At 5 p.m. the speaker, with Cantor’s backing, called with a new offer.
The Short Life of Plan B
It was a breakthrough moment. For the first time in the negotiations – indeed, for the first time in two decades - a national leader of the Republican Party was supporting a hike in U.S. income tax rates.
Boehner would agree to raise rates on household income exceeding a million dollars to the Clinton-era level of 39.6 percent, he told Obama, and support a one-year extension of the debt limit. In return, he asked the president for sequester repeal and meaningful cuts in entitlement spending – nothing out of line with what Obama and Democratic congressional leaders had agreed to in the 2011 talks.
From the $800 billion starting point he had staked out in November, Boehner was now at nearly $1 trillion in higher tax revenue over 10 years. In exchange, he wanted $1.2 trillion in cuts. Obama told the speaker the cuts were probably too high and the revenue too low, but it was a serious proposal they could work from, according to a GOP source.
The next morning, Nabors, Sommers, and Loper met in the speaker’s office, identifying outstanding issues the president and speaker needed to resolve. That night, the news broke that Boehner had offered to raise taxes. It was an unwelcome complication.
On Sunday, Loper and Nabors prepared a joint document for the speaker and president to use in Monday’s meeting -- the first time the two sides were working from the same page. It showed the administration’s ask of $1.2 trillion in new revenue, compared to Boehner’s offer of $940 billion. The House wanted $1.04 trillion in spending cuts while the administration was offering $760 billion.
On Sunday night, the president dispatched a government plane to fly the speaker back to Washington so he could meet with Obama Monday morning. It did not go well.
Boehner opened the meeting by telling Obama that it hurt the negotiations when Senate Democrats gave the press details from their meetings. Obama said he had nothing to do with the leaks, according to Republicans. And, instead of working from the joint document drawn up by their staffs, Obama came to the meeting with a new, separate offer -- a move Republicans took as a show of bad faith.
In that offer, the White House gave up its demand for higher taxes on households earning $250,000. While the president didn’t go to the $1 million that Boehner had proposed, Obama agreed to raise the bar to $400,000. The administration also endorsed the idea of changing the way that Social Security and other cost-of-living raises are calculated – to a less-costly process called chained CPI. Obama also returned (to where the speaker thought he had once been) to $1.2 trillion in revenue. (A number of Republicans said the offer was really $1.3 trillion because Obama insisted on keeping the savings from chained CPI in the revenue, instead of spending, side of the ledger -- a change Republicans saw as the president moving the goal posts.)
And the president was emphatic, according to a GOP aide, that he could not get the votes for anything less than $1.2 trillion, a position Republicans found particularly grating because Democrats routinely criticized Boehner for being unable to sell his caucus on the president’s position.
"I won’t be able to persuade my people to move below $1.2 trillion in revenue because they believe they get $800 billion in revenue for free and hundreds of billions in more revenue from the sequester cuts. I can’t get my people to anything below $1.2 trillion,” Obama told Boehner.
$1.2 trillion is a nonstarter,” Boehner replied.
After 45 minutes, the meeting ended and Republicans began in earnest to lay the groundwork for Plan B, a push to pass a pared-back plan that would extend the Bush-era tax cuts on all income under a million dollars a year while Boehner continued talks with the president.
When Boehner returned from the White House, he and Cantor met and agreed to make one more offer -- $1 trillion in revenue for $1 trillion in cuts and an agreement that Boehner would drop his insistence on raising the Medicare eligibility age. Boehner would tell the president that if he didn’t accept the offer, he would begin work on passing a Plan B. Boehner called the president and waited to hear back, according to a GOP source.
Obama called back, saying he could do $50 billion more in spending cuts but he still wanted $1.2 trillion in revenue ($1.3 trillion by Republicans count). Boehner told Obama the revenue request was too high and he was going forward with Plan B.
Boehner gathered his top lieutenants in his office in the Capitol to explain the situation and hear their gripes. By the GOP’s calculations, Obama’s offer was for $1.3 trillion in additional revenue and only $900 billion in spending cuts, $400 billion short of the 1:1 ratio that Boehner thought he needed to sell the deal to the GOP caucus.
