The New New Deal

by Grunwald, Michael

  “Ready to go!” the lawmakers shouted.

  Republicans, with straight faces, immediately attacked Obama for promoting partisan divisions. Pence, just a few days after rallying his colleagues with the Patton clip about attacking Nazis, told reporters he was disappointed the president had “resorted to tough political rhetoric.” Gingrich, the father of modern Republican scorched-earth tactics, criticized Obama for reducing himself to a “partisan leader.”

  Pot, kettle, whatever. The White House was learning the hard way that it was tough to send a bipartisan message in a partisan town. Obama was getting clobbered when he reached out and clobbered when he fought back. “We didn’t realize yet that the Republican game was: Take your money and give you nothing,” Gibbs says.

  Somehow, they needed to find a few Republicans willing to give them something.

  The Gang

  Senator Jim DeMint, a conservative firebrand from South Carolina, began his floor speech on the stimulus with kind words for the new commander-in-chief. Well, six kind words. “I like President Obama very much,” he said. He then showed his affection by calling the Recovery Act “the worst piece of economic legislation Congress has considered in 100 years,” a “trillion-dollar socialist experiment,” a European-style assault on freedom that would “strap a big rocket on the back of our economy and launch it all the way to Brussels.”

  “This bill is not a stimulus,” DeMint declared. “It is a mugging! It is a fraud!”

  DeMint was presenting his stimulus alternative, “The American Option,” as opposed to Obama’s presumably un-American option.234 It was not the official Republican alternative, because there wasn’t one, and if there had been, DeMint—who considered McConnell an unprincipled squish—wouldn’t have been picked to present it. DeMint’s aides candidly describe the American Option as a kind of right-wing fantasy, a $3 trillion alternative to what they saw as a left-wing fantasy. It had no spending whatsoever. Instead, it made the Bush tax cuts permanent, slashed personal and corporate tax rates, repealed the Alternative Minimum Tax, and almost eliminated estate taxes.

  The American Option got almost no attention, because it had no chance in a Democratic Senate. It was a hair-of-the-dog solution, doubling down on Bush with even bigger permanent tax cuts for the rich. What was striking was that only four Republicans opposed it: Collins, Snowe, Specter, and Voinovich. After all their rhetoric about deficits, the other Republicans voted to launch the deficit into the stratosphere. After all their focus on the three-T test, they supported a plan that clearly flunked. After all their demands for infrastructure, they voted for a plan without any.

  The DeMint amendment showed that the meltdown of 2008 had not changed the Republican approach to economics. But it did suggest that at least four senators might be open to another approach.

  Reid kept his word about an open process. On the Senate floor, Republicans not only offered amendments, they passed amendments. Johnny Isakson of Georgia, a former real estate agent, won approval for a $15,000 tax credit for home purchases. Sam Brownback of Kansas helped insert new tax incentives for car purchases. Kit Bond of Missouri got low-income housing developers a new tax credit.

  What all those additions had in common, aside from bipartisan support, were price tags that made the stimulus grow. As the Senate bill shot past $930 billion, Christy Romer was thrilled. “I was doing a little dance: Wow, we’re going to hit a trillion!” she recalls. This was what Obama’s aides had anticipated, Congress taking their stuff and adding its own stuff. The House had reserved only $300 million for high-speed rail, but Rahm and Biden pressured Senate leaders to think much bigger, reminding them that Las Vegas (in Reid’s state), Chicago (in Durbin’s), New York (in Chuck Schumer’s), and Seattle (in Patty Murray’s) could all use faster trains.

  “At one point, we were close to $40 billion, $50 billion,” Rahm says. “Everyone in the leadership was for it, because they could see a future for themselves in it.”

  But to the moderate Republicans whose votes were needed to pass a bill—and several moderate Democrats as well—bigger was not better. If a deal was going to happen, the stimulus was going to have to shrink. That’s why the Senate floor action was largely a sideshow. Starting on Wednesday, February 4, the real action was on the third floor of a building appropriately named for Everett Dirksen of a-billion-here-a-billion-there fame. In a committee hearing room, at least a dozen Democrats and half a dozen Republicans—Biden’s five targets plus Murkowski of Alaska—tried to hammer out a compromise to slice over $100 billion out of the stimulus.235 Dirksen would have agreed: That was real money.

