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Sunday, July 24, 2011

Why the Obama-Boehner talks fell apart

- Keith Hennessey -

Posted By kbh On July 23, 2011 @ 6:44 am In budget,featured,taxes | 2 Comments
Budget talks between President Obama and Speaker Boehner fell apart yesterday after the Speaker called the President and said he would instead negotiate directly with Senate Leaders Reid & McConnell.
The President spoke to the press within the hour to begin framing the collapse of the negotiations [1]. He reinforced his theme that he was the reasonable, flexible party willing to compromise to get a deal.
I just got a call about a half hour ago from Speaker Boehner who indicated that he was going to be walking away from the negotiations …
… And so the question is, what can you say yes to? Now, if their only answer is what they’ve presented, … — if that’s their only answer, then it’s going to be pretty difficult for us to figure out where to go. Because the fact of the matter is that’s what the American people are looking for, is some compromise, some willingness to put partisanship aside, some willingness to ignore talk radio or ignore activists in our respective bases, and do the right thing.
And to their credit, Nancy Pelosi, Harry Reid, the Democratic leadership, they sure did not like the plan that we are proposing to Boehner, but they were at least willing to engage in a conversation because they understood how important it is for us to actually solve this problem. And so far I have not seen the capacity of the House Republicans in particular to make those tough decisions.
The President positioned himself as the aggrieved party, trying to understand what went wrong:
It is hard to understand why Speaker Boehner would walk away from this kind of deal.
I actually think it’s quite easy. The President backtracked in private negotiations this week, demanding bigger tax increases after the Gang of Six, including three conservative Republican Senators, released a plan that raised taxes more than the President had previously demanded.
Today’s press stories treat this as a detail. It is instead the key to understanding why the talks fell apart.
Here are some primary source materials for reference:

Recent history of the negotiations

First we’ll look at total levels of taxation.
This gets a little tricky, because Republicans and Democrats frame tax numbers differently. These negotiations assumed a gap between current law taxation and current policy taxation of $3.5 T over 10 years.
  • Last weekend the White House was willing to, from their perspective, reduce revenue at least $2.8 T relative to current law. That’s about $700 B higher revenues than current policy. That number would be a ceiling for revenues.
  • Tuesday the Gang of Six proposed their budget plan. The Gang’s plan would reduce revenues $1.5 T relative to current law, which (using these baselines) means $2 T higher revenues than current policy.  That means the Gang of Six proposed $1.3 T higher revenues than the President had been demanding privately. The Gang of Six includes three conservative Republican Senators.
  • After the Gang of Six offered their plan [6], the President backtracked from his position last weekend and increased his demand. Late this week the President was willing to reduce revenue by at most $2.4 T relative to current law. Using CBO’s numbers, that’s about $1.1 T higher revenues than current policy, and $400 B higher than last weekend. That number would be a floor for revenues.
Last week the President increased his tax demand by $400 B and changed a ceiling for revenues into a floor. (Technical note: My numbers are $100 B off from the $800 B and $1.2 T numbers publicly discussed. This doesn’t change the story and the backtrack amount is still $400 B.)
Next let’s look at tax rates. The President and the Speaker were negotiating certain parameters that would be agreed to for a future tax reform:
  • As of last weekend, the President was willing to support three individual tax rates, and the top rate would be less than 35 percent. Team Obama also agreed that the difference between the top individual and corporate rates would be limited.
  • After the Gang of Six released their plan, the President’s team backed away from this position.
  • In addition, Team Obama suddenly insisted that refundable tax outlays (for the poor) not be reduced by tax reform.
Again, the President retreated from an earlier position on taxes as a result of the Gang of Six introducing their plan. On total tax revenues, tax rates, and refundable outlays, the President increased his demands last week.
The Speaker’s statement today reinforces this description of recent history:
The discussions we’ve had broke down for two reasons.  First, they insisted on raising taxes We had an agreement on a revenue number – a revenue number that we thought we could reach based on a flatter tax code with lower rates and a broader base that would produce more economic growth, more employees and more taxpayers, and a tax system that was more efficient in collecting the taxes that were due the federal government Let me just say that the White House moved the goalposts.  There was an agreement, until the President demanded $400 billion more, which was going to be nothing more than a tax increase on the American people.  I can tell you Leader Cantor and I were very disappointed in this call for higher revenue.  Second, they refused to get serious about cutting spending, and making the tough choices that are facing our country on entitlement reform.  Listen, that’s the bottom line.
The President’s statement does not explicitly confirm that the President “moved the goalposts,” but is consistent with it, and he cited the Gang of Six four times, wrapping his arms around their position.
In addition, what we sought was revenues that were actually less than what the Gang of Six signed off on.  So you had a bipartisan group of senators, including Republicans who are in leadership in the Senate, calling for what effectively was about $2 trillion above the Republican baseline that they’ve been working off of.  What we said was give us $1.2 trillion in additional revenues.
Press reports today say Presidential advisors confirmed that the President increased his demand for more revenues last week.
In addition, the President and the Speaker had open disputes about how much to save from Medicaid, and about an automatic mechanism to force Congress to act on the entitlement and tax provisions. The President wanted a provision that would “decouple” tax rates if Congress failed to act, allowing top tax rates to increase while extending the other tax rates. Republicans would hate this outcome and would therefore have an incentive to legislate the deal. The Speaker insisted that if this automatic hammer decoupled tax rates, it also had to repeal the individual mandate from the Affordable Care Act (ObamaCare), to create roughly equal legislative pressure on both sides of the aisle.

