A vote to increase the nation’s $14.3 trillion debt limit was coming soon, he told the caucus members who had gathered at the Marriott in Baltimore’s Inner Harbor for a closed-door retreat less than 10 days after taking power. Think of it as a “hidden” opportunity, he implored them, a chance to achieve their goal of reining in the federal government and its spending habits.
“I’m asking you to look at a potential increase in the debt limit as a leverage moment when the White House and President Obama will have to deal with us,” said Cantor, one of several new House leaders who detailed the game plan for the coming months. “Either we stick together and demonstrate that we’re a team that will fight for and stand by our principles, or we will lose that leverage.”
The frantic showdown that followed, bringing the nation to the brink of default, looked like the haphazard escalation of a typical partisan standoff.
It was the natural outgrowth of a years-long effort by GOP recruiters to build a new majority and reverse the party’s fortunes. That effort began before the economy collapsed in 2008, before the government bailouts that followed, before the tea party rose in response to push its anti-tax, anti-spending message.
With the backing of the GOP establishment, Cantor and two colleagues banded together as the “Young Guns,” drawing their nickname from a magazine feature anointing them rising stars. They scoured the country for like-minded conservatives who shared their uncompromising commitment to shrinking the federal government. They showered these Young Gun recruits with money and support and exhorted them to maintain a laser-like fiscal focus.
By early 2010, talk of the “debt ceiling” began to creep into the lexicon of some Young Gun candidates, first as a reaction to Congress yet again giving the nation the authority to borrow more money. But in time, it became a shorthand, their synonym for all that was wrong with Washington.
How the shorthand of 2010 grew into the showdown of 2011 is the story of a Republican resurgence that brought immense advantage to the leadership but also created immense expectations among this new breed of lawmaker. Having built a majority on ideology, the GOP leadership found itself struggling to control a rambunctious rank and file determined to live up to the bold rhetoric that had brought it to Washington.
The newcomers took Cantor seriously when he urged them in January to see the debt ceiling as leverage. Democrats called the GOP irresponsible for gambling with the economy and the nation’s flawless credit. Republicans countered that an epic clash over the debt limit was inevitable, given the outcome of the election and widespread anger with runaway government spending.
When the deal was finally done and the threat of an economy-rattling default averted, the newcomers’ disdain for compromise had proved effective. They got most of what they wanted and gave little ground.
The new majority emerged emboldened — and hankering for the confrontations to come — even as the financial markets and much of the country reacted with unease about what had just happened.
This account of the party’s transformation, and its impact on the nation’s economic course, is drawn from interviews with the leading participants during this summer’s drama and from earlier interviews, some of them recorded, at various points during the past 21
Chapter 1: Inauguration blues
In January 2009, on a night aglow with inaugural balls and Democrats celebrating their newly-elected president, a gathering of Republican lawmakers picked at their dinners in the Caucus Room restaurant off Pennsylvania Avenue. They felt anything but cheerful.
The original Young Guns — Cantor, Kevin McCarthy of California and Paul Ryan of Wisconsin — were there, along with disconsolate colleagues from the House and Senate.
The evening started as “just another conservative bitch session,” Ryan later recalled. “It was basically, ‘What just happened?’ ”
Excuses mingled with a search for explanations. Some around the table argued that Republicans had simply fallen victim to the crumbling economy. Others suggested that their presidential nominee, John McCain, simply hadn’t stirred enough enthusiasm among voters.
No, said Ryan and others. The problem was deeper. A “fundamental rot” had set in, as party leaders had adopted bloated budgets, chased pork-barrel spending and worried too much about getting reelected. The American people had sent a punishing message. Voters hadn’t just chosen Democrats. They had deserted Republicans.
As the evening wore on, the melancholy gave way to strategizing about how to right the ship. A return to power required a return to the party’s core values, the group agreed. To change their fortunes at the polls, they had to change direction.
Cantor, McCarthy and Ryan had already set out to recruit Young Gun candidates who shared their vision. Smaller government and lower taxes, not explosive federal spending, would be their route to growth and prosperity. Despite the GOP’s crushing defeat at the polls in 2008, some of their recruits had won.