  The consensus in the room was that the final package should be below $800 billion, and should have a much tighter focus on jobs. Nobody had an economic theory to justify $800 billion, but it was the minimum Obama had said was needed to avoid a calamity, and more just sounded like too much.

  “We thought a number in the 700s would be more palatable,” Specter explains. “You know, a trillion seems scary. Even $900 billion, it looks so big.”

  Disgusted liberals still fume that Specter and his fellow Republican moderates—“President Collins and President Snowe”—dictated the size of the stimulus. There’s some truth to that. Obama needed their votes, and they wouldn’t accept more than $800 billion. But many of the Democrats in the room felt just as strongly about an $800 billion cap. Obama needed the votes of Ben Nelson, Evan Bayh, Claire McCaskill of Missouri, Mary Landrieu of Louisiana, Mark Begich of Alaska, and other centrists in his party as badly as he needed President Specter’s.

  “The overall number was getting way too big to manage,” says Begich, who had just been elected and did not want to give a reckless first impression. “The goal was to get a lid on it. We said, under 800, no more, we cannot go above that.”

  The group’s leaders, Collins and Nelson, were veterans of the bipartisan Gang of 14 that had cut a deal to avoid filibusters of judicial nominations in 2005. Their new gang of 18 or so was less formal, and some members dropped out quickly. Kent Conrad, the leading Democratic deficit hawk, wanted a more focused bill, but he thought the gang’s obsession with a smaller bill that would create a smaller deficit was economically ignorant. “I left. I thought they were going the wrong direction,” Conrad says. Joe Lieberman agreed; despite his well-earned reputation for wandering off the Democratic reservation, he thought the Recovery Act was terrific. He only remained in the gang because Reid had asked him to stay close to Collins, his friend and partner on the Homeland Security Committee.

  “Personally, I didn’t think the numbers were too high at all,” Lieberman says.

  On the other side, Mel Martinez thought the stimulus ought to be sliced in half, stripped of its social spending, and rewritten entirely. When it became clear the gang merely planned to trim the existing bill, he withdrew from the negotiations. Murkowski soon followed him out the door, leaving the four Republicans who had opposed the DeMint amendment as the only potential stimulus supporters.

  “People were asking: Mel, what can we give you to sign on? I’m saying: You can’t give me anything,” Martinez says.

  In general, the remaining gang members favored more infrastructure and less state aid, even though state aid would save jobs much faster than infrastructure would create jobs. The most contentious discussions centered on education, where the Republicans wanted huge cuts. Nelson, a conservative Democrat who looked like an overgrown garden gnome, was also worried that temporary expansions of Pell Grants and special education funding would become permanent. Collins and Voinovich were particularly adamant that the federal government didn’t belong in the school construction business at all.

  “When I was a governor, I spent a couple billion dollars rebuilding schools,” Voinovich said. “Why the hell should the feds do it?”

  Otherwise, the group tried to chip away one item at a time. Begich, the former mayor of Anchorage, argued that grants to help cities hire cops wouldn’t spend out as quickly as advertised. “Ain’t no way in he
ll,” he said. Begich also sparred with Lieberman over the Homeland Security headquarters, and with Blanche Lincoln over her catfish farms. “We hate fish farming in Alaska,” he joked. Most of the gang wanted to get rid of certain cats and dogs, like the State Department cyber-security and the Coast Guard icebreaker. Other items were more contentious, like child care subsidies and a historic preservation fund.

  The Washington press corps showered the gang members with the ecstatic praise it always lavishes on politicians who declare a pox on both houses.236 Center-left Washington Post columnist Dana Milbank described them as the Senate’s workhorses, in contrast to the partisan showhorses who “prefer drama to lawmaking.” Center-right New York Times columnist David Brooks wrote that the fate of the Obama presidency would depend on whether he embraced the gang’s moderation or his party’s orthodoxy, whether he joined a broad bipartisan coalition or merely picked off a few Republican votes.