Negotiation tactics, framing & strategy

While it is an aggressive tactic, there is nothing “wrong” with moving backward in a negotiation. It is likely to anger the counterparty, and it usually reduces the chance of getting a deal. But sometimes conditions change, as they did this week, and one party feels his position is strengthened and thinks he can demand more.
That appears to be the case here. The three conservative Republican Senators who supported a high level of taxes changed the President’s perception of what he could demand on taxes, and especially what he could publicly defend as reasonable if negotiations fell apart. So he backtracked and increased his demand.
At the same time, this has important consequences for those trying to understand why negotiations fell apart.
  • It shows the President was willing to risk not getting a deal for what he perceived as an improved chance of getting better than his bottom line on taxes. The President’s increased private demands on taxes contradict his public claim that he has been doing everything possible to get a deal.
  • The President said, “It is hard to understand why Speaker Boehner would walk away from this deal.” No it’s not. The deal the President offered him got worse over the course of the past week.
  • Imagine the Republican reaction if word had leaked out that the Speaker and Leader Cantor had agreed to a worse tax position than the President had offered them one week prior. There is no way they could take that risk, and the President had to know that.  The President made a new demand he had to know Republican Leaders could not possibly accept. The President toughened his position knowing it would cause the talks to fall apart, yet feeling comfortable that he had a stronger rhetorical position explaining the collapse.
  • The Gang of Six’s efforts have been characterized by some as a shining example of bipartisanship that showed a path forward toward a budget compromise. But because the Gang’s plan was left of the President on taxes, the President backtracked and caused negotiations to collapse. The Gang of Six’s substance and timing helped kill whatever remaining short-term chance there was for a big budget deal.
President Obama used the Gang of Six’s plan as an exit strategy. He backtracked on taxes, knowing this would force the Speaker to abandon negotiations, and knowing he could use the Republican Senators in the Gang to argue from a position of increased rhetorical strength in the ensuing debate. It’s a clever strategy but it belies the President’s public posture.
It seems the President’s own questions should be asked of him:
And so then the question becomes, where’s the leadership? Or, alternatively, how serious are you actually about debt and deficit reduction? Or do you simply want it as a campaign ploy going into the next election?
(photo credit: Luis Miguel Justino [7])

Related posts:

