Insight: "Fiscal cliff" fracas: From smiles to distrust to rancor

(Note: includes graphic language)

WASHINGTON (Reuters) - It began so optimistically.

On November 16, after their first "fiscal cliff" session with President Barack Obama, the four leaders of Congress had stood in the driveway of the White House shoulder-to-shoulder for what is a rare photo these days, Republicans and Democrats together, smiling.

There they were at the microphone, talking about a "framework" for tax reform and deficit reduction.

In hindsight, the shot of House Speaker John Boehner and Senate Minority Leader Mitch McConnell - the Republicans - with Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi - the Democrats - seems like an old family photo, before things went bad.

From that day on the driveway, things went downhill, rather quickly.

There was a feeling on both sides that the other was not acting seriously to avert the "fiscal cliff" of tax hikes and spending cuts that were set to occur at the beginning of this month. That was inflamed by public comments from ranking Republicans and Democrats, poisoning the atmosphere.

Many lawmakers and their aides fear that things may get more toxic through a series of bitter struggles expected in the next few months over the nation's debt and deficit burdens - fights not just between the parties but within them, and between the White House, the Senate and the House.

At stake is not only the U.S. government's ability to get its finances under control but whether it might default on its debts, and suffer further downgrades in the nation's credit rating.

While Obama is perceived the victor in the fiscal deal passed by Congress earlier this week, he did not come close to getting the one thing he demanded that could have headed off the next potential crisis: Freedom from a fight over the federal government's debt ceiling, which is likely to occur in February when the Treasury Department must ask Congress to increase the government's borrowing limit beyond the current $16.4 trillion.

Any positive vibes started fading a few days after the photo. On November 20, at a meeting between Republican staffers and Rob Nabors, the White House director of legislative affairs. Nabors announced that he had a White House offer in hand but "didn't want to be laughed out of the room and implied he would skip it because it was a waste of time," according to one Republican source. The White House declined to comment.

What the White House was offering was Obama's budget proposal from earlier in the year, long ago rejected by Republicans.

A Democratic source familiar with the negotiations said it was merely an opening bid that should have come as no surprise, but Republicans saw it as a red flag, particularly after Treasury Secretary Timothy Geithner touted it again nine days later.

Things didn't get better in the final weeks of the year.

At a December 13 meeting between Obama, Boehner and their aides at the White House, Obama spoke for almost the entire 50-minute session, according to Republican sources. They said he warned that if he did not get an agreement to his liking, he would spend the next four years "campaigning against House Republicans," starting with his second-term inauguration speech on January 21.

As far as the Republicans were concerned, Obama had effectively remained in campaign mode after his November 6 re-election, going on the attack in his "fiscal cliff" speeches.

One of the clearest examples of this, occurred at a delicate point in negotiations on Monday, with a looming deadline and the risk growing that the Republican-controlled House would blow up any deal pulled together by the Senate. At a campaign-style event with "middle class" Americans in the background, Obama accused Republicans of trying to "shove spending cuts at us that will hurt seniors, or hurt students or hurt middle-class families."

The move angered House Republicans who were already divided on how to proceed, leading to more bad blood. Republican Senator John McCain responded in the Senate, wondering "whether the president really wants this issue resolved." The people Obama was talking to, McCain said, "were laughing and cheering and applauding as we are on the brink of this collapse."

By that time, Boehner had ceased to be a force in the negotiations, thanks to his own miscalculation on December 20. That's when he brought his own "Plan B" to the House - a bill to avoid the "fiscal cliff" with minimal tax hikes on the wealthy - and then had to pull the bill when he couldn't get enough Republicans to support it.

The defeat humiliated Boehner and, by depriving him of the ability to deliver on any commitments he might make, sidelined him in the final stages of the negotiations.

ACCUSATIONS FLY

In the final days of the year, Republicans routinely accused the president of bad faith, saying he preferred to go over the 'cliff,' triggering the tax hikes and rattling the markets, because it would increase his ability to pressure them.

The same was said of Boehner by Democrats, including Reid.

"He's waiting until January 3 to get re-elected as speaker before he gets serious with negotiations because he has so many people over there that won't follow what he wants. That's obvious from the debacle that took place last week," Reid said in the Senate, referring to Boehner's failed effort to get his own caucus in line on December 20.