They vowed to redouble their efforts. By the time dinner ended, the mood had improved. “I thought, these guys have finally woken up,” said McCarthy, the man who would take a primary role in the coming recruiting blitz. “They’re not gonna sit back. They weren’t afraid to compete on policy . . . It was a turning point.”
Chapter 2: Diamonds in the rough
By December 2009, McCarthy’s expectations had brightened dramatically. “I can feel the ground moving and changing,” he told a Washington Post reporter who had come to see him at the Capitol Hill offices of the National Republican Congressional Committee, the NRCC.
McCarthy rifled through a massive binder, amassed over months of cross-country travel in his role as the GOP’s chief recruiter. A former small-business owner with a head of silver hair and a gleaming smile, he knew what he was looking for: That diamond in the rough with the charisma to raise piles of cash and the passion to inspire voters with a vision of limited government.
McCarthy would leave his suits in Washington, slipping on Levis for countless cups of coffee in countless small-town diners. He had a mathematician’s faith in numbers, charting census data and studying how a rival strategist, Rahm Emanuel, had built the Democratic majority in 2006.
He enrolled many of his finds in the Young Guns program backed by the NRCC. As the candidates proved their mettle, they moved up the ladder: from “on the radar” to “contender” to “Young Gun.” Each step came with more support from the party and various political action committees that McCarthy and the other Young Guns maintained.
The names spilled out as he took the Post reporter on a state-by-state preview of the GOP lineup:
“You know Sean Duffy? . . . a district attorney, a world-class lumberjack.”
“Adam Kinzinger . . . Good guy, good, aggressive guy.”
“This Steve Stivers, he’s a rock star.”
All would make it to Washington, joining the freshman class of 2011.
McCarthy’s travels had also alerted him to the gathering steam of the tea party. He saw a potential ally, not a threat. “We can’t sit back and think we have all the right ideas,” he said. “We have to be able to come up with an agenda that will unite everyone. I think we have the principles that do that from this idea of fiscal responsibility.”
Polls were showing a growing dislike for the Democrats. But he knew that didn’t necessarily translate into love for the Republicans. Still, there was time. McCarthy could sense a majority within reach.
“If we’re a stock, [voters] are buying at the bottom,” he predicted. “They’re going to make money on us.”
Chapter 3: Catching the wave
In early 2010, McCarthy’s faith in a Republican resurgence was bolstered by hard electoral evidence. Scott Brown won Edward M. Kennedy’s Senate seat in Massachusetts. Around the country, a new catchphrase appeared in the rhetoric of some Young Gun recruits, prompted by a nearly routine action in Washington.
On Feb. 4, Congress voted to increase the nation’s borrowing limit — a vote it had taken 40 times in the past three decades — and a little-known city councilwoman in Montgomery, Ala., issued a statement.
“This ‘need’ to raise the debt ceiling is caused by one thing: out-of-control spending in Washington,” said Martha Roby, a Young Gun recruit whose campaign was ramping up.
That same day, a roofing contractor and Young Gun candidate in Wisconsin named Reid Ribble released his own statement attacking the Democratic incumbent for voting to boost the debt ceiling. “This Congress has done nothing but spend future generations of this country into a black hole,” his statement said.
By summer, “debt limit” had joined runaway spending as a sound bite. In South Dakota, GOP challenger Kristi Noem used the phrase to hammer her Democratic opponent, Rep. Stephanie Herseth Sandlin. Noem told Fox News that Sandlin had “voted for the budgets that have put this country further into debt. She voted to raise our country’s federal debt ceiling as well.”
The Fox newscaster, Neil Cavuto, challenged her. “Yes, but a lot people voted to raise the debt ceiling, because the government would shut down without it, right?”
“Well, a lot of people did,” Noem said. “But that doesn’t make it right.”
In September, with the election two months off and the Republican Party pushing hard in every corner of the country, Cantor, McCarthy and Ryan published a book called “The Young Guns,” appearing on television together and releasing a slick one-minute video that looked like a campaign ad. “A new team is ready to bring America back,” the video proclaimed.
The book plugged some of their favorite Young Gun candidates, including Roby. She won. So did Noem and Ribble, helping the Republicans win 242 seats and capture the House by a historic margin.
Rep. John Boehner (Ohio), the incoming House speaker who also had worked hard on behalf of many candidates, quickly grasped the potential dilemma posed by 87 newcomers with steep expectations. The House was now stocked with people who had little interest in rubber-stamping another debt-limit increase.