Camp balked at the speaker’s support of more than a trillion dollars in new revenue. Ryan said the deal lacked the necessary cutbacks in entitlement programs. Still, Ryan eventually agreed to vote in favor of Plan B. The House Budget chairman had been publicly quiet up until this point, fearing that the White House would cast the Republicans’ position on the fiscal cliff as a rerun of the party’s failed presidential campaign, said a House Republican aide.
Boehner was in a tough spot. “He’s having to do what no military strategist will recommend: fighting a two-front war,” said one House Democratic aide.
But to the Republican leaders and the staff members involved in the negotiations, Plan B solved two primary issues. “The genius about Plan B was the amount of revenue it limited the president to, while taking away his No. 1 and only talking point”-- that the Republicans refused to raise taxes on the wealthy, said a House Republican aide. “It minimized the revenue we had to raise through tax hikes and undercut the president’s rhetorical advantage.”
Boehner was practiced at playing the Democrats in the White House against the Republicans in his caucus. He would tell the president that he needed spending cuts to get his reluctant members to vote for higher taxes, and tell conservatives he needed tax revenue to get the White House to cut spending. White House aides and House Democrats took to greeting the speaker’s moans and woes with skepticism.
But the White House was playing an inside-outside game of its own. The day after Boehner told the president he was going to Plan B, Nabors called Sommers.
“My press staff tells me that I need to call you so we can publicly say that there has been contact between the staff on negotiations,” a GOP aide recalled Nabors saying.
Sommers asked Nabors whether it was worth meeting at the staff level to discuss the deal’s technical issues while the speaker and the president hashed out the top lines. Nabors said he didn’t see the point and Sommers agreed, according to the aide.
Talk of a grand bargain was over.
On Tuesday morning, as Boehner prepared to lay out Plan B to the entire House Republican Conference, Obama’s intransigence seemed to be working in the speaker’s favor. When he appeared before the caucus (raising his eyes to heaven as he walked toward the door), he was not an abject supplicant: He was still Horatius at the bridge, standing tall against the Democrats’ endless urge to tax and spend.
Their duty was clear. They had to “protect as many taxpayers as we can,” the speaker told his troops. If Obama didn’t move toward greater cuts in spending, they would ram Plan B through the House.
It was a cute bit of political legerdemain: The speaker’s historic concession on higher tax rates was being sold to his troops as a principled stand against Democratic excess. It was a fine way, as well, to test the waters – and count the potential votes - in the GOP conference.
“All of us recognize that the top rate is going to go up. That’s in current law,” said Rep. Jeff Flake, R-Ariz. The goal now was to “roll it back to protect other taxpayers.”
The speaker’s Plan B did indeed put Democrats on the spot. Pelosi had endorsed a $1 million threshold in the recent past; so had Senate Democratic leaders such as Chuck Schumer of New York. It was guaranteed, as well, to stir both Democratic and Republican interest groups and prod them toward a deal, because it provided no relief on sequestration. But most of all, it was a signal to the president: Time was running out. Perhaps most notably, Plan B did not extend the debt limit.
But conservatives in the House and the Senate refused to vote for any hike in rates – even on millionaires. It could cost the GOP one of its best surviving selling points, they said. The Cold War was over, and Republicans in the Bush years had demonstrated that they, too, could spend the country into debt, but the GOP was still the party that opposes higher taxes. Now that brand was in danger of being tarnished.
Boehner got help from the U.S. Chamber of Commerce and from Grover Norquist’s Americans for Tax Reform (which decreed that a vote for Plan B was not a vote to raise taxes), but other conservative organizations, including the Club for Growth and the Heritage Foundation’s political action group, announced their opposition.
So did the Democrats. And many Republican members asked themselves why they were going on the record for higher taxes – even on millionaires – when Reid had declared Plan B dead on arrival in the Senate and Obama had promised to veto it. Voting for a tax hike to save the economy from a fiscal crisis was one thing; a symbolic practice vote – that a conservative challenger could exploit in a party primary - was another.
For three days, Boehner stroked and cajoled, at times chasing his colleagues down on the House floor. Desperately trying to secure votes, the Republican leaders added spending cuts, plums for the defense industry, and some choice special-interest amendments to Plan B, all to no avail. Early Thursday night, Boehner pulled the bill from the floor.
