Stress Test

  Some critics would later complain that we should have insisted on increasing the federal debt limit as part of the lame-duck deal, so that we wouldn’t run out of borrowing authority in 2011, but neither party’s leadership on Capitol Hill had any interest in doing that after the Republican landslide. I thought it was still a good deal, and the White House asked me to help brief Hill Democrats about it and defend it on the Sunday TV shows.

  Instead, I got to spend some quality time at the hospital getting a kidney stone removed. Pete Rouse sent Mark Patterson a note with his condolences: “Ask Tim which is more painful—the kidney stone or the tax deal briefings.” My ever-protective daughter, Elise, visiting me in the hospital from Stanford, tried to fend off my constant work-related interruptions so I could get some rest. At one point, my lead Secret Service agent poked his head through the door to inform me that POTUS was on the line.

  “Who the fuck is POTUS?” Elise asked with exasperation.

  She agreed to let me take the call after we explained the acronym of the President of the United States.

  PETER ORSZAG and Christy Romer left the White House in mid-2010, and Larry would return to Harvard at the end of the year. That fall, while waiting for a meeting with the Chinese during a session of the UN General Assembly, President Obama and I discussed their possible successors. I said he should think about a successor for me as well. We had defused the financial crisis and passed financial reform, my overriding priorities at Treasury. Now we were heading into a fiscal moment, and I thought he could use a secretary who knew the politics of the budget and the Hill better than I did. I also felt burned out and ready to leave.

  I wanted a normal life again, without a Secret Service detail, with fewer strangers telling me I looked taller on TV. It was weird being a public figure; once while I was on vacation waiting to catch a wave, a fellow surfer asked if I thought he should buy yen at eighty. Carole was uneasy with people staring at us when we went grocery shopping. She hated the Beltway game, the constant criticism, the politicization of everything. She deeply admired the President and was fine about attending the occasional White House event—especially if there was music—but that was never going to be her scene. She was so offended by the thought of getting treated differently because of my position that after she finished her young-adult novel, If Only, she considered publishing it under her maiden name. Ben and Elise also had mixed feelings about my job; they had learned to be wary of classmates who seemed too interested in their father’s fame. Carole and I had told Ben he could go back to Larchmont for his senior year if he wanted, and I didn’t want to break another promise to Carole that we wouldn’t do the long-distance commuting thing again.

  I gave the President a long list of potential replacements for me. Jack Lew, who had just replaced Orszag as budget director, was an experienced fiscal negotiator. Erskine Bowles would have credibility with many Republicans, which would be important with a divided government. I even suggested asking Hillary Clinton to take her star power from State to Treasury; among her many strengths, she had an underappreciated ability to reach across the aisle. But the President said he still needed my financial crisis experience. He was worried about Europe and the risk of the unexpected; I’m sure he also wanted to avoid a protracted confirmation fight.

  I kept pushing Rahm to start vetting candidates, knowing the process would take time, but Rahm left the White House that fall to run for mayor of Chicago. In my first meeting with his successor, Bill Daley, I told him he needed to start looking for my replacement right away.

  “They told me my top priority was to get you to stay,” Daley said.

  As we entered 2011, I continued to remind the President he needed a new secretary, but my reminders never seemed to spur action. Daley used to joke about making me wear an ankle bracelet. To the surprise of the pundits who had pegged me as a short-timer after my rocky start, I was now the only remaining principal from the President’s original economic team. I was glad to see my indefatigable counselor, Gene Sperling, take over at the National Economic Council, but I knew I’d miss my daily debates with Larry. We had our differences during the crisis, and nothing was ever easy when he was around, but he was the most talented policy thinker I knew. I felt bad that the Fed chairmanship hadn’t worked out for him. The job would open up again in 2014, but when the President, on my recommendation, nominated my excellent former Fed colleague Janet Yellen to be vice chair in April 2010, Larry mused that she was certain to be the next Fed chair, because she would be too compelling a choice to pass over—another correct prediction.

  The White House would be a very different place without Rahm, whose energy and drive had set the rhythm of our first two years; Larry, who had enlivened every economic meeting; and Axelrod, who was returning to Chicago to oversee the President’s reelection campaign. My press aides started sending me clips about my newfound influence, but I felt like I had enjoyed a remarkable degree of influence and deference from the beginning.

