New York Times headline said, “Failure Is Absorbed with Disgust

and Fear, but Little Surprise.” 258

The story’s first line asked the question, “Does the American political

system even work anymore?”

• • •

No one voiced more disappointment in the supercommittee’s failure

than Minority Leader Mitch McConnell. During a one-hour visit to his

second-floor office in the Capitol on July 12, 2012, he repeatedly brought

it up and apologized for sounding like a broken record. 259

He insisted on giving the supercommittee unprecedented authority so

an agreement could not be amended and/or filibustered. “My idea to

lower it from 60 to 51, that only disadvantaged Senate Republicans. My

idea to give up the right to amend, that only disadvantaged Senate

Republicans. So I willingly and enthusiastically gave up my party’s

ability to affect the final vote. Could’ve been passed with 51 Democrats.

“Divided government would’ve been the perfect time to solve the

biggest problem we have,” he said. Get both Democratic and Republican

fingerprints on a deal. “So I started with the notion that this is the

perfect time to tackle the single biggest problem we have. Most

Democrats will tell you privately what we all know, which is that unless

you change the eligibility for beneficiaries on the entitlement side, you

will never solve the problem. There are not enough health care providers

to cut to get there.

“There are just too many people eligible, given the number of people

we have, to pay for it. And until you fix that problem, you’re on an

inexorable path to Greece. And so my view was, I know how strongly the

Democrats feel about revenue. We don’t think that’s the problem. But

we’re willing to pay some ransom, if that’s what it takes, to get the real

problem solved.”

He insisted that the Republicans would have agreed to limited

revenue increases if there was real entitlement reform, and the offers of

$250 billion in revenue, or even the $600 billion revenue through tax

reform, were genuine.

“I don’t think naïveté is one of my shortcomings,” he said. “I have

many but I don’t think that’s one of them. I was actually shocked that

we didn’t finally get an outcome” from the supercommittee.

McConnell knows how to stick to his talking points. He sat patiently

in his office with his sphinxlike gaze as I plowed through my questions.

He subtly slid by ones he didn’t want to address and persisted on those

he did. “I know you’re going to think I’m repeating myself,” he said at

the end, repeating himself. “The single biggest threat to the future of

this country—there’s nothing even close—is the unsustainable path

we’re on, driven by excessive generosity beyond our ability to pay”—he

laughed slightly—“on very popular programs. You cannot straighten this

country out until you solve that problem.” To solve it, he said, they

would need something again like the supercomittee with an expedited,

no-amendment, filibuster-free procedure.

“And 2011 was an opportunity lost,” he said, blaming the president

entirely. “I am mystified. I think it would have made him look good. I

think there would have been a very positive response with the markets

and with the American people.

“You may think it’s to my advantage to blame it on him, but hell, I

know what happened. And he was AWOL at the time when we needed a

president of the United States to get involved and make a deal.”

I noted that Senator Reid insisted he wanted the supercommittee to

work.

“The key Democrat is not Harry Reid,” McConnell said. “It’s Barack

Obama. Now obviously I’m partisan, but I know enough about this place

to know that when the president wants to make a deal, the members of

his party fall in line.”

We discussed his famous statement from 2010 that “The single most

important thing we want to achieve is for President Obama to be a one-

term president.” I noted that he had also said in that interview, “I don’t

want the president to fail. I want him to change” and make deals like

Clinton.

“I rest my case,” McConnell said, saying that it gets taken out of

context all the time and he was talking about a blueprint to get things

done, as he and Biden did on the Bush and payroll taxes in the weeks

that followed.

I said that the president believed that there were Republicans who

wanted any deal on the debt ceiling negotiations to fail because if it

succeeded, it would almost guarantee his reelection.

“He should have tested that thesis by making a deal with us,”

McConnell replied. “Because it’s not his responsibility to deliver

Republican votes. That’d be my responsibility and Boehner’s

responsibility. His responsibility is to not lecture us about what our

people will or won’t do. His responsibility is to act like an adult, a

president, willing to tackle the single biggest problem, and let us worry

about delivering our side.”

• • •

Under the law in force, the Budget Control Act, spending cuts of $1.2

trillion over 10 years were scheduled to begin in 2013. With no deal

from the supercommittee, the trigger would also go off in 2013 requiring

a sequester of another $1.2 trillion in cuts over 10 years. The Bush tax

cuts were also set to expire in 2013, meaning another $4 trillion would

be taken from taxpayers over the same 10 years.

That could total $6.4 trillion over 10 years, or $640 billion a year, an

anti-stimulus package approaching the size of the 2009 Obama stimulus

of $787 billion every year for a decade.

• • •

By early December, there was still no resolution of the president’s

payroll tax cut proposal and his media assault was relentless.

“I know many Republicans have sworn an oath never to raise taxes as

long as they live,” Obama told reporters on December 5. 260 “How could

it be that the only time there’s a catch is when it comes to raising taxes

on middle-class families? How can you fight tooth and nail to protect

high-end tax breaks for the wealthiest Americans, and yet barely lift a

finger to prevent taxes going up for 160 million Americans who really

need the help?”

The president said he would demand that Congress remain in

Washington—through Christmas if necessary—until the tax cut was

extended.

McConnell and Boehner were still trying to get some offsets, but

Cantor saw no point.

We’re fooling ourselves, Cantor argued. This is not a winning hand.

• • •

At 2:15 p.m. on December 14, Reid went to the White House to meet

with the president.

Keep trying for the payroll tax extension, the president said.

If we can’t agree to any of this, Reid said, why don’t we agree to a six-

week extension of the payroll tax?

Why don’t you do two months? the president said. Because, six

weeks, you come back from the New Year and you’re not going to have

enough time to get it extended for the full year.

• • •

Meanwhile, Cantor ran into Bill Daley and Jack Lew by chance at a

holiday reception.

The Senate Republicans are going to do a two-month extension of the

payroll tax cut, they told him. You guys are already negotiating.

Cantor was caught off-guard. He didn’t know about any negotiations.

Had Boehner gone around him again? He had his staff immediately

check with Boehner’s staff.

No, no, no, that’s not true, Boehner’s staff insisted. Not accurate.

All right, Cantor’s staff replied. Let’s kill it in the crib, then. The press

is calling about this. Let’s say it’s a nonstarter. We’re not doing two

months.

The tone from Boehner’s people changed abruptly: Don’t publicly

criticize the two-month extension.

• • •

At 8:30 a.m. on December 16, Cantor headed down to Boehner’s office

to meet with the speaker and McConnell. I want the two-month

extension, McConnell said. Daley and Lew had been right, Cantor

realized. McConnell said he was negotiating terms with Reid to get

something from the Republican wish list.

The two-month deal was a “nonstarter,” Cantor said as forcefully as

he could. “I’m already publicly against this on the record. Half of our

members are publicly against it on the record. Half of our members

aren’t even sold on the payroll tax to begin with.”

Later, McConnell came back to the House leaders and said, “I can’t

reach any kind of agreement with Reid. We’re back to two months.” He

wanted Boehner and Cantor to sell two months to House Republicans.

“What you’re planning isn’t going to work,” Steve Stombres told

McConnell, not hesitating to challenge him.

The Senate minority leader began to lecture Stombres. The Senate and

House are co-equal parts of the legislative branch, he said. “You have to

understand that what’s good in the House isn’t always good in the

Senate.”

Boehner stepped in. “Let’s call it a victory,” the speaker said.

McConnell carried the word back to Reid. The speaker was on board.

That Friday night Reid had a meeting with the Senate Democrats to

advocate for the two-month extension. On a journey where there are a

lot of bad roads open to us, he said, this is the least bad route available.

This is the best path and we’ll be getting out of here before Christmas.

So the two-month extension sailed through the Senate the next

morning, December 17, on a vote of 89–10.

In the afternoon, Boehner and Cantor held a telephone conference call

with House Republicans, who had voted for and passed a one-year

extension just four days earlier. 261

I don’t love this Senate two-month deal, Boehner said. It’s not great.

Maybe we should take it and live to fight another day.

It’s a terrible deal, Cantor told the conference, taking a stand against

the speaker and putting more distance between himself and Boehner

than ever before in front of so many Republicans.

Republican Whip Kevin McCarthy got on the line and essentially

agreed with Cantor.

When the members themselves were given time to speak, they

erupted against the two-month extension. It was madness. People and

businesses needed to be able to plan ahead.

“It’s a piece of shit,” said North Carolina Representative Virginia

Foxx.

“It’s a sellout to McConnell,” said Doc Hastings of Washington.

Even Ohio’s Steve LaTourette, considered one of the least

conservative members of the Republican conference, couldn’t stomach

the deal, saying he wanted to come back to Washington to fight it out.

In all, 53 members waited their turn to speak, and 49 were against the

deal.

• • •

Joe Biden thought he smelled a rat. Mitch McConnell was one of the

wiliest politicians in Washington. Why would he be pushing the idea of

a two-month extension? Everyone assumed a full-year extension was

inevitable. Nobody could possibly want a second debate on the payroll

tax when the two months were up.

McConnell was putting his Republicans on the wrong side of a tax cut

debate? No, Biden concluded, McConnell must be up to something.

Biden called his friend, Republican South Carolina Senator Lindsey

Graham.

What’s going on? Biden asked, reaching Graham at home on

Saturday. We can’t figure out what you guys are doing, but this looks so

dumb it has to be smart.

“No, Joe,” said Graham. “I know what you’re saying. We just fucked

this up. It is as dumb as it looks. You all are in the driver’s seat. There is

no magic game plan.”

“What happened?” Biden asked.

“I don’t know, but most of us voted thinking that’s the best deal we

could get and that the House was okay,” Graham said. “Do you think I

would have voted for this so quickly if I thought it hadn’t been a done

deal?”

“Just checking,” said Biden.

“I’m not fucking with you,” said Graham. “I mean, it’s not that I’m

beyond fucking with you. I’m just not fucking with you here.”

Biden still didn’t seem convinced.

“Are you all capable of doing this yourselves? Of fucking something

up this bad?” Graham asked.

Biden thought for a moment. “Yeah. I could see our guys doing this.”

“Well there’s your answer,” said Graham. “If you don’t stick this up

our ass, you all need to fire yourselves.”

• • •

The meltdown on Saturday’s Republican conference call wasn’t yet

widely known on Sunday morning, December 18, when Boehner made

an appearance on Meet the Press.

“Well, it’s pretty clear that I and our members oppose the Senate bill

—it’s only for two months,” the speaker said. 262 “How can you do tax

policy for two months?”

• • •

That Sunday afternoon, the president called Reid at his apartment in the

Ritz-Carlton on the edge of Georgetown. Reid was angry and tired.

Landra, his wife, was going for chemotherapy treatment the next day.

“What are you going to do?” the president asked about the deal.

“We are done,” Reid said. “No force of nature, nothing you say,

nothing you can do, we are done.” He was sticking with the two-month

extension the Senate had already passed.

Shouldn’t they think a little bit more on some of this?

“Barack, we are done,” Reid said. “We are done.”

Reid and Krone, his chief of staff, agreed they were going silent with

Boehner. A total lockout. Reid would not talk to Boehner, and Krone

would not talk to Barry Jackson, Boehner’s chief of staff. But they were

nervous. These were high stakes. “The ultimate stare-down,” Krone

said.

• • •

The mood in the White House was now giddy. The speaker of the House

had just gone on the record essentially opposing a tax cut, even if for

only two months. Obama, however, was worried that taxes would go up

on January 1, and Sperling again noted the potentially large negative

economic impact.

Obama’s family had already left for their traditional Christmas

vacation in his home state of Hawaii, and the president was two days

late in joining them. “I’ve told Michelle and the girls I might not be

coming,” Obama told his economic team. “You should be telling your

families the same thing. This is for real. We’re not going.”

• • •

As Christmas approached, Boehner was taking fire from the old-line

Republican establishment.

“I think we need to recognize reality,” said John McCain in an

interview with CNN December 20.263 “And that is we are not going to

see that payroll tax cut expire on the first of January, and we have to

accommodate to that reality.”

The fight needed to end, McCain said. “It is harming the Republican

Party. It is harming the view, if it’s possible anymore, of the American

people about Congress.”

On Wednesday, December 21, The Wall Street Journal joined the fray

with an editorial headlined “The GOP’s Payroll Tax Fiasco. ”264

Republicans, the paper’s editorial board said, had “thoroughly botched”

the politics of the payroll tax cut. “The GOP leaders have somehow

managed the remarkable feat of being blamed for opposing a one-year

extension of a tax holiday that they are surely going to pass.”

For Republican leaders, it is never a good day if The Wall Street Journal

is calling you idiots.

Boehner reached the president.

Since Harry isn’t speaking to me, Boehner said, why don’t you send

up your guys to sit down with mine to negotiate an agreement?

No, the president said. We’re done. Two months. You’ve got the bill

in front of you. You can pass it.

Boehner then summoned the House Republicans for another

conference call.

“Speaker’s decision,” Jeb Hensarling announced.

We lost, Boehner told them. He had struck a deal to approve the two-

month extension with the understanding that the full-year extension

would be negotiated after the holidays. This time, democracy was

suspended—the members were not offered a chance to speak. No one

could punch in on the call to complain or disagree.

• • •

Because the Senate would not reconsider, Boehner’s only option was to

pass the two-month extension and get out of town for the holidays.

On December 23, in a speedy House session presided over by Boehner

himself, the two-month extension passed by unanimous consent with no

individual votes recorded.265 Despite the procedural camouflage, they

could not hide. The two-month extension was now an albatross around

the necks of Republicans of the Senate and the House.

Nabors was surprised they had to bring the Republicans kicking and

screaming to approve a tax cut. Obviously it was because it had been an

Obama proposal. They would injure themselves, even contradict their

own anti-tax arguments, in hopes of inflicting greater injury on the

president. The Boehner-McConnell agenda was singularly designed to

defeat Obama at any cost.

At 1:25, the president delivered a statement in the White House Press

Room, congratulating Congress on “ending the stalemate” and passing

the payroll tax extension.266 “This is some good news,” the president

said. “Just in the nick of time for the holidays.” Minutes later, Obama

took off for Honolulu.

Media coverage acknowledged the deal was a win for Obama, but the

real focus was on the failings of congressional Republicans. “The

Humbling of the House GOP,” said a headline on Politico.com; 267

“Hate-Filled GOP Suffering from Self-Inflicted Wounds,” said The New

York Daily News; 268 “House GOP Surrenders on Payroll Tax Cut,”

headlined The Washington Post. 269

But there was more to the story. Not only was there a disastrous lack

of coordination between Boehner and McConnell, but the internal

politics of the House had become much deeper and more complex.

There were now, more than ever, two distinct power centers: one led by

Boehner and the other by Cantor.

• • •

In early February 2012, the Republicans agreed to extend the payroll tax

cut for the full year. The package would add at least $143 billion to the

deficit. Six days later, on February 17, the House passed the one-year

extension 293–132, and the Senate approved it 60–36. 270

Obama celebrated the bill’s passage on February 21 in the White

House’s South Court Auditorium. Surrounded by individuals who would

benefit from the payroll tax cut, but no members of Congress, he was

the champion of tax cuts. “You’ll remember,” he said, “I called on

Congress to pass this middle-class tax cut back in September as part of

my broader jobs plan. ”271

Democrats were given no credit but were lumped together with

Republicans. The president decried legislative gridlock, and, indicating

the taxpayers on the podium, said, “With or without Congress, every

day I’m going to be continuing to fight for them.”

40

In an interview about the debt ceiling negotiations in the summer of

2011, Boehner passed severe judgment on most of the Obama team,

except the treasury secretary. 272

“Geithner was an asset to me in this whole thing. Geithner,

Geithner!” Boehner said, as if he had been the lifesaver. “God bless him,

but he was the guy running around yelling, Fire! And every day with the

president he’s screaming, Fire! And you know if it weren’t for Geithner,

I don’t know if the president would have gotten engaged like he did.

That’s the first thing.

“Second thing is, and I thought about this this morning while I was

going over this, and this is probably—hindsight is 20/20—but Bill Daley

and I have had a long relationship. We like each other, we trust each

other, almost like brothers. I mean we really understand each other. And

when he came in as chief of staff I was very hopeful and optimistic. But

he wasn’t in charge.”

Daley at first said he was flattered by Boehner’s remark, but that he

looked on the speaker as “not quite a brother. ”273 He said he would not

address the question of who was in charge in the Obama White House.

Who was in charge?

“I have no idea,” Boehner said. “Nobody who was in the room was.274

And I’ve got Jack Lew and Daley and Rob Nabors and Geithner. But

there wasn’t anybody in charge. And you know, I look back on this

whole thing. The president was trying to get there. But there was

nobody steering the ship underneath him.”

Had he ever said that to the president?

“No, no,” Boehner said. “I don’t know that I recognized it until later.

Much later. Months.

“Again hindsight. They never had their act together. The president, I

think, was ill-served by his team. Nobody in charge, no process. I just

don’t know how the place works. To this day, I can’t tell you how the

place works. There’s no process for making a decision in this White

House. There’s nobody in charge.”

Isn’t the president in charge?

“Yeah, but any good manager, any good leader, has a team around

him and a structure around him for making things work and making

things happen. I never got the slightest clue that there was a structure

there. It’s not that they’re bad people. But there’s no structure.”

Yes, Boehner said, the president would talk about a big deal but then

send a proposal calling for Medicare cuts of merely $15 billion. However,

the conversations between the two of them were good. “He and I never

had a disagreement,” he said, overlooking or forgetting the heated

conversations they had had, especially over the phone.

“I don’t think it was clear to me until months later because you know

as I reflected on this—and I reflected on it a lot because I’ve got to tell

you, in the year and a half I’ve been speaker it’s the biggest

disappointment I’ve had, not being able to come to an agreement.

Especially when we had one. It was right there. It was significant and it

would have worked. And the country would be better off today as a

result of it.”

Many in the White House, I said to him, felt it was hard to get to a

deal because Boehner had to prove to his members that he had

humiliated the president. That was all that would sell to the Tea

Partiers. Compromise was a crime, so a deal that left both sides satisfied

was unacceptable. Obama needed to be destroyed. Crushed. A kind of

triumphalism was necessary.

“No,” Boehner said. “It’s all about cutting spending. I don’t have an

evil bone in my body. I’m not capable of it. It’s not who I am. You can

ask anybody in this whole place,” he added, sweeping his hand and his

cigarette around the speaker’s second-floor office in the Capitol. “My

staff think I ought to be tougher. My friends. But I don’t have an evil

bone in my body. It was all about cutting spending. And they just

weren’t willing to cut spending. It’s as simple as that.”

Do you think Obama is willing to cut spending? I asked.

“I don’t know. I don’t know. Every time you get there, he’s got 50

reasons why he can’t do that, can’t do this, can’t do that. Maybe it’s the

difference between the president and his staff. I don’t know.”

In the White House, you’re seen as a Main Street Republican and Eric

Cantor as a Wall Street Republican, I said.

“They are judging style as opposed to substance,” Boehner said. “My

voting record and Eric’s, I wouldn’t think there’s a dime’s worth of

difference between them, our voting records historically. I am a

conservative Republican. I have the eighth most conservative voting

record in Congress. But I don’t wear it on my sleeve. I don’t shove it in

people’s face.” *

Boehner also had another complaint about the White House. “There

was no outreach when we were in the minority. There is no outreach in

a majority. You look at both Bush administrations, Clinton’s

administration, they had a congressional affairs team that was plugged

in keeping people up to date. No outreach. Go talk to the Democrats.

Because they get treated the same way. There’s no outreach. The place

[White House] is dysfunctional.

“I don’t know whether it’s him or it’s him versus his staff or

whoever’s calling the shots,” Boehner added at one point. 276

“You’ve got a bunch of people down there, well-meaning people, who

have never done anything. Never run anything. Organizational structure.

When you don’t know what you don’t know, it gets you in big trouble.”

• • •

Within the White House, Jack Lew, David Plouffe, Rob Nabors, Gene

Sperling and Dan Pfeiffer found Boehner’s criticism laughable and

untrue. In the president’s and their view, Boehner did not come close to

steering his own ship. Instead of being a visionary trying to make a

grand bargain, Boehner had, almost all alone, crawled out on a limb and

watched as Eric Cantor and the Tea Party sawed it off.

