The GOP's Failed 'Plan O': Inside the Fiscal-Cliff Saga

Last fall, as members of Congress were home campaigning and America?s attention was focused on the contest between Barack Obama and Mitt Romney, top aides to House Speaker John Boehner huddled to devise a winning strategy for the looming fiscal cliff.

Chief of Staff Mike Sommers, policy director Brett Loper, and communications chief Dave Schnittger gathered each week in H-128, the high-ceilinged ?Board of Education? room, one floor beneath the House chamber, where the legendary Sam Rayburn had hosted his cronies for whiskey and gossip during his long reign as speaker. It was in that room that, in 1945, then-Vice President Harry Truman learned of Franklin Roosevelt?s death and felt, he said later, like ?the moon, the stars, and all the planets had fallen on me.?

Boehner?s aides prepared two blueprints: a ?Romney Wins? and an ?Obama Wins? scenario. A Romney win ? Plan R - would generate less pressure: The new Republican president would make his thinking known, and Boehner would follow his lead. But the calculus changed, fundamentally, if Obama won reelection and the Senate stayed in Democratic hands. Boehner would then be the nation?s leading Republican elected official. It would be up to him to counter the president, oppose huge tax hikes, and resolve the fiscal cliff. He would have to act boldly--and quickly.

This is the story of Plan O ? the congressional Republicans? failed attempt to meet the challenge of Obama?s victory. It begins in September and ends in the fiasco of the Christmas season, when the speaker was repudiated by his own troops and had to pull his last, desperate solution from the House floor, leaving Senate Republican Leader Mitch McConnell to cut the best deal he could with dramatically diminished leverage.

In the end, despite all the planning and forethought, Boehner would stand almost helplessly by as the nation plunged off the fiscal cliff and a bipartisan coalition of Democrats and centrist Republicans voted to give Obama the big tax hikes he demanded on the wealthy. House Republicans saw the worst of all worlds: They failed to save tax cuts for the wealthiest Americans, put no new checks on government spending, and showed themselves a fractious and disorganized opposition party, the governance of which in the new Congress will prove to be a serious test.

The speaker, however, had been fighting a two-front war all along. On one front was Obama, invigorated by an election mandate, a united party, and advantageous political terrain. On the other front was the conservative bloc of the House Republican majority, resolute in its opposition to Obama and higher taxes, pressured by right-wing political interest groups and media, and fearful of being challenged in the party primaries.

Looking back, it appears that Boehner and his team underestimated the strength and conviction of the forces he faced on both fronts, or ? recognizing the brutal odds - plunged ahead with a high-risk plan while knowing he would likely lose.

Game Planning

The fiscal crisis facing Washington was a noxious mix of ingredients of expiring tax provisions and automatic spending cuts that were brewed over time with this much in common: a witching hour on New Year?s Eve. As the two parties confronted each other on the morning after Election Day, the political calculus was different at each end of Pennsylvania Avenue.

After losing eight seats in the 2012 election (and saving their majority, in large part, via redistricting), Boehner and his troops had to plan for 2014. A string of polls showed that most Americans were inclined to blame Republicans for gridlock on the Hill, undermining the speaker?s threats to use the risk of not patching the alternative minimum tax, or the turmoil surrounding the federal debt limit as leverage. If Republicans emerged from the crisis with a reputation as hidebound obstructionists, shouldering the blame for a ruined economy, they could suffer at the polls in the 2014 midterms.

But many members of the Republican caucus worried more about staving off a challenger in the party primary than the threat of being defeated by a Democrat in the general election. No more than 15 to 18 House Republicans won election in congressional districts that were carried by Obama on Election Day, according to an analysis by The Cook Political Report. There were other reasons for Republicans to be confident, as well. In all the off-year elections in the sixth year of a presidency since World War II, the opposing party has historically picked up seats ? and never lost the House.

Obama and House Democratic Leader Nancy Pelosi, meanwhile, said repeatedly that Democrats felt a deep sense of duty to create jobs and improve the economy for the party?s constituencies, and so desperately hoped to avoid the cliff. Pelosi suggested, as long ago as May, that the party could support a compromise that extended the Bush income tax cuts on the first $1 million in revenue, far above the $250,000 level favored by the president.

But other influential Democrats, such as Sen. Patty Murray of Washington, who chaired the Senate campaign committee and would chair the Budget Committee in 2013, and Rep. Xavier Becerra of California, the vice chairman of the House Democratic caucus, noted the strategic advantage that the Democrats would gain if the country fell off the fiscal cliff.

Boehner and his staff recognized it, too: All the Democrats had to do was wait it out through New Year?s Eve and the Bush-era tax cuts would expire. It would be better to bargain with the White House, Boehner concluded, using the threat of the fiscal cliff to win some concessions on federal spending, entitlement reform, and just how the tax code defined ?wealthy.?

The speaker and his aides conducted a series of ?look-ahead conversations? with other members of the House Republican leadership. The chairman of the House Ways and Means Committee, Rep. Dave Camp of Michigan, had already held a series of "Tax 101" sessions in the spring to educate members about the tax changes at year?s end.

Boehner?s aides set to work on a speech for their boss ? it would eventually go through 18 drafts ? to give immediately after an Obama reelection. It would contain Boehner?s first concession: Republicans would support the inclusion of new revenue in a budget deal.