“I’ve made it pretty clear to them that as we get into next year, it’s pretty clear that Congress is going to have to deal with” the debt limit, Boehner told reporters on Nov. 19. “We’re going to have to deal with it as adults. Whether we like it or not, the federal government has obligations, and we have obligations on our part.”
Chapter 4: Rebels with a cause
That wasn’t what some new members wanted to hear. Soon after his election, freshman Tim Scott of South Carolina raised the issue on a nationally-syndicated Christian radio show.
“Are we going to continue to raise the debt ceiling and sell an illusion to the American people? My answer is no,” said Scott, who had just been chosen as one of two liaisons between the leadership and the freshman class.
Outside groups fueled the fire. At an orientation hosted by the tea party-affiliated group FreedomWorks, former congressman Dick Armey, a co-author of the 1994 Contract With America, exhorted dozens of freshmen with words promoting rebellion rather than allegiance: “You don’t owe your office to the majority. You owe your office to the people who put you there.”
The freshmen also heard from GOP pollster Frank Luntz, who offered numbers showing that a majority of Americans did not want the debt limit raised. That sparked lengthy discussions, according to several of those in attendance. The freshmen “left basically saying that if they were going to raise it, ‘We absolutely have to get something in return,’ ” FreedomWorks spokesman Adam Brandon recalled.
About that time, Rep. Jason Chaffetz went to Cantor’s office to chat. Chaffetz, a Utah sophomore, had developed a close bond with Cantor and McCarthy.
Chaffetz asked Cantor: Now that we control the House, how do we use our power?
Cantor didn’t hesitate.
“He said, ‘One of the biggest things that’s going to happen is that we have to deal with the debt ceiling,’ ” Chaffetz recalled in a recent interview. “He, in particular, knew a long time ago that that was going to be a big deal.”
That was a sharper message than Boehner’s, and it had come from his number two.
Chapter 5: Warnings
Others in official Washington had not yet grasped quite how big a deal the debt limit could become.
The White House, though, had an inkling. Obama and his advisers had picked up on the debt-limit fervor. They say they took a run at increasing the debt ceiling as part of a tax package that passed Congress in December, but got no traction. Asked recently about what happened, they reacted with some irritation.
“There was no market for doing the debt limit in December,” said a senior administration official, who spoke on the condition of anonymity because he was describing internal discussions. “Neither the Democrats or Republicans were ready to deal with it. . . . You can’t force action.”
At a Dec. 7 news conference to announce the tax deal, which included an extension of the Bush-era tax cuts, a reporter asked Obama why the debt limit hadn’t been addressed. It would seem, the reporter said, that the Republicans will “have a significant amount of leverage over the White House now.”
Obama responded, “When you say significant leverage . . . what do you mean?”
The reporter said the GOP might refuse to raise the debt ceiling unless Obama signed off on spending cuts “that probably go deeper and further than you’re willing to do.”
Obama directed his answer at the GOP leadership. “Look, here’s my expectation,” he said. “I’ll take John Boehner at his word — that nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse. . . . Once John Boehner is sworn in as speaker, then he’s going to have responsibilities to govern. You can’t just stand on the sidelines and be a bomb thrower.”
But it wouldn’t necessarily be Boehner throwing the bombs.
Chapter 6: ‘Surprises are for birthdays’
A month later, Cantor delivered his “leverage moment” speech at the new Republican House majority’s retreat, held at a hotel in downtown Baltimore. The debt-limit vote might be their best shot, but it wouldn’t be their only one.
Cantor told caucus members that they would get three bites at the government-spending apple: First, the extension of a temporary resolution to keep the government running through fiscal 2011. Second, a budget blueprint for fiscal 2012. And third, the debt-limit increase.
That first bite, however, left many newcomers with a bitter taste and a skepticism of their leadership’s willingness to stand firm.
During the campaign, GOP leaders had vowed to cut $100 billion from the 2011 budget. They began backpedaling on that pledge almost immediately after taking office. The target dwindled from $100 billion to $60 billion to $30 billion, for complicated reasons that House leaders found difficult to explain and the freshmen found hard to understand.