The question they asked in the White House was simply, who was in

charge in the House of Representatives? And the answer was: Not

Boehner.

“I think John wanted to get a deal,” the president said to me in an

interview. 277 “And I think that, had he had more control of his caucus,

we could have gotten a deal done a month earlier.

“John was in a tough spot. He couldn’t get it done. I’m sympathetic to

that. I think that him trying to spin it is understandable. But ultimately

the test of leadership has to be, when the stakes are highest, being

willing to set politics aside to do what’s best for the American people.

And I felt that that was not done in this situation. And I think a big

opportunity was missed.”

It would have been easier in the 1990s, he said, during the period

when Republicans held the majority in the Congress with Bob Dole as

Senate leader and Newt Gingrich House speaker. They had more control.

“I could have done a deal with Bob Dole,” the president said as we

walked out of the Oval Office. “I could have even done a deal with Newt

Gingrich.”

There was one last question. He had faced an economic choice and a

political choice, but hadn’t it also been a moral choice about what a

president should do in a genuine national crisis?

“Mm-hmm,” he replied. “Well, what I realized was essentially that we

were doing enormous damage to the economy and the psyche of the

American people, and that this was not the way government was

supposed to work. And at this point, during these last few days of the

process, [I] was absolutely convinced that if there was a way to resolve

this that would be good for the American people and good for the

economy, that the political fallout for me had to be secondary. And that I

would willingly lose an election if I was able to actually resolve this in a

way that was right. So this was one of those times where, similar to the

decision to go after bin Laden, where you have to get out from above

your individual self-interests and your political concerns. And that is a

tough place to be, but that’s ultimately your job as president of the

United States.”

• • •

The debt limit crisis was a time of peril for the United States, its

economy and its place in the global financial order. When you examine

the record in depth, you cannot help but conclude that neither President

Obama nor Speaker Boehner handled it particularly well. Despite their

evolving personal relationship, neither was able to transcend their fixed

partisan convictions and dogmas. Rather than fixing the problem, they

postponed it.

Though there were brief interludes when the president and the

speaker considered real entitlement cuts and tax increases, at least

through tax reform, too much got muddled. I believe their discussions

about a grand bargain were sincere. But when they met resistance from

other leaders in their parties, they did not stand their ground.

Obama and Boehner met privately a number of times in the

negotiations in early July—the Merlot-and-Nicorette summits—but then

they let the bargaining on key spending and tax issues take place at the

staff level. The result was an exchange of mind-numbing written offers

and counteroffers, the details of which readers have been spared. I know

from my interviews with the president and the speaker that neither of

them fully understood the details or the ramifications for budgets and

people.

Most extraordinary was the repeated use of the telephone for critical

exchanges. Especially baffling was President Obama’s decision to make

his critical request for $400 billion more in revenue in a spur-of-the-

moment phone call. The result was a monumental communications

lapse between the president and the speaker at a critical juncture. They

still disagree vehemently about what was said and what it meant.

It is a fact that President Obama was handed a miserable, faltering

economy and faced a recalcitrant Republican opposition.

But presidents work their will—or should work their will—on the

important matters of national business. There is occasional discussion in

this book about Presidents Reagan and Clinton, what they did or would

have done. Open as both are to serious criticism, they nonetheless

largely worked their will.

Obama has not. The mission of stabilizing and improving the

economy is incomplete. First, the short-term federal fiscal problem has

not been solved. Instead it has been pushed off to the future, leaving the

United States facing what is now called the fiscal cliff: By law, some $2.4

trillion in spending cuts must begin in 2013, along with an increase in

income and payroll taxes. Just the cuts in the first year would amount to

$240 billion, or nearly 25 percent of general discretionary spending—a

staggering, unprecedented amount.

Second, the long-term problem of unsustainable entitlement spending

on Medicare, Medicaid and Social Security, highlighted by Republican

House Budget Chairman Paul Ryan and familiar to all informed

politicians and economists, including the president and Boehner, has

been left largely unaddressed. The combined cost of the three programs

in 2012 is about $1.6 trillion. The Congressional Budget Office projects

that will nearly double in 10 years to $3 trillion.

Boehner also was responsible. The federal debt issue, he told me,

bothered him before he got to Congress 22 years ago. “And I’m sure as

hell going to do something about it,” he said, adding that the cause was

more important than the job. 278 “I need this job like a hole in the head,”

he said, adding he would have been willing, even happy, to risk his

speakership for that cause. But he never closed the deal with the House

Republicans and established firm leadership. He could have called Eric

Cantor in and had the conversation of a lifetime, put it on the line with

the man he thought was working against him. He could have said

something along the lines of “You or me.” Instead, he tried to sneak a

debt ceiling deal past Cantor, the other Republican leaders in the House,

and Senate Minority Leader McConnell.

The monster federal debt and annual deficits come from two

problems: continued spending increases and no cuts; and too little tax

revenue.

In three and one half years, Obama, the Republicans and the

Democrats never really cut any significant spending. Instead, they passed

laws agreeing to cut spending in the future beginning in 2013. They also

never raised taxes.

These Washington leaders were risk averse. There was so much

effort, most of it sincere, but so little result. Americans are now left with

a still struggling economy in the midst of a presidential election. It is a

world of the status quo, only worse.

ACKNOWLEDGMENTS

This book is based almost entirely on my own reporting, interviews and

review of documents and meeting notes.

My thanks go to all sources, named and unnamed, for their time, their

willingness to provide me recollections of their experiences, their

assessment and context, and in some cases backup notes and

documentation.

This is my 17th book with my editor Alice Mayhew, book lover and

idea machine, at Simon & Schuster. I am grateful for her expertise, her

swift and sure editing, and her invaluable advice. My thanks, too, to

Jonathan Karp, publisher, for his hands-on management at each crucial

stage; and Carolyn K. Reidy, CEO, for her steadfast support.

At Simon & Schuster, I am also grateful to Michael Selleck, Executive

Vice President, Sales and Marketing; Irene Kheradi, Vice President and

Executive Managing Editor; Jackie Seow, Vice President and Art

Director; Tracey Guest, Director of Publicity; Elisa Rivlin, S&S Counsel;

Twisne Fan, Senior Director of Production; Nancy Singer, Director of

Interior Design; Joy O’Meara, Design Director; Lisa Healy, Senior

Production Editor; Jonathan Cox, Editorial Assistant; Martin Karlow,

proofreader; and Susan Gamer, cold reader.

My thanks to Fred Chase, copy editor extraordinaire and counselor to

the author and his assistants. He spent 10 days in Washington working

with us. Fred’s steady presence, wisdom, sharp eye, and ability to roll

with the punches helped make this, our seventh book together, a

genuine pleasure.

My friend Christian Williams spent more than a week in Washington

reviewing the manuscript at an early stage. I’m grateful for his input and

insights, which proved most valuable.

As always, Carl Bernstein, my former colleague and co-author on the

Nixon Watergate story, provided sound advice and many ideas. I thank

him for his assists and friendship. Special thanks as well to my friends

Rick Atkinson and David Maraniss.

Many thanks to Kate Mertes and Richard Shrout for their indexing

expertise.

My continuing admiration and many thanks go to Marcus Brauchli,

Katharine Weymouth, Don Graham and Steve Luxenberg at The

Washington Post.

I’d like to extend a note of special appreciation to MaryAnne Golon,

Wendy Galietta and Marlon Correa at the Post for their swift and

invaluable assistance supplying many of the photographs used in this

book.

No project like this starts in a vacuum. In this case, it was filled by

reporting and analysis done by countless reporters at The Washington

Post, The New York Times, The Wall Street Journal, Politico, Roll Call, The Hill, the Los Angeles Times, the Associated Press, and many other news

organizations. The contours and, at times, details of this story appeared

in these publications.

Of particular relevance were a March 18, 2012, piece in The

Washington Post, “He Promised Change in Washington. Then the Debt

Deal Collapsed. So Obama Changed Course,” by Peter Wallsten, Lori

Montgomery and Scott Wilson, and an April 1, 2012, New York Times

Sunday Magazine piece, “The Game Is Called Chicken,” by Matt Bai.

Robert B. Barnett—agent, attorney, friend—provided invaluable help,

as always. He is a unique presence and force in Washington, D.C.

Because he represents President Obama and other political figures, he

did not see this book until it was printed, nor was he consulted on its

contents.

Rob, Evelyn and I share a deep gratitude for the kindnesses done and

cares taken by Rosa Criollo and Jackie Crowe.

Tali, my eldest daughter, was not able to help edit this book because

of the rushed production schedule. She, her husband Gabe, and their

daughter, Zadie, my first and only granddaughter, are in our thoughts

daily.

My daughter Diana, who is in her sophomore year of high school,

matures daily and shows a remarkable love of learning and books.

This is the 14th book my wife, Elsa, has guided me through in our

three decades together. All that makes sense in life, she provides—

devotion, friendship and love.

(1) On July 3, 2011, President Obama and Speaker John Boehner met on the White House patio

outside the Oval Office to discuss raising the federal debt ceiling.

“All you need to know about the differences between the president and myself,” Boehner said,

“is that I’m sitting there smoking a cigarette, drinking Merlot, and I look across the table and

here is the president of the United States drinking iced tea and chomping on Nicorette.” The

drinks had apparently been removed for the photo, because the president confirmed what

Boehner said. “That’s true. And then it started to rain, and so we had to move back in.”

(2) During his first year in office, President Obama said that addressing the country’s growing budget deficit was of the utmost importance to him. He told fiscal hawks in Congress, “I believe

so strongly in what you’re saying, I’d be willing to be a one-term president over this.”

(3) “This debt issue bothered me before I got here 22 years ago,” said Speaker Boehner. When

the Ohio Republican became speaker in 2011, he said, “I’m sure as hell going to do something

about it.”

(4) Treasury Secretary Tim Geithner warned that a debt default could trigger a depression worse than the Great Depression of the 1930s. “Everything comes crashing down and you cannot

rebuild it,” he told the president. “It’s something that will be lasting for generations.”

(5) As the Obama administration prepared its first full-year budget in late 2009, National Economic Council Director Larry Summers, left, urged the rest of the economic team, including

Treasury Secretary Geithner, center, and Office of Management and Budget Director Peter

Orszag, right, to “just gimmick it up,” because any long-range spending cuts passed into law

could be changed by a future Congress.

(6) “Our internal process is a fucking debating society,” complained White House chief of staff Rahm Emanuel—the man in charge of that process—in a February 8, 2010, email. President

Obama’s fellow Chicagoan left the House leadership to help guide the relatively inexperienced

president through the intricacies of Washington politics, and his aggressive approach to dealing

with congressional Republicans in the early years of Obama’s first term was: “We have the votes.

Fuck ’em.”

(7) Senator Kent Conrad, Democrat from North Dakota who chairs the Budget Committee, created a precedent for the debt limit crisis of 2011 when he told President Obama that he would

block a vote on the increase of the federal debt limit unless the White House backed a fiscal

commission with extraordinary power to cut spending.

(8) Vice President Biden, pictured here on May 24, 2011, was called on to negotiate through back channels with Senate Minority Leader Mitch McConnell on sensitive budget and tax issues.

In the West Wing, he was called “the McConnell whisperer” because he knew the right

combination of sympathy and gentleness, never force, needed to work with the minority leader.

(9) Erskine Bowles, left, former White House chief of staff to President Bill Clinton, and retired Senator Alan Simpson, center, a Wyoming Republican, were tapped to chair a bipartisan fiscal

commission that would seek ways to reduce the federal deficit. In announcing their appointment,

President Obama said the two were “taking on the impossible.”

(10) President Obama calls future speaker John Boehner on election night, November 3, 2010, after the Republicans won 63 seats in the House, giving them the majority. White House staff at

first couldn’t find a phone number for Boehner, but Obama eventually reached him and said he

was “looking forward to working with him and the Republicans to find common ground, move

the country forward, and get things done for the American people.”

(11) “I haven’t reached out as effectively as I should have,” President Obama told House Republicans in a meeting November 30, 2010, after the election. “Let’s have honest cooperation,

not just photo ops.” From left, Speaker Nancy Pelosi, just outside the door; Virginia Republican

Eric Cantor, the incoming House majority leader; Obama; Senate Minority Leader Mitch

McConnell of Kentucky; Senate Minority Whip Jon Kyl of Arizona; and Senate Majority Leader

Harry Reid of Nevada.

(12) “The single most important thing we want to achieve is for President Obama to be a one-

term president,” Senate Minority Leader Mitch McConnell said. Often forgotten is what he said

later in that interview: “If President Obama does a Clintonian backflip, if he’s willing to meet us

halfway on some of the biggest issues, it’s not inappropriate for us to do business with him. . . . I

don’t want the president to fail; I want him to change.”

(13) “My guys don’t even believe default is a problem,” House Majority Leader Eric Cantor explained to Democrats. Cantor, closely connected to the more extreme conservative Tea Party

wing of the House Republicans, was skeptical of a $3–$4 trillion grand bargain to reduce the

deficit with entitlement reform and a tax increase.

(14) Wisconsin Republican Paul Ryan, left, took over as chairman of the House Budget Committee in 2011. His April 2011 budget proposal, “The Path to Prosperity,” was designed to

slash the federal deficit, but drastically reduce benefits for people on Medicare and Medicaid.

After President Obama publicly criticized what he called Ryan’s “dark view of America” in a

speech when Ryan was in the audience, Ryan told White House staff, “I can’t believe you

poisoned the well like that.”

(15) House Majority Leader Eric Cantor, left, and Vice President Biden on May 5, 2011, the opening day of initial talks to address the federal deficit and raise the debt ceiling. The two

forged a close working relationship but Cantor opposed any tax increases and Biden said they

had been sent on “Mission: Impossible.”

(16) Representative Chris Van Hollen, a Maryland Democrat, was frustrated during the Biden committee meetings by Republicans’ refusal to consider increasing federal revenue or taxes as a

way of reducing the deficit. “We’re not going to keep going down this road,” he told

Republicans.

(17) Senator Jon Kyl, one of the two Republicans on the Biden committee, couldn’t understand

why Democrats wouldn’t just accept spending cuts without revenues. “So you’re saying to me

that even though there are Medicare savings that you think are reasonable—that we could do—

you won’t do them unless we’re going to raise taxes on somebody?” he asked.

(18) Democratic Senator Max Baucus, the chairman of the Finance Committee, aggravated members of both parties during the Biden talks, saying, “I will walk away from any deal” that

would make large cuts to the agriculture subsidies important to farmers and ranchers in his state

of Montana.

(19) David Plouffe, Obama’s 2008 campaign manager, took over as senior adviser to the president in January 2011. When President Obama promised to veto a debt limit extension that

didn’t last past the 2012 election, Plouffe realized he had drawn a line in the sand. “If he caves,”

Plouffe said, “it will have long-lasting political repercussions that we may never get out of.”

(20) President Obama with Rob Nabors, the White House director of legislative affairs.

Discussing the Democratic vote count for a grand bargain deficit reduction deal, Obama asked

Nabors, “How many people do you think are going to vote for it?” Nabors replied, “How many

people are you going to tell to vote for it?”

(21) Director of the Office of Management and Budget Jack Lew with President Obama. Lew was

the administration’s point man during staff-level negotiations on the debt limit. Obama joked

that Republicans hated negotiating with Lew because he “knew the budget better than anybody.”

But Republicans said their real problem with Lew was that he didn’t know how to “get to yes.”

Lew became White House chief of staff on January 27, 2012.

(22) President Obama with Bill Daley, the White House chief of staff in 2011. Senate Majority

Leader Harry Reid did not like Daley’s involvement in congressional budget negotiations. “I’ll

tell you when I want your chief of staff coming up here,” Reid told the president.

(23) Barry Jackson, chief of staff to Speaker of the House John Boehner, looks on as Boehner speaks to the president by phone. “The White House is brilliant at getting out early and defining

things their way,” he warned, so it would be essential for Boehner to give his version publicly.

(24) Senate Majority Leader Harry Reid leaves the White House with his chief of staff, David Krone. “It is really disheartening that you, that this White House, did not have a Plan B,” Krone

told the president after the debt talks with Boehner fell through.

(25) Brett Loper, Boehner’s policy director, couldn’t believe the impact the Gang of Six proposal had on negotiations with the White House. Who cared what six senators said? he asked.

(26) Steven Stombres, Cantor’s chief of staff, was not shy about challenging senior Republican leaders. “You are crazy,” the former Army intelligence officer told Speaker Boehner, who said he

could get 170 Republican votes for a large revenue package.

(27) Neil Bradley, Cantor’s deputy chief of staff and policy director, thought the Biden committee showed promise at the start. “Where else do you walk into a room and find $123

billion in savings?” he asked after one of the first meetings.

(28) President Obama with Nancy Pelosi, the House Democratic leader. “Nancy has always been

there for us,” Obama said. Rob Nabors, the White House director of legislative affairs, said of

Pelosi, “She is absolutely nails.”

(29) Majority Leader Harry Reid negotiated with the Republicans and almost joined them in making a deficit reduction deal, but President Obama pulled him back. Reid complained,

“Republicans can’t deliver the big deal. They’re jeopardizing the future of the country.”

(30) When Boehner suggested that he and the president begin face-to-face discussions on the debt limit, the question among White House staff was: Should we engage at all? From left,

President Obama, chief of staff Bill Daley, director of legislative affairs Rob Nabors, National

Economic Council Director Gene Sperling, deputy NEC director Jason Furman, Office of

Management and Budget Director Jack Lew, senior adviser David Plouffe, and Treasury Secretary

Tim Geithner.

(31) Speaker John Boehner, Vice President Joe Biden, President Obama and House Majority Leader Eric Cantor meet in the Oval Office on July 20 when they seemed to be getting close to a

budget deal. On revenue, Boehner told the president, “Our necks are out as far as they can go.”

(32) President Obama at a press conference after Speaker Boehner pulled out of their talks for a second time. “I’ve been left at the altar now a couple of times,” he said, adding that Republicans

would have to take “responsibility” for the failed talks. The president’s press conference took

place right after he hung up with Boehner. “He was spewing coals,” Boehner said of their

conversation. “I was pretty angry,” Obama later recalled. “And look, the reason is, here we’ve got

a national crisis that needs to get resolved. The entire world is watching.”

(33) Senate Majority Leader Harry Reid and Speaker Boehner in the White House Cabinet Room

on July 23, 2011. “Mr. President,” said Boehner, “as I read the Constitution, the Congress writes

the laws. You get to decide if you want to sign them.” Reid then asked the President to leave the

room so congressional leaders could speak privately. “You know, the truth of the matter is, at

that point, all I’m concerned about is getting this thing done,” the president recalled. “And so

I’m not concerned about protocol.”

(34) Rohit Kumar, far right, McConnell’s chief domestic policy adviser, conducted key negotiations for the minority leader. When he showed up at home at 8 p.m. on July 29, his wife,

Hilary, was stunned that he wasn’t still at work. “The fact that I’m here at eight o’clock,” he told

her, “tells you how screwed we are. We’re nowhere. We have no deal.”

(35) By July 31, just two days before the Treasury would run out of money, White House staffers were exhausted from a month of intense negotiations. Bruce Reed, the vice president’s chief of

staff, said it was comparable to an economic “modernday Cuban Missile Crisis.” From left,

President Obama, National Economic Council Director Gene Sperling, chief of staff Bill Daley,

Reed, director of legislative affairs Rob Nabors, Office of Management and Budget Director Jack

Lew, Vice President Joe Biden, and White House senior adviser Valerie Jarrett.

(36) President Obama in the Oval Office on July 11. He told his senior staff he would not sign a short-term extension of the debt limit. “Under any scenario we risk a default,” he said. “That’s

not my control. The Republicans are forcing the risk of a default on us. I can’t stop them from

doing that. We can have the fight now, or we can have the fight later on, but the fight is coming

to us.”

(37) President Obama, chief of staff Bill Daley, National Economic Council Director Gene Sperling, and Treasury Secretary Tim Geithner. “This is insanity,” said Geithner, as the final debt

ceiling negotiations threatened to come undone over cuts to Defense spending.