?This is a speech we didn?t want to have to give,? one senior aide to the speaker said. ?And, frankly, after the first presidential debate? - when Romney performed so ably ? ?we didn?t think he?d have to give. We were pretty stoked.?

On Nov. 2, the Friday before the election, Boehner had gathered his staff for a final planning session in his Ohio district. That Sunday, he reflected on the task ahead as a ?Team Boehner? campaign bus took him across Ohio. Sitting in a green captain?s chair, dressed in jeans, docksiders, and a red fleece, he was relaxed and confident.

?I still believe it?s Romney [who] wins the election,? he said. ?Think about who the economic downturn has hurt the worst: blacks, Hispanics, young people. Fifty percent of college graduates are unemployed. You think they?re going to show up in droves and vote for [Obama] like they did last time? Not going to happen.?

The TV networks, relatively early on election night, concluded that the House would stay under Republican control. But as the battleground states on the network tote boards went Democratic blue in the presidential contest, Boehner?s staff had to dust off Plan O. They kept their intentions closely guarded, choosing the Capitol?s Rayburn Room, which the speaker controlled, as the venue and held members largely in the dark until a few hours before he was set to deliver the speech.

There was one final element of protocol that needed attending. That Wednesday morning, the speaker?s staff sent a text of Boehner?s planned remarks to Rep. Paul Ryan?s aides. The status of the party?s vice presidential candidate, and conservative favorite, needed to be resolved. Soon Boehner and Ryan were on the phone. The speaker told Ryan that the team needed him back, as soon as he was ready. And Ryan told Boehner that he planned to return as chairman of the Budget Committee and offered his support.

Boehner tinkered with the text of his speech up to the final moments, so that his harried aides were making changes directly into the teleprompter.

?The American people have spoken. They have reelected President Obama,? the speaker said. ?And they have again elected a Republican majority in the House of Representatives. If there is a mandate in yesterday?s results, it is a mandate for us to find a way to work together.?

Then Boehner stated his opening position. Any deal must have ?real changes to the financial structure of entitlement programs? and ?additional revenues, via tax reform.?

?Feeding the growth of government through higher tax rates won?t help us solve the problem,? Boehner said. He ended his talk by saying, ?Mr. President, this is your moment. We?re ready to be led.?

Boehner had offered higher revenues during the aborted 2011 negotiations with Obama over raising the federal debt limit. But the Plan O speech was still ?somewhat uncharted territory,? a top aide to Boehner recalled. ?The speaker was saying things that you don?t hear Republicans shouting from the mountain tops.?

A muted reception from the Republican caucus eased concerns in the speaker?s staff.

?I think this gets done,? one Boehner aide confidently predicted. ?There?s a sobriety among the members of our side who realize what?s at stake here.?

It looked as if Republicans were moving toward offering more revenue and feeling comfortable with the shift. ?We?re coalescing around the idea that revenues are on the table,? said Rep. Peter Roskam of Illinois, the chief deputy whip, in late November. ?That?s a Rubicon for Republicans.?

If the grand bargain were ?real,? Roskam said, and included authentic reductions in long-term federal spending on entitlements, then things ?could get really interesting and paradigm-shifting.?

No Surrender

Boehner and his aides considered themselves realists. The negotiations would be arduous. And the election would doubtless bolster Obama?s confidence and conviction. But ?the president has a choice to make,? one of the speaker?s aides said in November. ?If the president wants a productive second term, it?s not in his own interests to make the lame duck toxic. Not when he needs to get something accomplished on the economy and the debt for his legacy, not when he needs help from Congress to raise the debt limit soon, and not when he will need to ask House Republican leaders for help in shepherding through the House potential compromises on issues he wants to address over the next four years, like immigration.?

Obama held no such opinions.?The White House viewed with cynicism the gauzy Republican promises to act more cooperatively on immigration, the debt ceiling, and other onerous issues if the president gave ground on taxes. Obama had become conditioned -- after two years of experiencing little else -- to expect unswerving conservative opposition to anything bearing his name.

The president was a gracious host when Senate Majority Leader Harry Reid, Boehner, McConnell, and Pelosi trooped down to the White House on Friday, Nov. 16, even giving Boehner a bottle of red wine for his birthday. They agreed on a two-step process, with both immediate action on the most pressing issues and a long-term solution to be worked on in 2013 and agreed that cuts in spending were a necessary part of the way forward.

But the lack of specifics troubled the speaker. It had taken nine days to stage the meeting: Was Obama taking a slow walk through the calendar to get more leverage at the end of the year?

Toward the end of the meeting, Obama said, ?By the way, I?m not going to sign anything that doesn?t have a debt limit increase in it.?

?Well, Mr. President, everything you want in life comes with a price,? the speaker replied. Obama did not look thrilled.

The speaker?s team fell prey to overconfidence. They just didn?t believe that Obama meant what he said about raising tax rates for the wealthy.

?That he has to have increases in the top two rates come hell or high water was the president?s campaign position,? one of Boehner?s aides said shortly after the election. ?That?s not necessarily his governing position.?

Obama would not take the country off the cliff over the issue of higher rates if he got a promise of additional revenue via tax reform, the aide predicted. ?I don?t think it comes to that.?

Yet when Boehner?s aides started haggling with their counterparts at the White House in the days before Thanksgiving, they ran into a wall. There would be no deal without higher tax rates on the wealthy and an extension of the debt limit, the president?s aides said. Take it or leave it. The president was willing to dive off the cliff.

