Updated Friday, July 25, 2014 as of 7:26 AM ET
Practice - Regulatory/Compliance
Obama’s Warning to Boehner Set Congress on Budget Deal Path
by: Roxana Tiron and Kathleen Hunter
Thursday, January 3, 2013
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(Bloomberg) -- President Barack Obama had a warning for John Boehner at a Dec. 13 White House meeting: Stop opposing higher tax rates for top earners, or the president would dedicate his second term to blaming Republicans for a global recession.

The next day, the House speaker called the president and said he was open to a tax-rate increase on annual income of more than $1 million.

It was the first time since 1990 that a Republican leader agreed to a tax-rate increase, and it marked a breakthrough in the talks to avert more than $600 billion in tax increases and spending cuts set to begin in January.

While the budget deal Obama and Boehner were negotiating fell apart, the speaker’s concession on tax rates ultimately allowed Vice President Joe Biden and Senate Minority Leader Mitch McConnell, a Kentucky Republican, to craft the last-minute plan Congress passed Jan. 1.

Before the final deal, though, Boehner unsuccessfully tried to go it alone. He adopted “Plan B” as the name of his proposal to increase taxes for income above $1 million and tried to persuade his Republican caucus to pass it.

“You are sending me to the White House and to the Senate and to the American people naked,” Boehner told House Republicans after Plan B collapsed from lack of support, said Representative Steve LaTourette, an Ohio Republican.

On the Sidelines

Both Obama and Boehner ended up on the sidelines of the eleventh-hour formula for averting the so-called fiscal cliff. Their failed talks deepened a mistrust that may hinder their ability to enact changes in immigration laws, the tax code and entitlement programs -- achievements that would enrich both their legacies.

“The speaker doesn’t hate the president, but he doesn’t find their negotiating sessions to be very productive,” LaTourette said in an interview.

Obama and Boehner’s inability to agree shifted the focus to the Senate. McConnell and Biden forged a plan on New Year’s Eve that both chambers passed the next day, hours after tax increases were set to begin for U.S. workers. The agreement permanently extends the George W. Bush-era tax cuts for married couples’ income of less than $450,000.

Partisan animosity permeated the talks. The speaker’s frustration boiled over Dec. 28 when Boehner told Senate Majority Leader Harry Reid to “go f--- yourself” just steps from the Oval Office, according to two people familiar with the exchange.

Other incidents during the talks were described by Democrats and Republicans associated with Congress and the Obama administration who witnessed the events. They sought anonymity to describe the private talks. Obama signed the measure into law late yesterday.

Economic Growth

The day after the Nov. 6 election, in which Obama won a second term and Republicans kept their House majority, Boehner said Republicans might agree to new revenue from a tax system that would generate faster economic growth and be accompanied by cuts to entitlement programs.

McConnell said on election night that Republicans would meet Obama “halfway” if the president moved “to the political center.”

Obama’s Insistence

Obama, who campaigned on a promise to raise tax rates on income of more than $250,000, said Nov. 9 that he would insist on implementing that plan. A week later, when he met with Boehner and the other three congressional leaders at the White House, Obama said significant entitlement changes, a tax overhaul and an increase in the federal debt limit would have to be part of a deal to reduce the deficit.

Boehner at the time was optimistic that his negotiations with Obama would be productive. Yet as the talks began, mistrust re-emerged.

At a subsequent Capitol Hill meeting, the president’s top congressional liaison, Rob Nabors, told Boehner’s negotiating team that he was reluctant to provide a paper copy of Obama’s deficit-reduction offer because he didn’t want to be laughed out of the room, said two people familiar with the talks, speaking on condition of anonymity.

Though White House officials viewed it as a serious proposal, a third person familiar with the talks said the officials were concerned that the offer would be publicly leaked and create another setback.

$1.6 Trillion

The proposal sought $1.6 trillion in new tax revenue -- twice what Republicans said they would consider -- and would have given the president unilateral authority to raise the debt ceiling.

When Treasury Secretary Timothy Geithner met with McConnell to present Obama’s proposal, McConnell and his staff deemed the offer so ridiculous that he and others in the room laughed out loud, according to a person familiar with the meeting.

“Here we are at the 11th hour, and the president still isn’t serious about dealing with this problem,” Boehner later said.

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