(38) Representative Jeb Hensarling of Texas, left, number four in the House Republican leadership, and Senator Patty Murray, of Washington, number four in the Senate Democratic

leadership, were the co-chairmen of the supercommittee. It was supposed to find $1.2 trillion in

additional deficit reductions, but failed in November 2011.

(39) “There’s no process for making a decision in this White House. There’s nobody in charge,”

Speaker Boehner, left, said about the failure of the debt limit negotiation to cut spending. “John

was in a tough spot. He couldn’t get it done,” said President Obama. “I think that him trying to

spin it is understandable.”

ABOUT THE AUTHOR

© LISA BERG

Bob Woodward is an associate editor at The Washington Post, where he

has worked for 41 years. He has shared in two Pulitzer Prizes, first for

the Post’ s coverage of the Watergate scandal, and later for coverage of

the 9/11 terrorist attacks. He has authored or coauthored twelve #1

national nonfiction bestsellers.

He has two daughters, Tali and Diana, and lives in Washington, D.C.,

with his wife, writer Elsa Walsh.

ALSO BY BOB WOODWARD

Obama’s Wars

The War Within: A Secret White House History, 2006–2008

State of Denial

The Secret Man

( with a Reporter’s Assessment by Carl Bernstein)

Plan of Attack

Bush at War

Maestro: Greenspan’s Fed and the American Boom

Shadow: Five Presidents and the Legacy of Watergate

The Choice

The Agenda: Inside the Clinton White House

The Commanders

Veil: The Secret Wars of the CIA, 1981–1987

Wired: The Short Life and Fast Times of John Belushi

The Brethren

( with Scott Armstrong)

The Final Days

( with Carl Bernstein)

All the President’s Men

( with Carl Bernstein)

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PHOTOGRAPHY CREDITS

J. Scott Applewhite (Associated Press): 15

Bryant Avondoglio: 23

Jahi Chikwendiu ( The Washington Post): 17

Haraz N. Ghanbari (Associated Press): 19

Harry Hamburg (Associated Press): 33

Marvin Joseph ( The Washington Post): 28

Marty LaVor ©: 25, 26, 27

David Lienemann (Official White House Photographer): 8

Melina Mara ( The Washington Post): 7, 13, 18, 29, 34

Gerald Martineau ( The Washington Post): 2

Mandel Ngan (AFP/Getty Images): 24

Bill O’Leary ( The Washington Post): 12, 16, 38

Jewel Samad (AFP/Getty Images): 32, 39

Pete Souza (Official White House Photographer): 1, 4, 5, 9, 10, 11, 14,

20, 21, 22, 30, 31, 35, 36, 37

Susan Walsh (Associated Press): 3

Tracy A. Woodward ( The Washington Post): 6

CHAPTER NOTES

PROLOGUE

The information in this chapter comes primarily from author’s notes and

recollections of the 2006 and 1981 Gridiron dinners.

1 “This is a true story”: Lynn Sweet, “Best of Gridiron: Obama, Lynne

Cheney and Bush,” Chicago Sun-Times blog, March 12, 2006,

http://blogs.suntimes.com/sweet2006/03/best_of_gridiron_obama_lynne_c.html CHAPTER ONE

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

2 After the meeting, Senator McConnell told reporters: Jeff Zeleny and David

M. Herszenhorn, “Obama Seeks Wide Support in Congress for

Stimulus,” The New York Times, January 6, 2009, p. A15; Jim

Puzzanghera and Christi Parsons, “Obama Sweetens Stimulus for

GOP,” Los Angeles Times, January 6, 2009.

3 Pelosi announced that it was “a new day”: Jon Ward and S. A. Miller,

“Obama Pushes Stimulus Plan on Capitol Hill; GOP Open to $800

Billion Relief,” The Washington Times, January 6, 2009, p. A1.

4 It listed five unambiguously conservative proposals: Author obtained copy of

document entitled “House Republican Economic Recovery Plan.”

CHAPTER TWO

The information in this chapter comes primarily from background

interviews with five firsthand sources.

5 According to Cao, Emanuel “insinuated”: On the record author interview

with former Representative Joseph Cao, November 30, 2011.

6 On the phone with Emanuel, Hill said: Rob Garver on the record interview

with former Representative Baron Hill, March 7, 2012.

7 The House vote was 244–188: Jackie Calmes, “House Passes Stimulus

Plan with No G.O.P. Votes,” The New York Times, January 29, 2009.

CHAPTER THREE

The information in this chapter comes primarily from background

interviews with six firsthand sources.

8 It took days more: David Rogers, “Senate Passes $787 Billion Stimulus

Bill,” Politico, February 13, 2009, http://www.politico.com.

9 At a signing ceremony in Denver: Compilation of Presidential Documents,

“Remarks on Signing the American Recovery and Reinvestment Act

of 2009 in Denver, Colorado,” February 17, 2009,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD; “Obama’s Remarks at Stimulus Signing,” The New York Times, February 17, 2009,

http://www.nytimes.com/2009/02/17/world/americas/17iht-

17textobama.20261060.html.

10 “Absolutely, we need earmark reform”: CNN transcript of the first

presidential debate, September 26, 2008, http://www.cnn.com.

11 At the same time, he issued a statement: Compilation of Presidential

Documents, “Statement on Signing the Omnibus Appropriations Act,

2009,” http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

12 House Majority Leader Steny Hoyer: Alex Isenstadt, “Hoyer to W.H.:

Hands off Our Earmarks,” Politico, March 3, 2009,

http://www.politico.com.

13 But the 61-year-old North Dakotan: “Kent Conrad: The Statistician,”

Time, April 14, 2006,

http://www.time.com/time/nation/article/0,8599,1183973,00.html.

CHAPTER FOUR

The information in this chapter comes primarily from background

interviews with two firsthand sources.

14 Republicans were beating hard on the administration: Email compilation of

27 media references to author from the office of the speaker, April

23, 2012; see also Michael O’Brien, “Pelosi: ‘Where Are the Jobs?’

Was Effective in Bringing Dems Down,” The Hill, November 6, 2010,

http://thehill.com/blogs/blog-briefing-room/news/127997-pelosi-

where-are-the-jobs-was-effective.

15 In a memo to the president dated December 20, 2009: Author’s review of

the December 20, 2009, memo.

16 Given his three minutes to question the treasury secretary: “RYAN TO

GEITHNER: Why Propose a Budget You Admit Is Not Credible, Not

Sustainable?,” Video/audio podcast, February 3, 2010,

http://www.house.gov/apps/list/hearing/wi01_ryan/2310RtG.html.

CHAPTER FIVE

The information in this chapter comes primarily from background

interviews with six firsthand sources.

17 In a flurry of nine terse emails: Author’s review of emails.

18 But the Conrad issues: Author’s review of emails.

19 He emailed Orszag, “Conrad is intending”: Author’s review of emails.

20 On January 19, 2010, he won: Michael Cooper, “G.O.P. Senate Victory

Stuns Democrats,” The New York Times, January 20, 2010.

21 Brown was sworn in: Janet Hook, “Republican Scott Brown of

Massachusetts Sworn In to Senate,” Los Angeles Times, February 4,

2010.

22 It needed 60 votes to overcome: Senate Roll Call Votes, 111th Congress,

2nd Session, “On the Amendment (Conrad Amdt. No. 3302),”

http://www.senate.gov.

23 In an interview, President Obama later recalled: On the record author

interview with President Barack Obama, July 11, 2012.

24 Obama unveiled his budget proposal: Compilation of Presidential

Documents, “Remarks on the Federal Budget,” February 1, 2010,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

25 Senator Orrin Hatch: Press release, “Hatch Calls Administration’s

Budget ‘Toy Fire Truck to Put Out a Five Alarm Fire’ of

Unsustainable Debt,” Office of Senator Orrin Hatch, February 1,

2010, http://hatch.senate.gov.

26 He emailed Summers and others: Author’s review of emails.

27 Later, in the public signing ceremony: Compilation of Presidential

Documents, “Remarks on Signing an Executive Order Establishing

the National Commission on Fiscal Responsibility and Reform and

an Exchange with Reporters,” February 18, 2010,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

CHAPTER SIX

The information in this chapter comes primarily from background

interviews with four firsthand sources.

28 At a ceremony in the East Room: Carol E. Lee, “Obama Signs Historic

Health Care Bill,” Politico, March 23, 2010, http://www.politico.com.

29 On May 4, 2010, Obama addressed the Business Council: Eamon Javers,

“Obama Lays Out Defense of Record,” Politico, May 5, 2010,

http://www.politico.com.

30 The Business Roundtable and the Business Council: Ivan G. Seidenberg and

James W. Owens, “Letter to Director Orszag on Policy Burdens

Inhibiting Economic Growth,” http://businessroundtable.org/news-

center/business-roundtable-letter-to-the-white-house-on-policy-

burdens-inhibi/.

31 “Fat-cat bankers”: Brian Montopoli, “Obama Versus the ‘Fat Cats,’ ”

60 Minutes, CBS, December 13, 2009.

32 On December 8, 2010, Ivan Seidenberg released: “Business Roundtable’s

Roadmap for Growth,” December 8, 2010,

http://businessroundtable.org/studies-and-reports/roadmap-for-

growth/.

33 Seidenberg said publicly: Mark Drajem, “Seidenberg Turns from Obama

Critic to Advocate on Taxes, Trade,” Bloomberg, December 8, 2010,

http://www.bloomberg.com/news/2010-12-08/business-roundtable-

urges-cuts-in-u-s-spending-revamped-taxes.html.

34 Orszag delivered his final speech: Peter Orszag, “Fiscal Accomplishments

and Budget Update,” The Brookings Institution, July 28, 2010,

http://www.bloomberg.com/news/2010-12-08/business-roundtable-

urges-cuts-in-u-s-spending-revamped-taxes.html.

35 He took parts of the Obama memo: Peter Orszag, “One Nation, Two

Deficits,” The New York Times, September 6, 2010.

36 At his press briefing: White House press briefing by press secretary

Robert Gibbs, September 7, 2010, http://www.whitehouse.gov.

37 Orszag continued his star turn: Peter Orszag, “Malpractice

Methodology,” The New York Times, October 20, 2010.

CHAPTER SEVEN

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

38 On election night, November 2, 2010: Steve Peoples, “Final House Race

Decided; GOP Net Gain: 63 Seats,” Roll Call, December 8, 2010,

http://www.rollcall.com/news/-201279-1.html.

39 “Simply unacceptable”: Press release, “Pelosi Statement on Proposal

Released by Co-Chairs of the Fiscal Commission,” Office of House

Minority Leader Nancy Pelosi, November 10, 2010,

http://pelosi.house.gov.

40 The Democrats got “shellacked”: William Branigin, “Obama Reflections

on ‘Shellacking’ in Midterm Elections,” The Washington Post,

November 3, 2010.

41 Polls showed an approval rating of Congress: Gallup poll, “Congressional

Approval at 17% After Elections,” November 11, 2010,

http://www.gallup.com/poll/144419/congressional-approval-

elections.aspx.

42 “Thank you for the pay freeze”: Peter Baker and Jackie Calmes, “Amid

Deficit Fears, Obama Freezes Pay,” The New York Times, November

29, 2010.

43 Six weeks earlier he had published the book: Eric Cantor, Paul Ryan and

Kevin McCarthy, Young Guns: A New Generation of Conservative Leaders

(New York: Threshold Editions, 2010).

44 “The Fiscal Commission has been a success”: “Statement for the Record

from Congressman Paul Ryan,” Member Statements for Final

Commission Report, December 3, 2010, p. 27,

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/MemberStatements.pdf

45 “The commission’s majority report includes”: Press release, “Statement by

the President on the Work of the National Commission on Fiscal

Responsibility and Reform,” December 3, 2010,

http://www.whitehouse.gov.

46 In an interview on July 11, 2012: On the record author interview with

President Barack Obama, July 11, 2012.

47 In his State of the Union address: Compilation of Presidential

Documents, “Address Before a Joint Session of the Congress on the

State of the Union,” January 25, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

48 His proposed budget, released in February: Jackie Calmes, “Obama’s

Budget Focuses on Path to Rein in Deficit,” The New York Times,

February 14, 2011.

CHAPTER EIGHT

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

49 On Thursday, December 2, Nancy Pelosi: Brian Beutler, “House Dems

Pass Only Middle Class Tax Cut Bill,” Talking Points Memo, December

2, 2010, http://tpmdc.talkingpointsmemo.com/2010/12/house-

dems-pass-middle-income-only-tax-cut-bill.php.

50 “I’m trying to catch my breath”: Jake Sherman, “Boehner: Dem Tax Bill

‘Chicken Crap,’ ” Politico, December 2, 2010,

http://www.politico.com.

51 In an October 2010 interview: Major Garrett, “Top GOP Priority: Make

Obama a One-Term President,” National Journal, October 23, 2010.

52 When Obama entered the Roosevelt Room: Compilation of Presidential

Documents, “Remarks at Forsyth Technical Community College in

Winston-Salem, North Carolina,” December 6, 2010,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

53 He had personally engaged the tax issue: Abby Phillip, “Schumer: Raise

the Tax Cut Limit to $1 Million,” Politico, November 14, 2010,

http://www.politico.com.

54 At 6:30 that night Obama announced: Compilation of Presidential

Documents, “Remarks on Tax Reform and the Extension of

Unemployment Insurance Benefits,” December 6, 2010,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

55 “There are things in here that I don’t like”: Ibid.

56 Ohio Senator Sherrod Brown accused the president: Press release, “Sen.

Brown Outlines Efforts to Maintain Unemployment Insurance and

Middle Class Tax Cuts,” Office of Senator Sherrod Brown, December

1, 2010, http://www.brown.senate.gov.

57 It was in this atmosphere that Obama appeared: Compilation of

Presidential Documents, “The President’s News Conference,”

December 7, 2010,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

58 Looking back on the negotiation, the president later told me: On the record

author interview with President Barack Obama, July 11, 2012.

59 On Wednesday, December 15, the Senate voted 81–19: Lori Montgomery

and Shailagh Murray, “Congress Votes to Extend Bush-Era Tax Cuts

Until ’12,” The Washington Post, December 17, 2010, p. A01.

60 Bruce Reed, who had been the staff director: David M. Herszenhorn,

“Congress Sends $801 Billion Tax Cut Bill to Obama,” The New York

Times, December 16, 2010.

61 On December 15, Don’t Ask, Don’t Tell repeal passed: Lisa Mascaro and

Michael Muskal, “Senate Votes to Repeal ‘Don’t Ask, Don’t Tell,’ ”

Los Angeles Times, December 18, 2010.

62 On December 22, the START treaty was ratified: Mary Beth Sheridan and

William Branigin, “Senate Ratifies New U.S.-Russia Nuclear

Weapons Treaty,” The Washington Post, December 22, 2010.

63 On February 11, Biden spoke: “Country’s Best Days Are Ahead, Biden

Tells UofL,” February 11, 2011,

https://louisville.edu/mcconnellcenter/events/past/2011/biden/countrys-

best-days-are-ahead-biden-tells-uofl-audience.

64 “We saw coming that this debt ceiling could end up being”: On the record

author interview with President Barack Obama, July 11, 2012.

CHAPTER NINE

The information in this chapter comes primarily from background

interviews with four firsthand sources.

65 Summers resigned as head of the National Economic Council: Sheryl Gay

Stolberg, “Obama’s Economics Chief Is Set to Leave,” The New York

Times, September 21, 2010.

66 One day, he said, the president would decry: Brian Montopoli, “Obama

Versus the ‘Fat Cats,’ ” 60 Minutes, CBS, December 13, 2009;

Julianna Goldman and Ian Katz, “Obama Doesn’t ‘Begrudge’ Bonuses

for Blankfein, Dimon,” Bloomberg, February 10, 2010,

http://www.bloomberg.com/apps/news?

pid=newsarchive&sid=aKGZkktzkAlA.

67 In 2010, still in the minority, Ryan released: “A Roadmap for America’s

Future,” http://roadmap.republicans.budget.house.gov.

68 In a hearing on February 2, 2010: Walter Alarkon, “Budget Chief

Attacks Ryan’s Blueprint,” The Hill, February 2, 2010,

http://thehill.com/homenews/house/79421.

69 Ryan posted a clip from the event: YouTube video uploaded by Rep. Paul

Ryan, “President Obama Highlights Paul Ryan’s Efforts to Save

Medicare & Social Security,” January 29, 2010,

http://www.youtube.com/watch?v=ZBT5wnDK7L0&feature; for a transcript of highlights of the exchange, see

http://paulryan.house.gov/news/DocumentPrint.aspx?

DocumentID=190545.

70 On April 5, 2011, Ryan, now chairman: “The Path to Prosperity,”

http://budget.house.gov/fy2012budget/.

71 The CBO largely confirmed Ryan’s claims: CBO Report, “Long-Term

Analysis of a Budget Proposal by Chairman Ryan,” April 5, 2011,

http://www.cbo.gov/publication/25159.

72 In a January 6 letter to Harry Reid: Press release, “Secretary Geithner

Sends Debt Limit Letter to Congress,” U.S. Department of the

Treasury, January 6, 2011,

http://www.treasury.gov/connect/blog/Documents/Letter.pdf.

73 He was replaced by former Clinton Commerce Secretary William Daley:

Christi Parsons and Rick Pearson, “Obama Names William Daley as

Chief of Staff,” Chicago Tribune, January 6, 2011.

74 Jack Lew was now head of OMB: White House press release, “President

Obama Announces a New OMB Director: Jacob Lew,” July 13, 2010,

http://www.whitehouse.gov.

75 After two years of struggling, Gene Sperling: Lori Montgomery and Brady

Dennis, “Obama Names Sperling to Head National Economic

Council,” The Washington Post, January 7, 2011.

76 Obama appointed Rob Nabors, 39, director: Mike Allen, “Who Is Rob

Nabors?” Politico, January 28, 2011, http://www.politico.com.

CHAPTER TEN

The information in this chapter comes primarily from background

interviews with five firsthand sources.

77 Plouffe, 44, replaced David Axelrod: Aamer Madhani and James A.

Barnes, “Axelrod Says Plouffe to Replace Him at White House Next

Year,” November 14, 2010,

http://www.nationaljournal.com/congress/axelrod-says-plouffe-to-

replace-him-at-white-house-next-year-20101114.

78 His 2009 campaign book: David Plouffe, The Audacity to Win: The Inside

Story and Lessons of Barack Obama’s Historic Victory (New York: Viking,

2009).

79 “We had just elected”: Ibid., p. 1.

80 “I’ve been impressed by your judgment”: Ibid., p. 24.

81 “Very observant, Plouffe”: Ibid., p. 386.

82 Finally, on April 9, Congress passed: Anne McGinn, “Obama Signs

Continuing Resolution; Administration Says Divided Government

Works,” Fox News, April 9, 2011,

http://politics.blogs.foxnews.com/2011/04/09/obama-signs-

continuing-resolution-administration-says-divided-government-

works.

83 In an internally circulated six-page chronology: Author obtained copy of

document.

84 The Congressional Budget office, which produces: David A. Fahrenthold,

“Budget Deal: CBO Analysis Shows Initial Spending Cuts Less Than

Expected,” The Washington Post, April 14, 2011; Naftali Bendavid,

“U.S. Budget Analysis Shows Smaller Savings,” The Wall Street

Journal, April 14, 2011.

85 The battle over the continuing resolution, Obama later recalled: On the

record author interview with President Barack Obama, July 11, 2012.

86 Failure to raise the debt limit in a timely manner: U.S. Government

Printing Office, “Federal Reserve’s First Monetary Policy Report for

2011,” hearing transcript, http://www.gpo.gov/fdsys/pkg/CHRG-

112shrg65824/html/CHRG-112shrg65824.htm.

87 It would be “catastrophic and unpredictable”: Victoria McGrane and

Damian Paletta, “Dimon: Hitting Debt Ceiling Would Be

‘Catastrophic,’ ” The Wall Street Journal, March 30, 2011.