Reid was not surprised. He had met with Obama, privately, without staff, on the afternoon of Tuesday, Nov. 13. The president had assured him that he was not bluffing and would insist on a hike in rates.?

In meetings with American business leaders at the White House and at a series of campaign-style trips, Obama turned up the heat. He took to Twitter to encourage people to express themselves about the upcoming tax hikes, using the hashtag #My2k. He upped the ante even further by visiting a Virginia high school teacher and her family to talk middle-class tax breaks.

If the Bush tax cuts were allowed to lapse, it would cost the average family $2,200, the White House announced ? all because the House Republicans were protecting their rich pals.

Richard Durbin of Illinois, the No. 2 Democrat in the Senate, appeared at the Center for American Progress, a liberal think tank, and took a hard line, announcing that major cuts in entitlement programs were now off the table. Labor unions such as the AFL-CIO and the Service Employees International Union also felt emboldened by the outcome of the election and the political capital they had exerted to help elect the president in swing states like Ohio; in turn, they demanded that the president stick to his campaign promise of raising taxes, while also preserving Medicare and other benefit programs.

Republicans felt the pressure, and their bloc began to crumble. At a meeting of the House Republican whips, Rep. Tom Cole of Oklahoma, a former member of the House leadership with a 96 percent rating from the American Conservative Union, advised his colleagues to concede that the president held the stronger hand. He urged them to vote for the middle-class tax cuts, which they would no doubt support in the 113th Congress anyway.

The Republican commentariat was divided. The Wall Street Journal?s editorial writers, conservative radio talk-show hosts, and Fox News personalities such as Sean Hannity scorned Boehner?s fears about plunging off the cliff. Others, such as columnist Ann Coulter and editor William Kristol of The Weekly Standard, questioned why ? as Kristol put it ? the party should take a beating on behalf of a small contingent of the uber-wealthy, many of whom were liberals and never vote Republican anyway.

Boehner shared Kristol?s fears. At the weekly meeting of the House Republicans on Wednesday, Nov. 28, the speaker stressed the need for unity, and he urged his members to hang tough. But he was worried, and he called the White House that night, longing for some sign of compromise.

He didn?t get it. A day later, when congressional leaders met with Treasury Secretary Timothy Geithner and Rob Nabors, the White House?s congressional liaison, the administration took a hard line.

Geithner called for $1.6 trillion in new tax revenues and $50 billion in spending to stimulate the economy. A hike in the $16.4 trillion debt ceiling must be a part of any deal, the Treasury secretary said. The total package would trim the federal deficit by $4 trillion over a decade, but it included gimmicks on the spending side ? like counting anticipated savings from the withdrawal of American forces from Iraq and Afghanistan.

?I was flabbergasted,? Boehner would recall.

?You can?t be serious,? he told Geithner.

The Republicans were particularly taken aback because nine days earlier, on Nov. 20, Nabors had told Republican staffers that he had a White House offer in hand but didn?t want to be laughed out of the room, said a GOP source. The Republicans took it as a good sign that Nabors had saved them the song and dance. So when Nabors came back more than a week later with Geithner to present the same plan, Republicans concluded that the White House was not negotiating in good faith.

Later, the speaker dismissed the White House proffer as a ?la-la-land offer.? Obama was on the road the next day, ratcheting up the pressure with a widely covered speech in the Philadelphia suburbs.

Obama and his aides, it appeared, had learned from their experience in the debt-ceiling negotiations of 2011. ?Republicans in Congress are not going to make these decisions because they are suddenly persuaded by the president. They are going to make these decisions because they?ve decided it?s in their political interest to do so,? a White House official said.

Obama?s staff believed they were helping Boehner corral Republican votes. ?Gone are the days when you could ? cut a deal with the leader and expect the rank and file to follow along. We learned that about 10 different times in 2011 with Boehner,? the official said.

If worse comes to worst, the aide said then, Boehner could drop the so-called Hastert Rule, named after former Republican Speaker Dennis Hastert, who decreed that a measure had to have the support of ?a majority of the majority? or it would not reach the floor.

It would be difficult, but ?that?s sort of the definition of leadership.? In a crunch, Boehner would have only to agree to put the deal on the floor and guarantee a few dozen Republican votes. Pelosi?s Democrats would do the rest.

?All we need is 40 votes. We don?t need 150 Republicans,? the aide said. (In the end, the mini-deal struck would gain 85.) The rest of the Republican members could satisfy their conservative constituents, and their principles, and be given a pass to vote no. Boehner could catch hell from tea party types and conservative commentators, but that was the cost of leadership. ?This goes to the question about Boehner as a leader,? the aide argued.

On the first Monday in December, the House Republicans made a show of unity. With a letter signed by Rep. Eric Cantor of Virginia, the majority leader, Ryan, Camp, and other GOP leaders, the speaker countered the Geithner proposal. It was largely a restating of the Republican position, but it officially put $800 million in revenues on the table.

In Boehner?s two-front war, he needed to get the average Republican member acclimated to the notion of higher taxes and persuade them that their leaders were all in agreement. It was a matter of convincing the rank and file that they should not be ?caught between the perfect and the good,? as the speaker liked to put it.