  But by the time the Brooks column ran on Friday, his beloved gang wasn’t a very broad bipartisan coalition. Voinovich dropped out after a hard sell from party leaders, leaving just the three Republican moderates willing to deal. There wouldn’t be any difference between embracing the gang and picking off a few votes.

  “The Republicans were dropping off, one by one,” Specter says. “The leadership was putting a lot of pressure on us to say no. I mean, a LOT of pressure.”

  The Brooks column reflected the up-is-down media narrative about the stimulus, completely mischaracterizing the bill, the president who supposedly had little to do with the bill, and the bipartisan statesmen who were supposedly fixing the bill. For example, Brooks criticized the Recovery Act for shoveling money into education programs and infrastructure projects without reforms, while hailing the gang as the true reformers. In fact, the Senate bill included a mind-boggling $15 billion for the Race to the Top school reforms—and a draft proposal that Nelson and Collins circulated among the gang eliminated every dime. The bill also included $5.5 billion for the innovative TIGER infrastructure grants—and the Nelson-Collins plan eliminated them as well.

  The gang members didn’t seem to have a theory of the case, other than a desire to split the difference between the two parties, distance themselves from Speaker Pelosi, and bask in the centrist glow of Beltway pundits.

  “It was all driven by Washington stupidity—not what the economy needed, just this arbitrary number of 800,” Rahm says. “If you were at 801, you were unreasonable. If you were at 799, you were a very thoughtful person.”

  The moderates called themselves “the jobs crew” and claimed they were on the prowl for fake stimulus, but their main target was state aid that aced the three-T test. They wanted to gut school construction but add highway construction. They wanted to erase science grants but boost environmental compliance grants. They proposed to slash prenatal screening, child nutrition, immunizations, and aid to crime victims, while adding spending for redeveloping contaminated brownfields that were rarely shovel-ready.

  “There was, in my view, no rhyme or reason,” one Reid aide says. “But you can’t argue. You’re not going to have an Economics 101 debate with Senator Nelson.”

  That’s because Reid needed Nelson’s vote. He’d been herding squirrels in the Senate long enough to see where this was going. In public, Reid kept insisting he wouldn’t let the gang hold the president of the United States hostage. In reality, he knew the ringleaders could demand any ransom they wanted. While the gang was deliberating, Obama invited Specter, Collins, and Snowe—plus Nelson, the most troublesome Democrat—to the Oval Office for one-on-one powwows.

  He needed them, and they knew it.

  Specter had only two ransom demands. First, the stimulus had to cost less than $800 billion, because—well, because. That was the hard limit for the three remaining Republicans, and for quite a few Democrats. Second, Specter wanted $10 billion in the bill for NIH, because medical research was underfunded.

  “Are you fucking kidding me?”

  Rahm seemed to think $10 billion sounded high.

  “What the fuck does a vote cost around here?”

  “Snarlin’ Arlen” was a stubborn coot, a former prosecutor who lacked the backslapping social graces of his fellow politicians. This isn’t a negotiation, he said. This is my bottom line. No, I won’t take $8 billion. No, there’s nothing to discuss.

  “How the fuck am I supposed to keep this under $800 billion if I have to give every senator $10 billion?” Rahm screamed.

  The Recovery Act was a complex bill, and the negotiations to get it through the Senate were complex, too. There were a lot of moving parts, and the different players had different priorities. But as they started cutting the deal in Reid’s office that Friday, February 6, the bottom line was pretty simple. The Democrats wanted a stimulus, and they couldn’t get one without Specter, Collins, and Snowe.

  Lieberman was in the room to support Collins—she joked that she needed a Jewish lawyer—and he watched Specter’s shakedown with a mix of amusement and admiration. Rahm had all the logic on his side, but Specter had all the power.

  “Everyone’s saying: ‘Come on, Arlen. Get real.’ But he wouldn’t budge,” Lieberman says. “He negotiated the most noble quid pro quo I’ve ever seen. It wasn’t like he was asking for some water project. It was NIH!”