Article printed from Keith Hennessey: http://KeithHennessey.com
URL to article: http://KeithHennessey.com/2011/07/23/why-talks-fell-apart/
URLs in this post:
[1] President spoke to the press within the hour to begin framing the collapse of the negotiations: http://www.whitehouse.gov/the-press-office/2011/07/22/remarks-president
[2] video: http://youtu.be/LeNwS4ck6PE
[3] excerpts: http://www.speaker.gov/debtceiling/
[4] video: http://www.youtube.com/watch?v=DFR0uFXmcq4
[5] Dear Colleague letter: http://online.wsj.com/public/resources/documents/BoehnerLetter.pdf
[6] their plan: http://keithhennessey.com/2011/07/20/understanding-the-gang-of-six-plan/
[7] Luis Miguel Justino: http://www.flickr.com/photos/wavecult/2341348858/in/photostream/
[8] The 1997 Bipartisan Budget Agreement cut spending and cut taxes: http://KeithHennessey.com/2011/07/09/last-grand-bargain/
[9] What can President Obama learn from President Bush’s bipartisan successes?: http://KeithHennessey.com/2010/02/23/bipartisan-successes/
[10] Why the Clinton ‘95 strategy might not work this time: http://KeithHennessey.com/2011/04/10/why-the-clinton-95-strategy-might-not-work-this-time/
[11] Six good Obama economic policies: http://KeithHennessey.com/2010/02/20/six-good-obama-policies/
[12] More health care stumbling by Team Obama: http://KeithHennessey.com/2009/07/24/health-care-stumbling/
[13] How the Left could have won on taxes: http://KeithHennessey.com/2010/12/09/bad-strategy/

Law may provide Inslee $1 million boost in governor's race

Published: Jul 23, 2011 at 2:16 PM PDT


Law may provide Inslee $1 million boost in governor's race
Rep. Jay Inslee is seen during a news conference on Monday, June 27, 2011.
OLYMPIA, Wash. (AP) - A contended interpretation of Washington's campaign finance laws may allow Democratic gubernatorial candidate Jay Inslee to gain a $1 million fundraising advantage by tapping cash he raised in previous election cycles.


His campaign's reasoning, informally approved by the state's election watchdog, essentially lets Inslee ask supporters to roll their past donations forward to his current campaign - without any limits. Inslee could then ask those donors for additional money that would be subject to the state's campaign finance limits for the 2012 election cycle, providing him with a key benefit in what is already one of the nation's most closely watched races for governor.


Republican candidate Rob McKenna's campaign, responding to an inquiry from The Associated Press, characterized the money as simply "illegal."


"He's trying to claim that because it would be convenient for him to try to grab that money and evade Washington state law," McKenna campaign manager Randy Pepple said. He added that the campaign or someone else would likely challenge any formal opinion that would allow the money transfers.


Inslee, however, has already been consulting with the state's Public Disclosure Commission about the matter. PDC staff believes Inslee's interpretation is correct, and agency spokeswoman Lori Anderson said past candidates have taken similar steps.


"I don't think that's a fuzzy area," Anderson said. "It's spelled out well in our statutes and our rules."


Inslee, in his previous campaigns for Congress, has for years been stashing away extra cash from his elections. His account was virtually empty after the 2000 election, but the excess funds have grown steadily since them - topping off at close to $1.2 million last year.


The campaign said less than $200,000 was raised toward his congressional account in the current election cycle and will be subject to donor limits on contributions. Inslee political director Joby Shimomura said aides believe $1 million can be pulled forward from past cycles. They will need to check whether committees which gave him $400,000 had enough support from Washington voters, and they need to get approval from individual donors.


The cash will simply be reported on state disclosure forms as a transfer from Inslee's federal account.


PDC officials pointed to a section of state law that allows candidate's with dedicated surplus funds to roll them over to future elections for the same office without the money being subject to contribution limits. Because Inslee is running for a different office, officials also turned to a separate section of law that allows candidates who are running for a new office to get approval from donors to use past donations for a new campaign.


Those laws combined show Inslee's interpretation is correct, Anderson said.


But McKenna's campaign pointed to federal election documents that show Inslee declaring that leftover cash as part of his 2012 coffer. Pepple noted that Inslee never declared the cash as surplus money, meaning it can't be transferred, and he questioned whether a federal candidate could ever move money to a state campaign because the cash was raised under different election rules.


"It seems to me that he's got to give his federal money back," Pepple said.


Shimomura said the money from past election cycles was kept in separate bank accounts so that it did not comingle with current funds. Anderson said that was an OK way to establish them as dedicated surplus funds.


It's an issue that's in somewhat uncharted territory. The most recent federal politician to run for state office appears to be former U.S. Rep. Sid Morrison, who ran for governor in 1992, shortly before the current era of state campaign finance laws were approved.