At 7:45 p.m., in a hastily summoned, brief, closed-door meeting of the Republican conference, Boehner led his members in the Pledge of Allegiance, and then he recited the Serenity Prayer.
“God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference,” the speaker said.
Boehner didn’t have the votes. And he knew it.
Rep. Mike Kellyof Pennsylvania bolted to the front of the room and tried to rally his colleagues to stand with the speaker. It was too late. They were on their way out the door.
The House Republicans left the conference meeting in the basement of the Capitol in a state of quiet shock. Some members pulled out their cell phones to arrange new flights back home, while a few stopped to huddle with reporters and speak philosophically about the meaning of the failed Plan B. To some, it meant that Republicans simply would not vote for a tax increase, no matter what. To others, it hinted at bigger concerns for the party.
“We are going to be seen, more and more, as a bunch of extremists that can’t even get the majority of our own people to support the policies we’re putting forward,” said retiring Rep. Steven LaTourette of Ohio. “If you’re not a governing majority, you’re not going to be a majority very long.”
Boehner’s last-ditch appeal failed. He had pushed Plan B to increase his bargaining power. Its death did just the opposite.
Boehner held a press conference on Friday.
“There was a perception created that the vote last night was going to increase taxes. Now I disagree with that – with that characterization of the bill – but that impression was out there,” he said. “We had a number of our members who just really didn’t want to be perceived as having raised taxes.”
His friends were bitter over the treatment that Boehner received. Blaming events on the speaker, LaTourette said, was “like saying the superintendent of an insane asylum should be discharged because he couldn’t control the crazy people.”
Boehner vowed to redouble his efforts to cut a deal with the White House. But “how we get there, God only knows,” he said.
Picking Up the Pieces
Following the Plan B debacle, the fiscal-cliff talks quieted for the holidays. House Republicans left town. Senators attended a memorial service for Sen. Daniel Inouye of Hawaii at the National Cathedral and then spent the afternoon fighting over disaster-relief funding for Hurricane Sandy and the defense authorization bill--anything to avoid facing the cliff.
A week passed with little progress. Senators returned to the Hill on the Thursday after Christmas and spent their time milling about the hallways in a wait-and-see mode, uninspired by the lack of progress, or gaming out the cliff with little insider knowledge. Republican Sen. Bob Corker of Tennessee voiced his frustration to anyone who would listen. “I think every American should be disgusted with all of Washington,” he said.
The congressional leaders returned to the White House that Friday, Dec. 28, for the first time since their mid-November meeting—except that this time no one proclaimed optimism. Reid and McConnell agreed to take charge of negotiating an accord during the White House meeting, since the talks between Obama and Boehner had collapsed. A last-minute compromise had to be forged in the Senate.
Their best and only hope now was a much smaller deal than anyone had originally imagined, one that would extend tax cuts for the middle class and provide unemployment insurance for 2 million people. Still, that seemed out of reach. Even if the Senate could reach a deal, would the House consider it? In the White House meeting, Reid pushed Boehner on the question, and the speaker stuck to his talking points, refusing to say whether he would put it on the floor.
Following the meeting, Reid huddled with fellow Democratic senators on the floor while McConnell announced he and Reid were negotiating. It was a turning point for the Republican leader, who had so far played an ancillary role in the talks. “We’ll be working hard to try to see if we can get there in the next 24 hours. So I’m hopeful and optimistic,” he said.
At 9:30 p.m. McConnell sent his opening offer to Reid, according to a Senate Republican aide.
Shuttling between the leaders’ offices, aides with term sheets tucked into manila envelopes delivered Reid’s counteroffer a little before 3 p.m. Saturday. A GOP counterproposal that included a one-year delay of the sequester paid for by chained CPI was delivered at 4:10 p.m. The Democrats responded less than an hour and a half later. At 7:10 p.m., McConnell sent back another offer, including chained CPI.
At that point, Reid told Republicans not to expect another offer until morning. McConnell’s staff suggested sitting down in a conference room face to face and working through the issues, and Reid’s staff declined, according to the GOP aide. The two sides remained stuck on key points, including the indexing of estate tax, the threshold of taxing the wealthy, and the best way to pay for the undoing of sequester, according to a Reid aide.