He was operating the House as a "dictatorship," Reid added in his December 27 speech, by refusing to allow a vote on a Senate bill to avoid the automatic tax hikes and spending cuts. Boehner was reelected as speaker on Thursday.

After that goading, Boehner let loose the next time he saw Reid.

The occasion was the final White House meeting of the standoff, on Friday, December 28, as Obama and the congressional leaders were trying to figure out how to proceed.

Reid said Boehner was just mouthing "talking points," according to a senior Democratic aide.

"The other folks at the table were engaged in a meaningful discussion. Every time the conversation got back to Boehner, he'd say 'The House has acted; the Senate needs to act.' It was like he arrived with a very short leash," the aide said.

"They were walking out of the meeting," the aide said, when Boehner turned to Reid and said, "'Go fuck yourself.'"

"'What?'" Reid asked, according to the aide, who said Boehner then uttered the profanity again.

'DISHEARTENING' FOR SOME DEMOCRATS

Obama used the December 28 meeting to ask McConnell and Reid to work up a bipartisan bill in the Senate that might win approval in the House, and they agreed. McConnell made an offer to Reid, but grew impatient waiting for a response, according to a Republican aide.

The Senate Republican left a message at 1:20 p.m. EST (1820 GMT) on Sunday, December 30 for Vice President Joe Biden: "Please call."

"Does anybody down there know how to do a deal?," McConnell told Biden, a former colleague of McConnell's in the Senate.

"There doesn't appear to be the level of understanding that you have about these negotiations" elsewhere in the administration, McConnell told Biden.

"It's a lack of experience. Smart people but they don't have a good sense of the trip wires," he added.

Despite Reid's 25 years in the Senate, he was out of the picture.

After the November 6 election, Reid had wondered whether Obama would cave or use his re-election as a hammer.

"We thought that it was a unique moment in time where we had enormous leverage over Republicans," a senior Democratic Senate aide said, "and we were ready to play hardball."

"This was our best opportunity to get something that's acceptable at your point of maximum leverage in probably the eight years of his administration," this official said.

The aide added that Wall Street experts were making a "strong case" that even if January 1 came and went without a deal, as long as negotiations were continuing, the stock market would hold fairly steady for a week or so into 2013.

The week after the election, Reid had traveled to the White House to try to determine whether Obama had the "spine" to stick to his guns in the negotiations, according to the aide. Reid then assured his fellow Democrats that the president, buoyed by his election win, would stand firm.

But by late December, Senate Democrats watched in amazement as Obama offered a higher, $400,000 income threshold for those who would see their taxes rise under his proposal compared to his original $250,000 figure, a willingness to cut cost-of-living benefits for retirees and a temporary instead of permanent increase in the debt limit.

"It was disheartening to supporters. He just telegraphed to Republicans a willingness to move higher at the drop of a hat," the aide said. "We got nickeled and dimed on everything," he said.

'OLD BULLS' GET DEAL DONE

Once Biden and McConnell cut their deal in the waning hours of 2012 - the one that kept lower taxes for everyone but those with high incomes - the White House leaked to reporters that Reid had signed off on the pact.

According to the senior Senate Democratic aide, Reid had not given his backing yet. He simply told the White House that Biden was welcome to come to the Senate, meet with Democratic senators "and try and sell the deal."

Reid promised that if the caucus was convinced by Biden, Reid would do everything he could to deliver a strong vote. But now he was out of the loop too.

Why could McConnell and Biden bring off the deal when others couldn't?

"They're experienced hands," said Trent Lott, a former Republican senator from Mississippi who was majority leader from June 1996 to January 2001.

"They have respect for each others' abilities and truthfulness," he said in an interview with Reuters. ".... They're old bulls. They know how to get the deal done."

Lott, who was a member of Congress for more than three decades, said it was "revisionist history" to see his era as some golden age of comity in Washington.

But "clearly the atmosphere has changed over the years. I don't know when it started drifting to the point where it is," he said.

Lott said he was struck by the fact that an agreement of such magnitude was ultimately the work not of the president or the House speaker, but of the Senate minority leader and the vice president.

"A lot of people in Washington ought to be embarrassed," Lott said.

(Additional reporting by Fred Barbash; Editing by Fred Barbash; Martin Howell and Paul Simao)

Source: http://news.yahoo.com/insight-fiscal-cliff-fracas-smiles-distrust-rancor-061050190--business.html

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