After his 2008 campaign for attorney general, McKenna rolled an extra $40,000 over to the 2012 election cycle. Because that money was mingled with new cash, it is all subject to campaign contribution limits, according to the PDC. Anderson said that McKenna could have placed that money into a dedicated "surplus" account and got the same benefits as Inslee.


The leading candidates for governor in 2008 raised and spent more than $10 million each.

Speaker Boehner on Fox News Sunday: Debt Limit Solution Must Adhere to Principles of "Cut, Cap, & Balance"


Posted by Speaker Boehner's Press Office on July 24, 2011
Speaker Boehner appeared on Fox News Sunday with Chris Wallace this morning to discuss President Obama's request for an increase in the national debt limit and congressional efforts to ensure such an increase is not granted without spending reforms and cuts greater than any hike.  Boehner said any agreement must adhere to the principles of the House-passed "Cut, Cap, and Balance" bill (where spending cuts and reforms exceed any debt limit increase; the cause of a balanced budget amendment to the Constitution is advanced; and there are no tax hikes), and that when it comes to the president’s reluctance to accept a two-step approach to cutting spending and increasing the debt limit, the President should put the interests of our country before his presidential re-election prospects.  Below is video and several key excerpts from the interview:





Boehner: Debt Limit Agreement Must Adhere to Principles of "Cut, Cap, & Balance," Be a Two-Stage Process
:
"I am going to continue to work with my Congressional colleagues in both parties and my House Republican Conference to try to develop a framework within the 'Cut, Cap and Balance' effort that the House passed this past week. I do believe that such a framework could come together, but it is not in place as we sit here. ... There is going to be a two-stage process. It is not physically possible to do all of this in one step." 
Boehner: President Obama Is Worried About His Next Election, Needs to Get Serious About Cutting Spending:
"Chris, I know the president's worried about his next election. But my God, shouldn't we be worried about the country? We've got a budget deficit of $1.5 trillion; we're borrowing 42 cents on every dollar we spend; we have $14.5 trillion national debt. It is time to get serious about stopping the spending here in Washington, DC."
Boehner: We Need to "Cut, Cap, & Balance" to Instill Confidence In Our Economy:
"The American people are asking the question, 'where are the jobs?' ... I think it's important that we deal with our long-term problem. It's serious. Washington's spending's been out of control, and what's happened over the last two years really shows how much out of control it's gotten: trillion-dollar 'stimulus' plan; a health care plan that we can't afford; all of this extra spending that has not worked, and the spending binge has to stop. And our efforts all year have focused on trying to stop it. And as I look at trying to put together a plan with my colleagues, I am going to work within the framework of 'Cut, Cap, and Balance' because those are the three things that have to happen if we are going to instill confidence in our economy."
Boehner: Balanced Budget Amendment the Best Way to force Washington Get Spending Under Control:
"I continue to believe that a Balanced Budget Amendment is the greatest enforcement mechanism to bring Washington spending under control. ... I'm going to continue to develop a framework within the principles of 'Cut, Cap, and Balance.'"
Boehner: I Don't Want to See Default or Get Close to It:
"I understand the president feels that we need bigger government and more spending here in Washington. I believe allowing the American people to keep more of that money is the best way to create jobs and grow our economy. ... My job on behalf of the country is to find as much common ground as we can to help move the country ahead. ... I am interested in a solution to the problem that we face. I don't want to see default, I don't frankly want to get anywhere close to it."
Boehner: The House Has Done Its Work; It's Time for Democrats to "Lay Their Cards on the Table":
"Remember this ... the House has done its work. We've passed a budget. We've passed a plan. We've passed 'Cut, Cap, and Balance.' And not one time in this whole process have Senate Democrats or White House passed a budget, put a budget out there, or even put a plan out there. The conversations I was having with the president in case the Senate didn't pass 'Cut, Cap, and Balance' -- there was never any plan from the White House. The whole plan came from us. We laid out the framework. And at some point they've got to lay their cards on the table."
Boehner: Republican Majority Has Changed the Focus in Washington to Cutting Spending:
"Think about this remarkable conversation we're having. A year ago we had just passed the health care bill; we had 'stimulus' bill that was passed the year before. It was all about how much more spending Washington could do. And here we are, in the six months after a new Republican majority, and all of the discussion is about how many trillions of dollars we are going to cut. This really is a pretty remarkable change here in Washington, DC."