  I wasn’t a close friend of the President’s, but he seemed to trust and value my judgment. He had stuck with my financial crisis strategy despite its political costs. I think he appreciated that I was careful not to overstate my conviction or overstep my boundaries. We had a standing meeting every week, but I gave up my slot when I had nothing important to discuss, which was apparently rare in a city where presidential face time is a measure of your worth. He seemed to want to know what I thought, even when he knew that what I thought would mean trouble. He subjected my judgments to withering debate, but he gave me a lot of latitude; some might say too much.

  For all the personnel shifts inside the administration, the big change in Washington would be the new balance of political power on Capitol Hill. If it had been tough moving the President’s agenda without a filibuster-proof majority in the Senate, it would be nearly impossible without control of the House. Republicans now believed they had a mandate to roll back the Obama presidency, starting with the $100 billion in immediate spending cuts they had promised in their campaign “Pledge to America.” And they had some leverage we couldn’t just wish away. We would need their cooperation in the spring to pass a budget, or else the federal government would shut down. We would also need their cooperation in the summer to raise the debt ceiling, or else the federal government would default on its obligations, ravaging the full faith and credit of the United States. These would be real challenges, because many new House Republicans were Tea Party champions who had promised to fight the President on everything. Some saw default not as an epic catastrophe that would destroy global confidence in the United States, but as a desirable wake-up call for a nation that had lost its way. And Republicans who weren’t true believers had to worry that insufficient hostility to the President would earn them a Tea Party primary challenger.

  A week after the midterms, the President and I endured a dismal G-20 summit in Seoul; the press coverage was all about waning American influence. In the car between meetings, we discussed the dark political landscape at home. He was somber and reflective, chastened but not discouraged. I urged him not to limit his agenda to fit the constraints of divided government, to lay out a broad vision for our long-term economic challenges, to push back against the deflating sense that they were beyond our ability to solve. We couldn’t cede the initiative to the Republicans. I didn’t know if we could negotiate a bipartisan long-term budget deal that would get the nation on a sustainable fiscal path while advancing his agenda of public investments and equal opportunity. But I thought it was worth a shot, and I didn’t see how it could happen unless he laid out his priorities on tax reform, entitlement reform, and growth. Yet again, plan beat no plan.

  “You’re still in charge,” I said. “We’ve got to have a view.”

  The President listened, but politically, he had a very tough needle to thread. He would need Republican support to pass a budget, but Speaker Boehner would need the support of the ascendant Tea Party wing of his caucus to do just about anything, and Democrats
would be unlikely to support anything remotely attractive to the Tea Party. The leaders of both parties were saying they didn’t want a government shutdown or a default, but it wasn’t clear how we would find common ground to avoid them.

  At a meeting early in 2011 in 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. In our fiscal strategy discussions, Dan Pfeiffer, the President’s communications director 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.”

  OUR NEGOTIATIONS with Senator McConnell over the Bush tax cuts had gone surprisingly well. Our initial negotiations with Speaker Boehner over the 2011 budget would go well, too. In retrospect, they probably went too well.

  I kind of liked Boehner. He had an easygoing manner, and he seemed lonely in his new position as a pragmatic conservative surrounded by extremists. He had been in the House leadership when Speaker Gingrich shut down the government in 1995, a political disaster that helped ensure President Clinton’s reelection, and he didn’t want to replay that movie in 2011. But the House Republican caucus was dominated by right-wing bomb-throwers who craved a confrontation; they saw Boehner as an overly accommodating establishment figure. Boehner sometimes warned us his caucus didn’t believe in compromising with the President, and might turn on him if he cut a deal. I’m sure he emphasized these pressures as a negotiating stance, pushing us to make concessions to get the Tea Party insurgents off his back. But the pressures were real. House conservatives blasted his initial demand for $32 billion in spending cuts as grossly inadequate, and many in Washington believed that House Majority Leader Eric Cantor wanted his job.

  That March, we twice approached the brink of a government shutdown, which would have furloughed hundreds of thousands of public employees. Both times, Congress passed last-minute budget extensions of a couple weeks, after House Republicans attached modest spending cuts as a kind of “toll.” But Boehner was losing control of the process. House conservatives started demanding extraneous ideological add-ons to defund Planned Parenthood and bar the Environmental Protection Agency from regulating carbon, ensuring that another short-term extension couldn’t pass the Senate. By early April, it was choosing time: either a budget deal with Boehner for the last six months of the fiscal year or else a shutdown.

