Showdown scars: How the $4 trillion ‘grand bargain’ collapsed

This article is part of a series on Barack Obama’s presidency, nine years after he announced his White House bid on Feb. 10, 2007. To read the rest of the series click here.

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It was their last chance.

On July 17, 2011, President Obama’s advisers sneaked Speaker John Boehner (R-Ohio) and his second-in-command, Rep. Eric Cantor (R-Va.), into the White House to seek a deal that would avert a catastrophic debt default.

{mosads}The House Republicans spent the morning around a table with the administration’s increasingly panicked economic advisers. Obama spent the Sunday morning at church.

When he returned, Obama invited Boehner and Cantor to speak privately in the Oval Office, where he put out a debt-reduction number that — for the first time — GOP leaders believed they could pass.

By midnight, a team of Budget Committee staffers had churned out the draft of a bill. Boehner hastily arranged a conference call for the House Republican Conference and told members to prepare for a vote.

Five days later, the $4 trillion “grand bargain” was dead.

Recriminations fell hard in the aftermath. In dueling press conferences, Obama accused Boehner of leaving him at the altar while the Speaker lamented that the president had moved the goal posts in the negotiations.

Why and how the talks fell apart remains a matter of fierce debate, something apparent in the interviews that The Hill conducted for this story with more than a dozen current and former lawmakers, aides and close observers of the process.

Republicans say Obama began to bargain too late, forcing Boehner to jump ship and calm a jittery conference that was nearing revolt.

Democrats say Cantor, who was then seen as the heir apparent to the Speakership, pushed Boehner away from the negotiating table.

But nearly everyone agrees that the collapse of the grand bargain squandered a historic chance at budget reforms and created a lasting bitterness between Obama and the GOP that made future deal-making nearly impossible.

“If there ever was any trust between Boehner and the president, it was completely lost,” Rep. Tom Price (R-Ga.), now chairman of the Budget Committee, said in an interview in his Capitol Hill office.

The gathering storm

In summer 2011, House Republicans felt invincible.

Having routed Democrats in a -midterm-election wave, Republicans felt they had enough political capital to confront Obama on the debt ceiling and rally public support for budget cuts.

Things didn’t go as planned.

The first attempt at deficit reduction, Obama’s National Commission on Fiscal Responsibility and Reform, dissolved after failing to convince enough of its own members to support a sweeping plan for cutting deficits and raising the debt ceiling.

For the first time, everything in the federal budget was on the table. Fiscal hawks in both parties recalled to The Hill that Obama was willing to support a policy long considered a nonstarter for Democrats: indexing spending to the rate of inflation, known as the chained consumer price index. Even House Democratic Leader Nancy Pelosi (D-Calif.) told her caucus not to rule it out, according to a source familiar with the conversation.

Weeks after the debt commission — led by former Sen. Alan Simpson (R-Wyo.) and former White House chief of staff Erskine Bowles — ended, a bipartisan group of senior senators dubbed the Gang of Six came to an impasse over ambitious tax and entitlement reform that would have cut and capped spending across the government.  

Separately, talks on a short-term budget fix led by Vice President Biden and then-Majority Leader Cantor came to a standstill over the issue of taxes despite numerous private dinners at the Biden’s residence.

Meanwhile, on Capitol Hill, most lawmakers and staffers, except those at the very senior levels, were inexperienced in the budget process and remained skeptical of the near-daily warnings offered up by officials such as Tim Geithner, then Obama’s Treasury secretary.

A small group of conservatives refused to accept that the debt ceiling had to be raised by the Aug. 4 deadline, forcing Boehner to drive up his demands.

Mounting pressure

As anxiety rose in the financial markets about the lack of a deal, budget experts — many who had previously worked in Congress — began briefing anyone who would listen about the consequences of default, including the highest-ranking members of both parties.

“This time it really was different,” said Steve Bell, senior director of economic policy at the influential Bipartisan Policy Center, who spent 30 years working for Republicans in Congress.

Until their meeting on the second-to-last Sunday in July, Obama and Boehner had been in a stare-down.

The Speaker was driving a hard bargain, but many questioned whether Cantor was fully behind him.

Trust in Boehner eroded after rank-and-file members first learned of the secret talks with Obama, and Cantor was making it clear to those lawmakers that he wasn’t included in the discussions, either. 

The night of the July 17 meeting at the White House, Boehner arranged a conference call to brief his members for the first time.

A deal is on the horizon, he told them — and the budget cuts are going to be real.

But as they listened, some members were raising doubts in texts and emails to each other. The conservative member remembered telling a colleague, “This doesn’t sound like a good idea.”

Several times on the call, when asked a direct question about the agreement, Boehner had no response or would reply, “Thank you very much,” the lawmaker said.