Secretary Geithner vs. Reality on the Economy


Posted by Michael Ricci on July 24, 2011
Our economy is not creating enough jobs, and the policies coming out of Washington are a big part of the reason why.  Don’t tell that to Treasury Secretary Tim Geithner – he of “Welcome to the Recovery” fame – who declared this morning on Fox News Sunday that the economy is “absolutely” in better shape than it was three months ago.  By just about any measure, Secretary Geithner is absolutely mistaken:

JOBS: The economy added 216,000 jobs in March, and the unemployment rate fell to 8.8 percent. The president was reportedly “emboldened” by the data. Fast forward to June, when the economy added just 18,000 jobs, and the unemployment rate rose to 9.2 percent. “Job Search Stretches Past a Year for Millions” was the headline of a piece in Friday’s Wall Street Journal.
GROWTH: The economy grew at a 1.8 percent pace in the first quarter. Last week, Goldman Sachs cut its estimates “for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%.” The analysis goes on to say that “final demand growth has slowed to a pace that is typically only seen in recessions.”

CONSUMER CONFIDENCE: Consumer confidence “fell to a seven-month low in June on continuing worries about high unemployment and stagnating wages,” according to the Associated Press.
SMALL BUSINESSES: The Christian Science Monitor reported last week that “small-business optimism has been sinking since March,” with one survey showing that “more small firms are planning to shrink their payroll this summer than expand it.”

GAS PRICES: USA TODAY reported on Friday that gas prices “have unexpectedly surged the past two weeks to a national average of almost $3.70 – a dollar higher than levels a year ago.” This news came less than a month after the Obama Administration tapped the Strategic Petroleum Reserve (SPR) in a bid to ease the pain at the pump.
From its failed “Recovery Summer” and the budget that launched the tagline “spending the future” to the recent debt limit talks, it’s become evident that White House is simply not serious about ending the spending binge that is destroying jobs and endangering our children's future.  The fact that the White House is in denial about the state of our economy is even more disconcerting.  
As Speaker Boehner said this morning, addressing our debt crisis is about what’s best for jobs and our economy – not the president’s re-election prospects.  “Washington spending's been out of control, and what's happened over the last two years really shows how much out of control it's gotten,” he said, adding “I am going to continue to work with my Congressional colleagues in both parties and my House Republican Conference to try to develop a framework within the ‘Cut, Cap and Balance' effort that the House passed this past week.”

Rick Santorum goes after Gov. Rick Perry


The State Column |  | Saturday, July 23, 2011

Former Pennsylvania U.S. Senator Rick Santorum slammed Texas governor Rick Perry on Saturday, questioning whether the potential Republican presidential candidate supports conservative values.
Mr. Perry, who said Friday that he supports a recently passed measure in New York allowing gay marriage, said states should exercise their right in the debate over gay marriage.
“Our friends in New York six weeks ago passed a statute that said marriage can be between two people of the same sex. And you know what? That’s New York, and that’s their business, and that’s fine with me,” Mr. Perry said.
“That is their call. If you believe in the 10th Amendment, stay out of their business,” the Texas Republican added.
Tweeting Friday night, Mr. Santorum questioned the claim, tweeting: “So Gov Perry, if a state wanted to allow polygamy or if they chose to deny heterosexuals the right to marry, would that be OK too?”
Mr. Perry was speaking Friday at a forum held by the Aspen Institute as the Republican Governors Association held a fundraiser and convention in Aspen.
The comment comes as Mr. Perry continues to debate whether to enter the 2012 race for the Republican nomination. Mr. Perry has said he will announce his future plans by the end of the summer as many expect the Texas Republican to pursue the nomination.
A CNN poll released Friday shows Mr. Perry nearly tied with former Massachusetts governor Mitt Romney, the presumed front-runner.
“I’m asking the right questions,” Mr. Perry said in response to questions as to whether he will run. “I’m basically asking people, ‘Do you think there’s room in this presidential election for a full-throated, unapologetic fiscal conservative? And if you do think there’s room, are you going to help?’”
Meanwhile, Mr. Santorum continues to lag in the polls and in fundraising. The Pennsylvania Republican reported a lackluster $550,000 in fundraiser for the second quarter of 2011, the lowest amount raised by the pack of Republican candidates. Mr. Santorum has been vocal on the campaign trail in Iowa about his staunch opposition to gay marriage and civil unions, setting his sights on solidifying support amongst the party’s more conservative base.