One hour before a midnight shutdown of federal agencies was set to occur, congressional leaders settled on a $38 billion cut — an unprecedented sum, but far short of what the freshmen had been promised. Then, just before the House vote, the freshmen were handed another disappointment: Budget analysts reported that the plan would reduce actual spending in the current year by only $350 million.
The measure passed, but 59 House Republicans defected, including 27 freshmen.
Allen West, a frustrated tea party freshman from Florida, derided the 2011 budget cuts as “a raindrop in the ocean” and said House leaders needed to have a “come to Jesus” moment.
“I like people to be upfront with me. Surprises are for birthdays,” West told reporters.
In the midst of that battle, Ryan rolled out his 2012 budget blueprint, in part to revive his party’s flagging spirits. As chairman of the House Budget committee, Ryan had a high-profile platform to pursue the Young Gun agenda.
Republicans enthusiastically embraced his plan to privatize Medicare for future retirees, slash spending on Medicaid and sharply reduce tax rates for corporations and the wealthy.
Still, the success of the Ryan budget in the House (it never passed the Senate) couldn’t fully erase the bad taste of the first bite of the budget apple. South Carolina’s Scott called the battle over the 2011 budget a “defining moment” for the newcomers. “It strengthened our resolve to stick together,” he said, “not necessarily against anyone, but for the people back home.’’
Others felt the leadership built up expectations even more by suggesting that the real battle lay ahead. Rep. Mike Coffman, a freshman from Colorado, said the message from Boehner and Cantor was clear. “They were saying, ‘This is really not the place to take a stand. We’re going to have a lot more leverage with the debt ceiling.’ ”
Chapter 7: ‘Hold the freaking line’
At town halls back home, many GOP legislators encountered constituents who beseeched them to refuse an increase in the debt ceiling outright, or else not to vote for an increase without massive spending cuts.
Meanwhile, in the lightning-fast feedback loop of the Internet, a host of outside influences kept reminding the freshmen that their words and actions were being watched.
FreedomWorks and other tea party groups warned Republicans to stick to their fiscal promises. FreedomWorks president Matt Kibbe, declared, “There will be serious consequences at the ballot box for Republicans blinking on this issue.”
The Tea Party Patriots encouraged organizers in districts across the country to keep up the pressure on their representatives.
“We’ve got to keep watching them,” the group’s co-founder, Jenny Beth Martin, said as she wrapped up a hot afternoon of meetings on Capitol Hill. “Quite a few of them are blindly trusting the leadership, and that’s very disappointing.”
Martin warned that her group would recruit candidates to challenge any GOP lawmakers who wavered on the debt limit. Her threat revolved around a new verb that had begun to crop up in tea party circles. “I think we are going to see people who are ‘primaried’ next year,” she said.
Erick Erickson, editor of RedState.com, a conservative blog with a large following, attacked the House leadership’s apparent willingness to compromise. He implored rank-and-file conservatives to stand strong.
“Fear has no business entering into your negotiations,” he wrote. “There is no fallback. There is no alternative. Hold the freaking line.”
A similar message also came, in a quieter way, from the trade groups for the nation’s hedge funds and private equity firms. Their members had billions at stake, thanks to a White House proposal that would raise some tax revenue at their expense. As the July home stretch arrived, they had already spent $4.2 million on lobbying expenses for the year.
Chapter 8: Behind closed doors
At the White House, uncertainty colored the administration’s negotiating strategy. In private, Boehner acted as the same old negotiator he’d always been. But once he left the room to sell something to the firebrands in his party, he couldn’t seal the deal.
Twice during the battle over the 2011 budget, White House officials believed both sides had settled on a figure for spending cuts. Twice, they said, Boehner backed away after consulting with his caucus.
Still, Obama and his advisers believed Boehner and his troops might prove more flexible in talks aimed at meeting their demand for spending cuts to accompany the debt limit increase. Dramatic changes to Medicare proposed in the Ryan budget had sparked a public outcry. Democrats believed that Republicans would be eager to hide that stain by striking an agreement with Democrats to cut the program less sharply. The political downside: It would leave Democrats unable to use Medicare as an issue against Republicans in the 2012 campaign.