CHAPTER ELEVEN

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

88 “We’re all connected”: Compilation of Presidential Documents,

“Remarks at George Washington University,” April 13, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

89 Ryan took out his BlackBerry: Press release, “Paul Ryan Responds to

President’s Disappointing, Partisan Speech,” Office of Representative

Paul Ryan, April 13, 2011, http://paulryan.house.gov.

90 Ryan’s presence at the George Washington University speech: Lori

Montgomery, “Obama Address Was Surprise Attack, GOP

Lawmakers Say,” The Washington Post, April 14, 2011; Mark Landler

and Michael D. Shear, “Obama’s Debt Plan Sets Stage for Long Battle

over Spending,” The New York Times, April 13, 2011; editorial, “The

Presidential Divider,” The Wall Street Journal, April 14, 2011; see also

Jackie Calmes, “Obama’s Deficit Dilemma,” The New York Times,

February 27, 2012.

91 “I was not aware when I gave”: On the record author interview with

President Barack Obama, July 11, 2012.

92 The three free trade agreements: Binyamin Appelbaum and Jennifer

Steinhauer, “Congress Ends 5-Year Standoff on Trade Deals in Rare

Accord,” The New York Times.

93 Two days later, on October 14, Obama traveled: Compilation of

Presidential Documents, “Remarks at General Motors Orion

Assembly Plant in Lake Orion, Michigan,” October 14, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

CHAPTER TWELVE

The information in this chapter comes primarily from background

interviews with eight firsthand sources and contemporaneous notes by

six participants.

CHAPTER THIRTEEN

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by two

participants.

CHAPTER FOURTEEN

The information in this chapter comes primarily from background

interviews with five firsthand sources and contemporaneous notes by

two participants.

CHAPTER FIFTEEN

The information in this chapter comes primarily from background

interviews with five firsthand sources and contemporaneous notes by

two participants.

94 On Saturday morning, June 18: On the record author interview with

Speaker John Boehner, June 7, 2012.

95 “The president and I whupped ’em pretty good”: Excerpt of a Playbook

Breakfast video interview between Mike Allen and Speaker Boehner,

December 14, 2011, http://www.politico.com/playbook-breakfast/.

96 Later, the president recalled the conversation: On the record author

interview with President Barack Obama, July 11, 2012.

97 He noted that McConnell had said: Corbett B. Daly, “Schumer Questions

GOP Sincerity on Job Creation,” Face the Nation, CBS, June 19, 2011,

http://www.cbsnews.com/2100-3460_162-20072389.html.

98 “REVENUE” was the dreaded word: Author obtained copy of document.

CHAPTER SIXTEEN

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

99 “I came in through the South Entrance”: On the record author interview

with Speaker John Boehner, June 7, 2012.

100 Asked about the conversation with Boehner: On the record author

interview with President Barack Obama, July 11, 2012.

101 A few hours later, the president appeared: Compilation of Presidential

Documents, “Address to the Nation on the Drawdown of United

States Military Personnel in Afghanistan,” June 22, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

CHAPTER SEVENTEEN

The information in this chapter comes primarily from background

interviews with eight firsthand sources and contemporaneous notes by a

participant.

102 Early on the morning of Thursday, June 23, Cantor gave: Janet Hook and

Corey Boles, “Tax Dispute Stalls Debt Talks,” The Wall Street Journal,

June 24, 2011.

103 “I can’t,” Cantor said: see Ibid.

104 “Deficit talks in danger”: David Rogers, “Deficit Talks in Danger as

Eric Cantor Bails,” Politico, June 23, 2001, http://www.politico.com.

105 The next day, the New York Times editorial board: Editorial, “Their

Temper Tantrum,” The New York Times, June 23, 2011, p. A24.

106 “I understand his frustration”: Benjy Sarlin, “With Ball in Speaker’s

Court, Boehner Doubles Down on Anti-Tax Rhetoric,” Talking Points

Memo, June 23, 2011,

http://tpmdc.talkingpointsmemo.com/2011/06/with-ball-in-

speakers-court-boehner-doubles-down-on-anti-tax-rhetoric.php.

107 In a press conference, he laid out: Felicia Sonmez, “Boehner: Tax Hikes

in a Debt Deal Proposal ‘Cannot Pass’ House,” 2chambers blog, The

Washington Post, June 24, 2011,

http://www.washingtonpost.com/blogs/2chambers/post/boehner-

tax-hikes-in-debt-deal-cannot-pass-

house/2011/06/24/AGtLj8iH_blog.html.

108 On June 29, 2011, President Obama appeared: Compilation of

Presidential Documents, “The President’s News Conference,” June

29, 2011, http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

109 A statement released by the speaker’s office: Press release, “Speaker

Boehner Statement in Response to Remarks by President Obama,”

office of Speaker John Boehner, June 28 [ sic], 2012,

http://www.speaker.gov.

110 At the White House, Nabors, Lew and Sperling: Author obtained

document.

111 On July 1, the White House sent: Ibid.

112 In bold type on the first line: Ibid.

113 On Sunday, July 3, Boehner had a bunch: On the record author

interview with Speaker John Boehner, June 7, 2012.

114 It was a brutally hot summer evening: Historical weather for

Washington, D.C., Farmers’ Almanac,

http://www.farmersalmanac.com/weather-

history/20052/2011/07/03/.

115 “The more I got into this”: On the record author interview with

Speaker John Boehner, June 7, 2012.

116 That’s exactly right: On the record author interview with President

Barack Obama, July 11, 2012.

CHAPTER EIGHTEEN

The information in this chapter comes primarily from background

interviews with nine firsthand sources and contemporaneous notes by

two participants.

117 On Tuesday, July 5, the president made a short statement: Compilation of

Presidential Documents, “Remarks Prior to White House Press

Secretary James ‘Jay’ Carney’s Briefing,” July 5, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

118 In a statement released later, Boehner said: Press release, “Speaker

Boehner on President Obama’s Comments Regarding His Request

for a Debt Limit Increase,” Office of Speaker John Boehner, July 4

[ sic], 2011, http://www.speaker.gov.

119 Loper handed them Boehner’s counterproposal: Author obtained

document.

120 “Listen, $788 billion was real simple”: On the record author interview

with Speaker John Boehner, June 7, 2012.

121 On the morning of Thursday, July 7: Carl Hulse and Mark La Landler,

“President Looks to Broader Deal in Deficit Talks,” The New York

Times, July 7, 2011, p. A1.

122 “Okay, so, he wants to get reelected”: On the record author interview

with Speaker John Boehner, June 7, 2012.

123 The president spoke to the media at about 1 p.m.: Lori Montgomery and

Paul Kane, “Obama Calls Debt Talks ‘Constructive,’ Invites Parties to

Reconvene Sunday,” The Washington Post, July 7, 2011.

124 Afterward, Pelosi expressed concern: David Rogers, “Debt Talks Turn to

Tax Reform,” Politico, July 7, 2011, http://www.politico.com.

125 “Oh, hell yeah!”: On the record author interview with Speaker John

Boehner, June 7, 2012.

126 “Don’t insult us,” Pelosi retorted: Jonathan Allen, “Nancy Pelosi’s Back

at the Negotiating Table on Debt Ceiling,” Politico, July 8, 2011,

http://www.politico.com.

CHAPTER NINETEEN

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

127 At 8:30 a.m. on July 8, the Labor Department announced: Annalyn

Censky, “June Jobs Report: Hiring Slows, Unemployment Rises,”

CNN Money, July 8, 2011,

http://money.cnn.com/2011/07/08/news/economy/june_jobs_report_unemployment/index.htm see also Employment Situation News Release, “The Employment

Situation—June 2010,” U.S. Bureau of Labor Statistics, July 2, 2010,

http://www.bls.gov/schedule/archives/empsit_nr.htm.

128 “After hearing this morning’s jobs report”: Press release, “Speaker

Boehner: Tax Hikes on Job Creators Would Make Things Worse,”

Office of Speaker John Boehner, July 8, 2011,

http://www.speaker.gov.

129 Asked about the prospects: On the record author interview with

Speaker John Boehner, June 7, 2012 and Ibid.

130 Though Conrad had been the impetus: Conrad’s letter to author, April

26, 2012.

131 Most of them had signed a pledge: See “What Is the Taxpayer Protection

Pledge?” Americans for Tax Reform, http://www.atr.org/taxpayer-

protection-pledge.

132 While serving on the Simpson-Bowles commission: “Conrad Remarks at

Hearing on President’s FY 2012 Defense and International Affairs

Budgets,” March 10, 2011,

http://budget.senate.gov/democratic/index.cfm/speeches-and-

remarks?ContentRecord_id=61ce0ef9-6f41-4dee-9a8e-3bf1b0f60aa2.

133 He handed Sperling one sheet of paper: Author obtained document

entitled “Individual Income Tax Reform,” dated July 8, 2011.

134 He decided to leave no doubt: Author obtained two-page document

dated July 9, 2011.

135 In an interview, the president recalled: On the record author interview

with President Barack Obama, July 11, 2012.

136 They began drafting a pessimistic memo for Boehner: Author obtained

document entitled “Tax Reform Principles: Key Areas of

Disagreement.”

CHAPTER TWENTY

The information in this chapter comes primarily from background

interviews with seven firsthand sources and contemporaneous notes by a

participant.

137 That same morning, Cantor read: Editorial, “Boehner’s Obama

Gamble,” The Wall Street Journal, July 9, 2011.

138 The New York Times story on $1 trillion in revenue: Carl Hulse and

Mark La Landler, “President Looks to Broader Deal in Deficit Talks,”

The New York Times, July 7, 2011, p. A1.

139 The memo was titled: Author obtained memo.

140 In an interview, the president recalled: On the record author interview

with President Barack Obama, July 11, 2012.

141 “Despite good-faith efforts”: Press release, “Statement by Speaker

Boehner on Debt Limit Discussions,” Office of Speaker John

Boehner, July 9, 2011, http://www.speaker.gov.

142 In an interview later, Boehner described his decision: On the record author

interview with Speaker John Boehner, June 7, 2012.

143 Asked about Boehner’s explanation for pulling out: On the record author

interview with President Barack Obama, July 11, 2012.

CHAPTER TWENTY-ONE

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

144 In an interview, Obama later recalled using: On the record author

interview with President Barack Obama, July 11, 2012.

CHAPTER TWENTY-TWO

The information in this chapter comes primarily from background

interviews with four firsthand sources.

145 “The things I will not consider”: Compilation of Presidential

Documents, “The President’s News Conference,” July 11, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

146 Later that morning at the Capitol: Press release, “Speaker Boehner

Remarks on Ongoing Debt Limit Discussions,” Office of Speaker

John Boehner, July 11, 2011, http://www.speaker.gov.

147 Cantor handed out copies: Author review of notes from PowerPoint

presentation.

148 That evening by 8:30, Politico: Jonathan Allen and Jake Sherman,

“With John Boehner Bailing, Eric Cantor Ascends as GOP Voice,”

Politico, July 11, 2011, http://www.politico.com.

CHAPTER TWENTY-THREE

The information in this chapter comes primarily from background

interviews with four firsthand sources and contemporaneous notes by a

participant.

149 “Republicans have a plan”: John Bresnahan, Jake Sherman and

Jonathan Allen, “Angry John Boehner Rallies GOP Troops on Debt

Limit,” Politico, July 12, 2011, http://www.politico.com; see also

press release, “Speaker Boehner: GOP Has Been Clear: Real Spending

Cuts & Reforms, No Tax Hikes,” Office of Speaker John Boehner,

July 12, 2011, http://www.speaker.gov.

150 McConnell pulled no punches: Floor updates, “Reid, McConnell,” July

12, 2011, http://www.republican.senate.gov/public/index.cfm/floor-

updates?Date=12-Jul-11.

151 In response to a question about what would happen: Corbett B. Daly,

“Obama Says He Cannot Guarantee Social Security Checks Will Go

Out on August 3,” CBS News, July 12, 2011,

http://www.cbsnews.com/8301-503544_162-20078789-

503544.html.

152 Asked about his relationship with the speaker: Scott Pelley, “Obama:

Boehner ‘Would Like to Do the Right Thing,’ ” CBS News, July 12,

2011,

http://www.cbsnews.com/stories/2011/07/12/eveningnews/main20078935.shtml

153 “Well, then, he’s going to have to explain”: Ibid.

154 “John,” Obama began, “you said this was my problem”: John Bresnahan,

Jake Sherman and Jonathan Allen, “Angry John Boehner Rallies GOP

Troops on Debt Limit,” Politico, July 12, 2011,

http://www.politico.com; press release, “Speaker Boehner: GOP Has

Been Clear: Real Spending Cuts & Reforms, No Tax Hikes,” Office of

Speaker John Boehner, July 12, 2011, http://www.speaker.gov.

155 Neither he nor Obama addressed McConnell’s assertion: Floor updates,

“Reid, McConnell,” July 12, 2011,

http://www.republican.senate.gov/public/index.cfm/floor-updates?

Date=12-Jul-11.

156 For his part, McConnell was direct: On the record author interview with

Senate Minority Leader Mitch McConnell, July 12, 2011.

157 “We both agree on entitlements”: Jake Sherman and Jonathan Allen,

“House GOP Not Ready to Blink on Debt Negotiations,” Politico, July

12, 2011, http://www.politico.com.

158 In an interview later, Boehner said: On the record author interview with

Speaker John Boehner, June 7, 2012.

CHAPTER TWENTY-FOUR

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

159 In an interview, the president said: On the record author interview with

President Barack Obama, July 11, 2012.

160 The Moody’s report stated: Abby Phillip, “Moody’s Puts Debt Rating

on Review,” Politico, July 13, 2011, http://www.politico.com.

161 Cantor described Obama as “abruptly walking out”: Russell Berman and

Sam Youngman, “Obama Warns Cantor: ‘Don’t Call My Bluff,’ ” The

Hill, July 13, 2011,

http://thehill.com/homenews/administration/171403-obama-warns-

cantor-dont-call-my-bluff-in-debt-talks; blog post, “The Leader’s

Ledger,” Office of Majority Leader Eric Cantor, July 13, 2011,

http://majorityleader.gov.

162 The president later recalled the confrontation: On the record author

interview with President Barack Obama, July 11, 2012.

CHAPTER TWENTY-FIVE

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

163 “With so much at stake”: Congressional Record, Vol. 157, No. 105,

July 14, 2011, http://www.gpo.gov/fdsys/pkg/CREC-2011-07-

14/html/CREC-2011-07-14-pt1-PgS4568.htm.

164 “I just went up and put my arm around Eric”: On the record interview

with Speaker John Boehner, June 7, 2012.

165 “Let me just say we have been in this fight”. Felicia Sonmez, “Boehner

Defends Cantor from Democratic Criticism in Debt Limit Talks,”

2chambers blog, The Washington Post, July 14, 2011,

http://www.washingtonpost.com/blogs/2chambers/post/boehner-

defends-cantor-from-democratic-criticism-in-debt-limit-

talks/2011/07/14/gIQAzjfTEI_blog.html.

166 Afterward, when Boehner and Cantor were waiting together: On the

record author interview with Speaker John Boehner, June 7, 2012.

167 “S&P is going to issue a statement”: Press release, “S&P Places U.S.

‘AAA/A-1+’ Rtgs on CreditWatch Negative,” Standard & Poor’s, July

14, 2011, 7:46 p.m.,

http://www.reuters.com/article/2011/07/14/market-ratings-

creditwatch-us-idUSWNA372820110714.

168 That evening, there was the congressional baseball game: “Congress at the

Bat,” Talking Points Memo, July 14, 2011,

http://media.talkingpointsmemo.com/slideshow/congress-at-the-

bat-50th-annual-congressional-baseball-game.

169 Reid had, that day, expressed support: Paul M. Krawzak, “Backup Debt

Plan in the Works,” Congressional Quarterly, July 14, 2011,

http://public.cq.com/docs/news/news-000003908298.html.

CHAPTER TWENTY-SIX

The information in this chapter comes primarily from background

interviews with four firsthand sources.

170 In an interview a year later: On the record author interview with

Speaker John Boehner, June 7, 2012.

171 Boehner handed Daley and Geithner a two-page offer: Two-page

document obtained by author entitled “Deficit Reduction Package,”

dated July 15, 2011.

172 “There was one point before this”: On the record author interview with

Speaker John Boehner, June 7, 2012.

CHAPTER TWENTY-SEVEN

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

173 The second was a four-page counteroffer: Author obtained document

entitled “Deficit Reduction Package,” dated July 17, 2011.

174 The president would later recall that he was pleased: On the record author

interview with President Barack Obama, July 11, 2012.

175 In an interview later, Boehner said: On the record author interview with

Speaker John Boehner, June 7, 2012.

176 In an interview, the president recalled: On the record author interview

with President Barack Obama, July 11, 2012.

177 At 7 p.m., Loper sent a three-page offer: Author obtained document,

titled “Deficit Reduction Package,” dated July 17, 2011.

178 In an interview he recalled a discussion with the president: On the record

author interview with Speaker John Boehner, June 7, 2012.

179 Asked about this the president said: On the record author interview

with President Barack Obama, July 11, 2012.

180 It was really about votes? I asked: On the record author interview with

Speaker John Boehner, June 7, 2012.

CHAPTER TWENTY-EIGHT

The information in this chapter comes primarily from background

interviews with six firsthand sources.

181 But in a meeting with fellow senators that morning: Gang of Six,

Executive Summary on Talking Points Memo,

http://talkingpointsmemo.com/documents/2011/07/executive-

summary-of-gang-of-six-deficit-reduction-plan.php.

182 Because it was bipartisan: Jannifer Haberkorn and Matt DoBias, “Gang

of Six Plan Looks to Health for Savings,” Politico, July 19, 2011,

http://www.politico.com; Manu Raju, “Gang of Six Back from the

Brink,” Politico, July 19, 2011, http://www.politico.com.

183 “Some progress was made”: Compilation of Presidential Documents,

“Remarks Prior to White House Press Secretary James ‘Jay’ Carney’s

Briefing and an Exchange with Reporters,” July 19, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

184 Asked about his reaction to the Gang of Six: On the record author

interview with President Barack Obama, July 11, 2012.

185 So Cantor put out a statement praising: Russell Berman, “Cantor Gives

‘Gang of Six’ Plan Mixed Review,” The Hill, July 19, 2011,

http://thehill.com/homenews/house/172423-cantor-gives-gang-of-

six-plan-mixed-review.

186 Through a spokesman, Boehner said: Andy Sullivan, “Senate Budget Plan

Falls Short: Boehner Aide,” Reuters, July 19, 2011,

http://in.reuters.com/article/2011/07/19/usa-debt-boehner-

gangofsix-idINWEN564220110719.

187 He later told The Washington Post: Peter Wallsten, Lori Montgomery

and Scott Wilson, “He Promised Change in Washington. Then the

Debt Deal Collapsed. So Obama Changed Course,” The Washington

Post, March 18, 2012, p. A9.

188 When he was done he had a three-page offer: Author review of document

entitled “Deficit Reduction Package—Nabors Draft 7/19/2011 6:27

PM.”

189 It was panned by the American Enterprise Institute: Marc A. Thiessen,

“The Gang of Six’s $3 Trillion Tax Hike,” The Washington Post, July

21, 2011; Mark Steyn, “Gang of Six Bag of Tricks,” The Corner blog,

National Review, July 19, 2011,

http://www.nationalreview.com/corner/272254/gang-six-bag-tricks-

mark-steyn; James C. Capretta, “The Gang of Six Disaster: The Worst

Plan So Far,” ibid., July 20, 2011,

http://www.nationalreview.com/corner/272311/gang-six-disaster-

worst-plan-so-far-james-c-capretta; editorial, “The Gang of Six Play,”

The Wall Street Journal, July 21, 2011.

CHAPTER TWENTY-NINE

The information in this chapter comes primarily from background

interviews with eight firsthand sources and contemporaneous notes by a

participant.

CHAPTER THIRTY

The information in this chapter comes primarily from background

interviews with 10 firsthand sources and contemporaneous notes by a

participant.