Sunday morning came and went without a new Democratic counteroffer. Then, in a Sunday afternoon phone call, Reid told McConnell he was done with the back and forth. McConnell was frustrated. With only hours left, he worried that Reid was stalling for time, slow-walking him toward the cliff in an effort to gain political leverage.
McConnell decided to phone a friend.
“I also placed a call to the vice president to see if he could help jump-start the negotiations on his side,” he announced on the Senate floor. “The vice president and I have worked together on solutions before, and I believe we can again.”
McConnell had just very publicly announced his intention to try to end-run Reid and work directly with the White House. But would it work? After all, Biden had been sidelined by Obama. There had been no contact between the two men for months, despite their history of cutting high-stakes legislative deals. With time running out, McConnell gambled that the White House might let their closer out of the bullpen.
Shortly after his speech, McConnell got a message. The vice president was on the phone for him. He walked off the floor during a rare weekend vote and sat down in a phone booth in the Senate cloakroom.
McConnell voiced his frustration with the stalled talks. He wanted a dance partner, but didn’t have one in Reid. He needed Biden to step in. "There doesn't appear to be the level of understanding that you have about these negotiations,” McConnell told the vice president. “It's a lack of experience. Smart people, but they don't have a good sense of the trip wires."
Before they hung up, Biden agreed to get back to McConnell with an offer. Thirty hours later, the two would have a deal that would pass the Senate with overwhelmingly bipartisan support.
By noon on New Year’s Eve, just hours before the fiscal-cliff deadline, the details of an emerging deal started to spill out into public. The package would permanently raise taxes on household income above $450,000; extend Obama’s 2009 tax cuts for college students, families with children, and low-income families for five years. It would increase the rates on capital gains and dividends to 20 percent for households in the top tax bracket of 39.6 percent. It would permanently patch the alternative minimum tax, ensuring that 28 million Americans did not have to pay that tax; extend business tax breaks; and increase the estate tax. It also extended the unemployment insurance benefits for an additional year.
The emerging agreement did not sit well with all Senate Democrats. Reid would have preferred a one-year-sequester delay, according to one of his aides, instead of the two-month extension the White House negotiated with McConnell. Other Senate Democrats such as Iowa’s Tom Harkin opposed the deal because it did not deal with the country’s No. 1 problem of creating new jobs. “We had them over a barrel, and Biden gave them an out,” complained a Senate Democratic leadership aide.
Hours later, Biden headed to the Hill to convince reluctant Senate Democrats to vote for the McConnell-Biden package. As the clock approached 2 a.m. on New Year’s Day, the Senate passed the package by a vote of 89-8.
The Jan. 1 vote allowed Republicans to say they voted for a tax cut because, technically, the country had already gone over the cliff. This was especially important to Republican members who had signed the no-new-taxes pledge circulated by Americans for Tax Reform. At 11:59 p.m. on December 31, a vote for a tax bill that didn’t extend the Bush-era tax cuts for all Americans was a tax hike. Two minutes later, at 12:01 a.m. on Jan.1, that same vote would be considered a vote to cut taxes.
Wearing a red tie on the Senate floor, a triumphant McConnell pitched it as such: “Thanks to this imperfect agreement, 99 percent of my constituents will not be hit by a tax hike,” he said.
Republicans immediately declared victory by saying they not only prevented a major tax increase, but they also had made permanent huge swathes of the Bush-era tax cuts. They also kept the tax rates on capital gains and dividends low for wealthy people, ensuring that the top rate rose to just 20 percent rather than 39.6 percent.
The president won a victory as well by cajoling the Republicans to raise taxes after a 20-year drought. He fulfilled his campaign promise of taxing the wealthy, even if that threshold of middle-class households had risen to close to half a million dollars. The White House also secured policy victories such as the extensions of the unemployment insurance benefits and the 2009 stimulus tax breaks including the child tax credit, a boost to middle class families.
The mood on the Senate floor was one of a holiday cocktail party: boisterous, friendly, back-slapping, and full of nostalgia. For a handful of retiring senators such as. Jon Kyl of Arizona, Olympia Snowe of Maine, Kent Conrad of North Dakota, and Kay Bailey Hutchison of Texas, the fiscal-cliff deal marked the final vote of their long congressional careers. After he cast his “aye” vote, Nebraska’s Ben Nelson gave a bear hug to Schumer while Snowe said a quiet, quick good-bye to a huddle of Republican colleagues.
