Fiscal Cliff Deal: Obama Insisted on Sequester Buy Down

Fiscal cliff negotiations between the White House and Congressional leaders involved late-night discussions in the Oval Office and an ultimate hardline from President Barack Obama, according to a source familiar with the process.President Obama wanted a sequester delay, but Republicans requested it include measures to offset what delaying those budget cuts would add to the deficit.

The source said it was the president who insisted the final deal include a pay down on the sequester and a tax increase that hit at least individuals making $400,000 a year and $450,000 for households. That's where the deal ended up.

Senate Minority Leary Mitch McConnell started negotiations at $750,000, and then moved to $550,000 before giving in and agreeing to $450,000 for households.

The White House and Senate Democrats added the last hours to Monday's late session figuring out the specific revenue sources and spending cuts to pay for the sequester delay.

On Monday, Republicans agreed to a plan that raises $620 billion in revenue over 10 years and makes a $24 billion down payment on deficit reduction through a combination of revenue and spending cuts -- also a priority for the president. Those spending cuts have been pre-determined and will be evenly divided between defense and non-defense areas.

 

A source familiar with the discussions and revealing a slant on negotiations argued these deal points represented significant concessions from the GOP. This person insisted that because Republicans backed off their pledge to oppose tax rate increases for the wealthiest Americans and said this deal represents one of the most significant policy victories of the last two decades.

Not everyone has the same view. The progressive group moveon.org criticized the White House for moving off Obama's pledge to raise taxes for households earning $250,000 and more and took issue with the short-term nature of the sequester delay.

"At the end of the day, poor and middle class families deserve a better deal than more tax cuts for the rich and the potential for another hostage situation in two months," the organization said in a statement.

Negotiations to reach this deal ramped up after Congressional leaders met with Obama in the Oval Office on Friday.

Senate Republicans brought their first offer: allowing income taxes to rise for households earning $750,000 or more -- significantly higher than the $450,000 threshold the Democrats won in the end; indexing Social Security to CPI; keeping the estate tax at the current rate; paying for the sequester by means-testing Medicare. The offer included no extension of unemployment insurance and no tax credits for low income people and for education, a source familiar with the discussions said. The final deal includes both.

Senate Minority Leader Mitch McConnell and Senate Majority Leader Harry Reid began negotiations, which then shifted to negotiations between McConnell and Vice President Joe Biden with Reid talking to the White House and the president talking to Biden. The leading Senate Democrat and Republican decided it was too difficult to turn off the sequester and would leave it out of the deal.

Saturday night, the vice president and the White House economic team met with the president in the Oval Office at 8 p.m. and reviewed the offers. According to this source, the president made his bright lines clear: tax cuts had to hit families at $450,000 and above, unemployment insurance had to be extended for one year and the sequester had to be addressed.

So Biden went back to the phone and returned to his negotiations with the Senate minority leader.

After a 12:45 a.m. Sunday phone call between Biden and McConnell, the president, vice president and their staffs met in the Oval Office until 2 a.m. Monday morning to go over additional details.

The president's legislative affairs director Rob Nabors went to Capitol Hill to meet Senate Democratic staff at 2 a.m. to begin drafting legislation and returning home to change his shirt before he returned to the White House at 7 a.m.

Biden and McConnell spoke again before at 7 a.m. Monday to continue discussions and much of the day Monday was spent focused on tackling the sequester, because of Obama's insistence. The White House and Senate Democratic staff went back and forth identifying areas to find revenue and spending cuts.

Ultimately, Republicans agreed to a plan that raises $620 billion in revenue over 10 years, makes a $24 billion down payment on deficit reduction by turning off the sequester for two months, which sources familiar with the discussions said represented significant concessions from the GOP.

 

Those concessions, which included a back down in their pledge to oppose tax rate increases for the wealthiest Americans, strengthens the Democrats' hands as both political parties brace for the upcoming debt ceiling battle.

Although Obama wanted to buy down the sequester for a year instead, a longer-term deal would have taken more time than negotiations in this timeframe allowed and required finding $120 billion in pay-fors.

The agreement also included an individual $5 million exemption level for the estate tax, the "Doc Fix," an agreement to extend unemployment benefits for one year, a cap in itemized deductions starting at $250,000 for individuals and $300,000 for households and an extension in unemployment insurance.