190 A band of angry Democratic senators: Alexander Bolton, “Reid: ‘I’m the

Senate Majority Leader. Why Don’t I Know About This Deal?’ ” The

Hill, July 21, 2011, http://thehill.com/homenews/senate/172895-

reid-confronts-obama-budget-director-on-possible-debt-ceiling-deal; Meredith Shiner, “Silence on Obama Meeting Follows Uproar over

Debt Deal,” Roll Call, July 21, 2011,

http://www.rollcall.com/news/senate_democrats_volcanic_over_deal_rumors-

207575-1.html.

191 Headlined “Push Intensifies”: Carl Hulse and Jackie Calmes, “Push

Intensifies for Larger Deal on Debt Impasse,” The New York Times, July

20, 2011,

http://www.nytimes.com/2011/07/21/us/politics/21fiscal.html.

192 When Lew was done, Senator Barbara Mikulski: Paul Kane, “Debt Talks

Bring Tensions Between Democrats, Obama to Surface,” The

Washington Post, July 21, 2011.

193 Reid was so angry that he talked to reporters: Manu Raju, “Harry Reid:

Deal Must Have Revenues,” Politico, July 21, 2011,

http://www.politico.com.

194 “Geithner has two concerns,” the president later recalled: On the record

author interview with President Barack Obama, July 11, 2012.

195 In an interview, Boehner, who was consulting notes: On the record author

interview with Speaker John Boehner, June 7, 2012.

196 Obama later told me that he presented the speaker: On the record author

interview with President Barack Obama, July 11, 2012.

197 Asked in an interview whether the Gang of Six releasing their plan: Ibid.

CHAPTER THIRTY-ONE

The information in this chapter comes primarily from background

interviews with eight firsthand sources.

198 The president later recalled the meeting with Reid and Pelosi: On the

record author interview with President Barack Obama, July 11, 2012.

199 The draft proposal Nabors sent: Author obtained copy of document.

CHAPTER THIRTY-TWO

The information in this chapter comes primarily from background

interviews with seven firsthand sources.

200 Boehner told me later, “Harry and I”: On the record author interview

with Speaker John Boehner, June 7, 2012.

201 “What happened to common courtesy?”: Author review of emails.

202 One reporter joked: David A. Fahrenthold and Lori Montgomery,

“Death of ‘Grand Bargain’ Boils Down to Two Men, Divided and

Distrustful,” The Washington Post, July 23, 2011, p. A11.

203 “He was spewing coals”: On the record author interview with Speaker

John Boehner, June 7, 2012.

204 Boehner later recalled, “He wasn’t going”: Ibid.

205 “I was pretty angry,” Obama told me: On the record author interview

with President Barack Obama, July 11, 2012.

206 “I just got a call about a half hour ago”: Compilation of Presidential

Documents, “Remarks on the Federal Budget and an Exchange with

Reporters,” July 22, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

207 “I’d sat here and watched his performance”: On the record author

interview with Speaker John Boehner, June 7, 2012.

208 “There was an agreement with the White House”: “Rep. John A. Boehner,

R-Ohio, Holds a News Conference,” CQ Transcriptions, July 22,

2011.

209 Later Boehner told me that he realized the importance: On the record

author interview with Speaker John Boehner, June 7, 2012.

CHAPTER THIRTY-THREE

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

210 Leader Pelosi will not be able to join the call: Author review of email.

211 How did the president feel: On the record author interview with

President Barack Obama, July 11, 2012.

212 Boehner arranged an afternoon conference call: Author review of an

internal readout of the conference call.

213 At 5:21 p.m., Michael Steel, Boehner’s press secretary: Author review of

email.

214 “I will not support any short-term agreement”: Press release, “Reid

Statement Reaffirming Opposition to Short-Term Debt Ceiling

Increase,” Office of Senate Majority Leader Harry Reid, July 23, 2011,

http://www.reid.senate.gov.

215 “Listen,” Boehner recalled telling the president: On the record author

interview with Speaker John Boehner, June 7, 2012.

216 Boehner recalled, “He was moaning and groaning”: Ibid.

217 In a statement to the press, Boehner’s spokesman: Jamie Klatell, “Reid: I

Hope GOP Leaders Will Reconsider Their Intransigence in

Negotiations,” The Hill, July 24, 2011,

http://thehill.com/homenews/senate/173135-reid-hopes-gop-

leaders-will-reconsider-their-intransigence.

218 Asked about Boehner’s description: On the record author interview with

President Barack Obama, July 11, 2012.

CHAPTER THIRTY-FOUR

The information in this chapter comes primarily from background

interviews with six firsthand sources.

219 On Sunday morning, July 24, Boehner appeared: Chris Wallace,

“Treasury Secretary Tim Geithner, Speaker of the House Boehner

Talk Debt Ceiling Deadline,” Fox News Sunday, Fox, July 24, 2011,

http://www.foxnews.com/on-air/fox-news-

sunday/2011/07/24/treasury-secretary-tim-geithner-speaker-house-

john-boehner-talk-debt-ceiling-deadline.

220 In an interview nearly a year later: On the record author interview with

Speaker John Boehner, June 7, 2012.

221 Did someone hang up on the other?: Ibid.

222 Reid and Pelosi left the White House: Jennifer Steinhauer and Helene

Cooper, “Rival Debt Plans Being Assembled by Party Leaders,” The

New York Times, July 25, 2011, p. A1.

223 Asked about the meeting with Reid and Krone: On the record author

interview with President Barack Obama, July 11, 2012.

224 Late that night, the majority leader released a $2.7 trillion deficit reduction

plan: Jake Sherman, Manu Raju and John Bresnahan, “Stalemated,

Parties Go Separate Ways,” Politico, July 24, 2011,

http://www.politico.com.

225 “It will include enough spending cuts”: Press release, Office of Senate

Majority Leader Harry Reid, July 23, 2011,

http://www.reid.senate.gov/newsroom/pr_072411_ceiling.cfm.

226 Using OCO, Boehner later told me: On the record author interview with

Speaker John Boehner, June 7, 2012.

CHAPTER THIRTY-FIVE

The information in this chapter comes primarily from background

interviews with six firsthand sources and contemporaneous notes by a

participant.

227 The White House publicly endorsed Reid’s plan: White House press

release, “Statement by the Press Secretary,” July 25, 2011,

http://www.whitehouse.gov/the-press-

office/2011/07/25/statement-press-secretary.

228 In an interview later, McConnell said: On the record author interview

with Senate Minority Leader Mitch McConnell, July 12, 2011.

229 “Interest rates would skyrocket”: Compilation of Presidential

Documents, “Address to the Nation on the Federal Budget,” July 25,

2011, http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

230 “This isn’t a game of chicken”: Scott Wong and Manu Raju, “Harry

Reid’s Debt Ceiling Plan Faces Tough Odds,” Politico, July 25, 2011,

http://www.politico.com.

231 “The debt limit vote sucks”: Robert Draper, Do Not Ask What Good We

Do: Inside the U.S. House of Representatives (New York: Free Press,

2012), pp. 246–247.

232 Later that day, the White House issued a warning: Statement of

Administration Policy on S.627—Budget Control Act of 2011, Office

of Management and Budget, July 26, 2011,

http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/112/saps627r_20110726.pdf

233 His job became more difficult that afternoon: Letter to Speaker John

Boehner, Analysis of the Impact on the Deficit of the Budget Control

Act of 2011 as Proposed in the House, Congressional Budget Office,

July 26, 2011,

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/123xx/doc12336/housebudgetcontrolact.pdf

234 In an interview, Obama later said he had recognized: On the record

author interview with President Barack Obama, July 11, 2012.

235 We’re going to the chapel to pray: Lisa Mascaro and Kathleen

Hennessey, “Boehner, Hitting Another Wall on Debt Limit Plan,

Calls Off Vote,” Los Angeles Times, July 28, 2011.

CHAPTER THIRTY-SIX

The information in this chapter comes primarily from background

interviews with seven firsthand sources.

236 It finally passed 218–210: Carl Hulse and Robert Pear, “Senate

Quickly Kills Boehner Deal,” The New York Times, July 30, 2011, p. A1.

237 A clearly frustrated Boehner said after the vote: Press release,

“Congressman Boehner Remarks on the House Floor re: the GOP

Budget,” Office of Speaker John Boehner,

http://boehner.house.gov/news/documentprint.aspx?

DocumentID=254536.

CHAPTER THIRTY-SEVEN

The information in this chapter comes primarily from background

interviews with eight firsthand sources and contemporaneous notes by a

participant.

238 The House defeated the Reid bill at about 3:15 p.m.: Carl Hulse, “House

Rejects Reid Debt Ceiling Proposal,” Caucus blog, The New York

Times, July 30, 2011,

http://thecaucus.blogs.nytimes.com/2011/07/30/house-rejects-reid-

debt-ceiling-proposal/.

239 McConnell went to the Senate floor: Congressional Record—Senate, July

30, 2011, p. S5090, http://www.gpo.gov/fdsys/pkg/CREC-2011-07-

30/pdf/CREC-2011-07-30-pt1-PgS5090-2.pdf.

240 “We are now fully engaged, the speaker and I”: “Rep. John A. Boehner,

R-OHIO, Speaker of the House, Holds a News Conference,” CQ

Transcriptions, July 30, 2011.

241 “Members of the Senate, that’s not true”: Congressional Record—

Senate, July 30, 2011, p. S5120,

http://www.gpo.gov/fdsys/pkg/CREC-2011-07-30/pdf/CREC-2011-

07-30-senate.pdf.

242 “The fact is that the only way”: Ibid.

243 “While the Republican leader is holding”: Ibid.

244 “We are here today,” Reid said: Ibid.

CHAPTER THIRTY-EIGHT

The information in this chapter comes primarily from background

interviews with eight firsthand sources and contemporaneous notes by a

participant.

245 When Asia didn’t tank: See historical prices, Nikkei 225, July 25,

2011, http://finance.yahoo.com.

246 Monday on the House floor: Press release, “Pelosi Floor Speech on

Budget Control Act of 2011,” Office of House Minority Leader Nancy

Pelosi, August 1, 2001, http://pelosi.house.gov/.

247 The House passed the Rubik’s cube: Carl Hulse, “Long Battle on Debt

Ending as Senate Set for Final Vote,” The New York Times, August 1,

2011, p. A1.

248 The Senate followed the next day with a vote: Jennifer Steinhauer, “Debt

Bill Is Signed, Ending a Fractious Battle,” The New York Times, August

2, 2011, p. A1.

249 House Budget Committee Chairman Paul Ryan blasted: Paul Ryan,

“Where’s Your Budget, Mr. President?” The Wall Street Journal,

August 3, 2011.

250 Less expected was former Obama economics czar: Lawrence Summers,

“Moving Forward After the Debt Deal,” The Washington Post, August

2, 2011.

CHAPTER THIRTY-NINE

The information in this chapter comes primarily from background

interviews with 12 firsthand sources and contemporaneous notes by two

participants.

251 The monthly jobs report came out: Employment Situation News

Release, “The Employment Situation—August 2011,” U.S. Bureau of

Labor Statistics, September 2, 2011,

http://www.bls.gov/schedule/archives/empsit_nr.htm.

252 On September 8, Obama appeared: Compilation of Presidential

Documents, “Address Before a Joint Session of the Congress on Job

Growth,” September 8, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

253 On September 12 in the White House Rose Garden: Compilation of

Presidential Documents, “Remarks on Job Growth Legislation,”

September 12, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

254 In an interview, Boehner said: On the record author interview with

Speaker John Boehner, June 7, 2012.

255 “I have gone way out on a limb”: Author obtained memo, dated

October 26, 2011.

256 At 4:45, she put out a press release: Press release, “Statement from Co-

Chairs of the Joint Select Committee on Deficit Reduction,” Office of

Senator Patty Murray, November 21, 2011,

http://www.murray.senate.gov.

257 “Washington’s Super Failure,” read a Washington Post editorial:

Editorial, “Washington’s Super Failure,” The Washington Post,

November 22, 2011, p. A18.

258 A New York Times headline said: Michael Cooper, “A Failure Is

Absorbed with Disgust and Fear, but Little Surprise,” The New York

Times, November 22, 2011, p. A19.

259 During a one-hour visit to his second-floor office: On the record author

interview with Senate Minority Leader Mitch McConnell, July 12,

2011.

260 “I know many Republicans have sworn”: Compilation of Presidential

Documents, “Remarks on Payroll Tax Cuts and Unemployment

Insurance,” December 5, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

261 In the afternoon Boehner and Cantor held a telephone conference call:

Author review of notes of the conference call.

262 “Well, it’s pretty clear that I and our members”: Meet the Press transcript, NBC, December 18, 2011.

263 “I think we need to recognize reality”: Ashley Killough, “McCain: Payroll

Tax Cut Showdown ‘Harming’ the GOP,” CNN Politics blog post,

December 20, 2011,

http://politicalticker.blogs.cnn.com/2011/12/20/mccain-payroll-tax-

cut-showdown-harming-the-gop/.

264 On Wednesday, December 21, The Wall Street Journal: Editorial, “The

GOP’s Payroll Tax Fiasco,” The Wall Street Journal, December 22,

2011.

265 On December 23, in a speedy House session: Jennifer Steinhauer, “For

Payroll Tax Cut, Next Step Is Obama’s Signature,” The Caucus blog,

The New York Times, December 23, 2011,

http://thecaucus.blogs.nytimes.com/2011/12/23/for-payroll-tax-cut-

next-step-is-obamas-desk/.

266 At 1:25, the president delivered: Compilation of Presidential

Documents, “Remarks on Congressional Action on Payroll Tax Cut

and Unemployment Insurance Legislation,” December 23, 2011,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

267 “The Humbling of the House GOP,” said a headline: Carrie Budoff Brown

and Jonathan Allen, “The Humbling of the House GOP,” Politico,

December 23, 2011, http://www.politico.com.

268 “Hate-Filled GOP Suffering from Self-Inflicted Wounds”: Thomas M.

DeFrank, “Hate-Filled GOP Suffering from Self-Inflicted Wounds,”

Daily News (New York), December 23, 2011, p. 4.

269 “House GOP Surrenders on Payroll Tax Cut”: Rosalind S. Helderman,

“House GOP Surrenders on Payroll Tax Cut,” The Washington Post,

December 23, 2011, p. A1.

270 Six days later, on February 17: Steven Sloan, Richard Rubin and

Kathleen Hunter, “Congress Passes Extension of Payroll Tax Cut,”

Bloomberg, February 18, 2012,

http://www.bloomberg.com/news/print/2012-02-17/house-passes-

extension-of-payroll-tax-cut-through-2012-by-vote-of-293-132.html.

271 “You’ll remember,” he said, “I called on Congress”: Compilation of

Presidential Documents, “Remarks on the Payroll Tax Cut and

Unemployment Insurance Legislation,” February 21, 2012,

http://www.gpo.gov/fdsys/browse/collection.action?

collectionCode=CPD.

CHAPTER FORTY

272 In an interview about the debt ceiling: On the record author interview

with Speaker John Boehner, June 7, 2012.

273 Daley at first said he was flattered: Author phone interview with

William Daley, June 2012.

274 “I have no idea,” Boehner said: On the record author interview with

Speaker John Boehner, June 7, 2012.

275 In 2010, Boehner had a 94 percent: Michael Barone and Chuck

McCutcheon, Almanac of American Politics 2012 (Chicago: University

of Chicago Press, 2011).

276 “I don’t know whether it’s him”: On the record author interview with

Speaker John Boehner, June 7, 2012.

277 “I think John wanted to get a deal” the president said to me: On the record

author interview with President Barack Obama, July 11, 2012.

278 “And I’m sure as hell going to do something about it”: On the record

author interview with Speaker John Boehner, June 7, 2012.

* In the 2010 House election for the Louisiana 2nd District, Obama did an ad for Democrat Cedric Richmond, who beat Cao 65 percent to 33 percent.

* In February 2012 the University of Chicago surveyed a range of 40 prominent economists and 80 percent agreed with Obama that the stimulus had helped the economy, while only 4 percent

disagreed.

* The Democrats won the game 8–2.

* The draft proposal Nabors sent to Boehner’s office on July 19 offered to apply the modified Consumer Price Index “to Social Security, mandatory programs, and the tax code beginning in

2015” and to “Reduce the 75-year estimated shortfall of the Social Security Program . . . with a

balanced package of tax and benefit changes. ”199

* In addition to the co-chairs, there were 10 other members of the supercommittee. From the Senate, Reid appointed Max Baucus and Massachusetts Senator John Kerry. McConnell

appointed Jon Kyl; Senator Rob Portman, of Ohio, who had been OMB director under George W.

Bush; and freshman Pennsylvania Senator Pat Toomey, a dedicated deficit hawk, Tea Party

favorite and the former president of the ultraconservative Club for Growth. From the House,

Boehner appointed Ways and Means Chairman Dave Camp and House Energy and Commerce

Chairman Fred Upton, of Michigan. Pelosi appointed the three House Democrats who had served

on the Biden group: Xavier Becerra, James Clyburn and Chris Van Hollen.

* In 2010, Boehner had a 94 percent conservative voting record, according to National Journal ratings, and Cantor only 82 percent. 275