The letter helped acclimate his colleagues, and $800 billion in additional revenue was quietly accepted as a Republican baseline. So was a demand that the age of Medicare eligibility be raised from 65 to 67, and a call for saving $200 billion from entitlement programs by changing the way cost-of-living raises are calculated. There was no mention, in the GOP letter, of one of Obama?s leading priorities: removing the debt ceiling from the debate.

Nowhere to Go

The polls were moving Obama?s way. And an increasing number of House and Senate Republicans were publicly acknowledging that the deal would have to include higher tax rates for their wealthiest constituents. So Team Obama clung to its strategy.

?The president said there is no deal without rates going up,? said a White House official. ?No deal means we go over the cliff.?

Inside the White House, aides grappled with the economic effects of doing just that. But it would take time for the new tax hikes and spending cuts to hit home and affect behavior. The markets might take a wait-and-watch approach to see how the new Congress acted. The cliff was more like a slope: a phrase that liberal-leaning think tanks close to the White House perpetuated. The administration had time.

The lame duck dragged on. Reporters watched the White House for signs like the faithful in Rome awaiting a puff of white smoke to signal a new pope. House members arrived in Washington, wandered aimlessly for a day or two, and were sent home early. The city ?feels like a ghost town, with nothing but Christmas parties going on,? said Republican strategist Ron Bonjean. Lobbyists, asked to get last-minute client meetings with lawmakers, found it shockingly easy to get on members? calendars.

Boehner and Obama spoke on the telephone again on Wednesday, Dec. 5, but the president?s position didn?t change. He told a gathering of the nation?s top CEOs that a debt-ceiling fix must be part of any deal. ?I will not play that game? again, he declared. And Geithner made it explicit, declaring that the administration is ?absolutely? willing to go over the cliff. Pelosi chided Boehner in her weekly news conference. ?Risk something,? she taunted. ?Figure it out.?

The speaker ventured to the White House on Sunday, Dec. 9, and came away encouraged. He believed that Obama had lowered his demand for more tax revenue from $1.6 trillion to $1.2 trillion. But White House aides said Boehner was misinformed: The president had agreed only ?to go to $1.4 trillion. The misunderstanding irritated GOP aides ? ?It was definitely an unpleasant surprise,? one said - but it was at least a sign of movement.

Monday, Dec. 10, brought another sweetener from Obama. Not only would he lower his revenue demand to $1.4 trillion, the president also promised to support lower corporate tax rates through an overhaul of the corporate tax code ? which Republicans coveted. But there was a stick with the carrot, as the president made another campaign swing to Michigan.

There were now, clearly, both a public and a private reality. Each side was begrudgingly making small concessions in their private talks, while sticking to their public positions, and exchanging barbed criticism?a messaging tact that Obama would employ to the very end. Boehner lashed out at Obama on the House floor, accusing the president of adopting a ?slow-walk? strategy off the fiscal cliff. McConnell blasted the White House as well, but Reid said it was Boehner?s fault ? that the speaker could not control his members and feared a challenge from the Young Guns.

At one point ? on the night of Tuesday, Dec. 11 ? the talks appeared to be on the brink of collapse. Obama and Boehner spoke on the telephone that day, and that night Nabors went to the Capitol to talk with his counterparts on the speaker?s staff. He was welcomed by Sommers and Loper. The meeting ?wasn?t angry,? a House leadership aide recalled. But they all acknowledged, ?Hey, we?re not close, are we??

And at the meeting of House Republicans the next day, Boehner canceled Christmas. Or, more specifically, he warned his members that they might have to return to Washington during Christmas week to vote on a deal. And if there wasn?t a deal to be done, said the speaker, they should ready themselves for a prolonged stretch of ?trench warfare? lasting into the 113th Congress.

On Thursday, at Obama?s invitation, Boehner visited the White House. In addition to the speaker and the president, the meeting in the Oval Office included Geithner, Nabors, Sommers, and Loper. And, from the perspective of the Republicans in the room, it did not go well.

In the meetings between Boehner and Obama, a GOP aide recalled, ?The president does the vast bulk of the talking and spends a lot of time trying to talk Boehner into Democratic positions, which is a complete waste of time.? Boehner would say, 'Here?s where I am and here?s where I can go,' and Obama would launch into an explanation of the superiority of Democratic Party philosophy. The speaker worked better with Pelosi. They talked practicalities, not philosophy.

The president spoke almost the entire 50-minute meeting, telling Republicans that if he did not get an agreement he liked, he would spend the next four years blaming them for what could turn into a global recession. The blame game would begin in earnest with his Inaugural Address and would follow up with a repeat performance in the State of the Union, a GOP source recalled. If they deny him now, he said, he would block future spending cuts for the next four years. ?I put $800 billion on the table. What do I get for that?? Boehner asked. ?You get nothing. I get that for free,? said Obama, adding that would not raise the Medicare eligibility age or cut Medicaid.

Boehner challenged the president for backtracking on the spending cuts and entitlement reforms he was willing to propose during 2011?s debt ceiling debate. Obama conceded moving left, but argued the election had changed the political landscape.

And then, at 9 o?clock in the morning on Friday, Dec.14, a gunman walked into the Sandy Hook Elementary School in Newtown, Conn. and killed 20 children and six adults. The president appeared in the White House briefing room at 3:15 that Friday afternoon, wiping tears away as he spoke about the ?beautiful little kids? who died. Newtown needed ?us to be our best as Americans,? he told a grief-stricken nation.