Obama, Vice President Biden and other White House officials firmly believed that it would be easier to sell a big deal, if it actually stabilized the debt, than trying to persuade lawmakers to vote for cuts that were both politically painful and too modest to solve the problem. “Don’t die on a small cross,” Biden was fond of saying.
By the time Obama teamed up with Boehner for a round of golf in mid-June, many in the administration believed that a bipartisan grand bargain that raised tax revenue and took a swing at Medicare costs could happen.
But when talk turned to new tax revenue, the Republicans kept shutting down.
In June, Cantor walked away from talks led by Biden after Democrats pressed him to accept a plan that limited some tax breaks for corporations and wealthier Americans in exchange for cuts to federal health programs. Cantor said it was up to Boehner to make such decisions. Boehner, meanwhile, engaged Obama in secret talks over a grand bargain. But he, too, walked away as Cantor argued that they couldn’t get the caucus to accept any tax hike.
“There was always a sense that Cantor had his finger on the pulse of the tea party crowd,” a Democratic official involved in the talks said. Cantor and Boehner both emphasized that the new hard-liners were a “different breed,” an “extreme force that could not be controlled.”
The official added: “I, for one, was never sure whether they were using this as a negotiating tactic or expressing genuine frustration.”
Boehner’s office acknowledged the newcomers’ effect on the negotiations. Asked about the leader’s tactics after the deal was made, spokesman Michael Steel said the early focus on the debt limit was dictated by the attitudes of the new majority. The leadership drove a hard bargain out of necessity, he said, knowing that anything less wouldn’t stand a chance of passing the House.
“We could see this fight was coming, because we had a new group of people who weren’t interested in the way Washington has always done business,” Steel said. “If they were going to vote for a debt-limit increase, they were going to need serious spending cuts and real reforms.”
Chapter 9: Doubts and suspicions
As the Aug. 2 default date drew closer with no deal in sight, GOP leaders intensified their campaign to convince the holdouts that the “adult moment” Boehner warned of last fall had arrived.
The leadership arranged for numerous experts from rating agencies and think tanks to brief the caucus on the likely consequences of default. One presentation, a slide show by a former Treasury official who served under President George H.W. Bush, soberly detailed the daunting choices that the government would face if it ran short of cash.
Some members were convinced. Others, including South Carolina’s Scott, were unmoved. Scott said he understood that breaching the deadline could inflict short-term pain. But without serious cuts, he said, “there won’t be a long term.”
The leadership, having made the debt limit into a rallying cry, was trying to make sure that the newcomers didn’t push too far. “Leaders like me would try to tell them: Look, no, really, we think it could be bad,” Ryan said. “They’d look at it with suspicion . . . If there was any semi-credible source saying default wouldn’t be so bad, they clung to that.”
Still, Ryan sympathized with their ardor and desire for change. “I was like that when I first got to Congress,” he said, recalling his time as an angry back-bencher, throwing procedural monkey wrenches into the gears of the House.
Ryan told the newcomers that he learned to work within the system without sacrificing his principles, and he tried to persuade them that they could do the same. He counseled them to be patient, to accept partial victory.
“You have to get a mandate from the country that’s big enough” — control of House, Senate, White House — “to do what we want to do,” he recalled telling them. “We don’t have that kind of mandate right now.”
Chapter 10: Burning down the house
In mid-July, Boehner tried again for a big deal. On Friday, July 15, as Capitol Hill began emptying out for the coming weekend, he invited White House chief of staff William Daley and Treasury Secretary Timothy F. Geithner to his office. With Cantor in the room, Boehner laid out an ambitious plan to tame the debt that would include a rewrite of the tax code that would raise an additional $800 billion over 10 years — the equivalent of letting the Bush tax cuts expire for the nation’s top earners, a key Democratic demand.
If White House officials had any skepticism that Boehner could deliver, they felt they had little choice but to engage him. The deal was big and bold, and White House officials believed it was worth going the extra mile to see whether it would work.
On Thursday, July 21, Obama’s senior advisers met at the White House with top aides to Boehner and Cantor. For two hours, they went line by line through the emerging agreement. It felt like they were “very close” to the promised land, a senior administration official said.
That afternoon, Obama called Boehner and gave him a choice: If you want aggressive entitlement cuts, I need more revenue. But if you can’t stomach extra revenue, we can dial back the entitlement cuts and still do something important.