INDEX

ABC News, 122

Affleck, Ben, 325

Affordable Care Act. See health care reform

Afghanistan war, 67, 68, 94, 120, 136, 147–48, 149, 194, 223, 241, 342

agricultural subsidies, 121, 123, 201

Alternative Minimum Tax, 166

American Enterprise Institute, 259

American Jobs Act, 358, 359, 373

American Medical Association, 55

American Opportunity Tax Credit, 76

The American President (film), 301

Americans for Tax Reform, 11, 60

Apple, 242

appropriations bill of 2009, 26–27

Armageddon Project, 327

Asian financial markets, 305, 348

The Audacity to Win (Plouffe, 2009), 92

Axelrod, David, 51, 91, 92

Bachmann, Michele, 122

Balanced Budget Act of 1997, 31

balanced budget amendment, 96, 117, 212, 308, 330, 347

Base Realignment and Closure (BRAC) process, 191

Baucus, Max, 36, 41, 118, 121, 123, 124, 125, 128, 130, 132, 137, 148,

360, 362

Becerra, Xavier, 360

Bennett, Bill, 83

Bernanke, Ben, 96

Biden, Joe

and balanced budget amendment, 347

and Boehner, 350–52

and Bush tax cut extension, 69–75, 77, 78

and Cantor, 125–26, 128–29, 136, 137–38, 142–43, 151, 153, 192, 193,

195, 266

and congressional plan on debt ceiling crisis (July 2011), 305, 316, 326,

340, 344, 346, 347, 349, 350–52

and Conrad, 36–37, 38, 171, 172

and Emanuel, 80

and firewall placement, 349, 350–52

golfing with Boehner and Obama, 132, 134

and Graham, 369

at joint congressional leadership meetings

January 5, 2009, 5, 8

November 18, 2010, proposed, 61

November 30, 2010, 64–65

April 13, 2011, 100, 101, 102

July 10, 2011, 191–93, 195–97

July 11, 2011, 202–3, 206

July 12, 2011, 211, 214, 216

July 13, 2011, 222, 223

July 14, 2011, 231

and Kyl, 136, 137

and McConnell, 70–75, 80, 142, 208, 340, 347, 352, 365

and Obama, 46, 70, 72

on Patient Protection and Affordable Care Act passage, 46

and payroll tax cut two-month extension (December 2011), 365, 369

and Pelosi, 130, 151

and Schumer, 77

and sequestration trigger, 340, 344, 346

and Simpson-Bowles commission, 36–37, 41, 42–43

on stimulus package, 11

and Van Hollen, 130, 132–33

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 260, 264, 266

Biden working group on long-term debt resolution

May 5, 2011 meeting, 111–19

May 10, 2011 meeting, 120

May 12, 2011 meeting, 120–21

May 24, 2011 meeting, 121–24

May 26, 2011 meeting, 124–25

June 9, 2011 meeting, 125–26

June 4, 2011 meeting, 128–29

June 15, 2011 meeting, 129–30

June 16, 2011 meeting, 131, 132

June 21, 2011 meeting, 136–37

June 22, 2011 meeting, 140–43

and Boehner, 119, 132, 143, 169

and Boehner-Obama negotiations (June-July 2011), 143, 178

collapse of, 143, 146, 148, 150–51, 153–54, 192, 228

decision to form, 100, 101

Democratic huddles, 127, 129, 130, 131, 136, 148–49

and Obama, 127, 128, 131, 136, 146, 160

preparation of Biden for, 110–11

returns to framework of, 180, 191, 192, 193, 194, 195, 203, 213, 216,

220, 221, 243

bin Laden, Osama, 183, 206, 378

Blair House, 111, 120

Blankfein, Lloyd, 81

Blue Dogs, 18–21, 22, 70, 92, 98

Boehner, John, 6–7

and American Jobs Act payroll tax cut proposal, 358

author interview with, xiii, 134, 143, 158, 159, 166, 168, 171, 186, 217,

229, 237, 239, 245, 250, 277, 295, 299, 301, 302, 311, 312, 315, 321,

359, 363, 374–77, 379–80

and balanced budget amendment, 347

and Biden, 350–52

and Biden working group, 119, 132, 143, 154

and Bush tax cut extension, 69, 74, 146

and business community, 52–53

and Camp, 108, 361–62

and Cantor, 143, 150–51, 154, 155, 167, 177–78, 184, 211–12, 226,

229, 234, 244, 245, 247–48, 267–68, 288, 309, 367, 376, 377, 379,

380

and Chambliss, 252, 253, 260, 270

and congressional plan on debt ceiling crisis (July 2011), 304–15, 317–

19, 321–25, 329, 330–31, 333, 337, 347–55

and continuing resolutions on the budget, 92–95

and Daley, 92, 374, 375

and debt ceiling crisis

Boehner-Obama negotiations (June-July 2011), 132, 134, 135–36,

143–47, 150–51, 154–60, 162–69, 174–78, 180–86, 192, 361,

378, 379

calculation of potential votes on (July 21, 2011), 288–90

failure to return Obama’s phone calls, 290, 293–94, 296–301, 303

firewall placement, 349–55

in George Washington University Speech (April 13, 2011), 100

in lame duck session (December 2010), 80

leveraging political process with, 239

McConnell plan for president to unilaterally raise debt ceiling, 235,

295

phone conversation with Obama (July 21, 2011), 276–80, 288, 302,

378–79

Plan B on, 169, 182, 233, 235, 254, 258, 278, 288, 294–95, 299

after Republican takeover of House (January 2011), 88

sequestration trigger, 340–46

short-term versus long-term extension, 219

supercommittee on, 359–62

two-step proposal on, 237–38, 240, 295

White House staff/Republican leadership negotiations on (July

2011), 236–51, 260–68, 269, 270, 271–72, 273, 274, 275, 282,

284, 285–86, 287, 288–90, 293–303

earmarks, Boehner’s spokesman on, 26

and elections of 2010, 57–58

on Fox News Sunday (July 24, 2011), and Gang of Six, 254, 255, 258

and Geithner, 345–46, 374, 375

Golf Summit with Obama, 132, 134, 178

House Republicans, control of, 377, 379

and Hoyer, 229, 238

at joint congressional leadership meetings with Obama

January 5, 2009, 6–9

November 18, 2010, proposed, 60–61

November 30, 2010, 62, 63

April 13, 2011, 100–101

July 10, 2011, 191, 193–95, 197

July 11, 2011, 204, 205, 207

July 12, 2011, 209, 211–16

July 13, 2011, 220–23

July 14, 2011, 231, 233, 234

frustrations regarding, 197, 199–201, 217, 228

and lawnmower, 180

legacy of, 179–80, 239

and Lew, 228, 235, 236, 238, 348, 375, 377

and Nabors, 375, 377

and Obama, 57–58, 60–61, 93, 132, 134, 135–36, 143–47, 150–51, 159–

60, 167–68, 177–78, 181–83, 186, 189, 199–200, 205, 208, 209, 213–

14, 233, 234, 235, 237, 243–44, 246, 250, 253, 254, 258, 262, 265,

266, 276–80, 290, 293–94, 296–303, 306, 311–12, 315, 330–31, 339,

353–55, 371, 374–77

and payroll tax cut two-month extension (December 2011), 365–68,

370–72

and Pelosi, 229, 238, 305

press conferences, 154, 171, 200, 208, 296, 297, 300, 343, 344

and Reid, 228, 229, 294–95, 296, 304–5, 318

and Ryan, 135

and Sperling, 235

and stimulus package bill, 16

on unemployment rate, 171

Boeing, 292

BoG (Bureau of Gene), 73

bond markets and debt ceiling crisis, 105, 114

Bowles, Erskine, 43, 44, 45, 59, 60, 65, 66, 99, 106

Boyd, Allen, 20

BRAC (Base Realignment and Closure) process, 191

Bradley, Neil, 120, 243, 245, 247, 248, 255, 260, 266, 269, 271

Breckinridge, Anita Decker, 316

Brookings Institution, 53

Brown, Corrine, 283

Brown, Greg, 49–50, 52

Brown, Scott, 40–41

Brown, Sherrod, 78

Buck, Brendan, 323

Budget Control Act of 2011, 322, 325, 355–56, 359, 366. See also congressional plan on debt ceiling crisis

Bureau of Gene (BoG), 73

Bush (George W.) administration, 7, 41–42, 52, 118, 225, 226, 376

Bush (George W.) administration tax cuts. See tax cuts

Bush, George H. W., 96, 313, 376

Bush, George W., 1, 3, 47, 158, 206, 335

business community

on debt ceiling crisis, 96

Obama’s relationship with, 47–53, 81–82

Business Council, 48

Business Roundtable, 47, 48, 51–52

Camp, Dave, 65, 66, 67, 99–100, 103, 104–5, 106, 107–9, 360, 361–62

Cantor, Eric, 8

and American Jobs Act payroll tax cut proposal, 358

and Biden, 125–26, 128–29, 136, 137–38, 142–43, 151, 153, 192, 193,

195, 266

and Biden working group, 111, 116–17, 119, 121, 122, 123, 125–26,

128–29, 136–37, 140–43, 148, 150–51, 153–54, 160, 228

and Boehner, 143, 150–51, 154, 155, 167, 177–78, 184, 211–12, 226,

229, 234, 244, 245, 247–48, 267–68, 288, 309, 367, 376, 377, 379,

380

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

143, 150–51, 154, 155, 167, 168, 169

and Bush tax cut extensions, 74

and calculation of potential votes on debt ceiling deal (July 21, 2011),

288–89

and Cao, 18

and congressional plan on debt ceiling crisis (July 2011), 309, 311, 324

and default risk, 234

and Durbin, 201–2

and Emanuel, 12, 21

and Gang of Six, 255

and Hensarling, 148, 267, 360

at joint congressional leadership meetings with Obama

January 5, 2009, 8–9

January 23, 2009, 13–14

November 18, 2010, proposed, 60–61

November 30, 2010, 62, 63, 64

April 13, 2011, 101–2

July 10, 2011, 190–97

July 11, 2011, 201–7

July 12, 2011, 211–16

July 13, 2011, 220–21, 224–25

July 14, 2011, 230, 231, 233, 234

and Obama, 13–14, 16–17, 177–78, 194, 204, 212–14, 215, 220–21,

224–26, 229, 230, 234, 243–44, 245, 246, 247, 265, 267, 339

and payroll tax cut two-month extension (December 2011), 366, 367,

368, 372

and Pelosi, 224

press conferences and media interviews, 217, 225, 229, 234

and Reid, 197, 228, 229

and revenue neutrality, 137–39, 193, 195–96, 216, 229–31

and Ryan, 65–66, 148, 255, 267

and short—versus long-term debt ceiling crisis extension, 219, 224–26,

238

and stimulus bill H.R. 1 vote, 16–17, 18, 21–22

and stimulus package, 12–14

Tea Party connections of, 62, 377

and Wall Street Journal editorial on debt ceiling crisis negotiations, 179–

80

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 237, 238, 240, 243–48, 251, 260–68, 275,

278, 288–89, 294

Young Guns: A New Generation of Conservative Leaders (Ryan, Cantor, and

McCarthy, 2010), 65–66

Cao, Joseph, 17–18, 21, 25

Capitol Hill Club, 7, 315, 324

Carney, Jay, 322

CBO (Congressional Budget Office), 84, 86–87, 94, 101, 190, 195, 205,

262, 325, 335–36, 379

CBS News, 209

chained CPI, 59–60

Chambliss, Saxby, 252, 253, 256, 259, 260, 270

Clinton administration, 43, 52, 72–73, 89, 97, 235, 274, 376

Clinton, Bill, 9, 47, 70, 82, 96, 104, 107, 313, 323, 335, 349, 379

Clinton, Hillary, 3, 73, 89, 107, 354

Club for Growth, 259, 360

Clyburn, James, 118, 130, 139, 151, 360

Coburn, Tom, 252, 255–56, 260

Colombia, free trade agreement with, 108

Congressional Budget Office (CBO), 84, 86–87, 94, 101, 190, 195, 205,

262, 325, 335–36, 379

congressional lame duck session (December 2010), 69–72

congressional plan on debt ceiling crisis (July 2011)

agreements between Reid, McConnell, Pelosi, and Boehner on, 304–5,

307–8, 310–11

and balanced budget amendment, 330, 347

and Boehner on Fox News Sunday (July 24, 2011), 314–15

broadcast speeches on, 323–24

Budget Control Act, 322, 325, 355–56, 359, 366

final votes on, 355–56

and firewall placement, 348–55

framework of, 304, 307–8, 316, 322

and House vote on initial bill, 230, 304, 324–25, 329, 332

joint public statement on, 310–11

and Obama, 305–13, 315–20, 323–28, 330–38, 350–55

presidential veto, consequences of, 331–38

Reid’s competing plan, 311, 319, 320–27, 342–44

and Republican members of congress, 308–10, 311, 315, 322, 324–25,

330, 332

and Senate tabling of vote on initial bill, 330, 332, 333, 342

sequestration as trigger mechanism in exchange for second-step debt

limit increase, 339–46

and short-term versus long-term extension of debt limit, 308, 311–12,

316, 318, 320–21, 332, 335, 337, 340–46, 349

trigger mechanism, 310, 339–46

Conrad, Kent, 27–29, 31, 32, 36, 37–38, 41, 88, 171–73, 252

Constitutional spending limits (balanced budget amendment), 96, 117,

212, 308, 330, 347

Consumer Price Index (CPI), 59–60, 138, 163, 177, 242, 287

continuing resolutions on the budget, 88, 92–95, 333

Corker, Bob, 117

corporate jets, tax breaks for, 138, 140, 152, 154, 158, 162, 193

corporate tax reform, 48, 50–51, 138, 141, 152, 173, 211, 242

CPI (Consumer Price Index), 59–60, 138, 163, 177, 242, 287

Crapo, Mike, 252, 256, 260

Cuban Missile Crisis, 349, 350

Daley, Richard J., 88

Daley, Richard M., 88

Daley, William (Bill), 88, 95

and Boehner, 92, 374, 375

and Boehner-Obama negotiations on debt ceiling crisis (June-July

2011), 146, 161, 178, 183

as Clinton veteran, 88, 90

and congressional plan on debt ceiling crisis (July 2011), 304, 316, 331,

332, 350

congressional plan veto, at meeting on consequences of, 331, 332

and continuing resolutions on the budget, 92, 95

and free trade agreements, 108

and Gang of Six, 253, 256, 257

at George Washington University Speech (April 13, 2011), 103

and payroll tax cut two-month extension (December 2011), 367

and Pelosi, 151, 304

on proposed Sperling-Boehner meeting, 235

and sequestration trigger, 344

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 236, 237, 238, 240, 243, 251, 272, 296

Dayspring, Brad, 143, 225

debt ceiling crisis. See also Biden working group on long-term debt

resolution; congressional plan on debt ceiling crisis; supercommittee;

trigger mechanism

and Asian financial markets, 305, 348

Boehner-Obama negotiations on (June-July 2011), 132, 134, 135–36,

143–47, 150–51, 154–60, 162–69, 174–78, 180–86, 192, 361, 378,

379

and bond markets, 105, 114

business and financial communities on, 96

and Conrad, 28–29, 36, 88

constraints on Obama regarding, 187–89

and default risk, 188, 189, 210, 220, 230, 234, 305, 327–28, 331–38,

345

and downgrading of U.S. credit rating, 210, 284, 324, 327, 333

drop dead date on, 100, 244, 278, 305

14th Amendment option, 327, 328

and George Washington University Speech (April 13, 2011), 99–107,

114

“global cascade,” Obama’s concerns over, 227

joint congressional leadership meetings with Obama on

April 13, 2011, 101, 102

July 10, 2011, 189–97

July 11, 2011, 201–7

July 12, 2011, 209–16

July 13, 2011 presidential pre-briefing, 218–19

July 13, 2011, 220–25

July 14, 2011, 229–34

Republican frustration with, 197–98, 199–201, 217, 234

lame-duck session of 2010, failure to address problem in, 80

McConnell plan for president to unilaterally raise debt ceiling, 210–11,

233, 234–35, 295, 307, 346

media reports on, 96, 179–80, 181, 184, 207

Pelosi meeting with Obama on, 139–40, 151–53

Plan B on

Boehner’s Plan B, 169, 182, 233, 235, 254, 258, 278, 288, 294–95,

298, 299

Obama’s lack of, 313, 315, 317, 337

and Republican Party, 87–88, 96, 187–88, 189, 208, 210–11

as “Rubik’s cube problem,” 279, 294, 305, 346, 355

short-term versus long-term debt limit extension, 155, 161, 200, 218–

19, 224–27, 233, 238, 240, 285, 288, 308, 311–12, 316, 318, 320–21,

332, 335, 337, 340–46, 349

and Tea Party, 102, 122, 135–36

two-step proposals on, 237–38, 240, 295, 312, 318, 319, 332

White House staff/Republican leadership negotiations

July 15, 2011 meeting, 236–39

July 17, 2011 meeting, 240–50

July 18, 2011 meeting, 251

July 20, 2011 meeting, 260–68

July 21, 2011 meeting, 269–72, 275

Boehner’s failure to return Obama’s phone calls, 290, 293–94, 296–

301, 303

calculation of potential votes for, 274–75, 290–92

collapse of (July 22, 2011), 293–303

and Gang of Six, 251–60, 262, 270, 271, 276, 278, 280, 281–82,

289

meeting of Obama with Pelosi and Reid on, 283–88

and phone conversation between Boehner and Obama (July 21,

2011), 276–80, 288, 302, 378–79

and Senate Democratic Policy lunch (July 21, 2011), 270–71, 272–

74, 291

decoupling

and Boehner-Obama negotiations (June-July 2011), 144, 146–47, 184–

85

and budget proposals, 34–35, 41

at joint congressional leadership meetings with Obama

November 2010, 64

July 2011, 190–91, 193, 195, 212–13, 215

in lame duck session (December 2010), 69–72

and White House staff/Republican leadership negotiations (July 2011),

261, 264, 265, 266, 269, 272–73, 284, 290

default crisis. See debt ceiling crisis

Defense Department, 94, 118, 173, 223, 326

Defense spending cuts, 59, 68, 94, 101, 113, 115, 118, 120, 127, 128,

142, 173, 203–4, 222–23, 292, 315, 326, 339, 344, 346, 348–55, 360

deficit. See also Biden working group on long-term debt resolution;

Simpson-Bowles commission

Conrad on, 27–29, 32

failure to solve problem of, 379–80

$4 trillion deficit reduction plans, 59, 96, 97, 100, 112, 114–15, 125,

134, 167, 168, 179, 190, 366

George Washington University Speech (April 13, 2011) on, 99–107,

114

and presidential budget proposal, 30–35, 41

under Ryan plan, 86–87

and stimulus package, 5, 20

tax cut extension, costs of, 78, 79

3 percent of GDP proposal, 33–34, 113

DeLay, Tom, 157

Dimon, Jamie, 81, 96

disability insurance, 81

discretionary spending, 94, 113, 160, 165, 190, 204–5, 211, 216, 221–22,

226, 231–32, 260, 263, 265–66, 307, 320

Dole, Bob, 377

Don’t Ask, Don’t Tell, repeal of, 77, 79

Douglas, Michael, 301

downgrading of U.S. credit rating, 210, 284, 324, 327, 333

DREAM Act, 65

Dreams from My Father (Obama, 2004), 3

DuPage County, Illinois, 2

Durbin, Dick, 8, 101, 190, 193, 201–2, 203, 216, 223, 230, 234, 252

dynamic scoring of federal budget, 101

earmark reform, 25–27

Earned Income Tax Credit (EITC), 76

education cuts, 201, 204, 205, 214, 221, 263, 265, 269

EITC (Earned Income Tax Credit), 76

elections

of 2008, 3, 18, 25, 73, 89, 92, 224

of 2010, 57–58, 61, 76, 156

of 2012, 64, 91, 124, 136, 140, 152, 168, 188, 189, 193, 194, 197, 219,

233, 237, 240, 265, 290, 308, 311–12, 316, 340, 357

Emanuel, Rahm, 12

and Biden, 80

and business community, 50–51

and Cantor, 12, 21

and Cao, 18

in Chicago mayoral race, 88

congressional relations, approach to, 108

and Conrad, 37–38

and health care reform, 39–40

on health care reform, 12

and Orszag, 53, 55

and presidential budget proposal for 2011, 33

profanity of, 12, 19, 45, 51, 108

and Simpson-Bowles commission, 36, 44

and stimulus package, 12, 16–23, 24

enforcement mechanism. See trigger mechanism

entitlement programs. See specific entitlement programs, e.g. Medicaid,

Medicare, Social Security

estate tax rates, 64, 74, 75, 158, 175, 193

European economy, 63, 210, 336

executive order creating Simpson-Bowles commission, 41, 42–45

Face the Nation, 136

farm subsidies, 121, 123, 201

“fat cat,” Obama’s use of, 49, 52, 81

filibusters, 24, 40–41, 46, 69, 71, 344, 360, 364, 365

firewalls, 128, 142, 203–4, 205, 222–23, 315, 348–55

fiscal cliff of 2013, 379

fiscal commission. See Simpson-Bowles commission

food stamps (Supplemental Nutrition Assistance Program or SNAP),

120–21, 124, 131, 132, 160, 201–2, 214, 216, 221

14th Amendment, 327, 328

Fox News, 343

Fox News Sunday, 314–15

Foxx, Virginia, 368

Frank, Barney, 83

free trade agreements with South Korea, Colombia, and Panama, 108–9

Friedman, Tom, 3

Furman, Jason, 110–11, 210–11

Gang of Six, 251–52

deficit reduction plan released by (July 19, 2011), 252–59

delay in release of deficit reduction plan, 96–97, 172, 251–52

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 251–60, 262, 270, 271, 276, 278, 280, 281–

82, 286

Geithner, Timothy, 10–11

and Biden working group, 113–14, 116, 117, 118, 125, 129, 141

and Boehner, 345–46, 374, 375

and Boehner-Obama negotiations on debt ceiling crisis (June-July

2011), 175

and Bush tax cut extensions, 74, 75

and congressional plan on debt ceiling crisis (July 2011), 305, 316,

331–38, 350, 354

congressional plan veto, at meeting on consequences of, 331–38

on default risk, 189, 210, 220, 230, 305, 327–28, 331–38, 345

and deficit, 27

and firewall placement, 350, 354

and free trade agreements with South Korea, Colombia, and Panama,

108

and Gang of Six, 258

at joint congressional leadership meetings

November 30, 2010, 63

April 13, 2011, 100, 102

July 10, 2011, 197

July 12, 2011, 210, 211

July 13, 2011 presidential pre-briefing, 218

July 13, 2011, 220, 222

July 14, 2011, 230, 231, 232

and Obama, 10–11, 275–76, 327–28

on overall fiscal picture, 275–76

at Pelosi meeting with Obama on debt ceiling crisis, 151

and presidential budget proposal for 2011, 30, 32, 33, 34

press conferences, 345

Republican takeover of House (January 2011) and debt ceiling crisis,

88, 175

and sequestration trigger in exchange for second-step debt limit

increase, 344, 345

and Sperling, 73

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 236, 237, 238, 240, 241, 242, 244, 260,

