Geithner Book: When Obama Blew a Dog Whistle and a Budget Deal

Former Treasury secretary adds context to behind-the-scenes White House budget machinations.

Tim Geithner testifies on Capitol Hill.
National Journal
Ron Fournier
May 12, 2014, 10:30 a.m.

In his forth­com­ing mem­oir, former Treas­ury Sec­ret­ary Timothy Geithner cap­tures a mo­ment at which Pres­id­ent Obama faced a choice between for­ging ahead with a prom­ise to seek GOP com­prom­ise on the na­tion’s debt crisis or bow to pres­sure from his lib­er­al base.

Obama chose sur­render.

This from Stress Test: Re­flec­tions on Fin­an­cial Crises, as ex­cerp­ted by Politico’s Play­book:

At a meet­ing early in 2011 in [Chief of Staff Bill] Da­ley’s of­fice to dis­cuss fisc­al strategy, we de­bated how to re­spond to the Re­pub­lic­an push for cuts in do­mest­ic spend­ing. Dav­id Plouffe, who had just re­placed Dav­id Axel­rod as the pres­id­ent’s top polit­ic­al ad­viser, made the case that we couldn’t ig­nore the pub­lic clam­or for fisc­al dis­cip­line, and, polit­ics aside, the pres­id­ent be­lieved in fisc­al dis­cip­line. “We didn’t run on a plat­form of per­man­ently in­creas­ing the size of gov­ern­ment,” said Plouffe, who had man­aged the pres­id­ent’s 2008 cam­paign. Plouffe wasn’t sug­gest­ing that we lurch in­to aus­ter­ity, just that we couldn’t af­ford to be against ALL cuts. “¦

The quote as­signed to Plouffe re­flects Obama’s nu­anced view of the U.S. budget dur­ing his 2008 cam­paign and the early days of his pres­id­ency — that fisc­al san­ity was not only an ac­cept­able part of a pro­gress­ive agenda, it was a ne­ces­sary ele­ment of any strategy to in­vest in the 99 per­cent and build the pub­lic’s trust in an act­iv­ist gov­ern­ment. As late as his reelec­tion cam­paign, Obama ar­gued pub­licly that “the biggest driver of our long-term debt is the rising cost of health care for an aging pop­u­la­tion” and said “those of us who care deeply about pro­grams like Medi­care must em­brace the need for mod­est re­forms — oth­er­wise, our re­tire­ment pro­grams will crowd out in­vest­ments we need for our chil­dren, and jeop­ard­ize the prom­ise of a se­cure re­tire­ment for fu­ture gen­er­a­tions.”

But there were dis­sent­ing voices in 2011, ac­cord­ing to Geithner:

Dan Pfeif­fer,the pres­id­ent’s com­mu­nic­a­tions dir­ect­or [now seni­or ad­viser] and an­oth­er 2008 cam­paign vet­er­an, of­ten took the oth­er side of the de­bate, say­ing we couldn’t af­ford to ali­en­ate our base and split a weakened Demo­crat­ic Party in pur­suit of an ima­gin­ary com­prom­ise with Re­pub­lic­ans who didn’t want to com­prom­ise.

At an­oth­er meet­ing in the Roosevelt Room, I told the pres­id­ent I thought there was a chance that he could break at least some Re­pub­lic­ans away from their no-new-taxes man­tra and forge a deal to sta­bil­ize our long-term debt. It wouldn’t be a deal that his base would like, but if he wanted to get any­thing through the House, he couldn’t be bound by the de­mands of Demo­crats. “You have a chance to split the Re­pub­lic­ans,” I said. “But only if you’re will­ing to split the Demo­crats.”¦”

I re­mem­ber dur­ing one Roosevelt Room prep ses­sion be­fore I ap­peared on the Sunday shows, I ob­jec­ted when Dan Pfeif­fer wanted me to say So­cial Se­cur­ity didn’t con­trib­ute to the de­fi­cit. It wasn’t a main driver of our fu­ture de­fi­cits, but it did con­trib­ute. Pfeif­fer said the line was a “dog whistle” to the Left, a phrase I had nev­er heard be­fore. He had to ex­plain that the phrase was code to the Demo­crat­ic base, sig­nal­ing that we in­ten­ded to pro­tect So­cial Se­cur­ity.

Obama de­cided not to split the Demo­crats — or to ser­i­ously seek com­prom­ise. Yes, he did pro­pose a mod­est ad­just­ment of en­ti­tle­ment spend­ing in ex­change for tax in­creases to­ward a “grand bar­gain,” but that now ap­pears to have been a mere sig­nal (or dog whistle) to debt-fret­ting in­de­pend­ent voters. It was a game. Lib­er­als played their part and ob­jec­ted to the re­forms. Re­pub­lic­ans played their part and said they would nev­er raise taxes. Des­pite ad­vice from Geithner, fel­low Demo­crats, and top Re­pub­lic­ans who re­cog­nized the GOP ne­go­ti­at­ing ploy, Obama seized on it as an ex­cuse to sur­render to his base. Geithner ul­ti­mately ex­on­er­ates his ex-boss, blam­ing House Re­pub­lic­ans for re­fus­ing to ac­cept tax in­creases and cred­it­ing Obama with be­ing “will­ing to al­li­en­ate some of his Demo­crat­ic al­lies.”

However, as late as a year ago, just a few months after Obama shoved a reelec­tion tax hike down their throats, the GOP lead­er­ship was still open to com­prom­ise. A budget deal would be hard, but not im­possible, to strike. The situ­ation re­quired an able, nimble part­ner in the White House, a pres­id­ent who could help the GOP lead­er­ship reach and sell a deal to their con­ser­vat­ive base. In March 2013, I wrote of the GOP: “Don’t mis­take a ne­go­ti­at­ing po­s­i­tion for real­ity. House Re­pub­lic­ans tell me they are open to ex­chan­ging en­ti­tle­ment re­form for new taxes — $250 bil­lion to $300 bil­lion, or ap­prox­im­ately the amount that Re­pub­lic­an Sen. Pat Toomey of Pennsylvania pro­posed rais­ing over 10 years un­der the guise of tax re­form.”

The num­bers were spe­cif­ic be­cause the pos­sib­il­ity of a deal was real. But the White House, quite lit­er­ally, laughed at it. The pres­id­ent had already bowed to his base, giv­en up on com­prom­ise, and dam­aged his leg­acy.

Like a polit­ic­al mem­oir, Geithner’s ac­counts need to be taken with a grain of salt be­cause per­son­al agen­das can shape memor­ies. For in­stance, he quotes Re­pub­lic­an eco­nom­ic ad­viser Glenn Hub­bard as say­ing, “Of course, we have to raise taxes” as part of a broad­er deal based on the the Simpson-Bowles de­fi­cit re­duc­tion plan, “we just can’t say that now.”

Hub­bard, now the dean of Columbia Busi­ness School, told Politico that Geithner made up the story.“‘It’s pretty simple. It’s not true,” Hub­bard said.

I don’t know wheth­er Geithner is ly­ing about his con­ver­sa­tion with Hub­bard. I do know a num­ber of top Re­pub­lic­ans who said they were open to cut­ting a tax-and-cut deal with Obama, and who said they privately told the White House, “We just can’t say that now.”

The Re­pub­lic­ans may have been ly­ing, but we’ll nev­er know. Be­cause Obama wasn’t listen­ing.

Cor­rec­tion: One sen­tence in the ini­tial post in­cor­rectly stated Obama’s ne­go­ti­at­ing stance. He wanted tax in­creases from the GOP.

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