At 5 p.m. the speaker, with Cantor?s backing, called with a new offer.

The Short Life of Plan B

It was a breakthrough moment. For the first time in the negotiations ? indeed, for the first time in two decades - a national leader of the Republican Party was supporting a hike in U.S. income tax rates.

Boehner would agree to raise rates on household income exceeding a million dollars to the Clinton-era level of 39.6 percent, he told Obama, and support a one-year extension of the debt limit. In return, he asked the president for sequester repeal and meaningful cuts in entitlement spending ? nothing out of line with what Obama and Democratic congressional leaders had agreed to in the 2011 talks.

From the $800 billion starting point he had staked out in November, Boehner was now at nearly $1 trillion in higher tax revenue over 10 years. In exchange, he wanted $1.2 trillion in cuts. Obama told the speaker the cuts were probably too high and the revenue too low, but it was a serious proposal they could work from, according to a GOP source.

The next morning, Nabors, Sommers, and Loper met in the speaker?s office, identifying outstanding issues the president and speaker needed to resolve. That night, the news broke that Boehner had offered to raise taxes. It was an unwelcome complication.

On Sunday, Loper and Nabors prepared a joint document for the speaker and president to use in Monday?s meeting -- the first time the two sides were working from the same page. It showed the administration?s ask of $1.2 trillion in new revenue, compared to Boehner?s offer of $940 billion. The House wanted $1.04 trillion in spending cuts while the administration was offering $760 billion.

On Sunday night, the president dispatched a government plane to fly the speaker back to Washington so he could meet with Obama Monday morning. It did not go well.

Boehner opened the meeting by telling Obama that it hurt the negotiations when Senate Democrats gave the press details from their meetings. Obama said he had nothing to do with the leaks, according to Republicans. And, instead of working from the joint document drawn up by their staffs, Obama came to the meeting with a new, separate offer -- a move Republicans took as a show of bad faith.

In that offer, the White House gave up its demand for higher taxes on households earning $250,000. While the president didn?t go to the $1 million that Boehner had proposed, Obama agreed to raise the bar to $400,000. The administration also endorsed the idea of changing the way that Social Security and other cost-of-living raises are calculated ? to a less-costly process called chained CPI. Obama also returned (to where the speaker thought he had once been) to $1.2 trillion in revenue. (A number of Republicans said the offer was really $1.3 trillion because Obama insisted on keeping the savings from chained CPI in the revenue, instead of spending, side of the ledger -- a change Republicans saw as the president moving the goal posts.)

And the president was emphatic, according to a GOP aide, that he could not get the votes for anything less than $1.2 trillion, a position Republicans found particularly grating because Democrats routinely criticized Boehner for being unable to sell his caucus on the president?s position.

"I won?t be able to persuade my people to move below $1.2 trillion in revenue because they believe they get $800 billion in revenue for free and hundreds of billions in more revenue from the sequester cuts. I can?t get my people to anything below $1.2 trillion,? Obama told Boehner.

$1.2 trillion is a nonstarter,? Boehner replied.

After 45 minutes, the meeting ended and Republicans began in earnest to lay the groundwork for Plan B, a push to pass a pared-back plan that would extend the Bush-era tax cuts on all income under a million dollars a year while Boehner continued talks with the president.

When Boehner returned from the White House, he and Cantor met and agreed to make one more offer -- $1 trillion in revenue for $1 trillion in cuts and an agreement that Boehner would drop his insistence on raising the Medicare eligibility age. Boehner would tell the president that if he didn?t accept the offer, he would begin work on passing a Plan B. Boehner called the president and waited to hear back, according to a GOP source.

Obama called back, saying he could do $50 billion more in spending cuts but he still wanted $1.2 trillion in revenue ($1.3 trillion by Republicans count). Boehner told Obama the revenue request was too high and he was going forward with Plan B.?

Boehner gathered his top lieutenants in his office in the Capitol to explain the situation and hear their gripes. By the GOP?s calculations, Obama?s offer was for $1.3 trillion in additional revenue and only $900 billion in spending cuts, $400 billion short of the 1:1 ratio that Boehner thought he needed to sell the deal to the GOP caucus.

Camp balked at the speaker?s support of more than a trillion dollars in new revenue. Ryan said the deal lacked the necessary cutbacks in entitlement programs. Still, Ryan eventually agreed to vote in favor of Plan B. The House Budget chairman had been publicly quiet up until this point, fearing that the White House would cast the Republicans? position on the fiscal cliff as a rerun of the party?s failed presidential campaign, said a House Republican aide.

Boehner was in a tough spot. ?He?s having to do what no military strategist will recommend: fighting a two-front war,? said one House Democratic aide.

But to the Republican leaders and the staff members involved in the negotiations, Plan B solved two primary issues. ?The genius about Plan B was the amount of revenue it limited the president to, while taking away his No. 1 and only talking point?-- that the Republicans refused to raise taxes on the wealthy, said a House Republican aide. ?It minimized the revenue we had to raise through tax hikes and undercut the president?s rhetorical advantage.?

Boehner was practiced at playing the Democrats in the White House against the Republicans in his caucus. He would tell the president that he needed spending cuts to get his reluctant members to vote for higher taxes, and tell conservatives he needed tax revenue to get the White House to cut spending. White House aides and House Democrats took to greeting the speaker?s moans and woes with skepticism.