The members lingered on the floor until just after 2 a.m. Sen. Claire McCaskill, D-Mo., wearing a festive, sparkly top, waved good-bye and told her colleagues she’d see them in a few days.
Senators believed the long, exhausting march was finally over. But Boehner’s unruly caucus would prove to be nettlesome to the end.
The Final Curtain
Shortly after noon on Tuesday, Biden was back at the Capitol, answering questions and shoring up support for the measure in a closed-door meeting with House Democrats. But by mid-New Year’s afternoon, House Republicans – including Cantor – were emerging from their own closed-door conference voicing unhappiness. Many were pushing the idea of tacking on as much as $300 billion in domestic spending cuts, and then kicking an amended version of the bill back into the Senate’s court. For hours, it appeared that Biden and McConnell’s deal could fall victim to the chaos.
But Reid’s office quickly made clear the Senate would not take up such changes. And Boehner, Cantor, and their House Republicans colleagues faced the reality that amending the bill would be the equivalent of killing it. The resulting turmoil, they realized, would leave House Republicans open to blame for a huge middle-class tax increase.
Boehner, still smarting from his Plan B fiasco, decided to leave it up to his members to decide between two options. In another closed-door conference, rank-and-file Republicans were told that Whip Kevin McCarthy would do a count of those who wanted to push for the spending cuts. If 218 of them committed to doing that, a measure would be brought to the floor, passed, and sent to the Senate. But Boehner, joined by Cantor, also cautioned about the risk entailed in such a strategy. They advised that there would be no guarantee the Senate would act on such an amended measure, leaving the House holding the bag.
In the alternative, the members were told that if a commitment of 218 votes was not found, the House leaders would bring up the Senate-passed measure for an up-or-down vote. The leaders’ warnings about the perils of amending the bill ultimately took hold.
At about 8 p.m. – even before House Republicans had announced their own decision – Democratic Rep. Alcee Hastings of Florida, a member of the Rules Committee, advised a group of reporters what Republicans had decided. A Rules Committee meeting had been scheduled to set up a House vote later in the night, before midnight, on a clean version of the Senate bill.
Then, Hastings offered his assessment of the Republicans’ decision not to press ahead with an amended version. “They're batshit crazy, but they're not THAT batshit crazy.”
Rules Committee Chairman David Dreier of California would shortly afterward predict the measure’s bipartisan passage. But on the floor, there was little celebration from either side of the aisle. Rules Committee ranking Democrat Louise Slaughter of New York summed up the events: “Today’s legislation is far from perfect, and the process that led us here has been an utter disgrace.”
On a 257-167 vote, the unamended bill passed the House as the first day of the New Year drew to a close, but all involved knew that both Democrats and Republicans had again squandered an opportunity to forge an agreement on a grand scale. In doing so, they guaranteed that a fractious fight on raising the debt limit would now dominate the coming weeks.
For Boehner, the outcome had to be particularly galling. Not only had he surrendered any meaningful input in the final result despite months of effort and publicly failed to corral support for a plan that, in the end, might have resulted in a better deal for his caucus, but his long-cherished goal of unity in the ranks of his leadership was also shattered. He and Ryan voted for the compromise, while Cantor and McCarthy voted against it, again placing the schism in the ranks on full display.
The speaker was not in a celebratory mood after the vote. “Now, the focus turns to spending,” he declared in a terse statement, saying that Republicans will use 2013 to hold the president accountable for the “balanced approach” he pledged.
Whether he was addressing Obama, the public, or his own querulous party was unclear. But the talk was brave. As it turned out, after months of planning, weeks of negotiations, and seemingly endless false starts and admonitions, a brave face was the only thing the House GOP ever really had to offer.
Caren Bohan, Michael Catalini, Niraj Chokshi, George E. Condon Jr., Dan Friedman, Shane Goldmacher, Catherine Hollander, Elahe Izadi, Stacy Kaper, Rebecca Kaplan, Katy O’Donnell, Jim O’Sullivan, Sophie Quinton, Sara Sorcher, and Ben Terris contributed