Geithner Book: When Obama Blew a Dog Whistle and a Budget Deal

In his forthcoming memoir, former Treasury Secretary Timothy Geithner captures a moment at which President Obama faced a choice between forging ahead with a promise to seek GOP compromise on the nation's debt crisis or bow to pressure from his liberal base.

Obama chose surrender.

This from Stress Test: Reflections on Financial Crises, as excerpted by Politico's Playbook:

At a meeting early in 2011 in [Chief of Staff Bill] 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. 

The quote assigned to Plouffe reflects Obama's nuanced view of the U.S. budget during his 2008 campaign and the early days of his presidency—that fiscal sanity was not only an acceptable part of a progressive agenda, it was a necessary element of any strategy to invest in the 99 percent and build the public's trust in an activist government. As late as his reelection campaign, Obama argued publicly that "the biggest driver of our long-term debt is the rising cost of health care for an aging population" and said "those of us who care deeply about programs like Medicare must embrace the need for modest reforms—otherwise, our retirement programs will crowd out investments we need for our children, and jeopardize the promise of a secure retirement for future generations."

But there were dissenting voices in 2011, according to Geithner:

Dan Pfeiffer,the president's communications director [now senior adviser] 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.…"

I remember during one Roosevelt Room prep session before I appeared on the Sunday shows, I objected when Dan Pfeiffer wanted me to say Social Security didn't contribute to the deficit. It wasn't a main driver of our future deficits, but it did contribute. Pfeiffer said the line was a "dog whistle" to the Left, a phrase I had never heard before. He had to explain that the phrase was code to the Democratic base, signaling that we intended to protect Social Security.

Obama decided not to split the Democrats—or to seriously seek compromise. Yes, he did propose a modest adjustment of entitlement spending in exchange for tax cuts on a "grand bargain," but that now appears to have been a mere signal (or dog whistle) to debt-fretting independent voters. It was a game. Liberals played their part and objected to the reforms. Republicans played their part and said they would never raise taxes. Despite advice from Geithner, fellow Democrats, and top Republicans who recognized the GOP negotiating ploy, Obama seized on it as an excuse to surrender to his base.

As late as a year ago, just a few months after Obama shoved a reelection tax hike down their throats, the GOP leadership was still open to compromise. A budget deal would be hard, but not impossible, to strike. The situation required an able, nimble partner in the White House, a leader who could help the GOP leadership reach and sell a deal to their conservative base. In March 2013, I wrote of the GOP: "Don't mistake a negotiating position for reality. House Republicans tell me they are open to exchanging entitlement reform for new taxes—$250 billion to $300 billion, or approximately the amount that Republican Sen. Pat Toomey of Pennsylvania proposed raising over 10 years under the guise of tax reform."

The numbers were specific because the possibility of a deal was real. But the White House, quite literally, laughed at it. The president had already bowed to his base, given up on compromise, and damaged his legacy.

Like a political memoir, Geithner's accounts need to be taken with a grain of salt because personal agendas can shape memories. For instance, he quotes Republican economic adviser Glenn Hubbard as saying, "Of course, we have to raise taxes" as part of a broader deal based on the the Simpson-Bowles deficit reduction plan, "we just can't say that now."

Hubbard, now the dean of Columbia Business School, told Politico that Geithner made up the story."'It's pretty simple. It's not true," Hubbard said.

I don't know whether Geithner is lying about his conversation with Hubbard. I do know a number of top Republicans who said they were open to cutting a tax-and-cut deal with Obama, and who said they privately told the White House, "We just can't say that now."

The Republicans may have been lying, but we'll never know. Because Obama wasn't listening.