  The Republican trio clearly had all the leverage; Reid privately called them “the king and two queens.” And along with Nelson, they maximized their leverage by agreeing that unless all four of them were satisfied, none of them would support the stimulus. That was the Democratic nightmare scenario: Republicans would get to say the only thing bipartisan about the Recovery Act was the opposition, Obama would look impotent, and the economy would crater. Rahm didn’t like the idea of negotiating at gunpoint, and he really didn’t like the idea of a few preening senators telling the leader of the free world what to put in his recovery plan. But unless somebody could figure out how to get Al Franken seated, Rahm didn’t see a route to 60 votes that didn’t involve serious ass-kissing followed by serious capitulation.237

  “You’re confronted with what was possible versus what was ideal, with the prospect of inaction completely unthinkable,” David Axelrod says. “So yeah, the house was burning, and we had to haggle with a handful of senators over the cost of the hose.”

  Reid knew the time for posturing was over. It was time to pay the kidnappers and free the hostage.

  “Harry basically said: How do we get your vote?” recalls Senator Byron Dorgan of North Dakota, a member of Reid’s leadership team who attended the talks. “It was just: What are you willing to support? We had to get to yes.”

  By late evening, the group had hashed out $110 billion in cuts, about half in education, with a final goal of slimming the package to $780 billion. Collins insisted on deleting the entire $16 billion for school construction, a presidential priority. Lieberman tried to broker some middle ground, but Collins wouldn’t budge. “Look, she wasn’t going for it,” Lieberman says. “So what could we do?” Collins also declared pandemic flu preparations a nonstarter, but Lieberman persuaded her to shift that $870 million to community health clinics rather than kill it outright.

  “I hope they have that on my list of good deeds when I get to the gates of heaven,” he says.

  The deal also whacked over $40 billion in state education aid, $8 billion for energy efficiency retrofits of federal buildings, and $6 billion in preventive health programs. Rahm managed to save Race to the Top, but its funding was cut in half. There were also significant cuts to food stamps, Head Start, health care for laid-off workers, and other antipoverty spending. High-speed rail was whittled to $2 billion—more than the House bill, but a long trip from $40–$50 billion.

  “We’ve trimmed the fat, fried the bacon, and milked the sacred cows,” Nelson crowed on the Senate floor.

  Dorgan and Durbin, the New Deal liberals in the room, didn’t see what was so fatty about food stamps and preventive care. They thought slimming the stimulus would ju
st lop off jobs and hurt people in need. But they didn’t have three votes in their pockets, so they had to accept whatever the swing senators would accept. They consoled themselves with the thought that $780 billion was still massive.

  “Yeah, I would have liked it even more massive. But there simply wasn’t room for anything bigger,” Dorgan says.

  Even after the deal was done, Rahm had a last minute freak-out: Are we sure Specter is on board? “He went radio silent,” Rahm recalls. He called Obama: We can’t find Specter! He called Biden: Can you find Specter? “I went to sleep not sure where he was, physically or on the vote,” Rahm recalls. But at six the next morning, he checked his Black-Berry and found a note from the vice president: Specter was okay. At that morning’s intelligence briefing, Rahm and Biden exchanged gleeful high fives, as the national security team wondered what exactly in the intel had gotten them so excited.

  The Senate passed the slimmed-down bill, 61–37, with still-Senator Gregg abstaining and not-yet-Senator Franken cooling his heels in Minnesota.238 Pale and weakened, Ted Kennedy had to be flown in for the vote on a government plane, because no Republicans would risk the wrath of the right by voting his proxy. At least Obama could finally point to a bipartisan deal, with support from the Chamber of Commerce as well as the AFL-CIO, the National Governors Association as well as the U.S. Conference of Mayors, not to mention advocates for seniors and kids, the poor and the environment, technology and manufacturing.

  Nevertheless, Washington Republicans continued to dismiss the stimulus as partisan giveaway to Democratic interest groups. On the Sunday political shows, where he would remain a near-permanent fixture, John McCain scoffed that Obama would need more than three Republicans on his side to prove he was serious about bipartisanship.239 Evidently, governors, mayors, and cabinet members didn’t count.