But the White House was playing an inside-outside game of its own. The day after Boehner told the president he was going to Plan B, Nabors called Sommers.

?My press staff tells me that I need to call you so we can publicly say that there has been contact between the staff on negotiations,? a GOP aide recalled Nabors saying.

Sommers asked Nabors whether it was worth meeting at the staff level to discuss the deal?s technical issues while the speaker and the president hashed out the top lines. Nabors said he didn?t see the point and Sommers agreed, according to the aide.

Talk of a grand bargain was over.

On Tuesday morning, as Boehner prepared to lay out Plan B to the entire House Republican Conference, Obama?s intransigence seemed to be working in the speaker?s favor. When he appeared before the caucus (raising his eyes to heaven as he walked toward the door), he was not an abject supplicant: He was still Horatius at the bridge, standing tall against the Democrats? endless urge to tax and spend.

Their duty was clear. They had to ?protect as many taxpayers as we can,? the speaker told his troops. If Obama didn?t move toward greater cuts in spending, they would ram Plan B through the House.

It was a cute bit of political legerdemain: The speaker?s historic concession on higher tax rates was being sold to his troops as a principled stand against Democratic excess. It was a fine way, as well, to test the waters ? and count the potential votes - in the GOP conference.

?All of us recognize that the top rate is going to go up. That?s in current law,? said Rep. Jeff Flake, R-Ariz. The goal now was to ?roll it back to protect other taxpayers.?

The speaker?s Plan B did indeed put Democrats on the spot. Pelosi had endorsed a $1 million threshold in the recent past; so had Senate Democratic leaders such as Chuck Schumer of New York. It was guaranteed, as well, to stir both Democratic and Republican interest groups and prod them toward a deal, because it provided no relief on sequestration. But most of all, it was a signal to the president: Time was running out. Perhaps most notably, Plan B did not extend the debt limit.

But conservatives in the House and the Senate refused to vote for any hike in rates ? even on millionaires. It could cost the GOP one of its best surviving selling points, they said. The Cold War was over, and Republicans in the Bush years had demonstrated that they, too, could spend the country into debt, but the GOP was still the party that opposes higher taxes. Now that brand was in danger of being tarnished.

Boehner got help from the U.S. Chamber of Commerce and from Grover Norquist?s Americans for Tax Reform (which decreed that a vote for Plan B was not a vote to raise taxes), but other conservative organizations, including the Club for Growth and the Heritage Foundation?s political action group, announced their opposition.

So did the Democrats. And many Republican members asked themselves why they were going on the record for higher taxes ? even on millionaires ? when Reid had declared Plan B dead on arrival in the Senate and Obama had promised to veto it. Voting for a tax hike to save the economy from a fiscal crisis was one thing; a symbolic practice vote ? that a conservative challenger could exploit in a party primary - was another.

For three days, Boehner stroked and cajoled, at times chasing his colleagues down on the House floor. Desperately trying to secure votes, the Republican leaders added spending cuts, plums for the defense industry, and some choice special-interest amendments to Plan B, all to no avail. Early Thursday night, Boehner pulled the bill from the floor.

At 7:45 p.m., in a hastily summoned, brief, closed-door meeting of the Republican conference, Boehner led his members in the Pledge of Allegiance, and then he recited the Serenity Prayer.

?God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference,? the speaker said.

Boehner didn?t have the votes. And he knew it.

Rep. Mike Kellyof Pennsylvania bolted to the front of the room and tried to rally his colleagues to stand with the speaker. It was too late. They were on their way out the door.

The House Republicans left the conference meeting in the basement of the Capitol in a state of quiet shock. Some members pulled out their cell phones to arrange new flights back home, while a few stopped to huddle with reporters and speak philosophically about the meaning of the failed Plan B. To some, it meant that Republicans simply would not vote for a tax increase, no matter what. To others, it hinted at bigger concerns for the party.

?We are going to be seen, more and more, as a bunch of extremists that can?t even get the majority of our own people to support the policies we?re putting forward,? said retiring Rep. Steven LaTourette of Ohio. ?If you?re not a governing majority, you?re not going to be a majority very long.?

Boehner?s last-ditch appeal failed. He had pushed Plan B to increase his bargaining power. Its death did just the opposite.

Boehner held a press conference on Friday.

?There was a perception created that the vote last night was going to increase taxes. Now I disagree with that ? with that characterization of the bill ??but that impression was out there,? he said. ?We had a number of our members who just really didn?t want to be perceived as having raised taxes.?

His friends were bitter over the treatment that Boehner received. Blaming events on the speaker, LaTourette said, was ?like saying the superintendent of an insane asylum should be discharged because he couldn?t control the crazy people.?

Boehner vowed to redouble his efforts to cut a deal with the White House. But ?how we get there, God only knows,? he said.

Picking Up the Pieces

Following the Plan B debacle, the fiscal-cliff talks quieted for the holidays. House Republicans left town. Senators attended ?a memorial service for Sen. Daniel Inouye of Hawaii at the National Cathedral and then spent the afternoon fighting over disaster-relief funding for Hurricane Sandy and the defense authorization bill--anything to avoid facing the cliff.

