House Speaker John Boehner just announced that he has abandoned the $4 trillion “grand bargain” pushed by President Obama, a day before Congressional leaders were to meet at the White House for a final set of talks. Boehner said that only the medium-term deal, with roughly $2 trillion in deficit reduction, would be palatable to his caucus. This positions Barack Obama to the right of John Boehner on deficit hawkishness, as Boehner blinked because he could not sell the tax increases necessary to ink a large grand bargain.

“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes. I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase,” Boehner said in a statement released less than 24 hours before the Obama meeting is to take place.

The day that the grand bargain proposal was released, to great fanfare, on Thursday, I was immediately skeptical because I didn’t see anything in the stories suggesting that Republicans were at all willing to swallow $1 trillion in tax increases. Indeed, they never moved on revenue. And as the President was demanding an actual grand bargain, with revenues in the deal, as part of a deal that would have cut entitlements, Republicans couldn’t stomach it.

Where do we go from here? Boehner suggested the smaller deal that was part of the Biden talks. But this was the deal that Republicans essentially rejected a couple weeks ago, which had nearly $2 trillion in spending cuts and around $400 billion in revenue. I don’t know how they would go back to this at this point, but it’s possible that a patch to the alternative minimum tax, a perennial Washington favorite, would be included in the deal, to cover the revenue and allow Republicans to say that the package is revenue-neutral. It would merely mean that the AMT, which is patched every year so it doesn’t hit the middle class, would actually be paid for this time around. But it would be a net $0 in revenue from the baseline.

White House Communications Director Dan Pfeiffer released this statement:

The President believes that solving our fiscal problems is an economic imperative. But in order to do that, we cannot ask the middle-class and seniors to bear all the burden of higher costs and budget cuts. We need a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree.

Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington. The President believes that now is the moment to rise above that cynicism and show the American people that we can still do big things. And so tomorrow, he will make the case to congressional leaders that we must reject the politics of least resistance and take on this critical challenge.

The President is certainly laying it on thick here in a push for a grand bargain. But Boehner has spoken, and gridlock and militant anti-tax ideology has, in all likelihood, saved the welfare state for the time being. However, it’s entirely possible that something like chained CPI could show up in the smaller deal, or provider cuts to Medicare, which were already reportedly agreed to in the Biden talks.

More will become clear tomorrow, after the meeting between the White House and Congressional leaders.

…of course, this also raises the prospect that no deal will be made and the debt limit will be reached on August 2. Republicans seem completely unable to accept the slightest tax increase, and Democrats unable to accept a deal without revenues. So we could very well get to August 2, and uncharted territory for the federal government.

UPDATE: Here’s Harry Reid’s statement:

“I am disappointed that Republicans are unable to work with us to take a historic step forward that would have dramatically reduced our long-term deficit. We asked Republicans to consider a balanced approach that would have required shared sacrifice, but they would not. We still need to make sure we avert the economic catastrophe that would occur if we were to let America fail to pay its bills for the first time in our history, and I am confident that we will. Americans have a right to expect their leaders to rise above partisanship and do the right thing for our economy and the middle class.”

This really isn’t turning out well for Boehner. For better or worse, the Democrats look like the budget hawks. That has quite a bit of truth to it, since Republicans actually don’t give a damn about the budget deficit, they care about protecting rich people from paying taxes.

UPDATE II: Sam Stein Ryan Grim speculates that opposition from Democrats and their allies to social safety net cuts “may have broken the back of the bargain.” I don’t think that battle has totally been won – we don’t yet know what’s in a medium term deal. But it does look like Democrats in the negotiating room wouldn’t agree to entitlement cuts, and the outside pressure may have played a role there.

UPDATE III: White House says this was all about revenue. “[Boehner] couldn’t do revenues from wealthiest Americans, he walked away over that,” said the Administration source. “They are telling people we couldn’t do entitlements, not true.”

So we have a President perfectly willing to cut the safety net, but because Republicans are so insane about taxes, they missed this golden opportunity. And since there was no indication that they would ever agree to serious revenues, we have to acknowledge that the White House pretty much knew that going in. It was hard to miss.

David Dayen

David Dayen