Why the Grand Bargain Had to Die

Why did the "grand bargain" between President Obama and House Speaker John Boehner to raise the debt ceiling and overhaul entitlements and the tax code fail back in August?

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Why did the "grand bargain" between President Obama and House Speaker John Boehner to raise the debt ceiling and overhaul entitlements and the tax code fail back in August? Republicans and Democrats remember the events last August very differently, and it takes The New York Times Magazine's Matt Bai 9,000 words to solve the mystery. Here are some of the most fascinating descriptions of what happened behind the scenes and between the press conferences.

The Disintegrating Marriage of Boehner and Cantor
Bai makes Boehner and Cantor's relationship sound like that of those couples whose contempt for each other simmers barely below the surface. You know, the kind that fight in public all the time and make dinner guests feel awkward and uncomfortable, the kind that complain about each other behind their backs. Bai describes the conflict between them resulting from Boehner's ambition to be remembered as a great speaker and statesman clashing against Cantor's ambition to take Boehner's job. The White House was excited when a cryptic email from Boehner's office indicated he'd be willing to accept $800 billion in new revenue -- talked between Vice President joe Biden and Cantor had broken down in June when Cantor made it clear he'd accept no new taxes. Boehner and Obama were going back and forth on a possible deal when Bai hints that Biden's big mouth blew it:

Cantor, who had heard about the Obama-Boehner talks only when Biden happened to mention it, was nonplused at having been excluded and appalled that Boehner was offering more revenue. He and others pressed the speaker to drop the idea of a comprehensive deal, and on July 9, Boehner did just that, calling Obama at Camp David to tell him that the grand bargain was dead. He issued a statement immediately after, saying it was time for both parties to set their sights on a less ambitious solution to the debt-ceiling crisis...

But then Boehner called Obama back just five days later to resume grand bargaining. Later, Cantor apparently openly undermined Boehner in White House meetings:

During one of a series of tense White House meetings with Congressional leaders in July, Obama’s aides had been stunned — even a little embarrassed — to see Cantor, when asked for his opinion, directly contradict the speaker in front of the president. He insisted that the caucus would not accept the kind of sweeping deal that both leaders wanted. It struck Obama’s aides as breach of Washington decorum, and it appeared to betray deeper divisions inside the Republican caucus. 

About that Cryptic Email 
After Boehner and Obama golfed together in July, they discussed something bigger -- entitlement and tax code reform. Bai explains that budget negotiations usually go like this: one side says, "I want X, Y, Z," the other says, "X is okay, but we'd also like A, B, C," and they go back and forth till there's a mutually agreeable alphabet soup. Boehner's response to the White House's proposal was written in a wonky code so as not to reveal Boehner was open to the idea of raising government revenue, Bai reports. Obama's negotiators proposed $1.5 trillion in new revenue over the next decade. Boehner's people responded that they'd prefer "to reduce revenue 'compared to current law' by $2.8 trillion." That doesn't sound like tax increases! Bai explains that it actually was, because "current law" meant all the Bush tax cuts would expire -- something Congress was sure to prevent from happening. If they expired, $39 trillion would come to the government. Congress was expected to extend some of them, so the government would get $3.5 trillion less, or $35.5 trillion. But Boehner's offer would mean the government would get $36.3 trillion -- $800 billion more than what the White House was expecting. Okay, fine, Hollywood's going to have a hard time turing this one into an action thriller. Still, it's a big deal. And Boehner's staff worked to protect him:

The idea of any new tax revenue was so heretical to his party, and Boehner was so fearful of the reaction, that his aides felt compelled to come up with a roundabout way of expressing the offer in terms that few people in Washington would be able to decipher, just in case the paper should fall into the wrong — that is, his own party’s — hands.

Why It Fell Apart
Boehner's revenue increase depended in part on fuzzy math:

Boehner’s aides had calculated that, at $800 billion, they could plausibly argue to their own caucus that the government could raise more money without actually raising anyone’s taxes.

How could you make that case? Boehner would argue that some sizable chunk of that money — if not all of it — would come to the government as a result of economic growth spurred by new, lower tax rates, and from better compliance, since the new tax code would be less confusing. Thus, by this feat of actuarial magic, Boehner contended that raising revenue did not require raising taxes, and in fact would enable you to lower them. The math was debatable, certainly, but it was a central tenet of any deal Boehner would negotiate.

Obama eventually has a problem with this:

To the $800 billion figure, he said he now wanted to add an amount equal to the cuts in Medicare and Medicaid — an additional $360 billion, at least — for a total of $1.16 trillion in total revenue. Aside from increasing the sheer amount, what Obama was doing, for the first time in the negotiation, was explicitly linking the amount of new revenue to the cuts Boehner wanted in entitlement programs. In other words, Obama’s new formula meant that for every additional dollar in savings Boehner wanted to negotiate from Medicare or Medicaid, he was going to have to add a dollar of revenue....

This in itself was certainly enough to throw the deal into jeopardy. But the White House made still other changes that were problematic. Most notably, Boehner’s team had insisted that when lawmakers sat down to design a new tax code, the $800 billion in additional revenue had to be a “ceiling” rather than a “floor” — in other words, the final number generated through tax reform couldn’t be more than $800 billion, but it could be less. That’s because, as part of revising the code, Boehner intended to ask Congress for something called a “macro estimate” of the grand bargain’s impact — basically, a best guess as to the future revenues that would accrue once the lower rates kicked in and the economy started humming along.

Democrats hate this, because it buys into the conservative idea of supply-side economics -- that lower taxes will grow the economy and result in more tax revenue. Boehner thought the White House would agree to it.

But in his counteroffer, Obama had reversed the formulation so that the tax revenue figure — now at $1.16 trillion — would be the minimum that rewriting the code could achieve (a floor), rather than a maximum (a ceiling). With a slight turn of phrase, he rejected Boehner’s entire premise that growth could be counted on to deliver some of the revenue.

Bai explains that Boehner felt like they'd agreed to the price of a deal, and then Obama had raised it. Obama later wanted to go back to the original deal, but Boehner was done. At least, that's been his story for months -- that Obama "moved the goal posts" and therefore couldn't be trusted. But Bai explains it was more complex than that:

As part of a broader proposal, which has remained until now a closely held secret, Boehner was apparently open to meeting the president at the new, higher revenue target — a concession that most likely would have meant abandoning the idea that no taxes would have to be raised. Had that counteroffer ever made it to Obama’s desk, it’s not hard to imagine that the grand bargain would have gotten done within 24 hours, at great political risk to both men. Whether it could have passed the House — whether, in fact, any deal would ever have reached the president’s desk — is a question that will never be answered.

What happened, instead, based on extensive reporting, was this: Boehner raised the possibility of his counteroffer with Cantor on that Thursday afternoon, and Cantor dismissed the suggestion out of hand. He had always warned that the White House couldn’t be trusted and would come back for more, and Obama’s reversal on the revenue number had vindicated that view. Cantor made it clear he wasn’t going to support any more counteroffers. He was pretty sure the caucus wouldn’t either. No longer was Cantor content to be the skeptic in the room. He was now certain that the grand bargain was a practical impossibility.

This article is from the archive of our partner The Wire.