A week passed with little progress. Senators returned to the Hill on the Thursday after Christmas and spent their time milling about the hallways in a wait-and-see mode, uninspired by the lack of progress, or gaming out the cliff with little insider knowledge. Republican Sen. Bob Corker of Tennessee voiced his frustration to anyone who would listen. ?I think every American should be disgusted with all of Washington,? he said.

The congressional leaders returned to the White House that Friday, Dec. 28, for the first time since their mid-November meeting?except that this time no one proclaimed optimism. Reid and McConnell agreed to take charge of negotiating an accord during the White House meeting, since the talks between Obama and Boehner had collapsed. A last-minute compromise had to be forged in the Senate.

Their best and only hope now was a much smaller deal than anyone had originally imagined, one that would extend tax cuts for the middle class and provide unemployment insurance for 2 million people. Still, that seemed out of reach. Even if the Senate could reach a deal, would the House consider it? In the White House meeting, Reid pushed Boehner on the question, and the speaker stuck to his talking points, refusing to say whether he would put it on the floor.

Following the meeting, Reid huddled with fellow Democratic senators on the floor while McConnell announced he and Reid were negotiating. It was a turning point for the Republican leader, who had so far played an ancillary role in the talks. ?We?ll be working hard to try to see if we can get there in the next 24 hours. So I?m hopeful and optimistic,? he said.

At 9:30 p.m. McConnell sent his opening offer to Reid, according to a Senate Republican aide.

Shuttling between the leaders? offices, aides with term sheets tucked into manila envelopes delivered Reid?s counteroffer a little before 3 p.m. Saturday. A GOP counterproposal that included a one-year delay of the sequester paid for by chained CPI was delivered at 4:10 p.m. The Democrats responded less than an hour and a half later. At 7:10 p.m., McConnell sent back another offer, including chained CPI.

At that point, Reid told Republicans not to expect another offer until morning. McConnell?s staff suggested sitting down in a conference room face to face and working through the issues, and Reid?s staff declined, according to the GOP aide. The two sides remained stuck on key points, including the indexing of estate tax, the threshold of taxing the wealthy, and the best way to pay for the undoing of sequester, according to a Reid aide.

Sunday morning came and went without a new Democratic counteroffer. Then, in a Sunday afternoon phone call, Reid told McConnell he was done with the back and forth. McConnell was frustrated. With only hours left, he worried that Reid was stalling for time, slow-walking him toward the cliff in an effort to gain political leverage.

McConnell decided to phone a friend.

?I also placed a call to the vice president to see if he could help jump-start the negotiations on his side,? he announced on the Senate floor. ?The vice president and I have worked together on solutions before, and I believe we can again.?

McConnell had just very publicly announced his intention to try to end-run Reid and work directly with the White House. But would it work? After all, Biden had been sidelined by Obama. There had been no contact between the two men for months, despite their history of cutting high-stakes legislative deals. With time running out, McConnell gambled that the White House might let their closer out of the bullpen.

Shortly after his speech, McConnell got a message. The vice president was on the phone for him. He walked off the floor during a rare weekend vote and sat down in a phone booth in the Senate cloakroom.

McConnell voiced his frustration with the stalled talks. He wanted a dance partner, but didn?t have one in Reid. He needed Biden to step in. "There doesn't appear to be the level of understanding that you have about these negotiations,? McConnell told the vice president. ?It's a lack of experience. Smart people, but they don't have a good sense of the trip wires."

Before they hung up, Biden agreed to get back to McConnell with an offer. Thirty hours later, the two would have a deal that would pass the Senate with overwhelmingly bipartisan support.

By noon on New Year?s Eve, just hours before the fiscal-cliff deadline, the details of an emerging deal started to spill out into public. The package would permanently raise taxes on household income above $450,000; extend Obama?s 2009 tax cuts for college students, families with children, and low-income families for five years. It would increase the rates on capital gains and dividends to 20 percent for households in the top tax bracket of 39.6 percent. It would permanently patch the alternative minimum tax, ensuring that 28 million Americans did not have to pay that tax; extend business tax breaks; and increase the estate tax. It also extended the unemployment insurance benefits for an additional year.

The emerging agreement did not sit well with all Senate Democrats. Reid would have preferred a one-year-sequester delay, according to one of his aides, instead of the two-month extension the White House negotiated with McConnell. Other Senate Democrats such as Iowa?s Tom Harkin opposed the deal because it did not deal with the country?s No. 1 problem of creating new jobs. ?We had them over a barrel, and Biden gave them an out,? complained a Senate Democratic leadership aide.

Hours later, Biden headed to the Hill to convince reluctant Senate Democrats to vote for the McConnell-Biden package. As the clock approached 2 a.m. on New Year?s Day, the Senate passed the package by a vote of 89-8.

The Jan. 1 vote allowed Republicans to say they voted for a tax cut because, technically, the country had already gone over the cliff. This was especially important to Republican members who had signed the no-new-taxes pledge circulated by Americans for Tax Reform. At 11:59 p.m. on December 31, a vote for a tax bill that didn?t extend the Bush-era tax cuts for all Americans was a tax hike. Two minutes later, at 12:01 a.m. on Jan.1, that same vote would be considered a vote to cut taxes.

Wearing a red tie on the Senate floor, a triumphant McConnell pitched it as such: ?Thanks to this imperfect agreement, 99 percent of my constituents will not be hit by a tax hike,? he said.