The call went well, according to Democrats in the room. That evening, Obama met with Democratic leaders and told them to prepare for tough cuts to Medicare and Medicaid.
Twenty-four hours later, the deal was dead. Once again, Boehner walked away. Worse, from the administration’s point of view, Boehner’s rhetoric was growing harsher, at times echoing the most uncompromising voices in his new majority.
Administration officials now faced what they saw as a frightening possibility: That the controlling party in the House might be willing to “let the house burn down,” in the phrase bandied about at the White House — unless its demands were met.
Obama’s top advisers, surveying their options, decided to open some doors to compromising on their tax demands. In their view, with flames licking the rafters, House Republicans were not just slamming doors shut. They were locking them.
In the end, the White House backed off its demand for new tax revenue and agreed to a multi-phase deal that may produce only spending cuts. In return, Congress gave the Treasury sufficient borrowing power to pay the government’s bills through the 2012 election.
On the Hill, leaders congratulated themselves for averting disaster. Republicans considered it a win-win: deep spending cuts to come and no new taxes. But the markets were less impressed with the turn toward austerity. After slumping for days, they swooned Thursday amid mounting fears of a new global slowdown. On Friday, the rating agency Standard & Poor’s issued the first-ever downgrade of the nation’s credit rating, saying the “political brinkmanship of recent months” had shown evidence of “America’s governance and policymaking becoming less stable, less effective, and less predictable.”
The public shared the markets’ unhappiness. In a New York Times poll released Thursday, 82 percent of those surveyed said they disapproved of how Congress was doing its job, a record number. Republicans earned more criticism than Democrats.
For Democrats, the deal’s lack of new tax revenue was hard to swallow. But some believed they would be able to regain leverage this fall, when a new committee begins working to tame the debt, and late next year, when the Bush-era tax cuts are set once again to expire.
For Republican leaders, there was pride in a hand well played. “I think some of our members may have thought the default issue was a hostage you might take a chance at shooting,” Senate Minority Leader Mitch McConnell (R-Ky.) said. “Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming.”
McCarthy was more plain-spoken.
“Would Democrats have ever agreed if they thought the new freshman class was going to roll over? No. The freshmen made our hand so much stronger,” he said in an interview. “You had a fear of how far they would go. I’m sure the president looks back, too, and was fearful. But in negotiations, isn’t that the best thing?”
Chaffetz, who voted against both Boehner’s first proposal and the final bill, said he was well aware of how the leadership had used his and others’ willingness to let a default happen as a negotiating chip, and said he didn’t mind at all. “We weren’t kidding around, either,” he said. “We would have taken it down.”
For the freshman class, most of whom ultimately voted for the final deal, there was ambivalence about this bite of the spending apple. The cuts should have been deeper, many said, and the deal should have included a balanced budget amendment to the Constitution. Still, it recognized how far it had shifted the debate.
Rep. Tom Graves of Georgia, who arrived last year with strong support from tea party groups and Cantor’s PAC, voted no on the deal. Hours later, he changed into faded jeans to attend a $1,500-per-head fundraiser on his behalf, held at the AT&T box at Nationals Park, a classic Washington-style event. The next day, he was flying home for a corn roast in his district and looking forward to explaining his vote to his constituents.
“Unfortunately, it was a compromise,” he said of the deal. “Compromises led us into this mess, and you can’t compromise your way out of it.”
The House leadership, meanwhile, has already started to focus on maintaining its majority. Cantor and McCarthy, through their PACs, have together bestowed nearly $440,000 in early contributions to fellow conservatives, according to campaign financing reports.
Freshmen have received most of their largess: Of a combined 69 contributions made, 52 have gone to newcomers. Boehner’s PAC hasn’t made as many donations, contributing $170,000 to 20 of the freshmen, and 23 candidates overall, the reports show.
In July, the NRCC re-launched its Young Guns program for 2012. More than a dozen candidates have qualified as “on the radar,” the first step toward increased fundraising support.
McCarthy isn’t spearheading the recruiting effort this time around, but he hasn’t abandoned the search for diamonds in the rough. The ink on the debt deal was barely dry when he made plans to visit a potential candidate in Arkansas.
“There’s so much more to go,” he said. “We’re fighting for the long term. We’re always going to be striving for more.”