Tim Pawlenty continues focus on Michele Bachmann's migrainesGrover Norquist: Closing loopholes not the same as raising taxesSarah Palin left off of Ames Straw PollRasmussen poll: Ron Paul trails Obama by 4 percent, trails RomneyGov. Pat Quinn signs "bath salts" bill into law

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Failure to reach a 'grand bargain' on debt makes 2012 harder for Obama


 

MCCLATCHY NEWSPAPERS

WASHINGTON — Sometime this spring, President Barack Obama shifted course on the budget and started pursuing a "Big Deal" to dramatically curb runaway deficits. On Friday chances for that deal disappeared, and with it perhaps his last chance to fundamentally change the course of the 2012 elections.
Even a multitrillion-dollar package of spending cuts and tax increases would not have stopped the red ink. At best, the grand bargain being sought would have shaved about $4 trillion from deficits expected to total at least $8 trillion over the next 10 years.
But it could have changed the storyline of the nation's politics, if not its government. Obama would have been able to run for a second term claiming bipartisan success at fiscal restraint, a boast he hoped would help erase or at least blur the image of him as a tax and spend liberal.
Instead, the apparent failure of Obama and congressional leaders to reach a big deal likely means the stage is largely set for the pivotal 2012 elections. The two major parties are unable to agree on how much government people want and who should pay for it. Voters — who went for Obama and the Democrats in 2008 and for the Republicans in 2010 — will have to decide between two rival visions of government.
For Obama, who as the incumbent will be the centerpiece of the campaign, the big deal was something he came to cherish after first ignoring it.
In his budget proposal last February, Obama all but ignored pressure to propose deep cuts in government's looming deficits. His plan would have produced deficits totaling $8.5 trillion over 10 years.
While willing to negotiate long-term cuts in those deficits, he declined to propose specifics. As late as April, he rejected Republican demands that deep cuts in future deficits be tied to any increase in the debt ceiling this year.
Within weeks, though, he endorsed long-term deficit cuts tied to the increase in the debt ceiling. And he demanded that any deal be big.
"We have the opportunity to do something big and meaningful," he said in an essay written for USA Today.
House Speaker John Boehner, R-Ohio, agreed with the need to move on a grand scale to curb deficits. He even agreed this week to $800 billion in new tax revenues.
He balked, however, when Obama asked for another $400 billion in new tax revenues as a way of bringing taxes closer to the spending cut totals on the table. Republicans also faced other pressure not to compromise, at least not too much.
Conservative columnist George Will this week urged tea party activists to oppose a "splashy bargain involving big but hypothetical and nonbinding numbers" that would allow Obama to "run away from his record and run as a debt-reducing centrist." Tea partiers, Will urged, "must not help the incumbent achieve his objectives in the debt-ceiling dispute."
Whether the numbers were real or hypothetical, a sweeping budget pact likely would have helped Obama gain credibility with voters, especially the independents who are likely to decide the 2012 election — and the absence of one will make his re-election more difficult.
"Obama's pursuit of the big deal proved how important he thought such an accomplishment would be for the future of his presidency," said Steven Schier, a political scientist at Carleton College in Minnesota and author of books on budget politics
"He understood that a bipartisan solution would remove a big problem for the re-election campaign ... Now it looks like that will not happen. The whole issue of deficits and debt will be hanging over his head through the election. It's a big burden for him."
Obama wants points for at least trying to take trillions off the national credit card.
"I think this whole episode has indicated the degree to which at least a Democratic president has been willing to make some tough compromises," Obama said.
He also wants voters to blame Republicans. That may happen, particularly if he's able to convince independent voters that the Republicans blocked a big deal to protect the wealthy from paying higher taxes.
"They're more in the center," said Lee Miringoff, Director of the Marist Institute for Public Opinion at Marist College in New York, which conducts the McClatchy-Marist Poll.
"They're very concerned about the size of the debt. And they're not connected to the Republican agenda of no tax increases for the wealthy."
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