'Hardball with Chris Matthews' for Friday, July 22, 2011, 7p

Guest Host: Michael Smerconish
Host: Chris Cillizza, David Gregory, Kelly Donnell, Kristen Welker, Jonathan Capehart, Pat Buchanan, Major Garrett

MICHAEL SMERCONISH, GUEST HOST: Bully pulpit, let‘s play some
HARDBALL.
(MUSIC)
SMERCONISH: Good evening. I‘m Michael Smerconish, in for Chris Matthews.
Leading off tonight: break down.
We are now 11 days from the deadline to raise the debt ceiling and we‘re headed in reverse. Minutes before 6:00 Eastern Time, Speaker John Boehner, walked out of the debt talks, saying that President Obama is too eager to raise taxes. The president immediately shot back, calling a news conference to say Republicans are walking way from a deal because they want to put all the burden on the poor and middle class while protecting the rich.
President Obama has ordered the congressional leadership—that would be Boehner, Eric Cantor, Harry Reid, Nancy Pelosi—back to the White House at 11:00 tomorrow morning.
And in just a few minutes, Speaker Boehner is expected to come out and hold his own news conference. And when he does, we‘ll go to it live.
Let‘s get to it.
TheWashingtonPost.com‘s Chris Cillizza is an MSNBC political analyst and Major Garrett is congressional correspondent for “The National Journal.”
Major, I thought that was an extraordinary use of the power of the Oval Office.
MAJOR GARRETT, NATIONAL JOURNAL: Well, quite clearly, the president is frustrated. And he has today continued what he has said for two or three weeks. That he is prepared to take political risks, prepared to change the way Washington thinks about politics, specifically as it relates to budget and taxation, and Republicans are not. That‘s the president‘s frame.
And he‘s talked about it in these terms for about two weeks. And he talked about it the most progressive way to date this afternoon.
If you look at what‘s happening at the polling data, the public has responded favorably to the president‘s presentation of his pursuit of grand bargain in his talks with Republicans—portraying them as small-minded, intransigent, stubborn.
SMERCONISH: Right, obstinate. And, Major—
GARRETT: Republicans—yes, go ahead.
SMERCONISH: What I was most significant is the way in which—you know, here we are trying to read the tea leaves. Some people thought they were close it a deal. Others said no deal. We laid it all out there.
Here‘s the president talking about the proposed deal. Let‘s listen.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We were offering a deal that called for as much discretionary savings as the “gang of six.” We were calling for taxes that were less than what the “gang of six” had proposed. And we were calling for modifications to entitlement programs would have saved just as much over the 10-year window. In other words, this was an extraordinary fair deal.
(END VIDEO CLIP)
SMERCONISH: Chris Cillizza, he spoke with specificity. I think now putting the onus on Speaker Boehner to have to stand up in 13 or so minutes and respond in kind.
CHRIS CILLIZZA, THEWASHINTONPOST.COM: Well, yes, you know, I would say, Michael—and I know Major shares my sentiment—about one minute into the conference, you knew that there was going to be a Boehner press conference, because Barack Obama was going to directly at John Boehner.
And this is someone with whom he has worked. He‘s had obviously contentious relationship with Eric Cantor, the House majority leader. But he and Boehner have both been committed on several occasions from this final end game, to a grand bargain or a bigger deal.
You know, you mentioned this one the top, Michael, and what I was most struck by, this is a president who is decidedly self-contained emotionally, always has been. This was as visceral, as angry. He bordered on outright straight anger, which you rarely see from him. I think it‘s something that will get the Democratic base excited.
You know, on Twitter, I was following it. A lot of folks were saying this is the defining moment. This is what we want out of this president.
What I would caution against is, remember who President Obama is
targeting since the 2010 election ended, and when the 2011 election started
moderate independents. What do they like most?

SMERCONISH: Right.
CILLIZZA: Compromise, and the sense that Washington is working.
This nasty rhetoric back-and-forth—I mean, I‘ve just written to this. I honestly think it winds up being a lose-lose for both sides, where it‘s a pox on both your houses.