The backup to the backup plan

Just as Boehner and his team began selling the emerging deal, the Gang of Six went rogue. In the dark about the Obama-Boehner talks, the group stepped over their Senate leadership by releasing a plan for cutting spending.

The release of that proposal changed the strategy for Obama. 

“I can’t be to the right of Lamar Alexander,” Obama said, referring to the Tennessee Senate Republican who had backed the Gang of Six accord, according to an aide.

The same week, Obama and Biden invited the leader of the Gang of Six, then-Sen. Kent Conrad (D-N.D.), to the White House and asked how he had struck the deal.  

Conrad, chairman of the Senate Budget Committee, remembers a conversation with Obama that resembled a lecture on the importance of relationships. The North Dakota senator, who was an early endorser of Obama’s 2008 bid, told him: “Persistence, persistence, persistence.”

By now, cable news networks were running “countdown to default” clocks, while Wall Street banks scrambled to create contingency plans.

Obama brought the top Democratic leaders, Pelosi and Sen. Harry Reid (Nev.), into the Oval Office and asked for support to strike a deal on cutting the deficit by $1.2 trillion. They both quickly agreed, surprising even some in the room by not demanding that the president raise the stakes.

On July 20, Obama came out with a new deficit-reduction figure that was about $400 billion more than he had previously agreed to, though it was far less than the Gang of Six figure. 

In staff-level talks before the number went public, a senior administration official said Boehner’s staff appeared willing to consider the offer.

But then for more than a day, Boehner did not return the president’s calls. When he did call back, he said the deal was off.

“When we made our offer, we felt like it was perfectly well-received. Not agreed to, but well-received. The only sign we got to the contrary was the radio silence,” one senior administration official said. “Ultimately the radio silence was broken by Boehner withdrawing from the negotiations.”

In an interview in her Capitol Hill office with The Hill, Pelosi said Boehner probably never intended to make a deal but was looking for a way to blame the president for the collapse of the talks. She said Boehner used the same tactic when he sought a deal to avoid a government shutdown in 2013, but he couldn’t deliver the votes in the House. 

“Boehner walked away and said the president had walked away,” Pelosi said. “He couldn’t deliver his side of the deal. If you go to the table and think, ‘I’ll fake you out, I’ll put all this stuff there and you’re not going to accept it,’ then you’re the one who walked away.”

But Boehner soundly rejects the administration’s characterization of how the talks ended.  

“We didn’t ‘abruptly pull out.’  We hoped their offer was a bluff.  And we waited patiently for 36 hours for them to reconsider before deciding the president had bailed on the agreement we had reached the prior weekend,” said David Schnittger, Boehner’s spokesman and former senior aide who was involved in the talks. He said Boehner’s staff never came close to a compromise on the $1.2 trillion plan and was holding firm on the limit of $700 billion. 

“It’s safe to say the Speaker wasn’t interested in ‘faking out’ anyone with the country on the verge of a default and the potential for a worldwide economic calamity.”

The final solution to the crisis, which came from the White House, was to create an unprecedented -“supercommittee” charged with drafting the kind of agreement that had eluded nearly every other leader of their government. 

If the supercommittee failed, it would trigger a series of deep budget cuts known as sequestration that would slash funding across the government, from military spending to Medicare. At the time, no one believed the cuts would ever go into effect, according to a half-dozen officials and aides who crafted the agreement.

Yet two weeks after the 2012 elections, the supercommittee disbanded without a deal, triggering sequestration — a grim finale for a budget process that started with such high hopes.

After the failure of the talks, the GOP’s distrust of Obama was so severe that it fell to Biden — a deal-maker with long experience in Congress — to negotiate future budget agreements, notably a New Year’s deal with Senate Republican leader Mitch McConnell (Ky.) at the end of 2012.  

White House officials argue that even without a grand bargain, they achieved almost as much deficit reduction as the initial Simpson-Bowles commission proposal.

The country’s deficit is now at 2.5 percent of the gross domestic product, just under the Simpson-Bowles goal of 3 percent and down from 9.8 percent at the start of Obama’s presidency.

Still, budget-watchers say they are troubled by the long-term trends. The nation’s deficit is expected to grow larger than the economy in 2017, something that hasn’t happened in six years, the Congressional Budget Office recently announced.

Conrad — who had been named the dean of Democratic deficit hawks — left Congress at the end of 2012. He told The Hill he had no faith left that he could make a difference on the deficit.

“I have enormous regret that we did not succeed. I have no idea what could have been done differently,” Conrad said. “I tried every idea I had.”

“That was the time to act, that was exactly the right time,” he said. “We could have jumped together.” 

Mike Lillis contributed.