Republicans immediately declared victory by saying they not only prevented a major tax increase, but they also had made permanent huge swathes of the Bush-era tax cuts. They also kept the tax rates on capital gains and dividends low for wealthy people, ensuring that the top rate rose to just 20 percent rather than 39.6 percent.

The president won a victory as well by cajoling the Republicans to raise taxes after a 20-year drought. He fulfilled his campaign promise of taxing the wealthy, even if that threshold of middle-class households had risen to close to half a million dollars. The White House also secured policy victories such as the extensions of the unemployment insurance benefits and the 2009 stimulus tax breaks including the child tax credit, a boost to middle class families.

The mood on the Senate floor was one of a holiday cocktail party: boisterous, friendly, back-slapping, and full of nostalgia. For a handful of retiring senators such as. Jon Kyl of Arizona, Olympia Snowe of Maine, Kent Conrad of North Dakota, and Kay Bailey Hutchison of Texas, the fiscal-cliff deal marked the final vote of their long congressional careers. After he cast his ?aye? vote, Nebraska?s Ben Nelson gave a bear hug to Schumer while Snowe said a quiet, quick good-bye to a huddle of Republican colleagues.

The members lingered on the floor until just after 2 a.m. Sen. Claire McCaskill, D-Mo., wearing a festive, sparkly top, waved good-bye and told her colleagues she?d see them in a few days.

Senators believed the long, exhausting march was finally over. But Boehner?s unruly caucus would prove to be nettlesome to the end.

The Final Curtain

Shortly after noon on Tuesday, Biden was back at the Capitol, answering questions and shoring up support for the measure in a closed-door meeting with House Democrats. But by mid-New Year?s afternoon, House Republicans ? including Cantor ? were emerging from their own closed-door conference voicing unhappiness. Many were pushing the idea of tacking on as much as $300 billion in domestic spending cuts, and then kicking an amended version of the bill back into the Senate?s court. For hours, it appeared that Biden and McConnell?s deal could fall victim to the chaos.

But Reid?s office quickly made clear the Senate would not take up such changes. And Boehner, Cantor, and their House Republicans colleagues faced the reality that amending the bill would be the equivalent of killing it. The resulting turmoil, they realized, would leave House Republicans open to blame for a huge middle-class tax increase.

Boehner, still smarting from his Plan B fiasco, decided to leave it up to his members to decide between two options. In another closed-door conference, rank-and-file Republicans were told that Whip Kevin McCarthy would do a count of those who wanted to push for the spending cuts. If 218 of them committed to doing that, a measure would be brought to the floor, passed, and sent to the Senate. But Boehner, joined by Cantor, also cautioned about the risk entailed in such a strategy. They advised that there would be no guarantee the Senate would act on such an amended measure, leaving the House holding the bag.

In the alternative, the members were told that if a commitment of 218 votes was not found, the House leaders would bring up the Senate-passed measure for an up-or-down vote. The leaders? warnings about the perils of amending the bill ultimately took hold.

At about 8 p.m. ? even before House Republicans had announced their own decision ? Democratic Rep. Alcee Hastings of Florida, a member of the Rules Committee, advised a group of reporters what Republicans had decided. A Rules Committee meeting had been scheduled to set up a House vote later in the night, before midnight, on a clean version of the Senate bill.

Then, Hastings offered his assessment of the Republicans? decision not to press ahead with an amended version. ?They're batshit crazy, but they're not THAT batshit crazy.?

Rules Committee Chairman David Dreier of California would shortly afterward predict the measure?s bipartisan passage. But on the floor, there was little celebration from either side of the aisle. Rules Committee ranking Democrat Louise Slaughter of New York summed up the events: ?Today?s legislation is far from perfect, and the process that led us here has been an utter disgrace.?

On a 257-167 vote, the unamended bill passed the House as the first day of the New Year drew to a close, but all involved knew that both Democrats and Republicans had again squandered an opportunity to forge an agreement on a grand scale. In doing so, they guaranteed that a fractious fight on raising the debt limit would now dominate the coming weeks.

For Boehner, the outcome had to be particularly galling. Not only had he surrendered any meaningful input in the final result despite months of effort and publicly failed to corral support for a plan that, in the end, might have resulted in a better deal for his caucus, but his long-cherished goal of unity in the ranks of his leadership was also shattered. He and Ryan voted for the compromise, while Cantor and McCarthy voted against it, again placing the schism in the ranks on full display.

The speaker was not in a celebratory mood after the vote. ?Now, the focus turns to spending,? he declared in a terse statement, saying that Republicans will use 2013 to hold the president accountable for the ?balanced approach? he pledged.

Whether he was addressing Obama, the public, or his own querulous party was unclear. But the talk was brave. As it turned out, after months of planning, weeks of negotiations, and seemingly endless false starts and admonitions, a brave face was the only thing the House GOP ever really had to offer.?

Caren Bohan, Michael Catalini, George E. Condon Jr., Dan Friedman, Shane Goldmacher, Catherine Hollander, Elahe Izadi, Stacy Kaper, Rebecca Kaplan, Katy O?Donnell, Jim O?Sullivan, Sophie Quinton, Sara Sorcher, and Ben Terris contributed

Source: http://news.yahoo.com/gops-failed-plan-o-inside-fiscal-cliff-saga-101318418--politics.html

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