SMERCONISH: What I also found interesting on that score is how the president said, look, I was prepared to do the tough stuff on an issue that they ran on.
Here, President Obama spoke about willing to take the heat from his party. Let‘s listen.
(BEGIN VIDEO CLIP)
OBAMA: I was willing to take a lot of heat from my party and I spoke to Democratic leaders yesterday. And although they didn‘t sign off on plan, they were willing to engage in serious negotiations. Despite a lot of heat from a lot of interest groups around the country, in order to make sure that we actually dealt with this problem.
It is hard to understand why Speaker Boehner would walk away from this kind of deal and, frankly, if you look at the commentary out there, there are a lot of Republicans that are puzzled as to why it couldn‘t get done.
(END VIDEO CLIP)
SMERCONISH: NBC‘s Kelly O‘Donnell is joining us now from Capitol Hill.
Kelly, you interrupted HARDBALL with breaking news earlier tonight.
You said this is not a good development. Man, you weren‘t kidding.
KELLY O‘DONNELL, NBC NEWS CORRESPONDENT: Well, we had about a half hour briefing with senior aides to Speaker Boehner and we got lot of the behind the scenes from them, and I can tell you that the tone from the president and tone from the House Republicans, this is a divide not only in not being able to get a deal but how they view this.
So, you heard what president thinks went wrong. What we were told is that the House Republicans do believe that the White House was willing to make some big structural changes to how things work. They were giving them credit for that. What they say really derailed this is when the “gang of six” came back. That group of bipartisan senators who have been working for many months on their own deal. They were considered to be on the side lines.
They burst back on the scene Tuesday with a package that differs from what the White House and Speaker Boehner had been talking about. GOP aides say then the White House pulled back and began to change its demands and change what it wanted.
And so, Speaker Boehner is saying that yes, the White House was willing to change the tax code but then came back and wanted to do things that would have left the possibility for cuts in some of the spending, but not the kind of package that they had talked about. Basically, it gets complicated. I won‘t go into all of the weeds but they walked us through many, many steps of where they say the White House pulled back and at that point, they felt they had nowhere to go.
For example, they had talked about having a change in the tax code which would lower rates and bring closer together the corporate tax rate and the individual tax rate. After the “gang of six” they said the White House no longer wanted to do that, wanted a different-size package, wanted to change in it in a way that Republicans couldn‘t live with. What the aides to Speaker Boehner say is they acknowledge that Democrats were going to have a tough sale with this because there was going to be somewhere in the range of $425 billion to cuts to Medicare and other health programs, very tough stuff. It could change things like changing eligibility rates and changing co-pays, lots of mechanics they had not yet worked out.
For Republicans, what was going to be so tough is this increase in revenues.
(CROSSTALK)
O‘DONNELL: Getting rid of some of the loopholes, they would have ultimately been saying, yes, there would be more tax revenue coming in.
SMERCONISH: I have sound from president just moments ago. I think pretty much on score with exactly what you‘re describing. It‘s the president speaking about revenues and what not having revenues in this deal would mean. Let‘s all listen.
(BEGIN VIDEO CLIP)
OBAMA: If you have no revenues at all, what that means is more of a burden on seniors, more drastic cuts to education, more drastic cuts to research, a bigger burden on services that are going to middle class families all across the country. And it essentially asks nothing of corporate jet owners. It asks nothing of oil and gas companies. It asks nothing from folks like me who done extremely well, and can afford to do a little bit more.
In other words, if you don‘t have revenues, the entire thing ends up being tilted on the backs of the poor and middle class families.
(END VIDEO CLIP)
SMERCONISH: Kelly, what I heard the president say is to the extent there was imbalance in that which he was willing to accept, it was imbalanced in the direction of the GOP, of the Republicans, and still it wasn‘t enough for them, you got to believe that John Boehner will respond to that in about 10 minutes time.
O‘DONNELL: Certainly, absolutely.
And one of the issues is how this would work. This is such a complex plan that there would be phases and what Republicans were concerned about is that if Congress didn‘t do the tough things like making changes to the entitlement programs, which would be politically very tough, then they fear they‘d be left with only the tax increases.