  I told Daley and Lew several times that we should seriously consider refusing the Republican demands for spending cuts and let them shut down the government. It would be an unpleasant and costly outcome, but what really scared me was the prospect of Republicans forcing the United States into default that summer, an unthinkable outcome. I thought a shutdown might let the Tea Party vent some of its fury, while giving Boehner some obstructionist credibility with his caucus so he could behave responsibly over the debt limit. But there was concern inside the White House that a high-profile standoff over spending after the Tea Party landslide could backfire politically, making the President look like he didn’t get it. And after a few rounds of negotiations, the funding gap between Boehner and the administration was remarkably small. It would have been tough to justify a shutdown over a few billion dollars in spending. A political confrontation could have been helpful if it had exposed the Tea Party’s unreasonable demands, but in this case, the Tea Party wasn’t getting its way.

  Late at night on April 9, the White House and Republican leaders reached a last-minute deal to cut $38 billion out of the 2011 budget. President Obama and Speaker Boehner both hailed the agreement as the largest spending cuts in U.S. history. Liberals accused us of getting rolled and selling out, complaining that we had cut more than Boehner’s initial request. But in reality, the cuts were very gentle, and many of them looked like accounting fictions; my team called them “air sandwiches.” A few days later, the nonpartisan referees at the Congressional Budget Office concluded that the deal would reduce actual 2011 spending by only $352 million, hardly a revolutionary reduction in the size of government.

  House conservatives went ballistic. Boehner had delivered less than 1 percent of the cuts they promised in their Pledge to America. He would now have to be much more aggressive to prove his right-wing bona fides to his caucus, which was not what we wanted as we approached the much higher stakes of the debt limit negotiations. We failed to break the Republican fever in the spring, so Boehner would face even more pressure to drag us to the edge of Armageddon that summer.

  NOW IT was time for the President to lay out a more comprehensive long-term economic plan, as we had discussed on and off since Seoul. He planned to announce his fiscal framework in a speech on April 13. I liked the draft that went to the President—except for one structural problem. The speech would include a detailed critique of the Republican fiscal vision enshrined in Paul Ryan’s House budget, describing its combination of upper-income tax cuts with deep spending cuts to vital programs as virtually un-American. Only after that would the President propose his own much more balanced plan. I told the President I thought he should reverse the order.

  “You should say what you’re for first,” I said. But he liked the order as it was.

  The President did begin his speech at George Washington University with a summary of his we’re-in-this-together philosophy: free markets as our engine of prosperity, plus government investments to do as a nation what we can’t do individually—defend and educate our people, build and repair roads and bridges, finance programs such as Medicare and unemployment insurance that protect us all from hard times or bad luck. He also recounted how the surpluses of 2000 became trillion-dollar deficits in 2009, thanks to President Bush’s tax cuts, two wars, and a prescription drug benefit that were never paid for, followed by the Great Recession.

  He then pivoted to a withering attack on the Ryan budget—not its goal of $4 trillion in savings over ten years, the same as Simpson-Bowles, but its path to get there, including a 70 percent cut in clean energy funding, a 30 percent cut in transportation, and a 25 percent cut in education: “These aren’t the kind of cuts you make when you’re trying to get rid of some waste,” the President said. “These are the kind of cuts that tell us we can’t afford the America that I believe in and I think you believe in.” He denounced Ryan’s effort to transform Medicare from a guaranteed entitlement into a voucher program, while slashing Medicaid for low-income families and kids with autism and Down syndrome. “These are the Americans we’d be telling to fend for themselves,” he said. The President saved his harshest criticism for the $1 trillion in new tax breaks, which had been conveniently omitted in press stories that lionized Ryan’s plan as “serious” and “courageous.”

  “There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires,” the President said. “I don’t think there’s anything courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.”

/>   Ryan was sitting in the front row, so the press focused on the President’s attacks, suggesting he had been partisan and rude. It barely noticed the President’s plan.

  But it was a sensible plan. It adopted the Simpson-Bowles goal of $4 trillion in savings while back-loading its deficit reduction to protect the recovery. It called for a balance of tax increases as well as defense and nondefense spending cuts, in contrast to the Republican insistence on nondefense spending cuts alone. It aimed to save $500 billion through Medicare and Medicaid reforms designed to rein in health care costs, but the President vowed to protect seniors and other vulnerable citizens from sharp benefits cuts. He also pledged to invest in research, infrastructure, education, and other areas important to America’s competitiveness.

  The President acknowledged the widespread skepticism that Democrats and Republicans could work out a long-term deficit reduction deal. “After a few years on this job, I have some sympathy for this view,” he joked. But he announced that Vice President Biden would host a series of negotiating sessions with leaders of both parties to try to hash something out. “Americans deserve and will demand that we all make an effort to bridge our differences and find common ground,” he said.

  That’s what we wanted. The question was: What did Republicans want?