275–76

George Washington University Speech (April 13, 2011) on long-term

debt resolution, 99–107, 114

Gibbs, Robert, 55

Gingrich, Newt, 96, 335, 377

global financial crisis of 2008, 10, 206, 227, 230, 297, 334

Goldman Sachs, 81

golf, 6, 132, 134, 135, 178, 180, 235, 244, 353

Google, 242

Government Accountability Office, 117

government assets, sale of, 336

government shutdowns, 333, 335

Graham, Billy, 1

Graham, Lindsey, 15, 369

Gramm-Rudman-Hollings sequester language, 339, 340, 341, 346

Great Depression of 1930s, 328, 334

Great Society, 155

Greek economy, 152, 210, 336, 364

Greenspan, Alan, 10

Gridiron Club dinners, 1–4

Hagan, Kay, 292

Harvard Law Review, 70

Hastings, Doc, 368

Hatch, Orrin, 42

health care reform (Obamacare). See also Medicaid; Medicare

and Biden working group, 116

Democratic leadership meeting on (January 14, 2010), 38–40

disagreement between Obama and top advisors regarding, 12

and George Washington University Speech (April 13, 2011), 99

malpractice reform, 55–56

Orszag on, 55–56

passage of Patient Protection and Affordable Care Act, 46, 58

and pharmaceuticals industry, 124, 148

and Ryan plan, 82–87, 356

and Simpson-Bowles commission, 43, 59, 66–67

TRICARE, 201

and trigger mechanism, 248

unpopularity of, 56, 58

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 261–62, 264, 265, 266–67, 269

Hensarling, Jeb, 65–67, 99–100, 105, 148, 169, 267, 311, 360–63, 371

Hill, Baron, 18–19, 21, 22

Holtz-Eakin, Doug, 116

Homeland Security Department, 115, 352

Hoover Dam, 11

House Appropriations Committee, 89–90, 93, 101, 203, 223, 257

House Budget Committee, 75, 82–84, 86, 101, 346

House Republican Economic Recovery Working Group, 13–14, 16

House Ways and Means Committee, 65, 66, 83, 101, 107–8

Housing and Urban Development Department, 31

housing provisions excluded from stimulus package, 8

Hoyer, Steny

and Blue Dogs, 20

and Boehner, 229, 238

and Bush tax cut extensions, 75

and congressional plan on debt ceiling crisis (July 2011), 325

on earmark reform and 2009 appropriations bill, 26–27

at joint congressional leadership meetings with Obama

April 13, 2011, 102

July 10, 2011, 190, 193

July 11, 2011, 203, 206, 207

July 13, 2011, 221, 223, 224

July 14, 2011, 232

at Pelosi meeting with Obama on debt ceiling crisis, 139, 151–52

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 249, 271, 283, 291

Hulse, Carl, 272

Hurricane Katrina, 21, 31

IBM, 50–51

immigration and DREAM Act, 65

Independent Payment Advisory Board (IPAB), 261

infrastructure investment, 97, 151, 276

Inouye, Daniel, 118, 124, 128

Interior Department, 31

investment spending and stimulus package, 5, 11

IPAB (Independent Payment Advisory Board), 261

Iraq war, 149, 194, 223, 241, 342

Jackson, Barry, 158

and Boehner legacy, 179–80

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

158, 162–66, 174, 176, 179–83, 185

on Cantor-Obama confrontation over short-term debt limit extension,

226

and collapse of White House staff/Republican leadership negotiations

(July 22, 2011), 294, 296, 301–2

and congressional plan on debt ceiling crisis (July 2011), 304, 310, 318,

331, 348

and continuing resolutions on the budget, 93, 95

and Gang of Six, 252, 254, 255, 257–58

and Krone, 95, 166, 294, 318, 331, 370

and Lew, 163, 228, 236

and Nabors, 165, 183, 257

on office of presidency, 199

and payroll tax cut two-month extension (December 2011), 370

and sequestration trigger, 340

and Sperling, 185

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 240, 247, 248–49, 251, 260, 262, 266, 269,

270, 271–72, 290, 294, 296, 301–2

Jarrett, Valerie, 48, 51, 52, 55–56, 82

Jefferson, William, 17–18

Jentleson, Adam, 310–11

Johnson, Katie, 54

Johnson, Lyndon, 155

Joint Committee on Taxation, 101, 118

joint congressional leadership meetings with Obama

January 5, 2009, 5–9

January 23, 2009, 13–14

November 18, 2010, proposed, 60–61

November 30, 2010, 61–65

April 13, 2011, 100–102

July 10, 2011, 189–97

July 11, 2011, 201–7

July 12, 2011, 209–16

July 13, 2011 presidential pre-briefing, 218–19

July 13, 2011, 220–25

July 14, 2011, 229–34

press conferences about, 199–201

Republican frustration with, 197–98, 199–201, 217, 234

JP Morgan Chase, 81, 88, 96

Kasich, John, 132, 134, 235

Kemp, Jack, 83

Kennedy, Ted, 7, 40

Kerry, John, 273, 360

Keyes, Alan, 2

Keynsian economic theory, 12–13, 64

King Solomon analogy, 187, 189

Klain, Ron, 70–73, 76, 78

Krone, David

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

166

and congressional plan on debt ceiling crisis (July 2011), 304, 310, 311,

316–20, 326, 331

and continuing resolutions on the budget, 95

and Gang of Six, 258

and Jackson, 95, 166, 294, 318, 331, 370

and Obama, 317–20

and payroll tax cut two-month extension (December 2011), 370

and Reid, 316, 318, 320

Kumar, Rohit, 71, 72, 197–98, 210, 258, 331, 341–42, 346, 348, 349, 352

Kyl, Jon, 63

and American Jobs Act payroll tax cut proposal, 358

and Biden, 136, 137

and Biden working group, 117, 122–23, 125, 127, 128, 130, 136, 137,

140, 141–42, 150

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

168

and Bush tax cut extensions, 74, 75

and congressional plan on debt ceiling crisis (July 2011), 321

and estate tax, 64, 74, 75, 175, 193

at joint congressional leadership meetings with Obama

November 30, 2010, 63, 64, 65

July 10, 2011, 190, 192–94

July 12, 2011, 215, 216

July 13, 2011, 221, 222, 223, 224

July 14, 2011, 231–32

and Obama, 194

and START treaty, 63, 65

and supercommittee, 360, 361

and Van Hollen, 125, 128

Labrador, Raul, 96

LaHood, Ray, 17

lame duck session (December 2010), 69–72

Larson, John, 148

LaTourette, Steve, 368

Lawrence, John, 274, 304, 316, 318

Lehman Brothers Holdings, 227

Levin, Sandy, 283

Lew, Jack, 89

and Biden working group, 114–15, 118, 120, 121, 123, 127, 141, 142

and Boehner, 228, 235, 236, 238, 348, 375, 377

and Boehner-Obama negotiations on debt ceiling crisis (June-July

2011), 15–156, 146, 161–64, 170, 174, 185

and Bush tax cut extensions, 64, 75

as Clinton veteran, 89, 90

and collapse of White House staff/Republican leadership negotiations

(July 22, 2011), 294, 297, 302–3

and congressional plan on debt ceiling crisis (July 2011), 307, 316, 319,

326–27, 331–33, 335, 336, 339, 348, 350, 353–54, 356

congressional plan veto, at meeting on consequences of, 331–33, 335,

336, 339

and constraints on president in debt ceiling crisis negotiations, 187

and continuing resolutions on the budget, 92, 93

and firewall placement, 348, 350, 353–54

and Gang of Six, 253

and Jackson, 163, 228, 234

and joint congressional leadership meetings on debt ceiling crisis (July

2011), 196, 201, 202, 204, 211, 218, 219, 221, 223, 228, 230, 231

and Loper, 163–64

and payroll tax cut two-month extension (December 2011), 367

and Pelosi meetings with Obama on debt ceiling crisis, 151, 283, 285

and phone conversation between Obama and Boehner (July 21, 2011),

276, 279–80

at Senate Democratic Policy lunch (July 21, 2011), 270–71, 272–74

and sequestration trigger, 339, 341–42, 344, 346

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 236, 237, 241, 260, 263, 264, 265, 269,

270, 271, 272, 276, 279–80, 294, 297, 302–3

LIHEAP (Low Income Home Energy Assistance Program), 121

Limbaugh, Rush, 45

Lincoln, Blanche, 74, 75

Lockheed, 292

Long, Huey, 110

Long, Russell, 110–11

Loper, Brett

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

156–58, 162–64, 167, 174, 176, 180, 181

and firewall placement, 352

and Gang of Six, 257, 258

and Lew, 163–64

“Rubik’s cube problem,” on debt ceiling crisis as, 294

and sequestration trigger in exchange for second-step debt limit

increase, 340, 346

and trigger mechanism, 248

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 260, 269, 271, 289

Low Income Home Energy Assistance Program (LIHEAP), 121

Luntz, Frank, 85

Making Work Pay program, 72–73

malpractice, medical, 55

Mastromonaco, Alyssa, 316

McCain, John, 3, 41, 371

McCarthy, Kevin, 66, 148, 169, 267, 294, 309–10, 311, 324–25, 368

McCaskill, Claire, 117

McConnell Center, University of Louisville, 80

McConnell, Mitch, 6

and American Jobs Act payroll tax cut proposal, 358

author interview with (July 12, 2012), xiii, 211, 323, 363–65

and balanced budget amendment, 347

and Biden, 70–75, 80, 142, 208, 340, 347, 352, 365

on Biden working group, 136–37

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

155, 159, 168–69, 380

and Bush tax cut extension, 69, 70–75, 77, 79

and business community, 52

and congressional plan on debt ceiling crisis (July 2011), 304, 305, 307,

308, 310, 317, 318, 321, 322–23, 347, 348, 349, 351–53

and default risk, 333

and firewall placement, 348, 349, 351–53

and Gang of Six, 252, 254, 258

at joint congressional leadership meetings with Obama

January 5, 2009, 6, 8, 9

November 18, 2010, proposed, 61

November 30, 2010, 62–63

April 13, 2011, 101

July 10, 2011, 192, 193, 197

July 11, 2011, 204, 207

July 12, 2011, 210–11, 214, 216

July 13, 2011, 220, 224

July 14, 2011, 233

and lame duck session (December 2010), 80

and Nabors, 347

and Obama, 70, 208, 209, 365

and payroll tax cut two-month extension (December 2011), 366–69,

372

and Plan B on debt ceiling crisis, 169, 233, 235, 254, 258, 278, 288,

294–95, 298

plan for president to unilaterally raise debt ceiling, 210–11, 233, 234–

35, 295, 307, 346

press conferences, 343, 344

and Reid, 228, 233, 235, 254, 258, 271, 288, 294–95, 298, 318, 322–23,

343, 344, 353, 365

and sequestration trigger, 340, 341, 343–46

and Simpson, 43–44

and Simpson-Bowles commission, 41, 43–44

and supercommittee, 359, 360, 363–64

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 241, 248, 251, 262, 266, 271, 278, 281,

294, 295, 298

McKeon, Buck, 350

means testing, 130, 193, 204

media

American Jobs Act speech (September 8, 2011), 358, 359

on collapse of Biden working group, 153–54

congressional plan on debt ceiling crisis, broadcast speeches on, 323–24

debt ceiling crisis reports, 96, 179–80, 181, 184, 207

leaks to, 53, 112, 122, 156, 166, 212, 251, 297, 345, 362

on McConnell plan for president to unilaterally raise debt ceiling, 234–

35

and payroll tax cut extensions (December 2011-February 2012), 370,

371, 372, 373

press conferences, 154–55, 171, 200, 208–9, 217, 225, 229, 234, 254,

296, 297, 300–303, 302, 333, 343, 344, 345, 363, 372

supercommittee failure, announcement of, 363

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 272, 273, 274

Medicaid

Biden working group on, 115, 116–17, 123, 140–41, 142

at joint congressional leadership meetings on debt ceiling crisis, 190,

195, 202–3, 228, 230

North Dakota provider care reimbursements, 38

and Obama-Boehner debt ceiling crisis negotiations (June-July 2011),

157, 169, 177

in Obama’s budget plan, 97–98

prescription drug benefits, 123–24

and Ryan plan, 82–85, 87, 356, 379

and sequestration trigger, 341–42

Simpson-Bowles commission proposals regarding, 67

stimulus package and, 6

subsidies, 39

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 243, 261–62, 263, 270, 274, 275, 279, 283,

284, 286

medical care reform (Obamacare). See health care reform

medical malpractice reform, 55

Medicare

Biden working group on, 115, 117, 122, 123–24, 130, 132–33, 136–37,

140, 142, 148

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

155–56, 157, 162–63, 164, 169, 174, 177

and congressional plan on debt ceiling crisis (July 2011), 321, 335

eligibility age, 156, 157, 174, 213, 237, 270, 284, 361, 362

in George Washington University Speech (April 13, 2011), 99, 100,

104–5

Independent Payment Advisory Board (IPAB), 261

at joint congressional leadership meetings on debt ceiling crisis, 102,

190, 195, 202–3, 228, 230

North Dakota provider care reimbursements, 37–38

in Obama’s budget plan, 97

Pelosi meeting with Obama on, 139–40, 152

prescription drug benefits, 123–24, 140, 148, 157, 177, 291–92

and Ryan plan, 82–87, 117, 152, 155–56, 356, 379

and sequestration, as trigger mechanism, 326

Simpson-Bowles commission proposals regarding, 59, 67

and supercommittee negotiations, 361, 362

Sustainable Growth Rate (SGR) formula (Doc Fix), 31–32, 115, 205,

222, 266

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 237, 238, 261, 262–63, 264, 265, 270, 272,

274, 275, 283, 284, 286, 290, 291–92

Meet the Press, 370

Melancon, Charlie, 19

Messina, Jim, 38

Microsoft, 242

Mikulski, Barbara, 273

Moody’s, 220, 265

Motorola Solutions, 49, 52

Moynihan, Daniel Patrick, 4

Murray, Patty, 360–63

Nabors, Rob, 89–90

and Boehner, 375, 377

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

135–36, 146, 155–56, 161, 162, 164–65, 174–76, 178, 183–86

and calculation of potential votes for debt ceiling deal (July 21, 2011),

274–75, 276, 280–82, 290–92

and collapse of White House staff/Republican leadership negotiations

(July 22, 2011), 236, 296, 297, 298, 303

and congressional plan on debt ceiling crisis (July 2011), 305, 307, 313,

316, 318, 319, 326–27, 331, 347, 348, 350

congressional plan veto, at meeting on consequences of, 332–33, 337,

339

and continuing resolutions on the budget, 93

and default risk, 188

and firewall placement, 348, 350

and Gang of Six, 252, 253, 256–57, 258, 282

and Jackson, 165, 183, 257

and joint congressional leadership meetings with Obama on debt

ceiling crisis (July 2011), 212

and McConnell, 347

and meeting of Obama with Pelosi and Reid on debt ceiling crisis, 283–

85, 287, 288

and Obama, 172, 249–50, 290–92

and payroll tax cut two-month extension (December 2011), 372

at pre-briefing for July 13, 2011 joint congressional leadership meeting,

218

at Senate Democratic Policy lunch (July 21, 2011), 270–71, 272–74,

291

and sequestration trigger, 339, 340

on tax reform, 172

and White House staff/Republican leadership negotiations on debt

ceiling crisis (July 2011), 236, 238, 240, 243, 249–50, 251, 260, 269,

270, 272, 275, 284, 288, 296, 297, 298, 303

National Commission on Fiscal Responsibility and Reform. See Simpson-

Bowles commission

National Economic Council (NEC), 9, 73, 81, 89, 111

National Journal, 70, 376

National Review, 259

NEC (National Economic Council), 9, 73, 81, 89, 111

Nelson, Ben, 292

New Deal, 95

New York Daily News, 372

New York Times, 54–56, 153–54, 166, 180, 181, 272–74, 320, 363

news organizations and news conferences. See media

Newsweek, 3

No Child Left Behind Act, 200

Norquist, Grover, and tax pledge, 13, 60, 66, 172, 184, 212, 256, 301

Northrop Grumman, 292

Nussle, Jim, 116

Obama, Barack

and Afghanistan war, 67, 68, 94, 120, 136, 147–48, 149, 194, 223, 241,

342

appeals to high purpose of elective office by, 218–20, 265, 299–300,

328, 377–78

author interview with, xii, 41, 67–68, 79, 80, 94, 106, 134, 145, 160,

175, 182, 186, 189, 219, 226, 243, 246, 250, 254, 275, 278, 281, 285,

292, 307, 312, 320, 328, 356, 377–78

and Biden, 46, 70, 72

and Biden working group, 127, 128, 131, 136, 146, 160

as Blue Dog, 19, 70, 92, 98

and Boehner, 57–58, 60–61, 93, 132, 134, 135–36, 143–47, 150–51,

159–60, 167–68, 177–78, 181–83, 186, 189, 199–200, 205, 208–9,

213–14, 233, 234, 235, 237, 243–44, 246, 250, 253, 254, 258, 262,

265, 266, 276–80, 290, 293–94, 296–303, 306, 311–12, 315, 330–31,

339, 353–55, 371, 374–77

budget proposals by, 30–35, 41–42, 96–98

on Bush administration, 41–42

and Bush tax cut extension, 70, 72, 74, 76–79

and business community, 47–53, 81–82

and Cantor, 13–14, 16–17, 177–78, 194, 204, 212–14, 215, 220–21,

224–26, 229, 230, 234, 243–44, 245, 246, 247, 265, 267, 339

chief economic advisors and, 9–12

and Coburn, 255–56

and Conrad, 27–29, 41, 171–73

and continuing resolutions on the budget, 92, 93, 94–95

debt ceiling crisis negotiations

Boehner-Obama negotiations (June-July 2011), 132, 134, 135–36,

143–47, 150–51, 154–60, 162–69, 174–78, 180–86, 192, 361,

378, 379

Boehner’s failure to return Obama’s phone calls, 290, 293–94, 296–

301, 303

and congressional plan (July 2011), 305–13, 315–20, 323–28, 330–

38, 350–55

constraints on president regarding, 187–89

and firewall placement, 350, 352, 353–55

“global cascade,” concerns over, 227

handling of, 378–80

joint congressional leadership meetings on. See under debt ceiling

crisis

meeting with Pelosi and Reid on, 283–88

and Obama’s reputation, 357–58

phone conversation between Obama and Boehner (July 21, 2011),

276–80, 288, 302, 378–79

Plan B, lack of, 313, 315, 317, 337

and sequestration trigger, 341–42, 343, 344

short-term deal, unacceptability of, 218–20, 224–27, 233, 238, 240,

311–12, 316, 318, 320, 332, 335, 337, 340

veto of congressional plan, consequences of, 331–38

and White House staff/Republican leadership negotiations (July

2011), 236–37, 243–46, 249, 260–68, 269, 270, 275, 290–92

and default risk, 327–28

on disability insurance, 81

Dreams from My Father (2004), 3

and earmark reform, 25–27

and elections of 2010, 57–58, 61

on estate tax cuts, 74

“fat cat,” use of, 49, 52, 81

on free trade agreement with South Korea, 109

and Gang of Six, 252–54, 257, 258, 281–82

and Geithner, 10–11, 275–76, 327–28

George Washington University Speech (April 13, 2011) on long-term

debt resolution, 99–107, 114

Golf Summit with Boehner, 132, 134, 178

and Graham, 15

at Gridiron Club dinner (2006), 1–4

and health care reform, 12, 38–40, 46

and Iraq war, 149, 194, 223, 241, 342

joint congressional leadership meetings with. See joint congressional

leadership meetings with Obama

and Krone, 317–20

and Kyl, 194

and McConnell, 70, 208, 209, 365

and Nabors, 172, 249–50, 290–92

“one-term president” declarations, 28, 29, 378

and Orszag, 11, 20, 28, 35, 53–56

and payroll tax cut extension

American Jobs Act proposal, 358–59, 373

one-year extension (December 2010), 73–74

one-year extension (February 2012), 373

two-month extension (December 2011), 366–72

and Pelosi, 25, 104, 206, 283–87, 306

press conferences, 154–55, 200, 254, 300–303, 302, 333, 372

and Reid, 26, 77–78, 95, 104, 283–88, 295, 318–19, 370

on Republican tax principles, 175

and Ryan, 84–86

and Senate Democratic Policy lunch (July 21, 2011), 273–74, 291

and Simpson, 44–45

and Simpson-Bowles commission, 28–29, 41, 44–45, 67–68

State of the Union address (2011), 68

and stimulus bill H.R. 1 vote, 16–17, 22–23

and Summers, 9–10, 11, 50, 81–82

Super Bowl party (February 7, 2010), 47–48

and tax reform, 144, 145, 157–58, 166, 172–76, 179, 180–81, 190, 212–

15, 231, 242, 247, 248, 263, 267, 274–75

Obama, Michelle, 2, 3, 22, 95, 370

Obamacare. See health care reform

Obey, David, 89–90

OCO (Overseas Contingency Operations) fund, 149, 194, 195, 241, 310,

316–19, 321

Office of Management and Budget (OMB), 11, 89, 111

one-term presidency

McConnell on, 70, 365

Obama’s declarations regarding, 28, 29, 378

O’Neill, Tip, 74, 89, 96, 179, 294, 362

Orszag, Peter, 11, 89

and Bush administration tax cuts, 34–35

and Business Council, 48

on Cantor’s House Republican Economic Recovery Plan, 14

and Conrad, 36–37, 38

departure from administration, 53–54, 64

and Emanuel, 53, 55

final memo of, 53–54

on health care reform, 55–56

New York Times columns of, 54–56

and Obama, 11, 20, 28, 35, 53–56

and presidential budget proposal for 2011, 30–35

and Simpson-Bowles commission, 27, 28, 36–37, 43

and stimulus bill H.R. 1 vote, 20, 21, 22

and stimulus package final bill, 24

and Summers, 11

on tax cuts, 54–55

Overseas Contingency Operations (OCO) fund, 149, 194, 195, 241, 310,

316–19, 321

Palmisano, Sam, 50–51

Panama, free trade agreement with, 108

Part D prescription drug benefits, 123–24, 140, 148, 157, 177, 291–92

“The Path to Prosperity” (Ryan plan), 86–87, 96

Patient Protection and Affordable Care Act. See health care reform

Paul, Ron, 122

pay freezes on federal agencies and workers, 31, 62, 223

PAYGO, 20–21

payroll tax

American Jobs Act proposal regarding, 358–59, 373

and Biden working group, 137

and Boehner-Obama debt ceiling crisis negotiations, 163

in joint congressional leadership meetings on debt ceiling crisis, 204,

214, 230–31

one year extension of cut (December 2010), 73–74

one-year extension of cut (February 2012), 372–73

two-month extension of cut (December 2011), 366–72

Pell grants, 204, 205, 214, 269

Pelosi, Nancy, 6

and Biden, 130, 151

on Biden working group, 124

and Boehner, 229, 238, 305

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

166, 167, 168, 169, 170

and Bush (George W.), 206

and Bush tax cut extension, 69, 75, 76

and Cantor, 224

and congressional plan on debt ceiling crisis (July 2011), 304–8, 310,

311, 316, 320, 321, 323, 325, 326, 335, 349, 353, 354, 355

and Daley, 151, 304

and debt ceiling crisis meetings with Obama, 139–40, 151–53, 283–87

and firewall placement, 349, 353, 354, 355

and health care reform, 39, 40

at joint congressional leadership meetings with Obama

January 5, 2009, 6, 9

November 30, 2010, 62, 65

April 13, 2011, 101

July 10, 2011, 192, 196

July 11, 2011, 203, 204, 206

July 12, 2011, 210, 213, 215, 216

July 13, 2011, 222, 223–24

July 14, 2011, 231, 233, 234

and Lawrence, 274

and Obama, 25, 104, 206, 283–87, 306

and Reid’s alternative bill, 342

and sequestration trigger, 340, 343

and Simpson-Bowles commission, 60, 65

and stimulus package final bill, 24–25

and supercommittee, 360

and Van Hollen, 112, 124, 139, 151–52

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 249, 271, 277, 279, 281, 283–87, 291

Pension Protection Act of 2006, 200

Pfeiffer, Dan, 272, 331, 333, 350, 354–55, 377

pharmaceuticals industry, 123–24, 148, 291–92

Plan B on debt ceiling crisis

Boehner’s Plan B, 169, 182, 233, 235, 254, 258, 278, 288, 294–95, 298,

299

Obama’s lack of, 313, 315, 317, 337

Plouffe, David, 91–92

and American Jobs Act payroll tax cut proposal, 359

The Audacity to Win (2009), 92

and Boehner-Obama negotiations on debt ceiling crisis (June-July

2011), 135, 146, 147

and Boehner’s criticism of Obama, 377

and Boehner’s failure to return Obama’s phone calls, 290, 293

and collapse of White House/Republican negotiations (July 22, 2011),

300, 302, 303

and congressional plan on debt ceiling crisis (July 2011), 307, 319, 350

congressional plan veto, at meeting on consequences of, 331, 332

and conversation between Boehner and Obama (July 21, 2011), 280,

302

and default risk, 188, 328

and Gang of Six, 252–53

and House vote polling by Obama’s staff (July 21, 2011), 274

and joint congressional leadership meetings on debt ceiling crisis, 211,

218, 219

on public confidence in economy, 218

at Senate Democratic Policy lunch (July 21, 2011), 272–74

and sequestration trigger, 344

and unemployment rate in September 2011, 357

Politico.com, 153, 207, 212, 372

Portman, Rob, 360

Postal Service reform, 201, 274

prescription drug benefits under Medicare and Medicaid, 123–24, 140,

148, 157, 177, 291–92

progressivity of tax code, 144, 145, 146, 175–76, 181, 214, 263

Reagan, Ronald, and Reagan administration, 33, 74, 83, 89, 96, 107, 172,

179, 225, 231, 294, 313, 323, 362, 379

reconciliation process, 46

Reed, Bruce, 79, 146, 147, 175, 218, 269, 339, 341, 348–49, 352

Reid, Harry, 6

and Biden working group, 125, 129, 132, 148

and Boehner, 228, 229, 294–95, 296, 304–5, 318

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

155, 166, 168

and Cantor, 197, 228, 229

and competing plan on debt ceiling crisis (July 2011), 311, 319, 320–

27, 342–44

and congressional plan on debt ceiling crisis (July 2011), 304–8, 310–

12, 315, 316, 318–19, 320–27, 332, 353, 354

and continuing resolutions on the budget, 95

on earmark reform and 2009 appropriations bill, 26

and firewall placement, 353, 354

and health care reform, 39, 40, 148

at joint congressional leadership meetings with Obama

January 5, 2009, 6, 9

November 30, 2010, 62, 65

April 13, 2011, 101

July 10, 2011, 191–93, 195–97

July 11, 2011, 203–6

July 12, 2011, 210, 213, 214, 215

July 13, 2011, 221

July 14, 2011, 230, 232, 233

and Krone, 316, 318, 320

and length of extension of debt limit, 285, 288

and McConnell, 228, 233, 235, 254, 258, 271, 288, 294–95, 298, 318,

322–23, 343, 344, 353, 365

and meeting with Obama and Pelosi on debt ceiling crisis, 283–88

and Obama, 26, 77–78, 95, 104, 283–88, 295, 318–19, 370

and payroll tax cut two-month extension (December 2011), 365, 366,

367, 368, 370

and Republican Plan B on debt ceiling crisis, 233, 235, 254, 258, 288,

294–95, 298

and Republican takeover of House (January 2011), 88

and Senate Democratic Policy lunch (July 21, 2011), 272

and sequestration trigger, 326–27, 340, 342–43, 344, 346

and Simpson-Bowles commission, 37, 41

and stimulus package final bill, 24–25

and supercommittee proposed by, 235, 295, 304, 308, 359–62

and tax cut extensions, 77–78

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 251, 254, 258, 271, 272, 273, 277, 279, 281

Reid, Landra, 370

Renner, Jeremy, 325

reporters. See media

retirement programs, federal civilian and military, 201, 202, 221, 263,

291, 316

Richmond, Cedric, 25

“A Roadmap for America’s Future” (Ryan plan), 84–86

Romney, Mitt, 13

Roosevelt, Franklin Delano, 12

Rove, Karl, 158

“Rubik’s cube problem,” debt ceiling crisis as, 279, 294, 305, 346, 355

Russia, START treaty with, 63, 65, 71–72, 77, 79

Ryan, Paul, 65–66, 82–83

and Boehner, 135

on Budget Control Act of 2011, 356

budget plan of, 82–87, 96, 97, 102, 115, 164, 174, 205, 319, 335, 379

and Cantor, 65–66, 148, 255, 267

on debt ceiling crisis negotiations, 180, 356

on deficit as 3 percent of GDP proposal, 34

and Gang of Six, 255

at George Washington University Speech (April 13, 2011), 99–100,

103–6

on health care reform and Medicare, 82–87, 117, 152, 155–56

and Hensarling, 360

and Obama, 84–86

on Simpson-Bowles commission, 65–68

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 246–47

Young Guns: A New Generation of Conservative Leaders (Ryan, Cantor, and

McCarthy, 2010), 65–66

S&P (Standard & Poor’s), 230, 265

Schaper, Nick, 57

Schiliro, Phil, 20, 22, 35, 38, 75

Schumer, Chuck, 77, 148, 149

Schwartz, Allyson, 84

security/non-security firewall, 352–55

Seidenberg, Ivan, 47–48, 51–53

Senate Appropriations Committee, 101, 221, 223

Senate Budget Committee, 101

Senate Finance Committee, 101

September 11, 2001, 65, 118

sequestration, as trigger mechanism, 215, 224, 326–27, 339–46, 360, 366

SGR (Sustainable Growth Rate) formula, Medicare, 31–32, 115, 205, 222,

266

Simpson, Alan, 42–44, 44–45, 59, 60, 65, 66, 67, 99, 106

Simpson-Bowles

commission

(National

Commission

on

Fiscal

Responsibility and Reform)

Conrad’s proposal for, 28–29, 36–37, 88, 172

executive order forming, 41, 42–45

on federal civilian retirement programs, 221

$4 trillion deficit reduction plan, 59, 125

and Gang of Six, 252, 255

and George Washington University Speech (April 13, 2011), 99–100,

102–7

health care reform proposals, 59, 66–67

Obama on, 28–29, 41, 44–45, 67–68

Pelosi on, 65

and presidential budget proposal for 2011, 32–34

primary surplus in 2015, goal of, 114

proposal of January 10, 2010, 59–60, 65–68

revenue proposals of, 141–42

vote on proposal, 59, 60, 65–68, 191–92

60 Minutes, 49

small business, 13, 18, 42, 62, 64, 65, 162, 309, 359

Smith, Kevin, 324

SNAP or Supplemental Nutrition Assistance Program (food stamps),

120–21, 124, 131, 132, 160, 201–2, 214, 216, 221

Social Security. See also payroll tax

average income of Medicare recipients from, 87

and Boehner-Obama debt ceiling crisis negotiations (June-July 2011),

163, 164, 169

cost-of-living adjustments for, 361, 362

eligibility age, 237, 323

at joint congressional leadership meeting with Obama on debt ceiling

crisis, 190, 193

Reagan-O’Neill deal on (1983), 89, 96, 179, 362

Ryan on, 83–84, 379

Simpson-Bowles commission proposals regarding, 59

and supercommittee negotiations, 361, 362

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 237, 261, 270, 275, 283, 284, 286–87

South Korea, free trade agreement with, 108

Sperling, Gene, 72–73

and Biden working group, 110–11, 116, 117, 141, 142

and Boehner, 235

and Boehner-Obama negotiations on debt ceiling crisis (June-July

2011), 146, 147, 155–56, 161, 164–65, 174–75, 183–85

and budget proposal, 96, 97

as Clinton veteran, 72–73, 89, 90

and congressional plan on debt ceiling crisis (July 2011), 305

and continuing resolutions on the budget, 92, 93

and Gang of Six, 251–52, 253, 256

and Geithner, 73

at George Washington University Speech (April 13, 2011), 102–3, 105,

106, 108

and Jackson, 185

and joint congressional leadership meetings on debt ceiling crisis, 212,

215, 218, 224, 231

and meetings with Obama, Pelosi, and Reid on debt ceiling crisis, 151–

53, 281, 288

as National Economic Council head, 89

and payroll tax cut two-month extension (December 2011), 370

and sequestration trigger, 339, 341, 344

and tax cut extension, 72–73, 74, 76

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 269, 275, 281, 288, 290, 302

Spratt, John, 60

Standard & Poor’s (S&P), 230, 265

START (strategic arms reduction treaty), 63, 65, 71–72, 77, 79

State Department, 115, 352, 354

State of the Union addresses, 68, 324

Steel, Michael, 180, 310, 311, 312

Stewart, Don, 310

stimulus package

adequacy of, 30, 58

boost to economy from, 206

child tax credit in, 76

House

Republican

Economic

Recovery

Working

Group

recommendations, 13–14, 16

joint congressional leadership meetings with Obama on

January 5, 2009, 5–9

January 23, 2009, 13–14

Obama’s chief economic advisors on, 9–12

passage of final bill, 24–25

voting on H.R. 1, 16–22

Stockman, David, 33

Stombres, Steve, 9, 16, 243, 245, 246–47, 248, 260, 266, 269, 271, 288,

289, 367–68

strategic arms reduction treaty (START), 63, 65, 71–72, 77, 79

Summers, Larry, 9–10

and Blue Dog leadership, 20

on Budget Control Act of 2011, 356

and business community, 50

on congressional control over spending laws, 263

and deficit, 27

departure from Obama administration, 50, 81–82, 89

at joint congressional leadership meeting (November 30, 2010), 63

and Obama, 9–10, 50, 81–82

Orszag and, 11

and presidential budget proposal for 2011, 30–31, 34, 35

and Simpson-Bowles commission, 43, 44

and stimulus bill H.R. 1 vote, 23

on stimulus package, 9–10

on tax rates, 71

on unemployment, 10, 63

Sunstein, Cass, 327

supercommittee

appointment, negotiations, and failure of, 359–63

deficit reduction amounts to be identified by, 295, 303, 304, 310, 316,

322, 340, 342, 346, 355, 356, 359, 362, 366

McConnell interview on, 363–64

as part of congressional plan on debt ceiling crisis (July 2011), 304,

307–8, 322

Reid’s proposal for, 235, 295, 304, 308

and sequestration, 327, 366

Supplemental Nutrition Assistance Program or SNAP (food stamps),

120–21, 124, 131, 132, 160, 201–2, 214, 216, 221

Sustainable Growth Rate (SGR) formula (Doc Fix), Medicare, 31–32,

115, 205, 222, 266

Tanner, John, 22

TARP (Troubled Asset Relief Program), 7, 297

tax code progressivity, 144, 145, 146, 175–76, 181, 214, 263

tax code reform

and Boehner-Obama negotiations on debt ceiling crisis, 144, 145, 157–

58, 166, 172–76, 179, 180–81

corporate tax reform, 48, 50–51, 138, 141, 152, 173, 211, 242

and Gang of Six, 255, 256, 259

and joint congressional leadership meetings with Obama on debt

ceiling crisis, 190, 212–15, 231

and Simpson-Bowles commission, 59, 60

and supercommittee, 362

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 242, 247, 248, 263, 267, 274–75

tax cuts. See also payroll tax

announcement of extension, 78–79

Baucus’s vote in favor of original Bush tax cuts, 125

and Biden working group, 112–13

costs of, 78, 79

ending for top tax brackets and extending for middle and lower income

brackets. See decoupling

estate tax rates, 64, 74, 75, 158, 175, 193

extension for all tax brackets, 62, 71–79, 144–45, 290

Orszag’s proposals regarding, 54

pending expiration of, 34–35, 62, 146–47, 166, 366

in presidential budget proposal for 2011, 41–42

and stimulus package, 5, 6, 13–14

and supercommittee, 362

viewed as spending, 222

vote on (December 15, 2010), 79

tax deductions, proposals to limit or eliminate, 125, 152–53, 172, 173

tax increases, 101–2, 125, 144, 145, 154, 255–56, 259, 272–73, 340, 380

tax loopholes, proposals to close, 125, 152, 154, 157–58, 162, 172, 193,

262

tax principles, 174–76

tax progressivity, 144, 145, 146, 175–76, 181, 214, 263

tax revenue

as percentage of GDP, 162, 165, 166, 180

revenue neutrality, 137–39, 193, 195–96, 211, 216, 229–31

taxes, pledges not to raise, 102, 152, 172, 191, 256, 301

Taxpayer Protection Pledge, 60

Tea Party

and balanced budget amendment, 347

Cantor’s connection to, 62, 377

and debt ceiling crisis, 88, 96, 102, 111, 122, 135–36, 179, 228, 302,

318, 325, 347

and elections of 2010, 58

power of, 172

and Republican ability to compromise, 375–76, 377

and supercommittee, 360, 361

taxes, pledge not to raise, 102, 152

territorial corporate tax system, 242

Thomas, Bill, 83

Toomey, Pat, 360

The Town (film), 325

Transportation Department, 31, 113

transportation spending cuts, 216, 263, 265

Tribe, Laurence, 70

TRICARE, 201

trigger mechanism

and congressional plan on debt ceiling crisis (July 2011), 310, 339–46

and fiscal cliff of 2013, 379

and joint congressional leadership meetings with Obama on debt

ceiling crisis (April and July 2011), 215, 224, 231, 233

sequestration as, 215, 224, 326–27, 339–46, 360

and White House staff/Republican leadership negotiations on debt

crisis (July 2011), 245, 248, 261, 263–64, 265, 266–67, 269, 272–73

Troubled Asset Relief Program (TARP), 7, 297

two-step proposals on debt ceiling crisis, 237–38, 240, 295, 312, 318,

319, 332

U.N. Security Council, 65

unemployment

American Jobs Act, 358–59, 373

rates of, 30, 58, 171, 206, 357

and stimulus package, 5, 25, 206

Summers on reasons for, 10, 63

unemployment insurance, extension of, 64, 75, 221–22

United Kingdom, deficit reduction plan in, 129

University of Louisville McConnell Center, 80

Upton, Fred, 360

Van Hollen, Chris

and Biden, 130, 132–33

in Biden working group, 112, 121, 123, 124, 125, 127–33, 137, 140–43,

148–49

and Boehner-Obama negotiations on debt ceiling crisis (June-July

2011), 180

budget developed by, 101

and Bush tax cut extensions, 75

and Kyl, 125, 128

and Pelosi, 112, 124, 139, 151–52

and Reid’s alternative bill, 342

on Ryan plan, 87

on supercommittee, 360

Verizon, 47, 52

Veterans Affairs Department, 115, 352

veto of congressional plan on debt ceiling crisis, repercussions of, 331–38

Wall Street Journal, 150, 165, 179, 181, 184, 259, 356, 371

Wallace, Chris, 314–15

Walmart, 64

Warner, Mark, 252

Washington Post, 3, 122, 256, 356, 363, 372

Wheaton, Illinois, 1–2

Whitman, Meg, 13

Wilder, Douglas, 17

Woodhouse, Brad, 57

The World is Flat (Friedman, 2005), 3

Young Guns: A New Generation of Conservative Leaders (Ryan, Cantor, and

McCarthy, 2010), 65–66

Zadroga Act, 65

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Document Outline

Cover

Dedication

Author’s Personal Note

Note to Readers

Cast of Characters

Prologue

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12

Chapter 13

Chapter 14

Chapter 15

Chapter 16

Chapter 17

Chapter 18

Chapter 19

Chapter 20

Chapter 21

Chapter 22

Chapter 23

Chapter 24

Chapter 25

Chapter 26

Chapter 27

Chapter 28

Chapter 29

Chapter 30

Chapter 31

Chapter 32

Chapter 33

Chapter 34

Chapter 35

Chapter 36

Chapter 37

Chapter 38

Chapter 39

Chapter 40

Acknowledgments

Photographs

About the Author

Photography Credits

Chapter Notes

Index

Copyright