So, this comes down to a lot of fine print, a lot of very complex issues. So, both sides had agreed tax should change in terms of what you can deduct. Some of those things would go away. They believe rates should come down. Then Republicans say the president wanted to go back to the idea of having the highest earners lose those Bush tax cuts, having those go away, breaking that apart.
So, did they have some of the same interest going into it? It appears they did, but then after, and I think it‘s interesting, politically, that the Republicans are blaming the “gang of six” for sort of getting in the way. We‘ll have to hear what they say about that. But now, what Boehner is hoping to do is bring this back to a Capitol Hill issue, get the president off the negotiating room.
Well, what did the president do? Invite them all right back down to the White House tomorrow.
So, whatever this really does, it has created an absolute urgent warning bell that‘s gone off all over this Capitol and certainly down at the White House, which changes the dynamics again. It also exposes some of what they have been talking about, trying to show from each side where the other side was intransigent.
And that is important detail in helping to send a signal to the extremes in both parties. You heard the president reference interest groups. Certainly, Speaker Boehner‘s letter to his colleagues had a big message to those who had been trying to fight the line on increasing taxes and seeing bigger cuts.
So, there are many levels of message going on here.
SMERCONISH: You wonder, was Speaker Boehner the impediment in the eyes of the president? Because I heard him say that he couldn‘t get his call returned. And then he made reference, here it is, to being left at altar.
O‘DONNELL: Well, I think that is about the speaker --
(BEGIN VIDEO CLIP)
OBAMA: My relationship with Speaker Boehner—we had very intense negotiations. I‘m going to have my team brief you exactly on how these negotiations proceeded. Up until sometime early today when I couldn‘t get a phone call returned, my expectation was that Speaker Boehner was going to be willing to go to his caucus, and ask them to do the tough thing but the right thing.
I think it has proven Speaker Boehner difficult to do that. I have been left at the altar now a couple of times. And I think that, you know, one of the questions that Republican Party is going to have to ask itself is, can they say yes to anything?
(END VIDEO CLIP)
SMERCONISH: Kelly, you were responding to that issue of the relationship between the president and the speaker.
O‘DONNELL: Well, I saw the speaker today, spoke to him right before he made the phone call to the president. So ,I think the when the president was calling earlier in the day, the speaker already knew this was coming and was not yet prepared to break that news because they had to get their ducks in a row, get this letter to members. The speaker feels it‘s very important that members find out about this at the same time. Lots of that sort of internal politics there.
So, certainly the president has made it very politically tough on Boehner tonight by making it look like it‘s Boehner who‘s the obstructionist. Boehner will come out and answer that and try refrain it as to the White House having changed the game during the process of negotiations.
The big headline, though, is they say they can still get something done this weekend and that‘s what we‘ve got to watch.
SMERCONISH: Major Garrett, by my count, I heard at least two references made to talk radio and ideology. The president taking the position that there was no level of negotiation that was going to appease some on the other side of the aisle in part because of constituencies to whom they are responding.
GARRETT: You know, I would—that‘s the president‘s interpretation. And, of course, he is entitled to it. But I can tell you, Michael, based on my reporting today, talking to very senior House Republican aides, up until 4:30 this afternoon, there was still a sense—base on the meeting that Speaker Boehner had with this Republican conference this morning on Capitol Hill, that a deal was still possible, that there were some very important granular details which Kelly touched on a few, that needed to be worked out. But there was still an expectation, at least of the potential of something working out.
And the expectation indeed, that conversations along those lines would continue through this weekend. But clearly, the speaker reached a different conclusion. Probably one he was keeping very close to the vest. That ultimately, on these details, of execution, process and granular details about the tax code, Medicare, Medicaid, the very tough stuff in policy, the bridges could not be crossed.
And with all due respect to the president saying he was left at the altar twice, I would say conceptually, there were some rough agreements, but they were never at the point where things were drafted, where things were—there was a handshake agreement. I would say the president wasn‘t left at the altar so much as he hadn‘t got a promise ring after the dates.
SMERCONISH: The president, as I reference, made mention of radio hosts. He also talked about working stiffs. Let‘s listen.
(BEGIN VIDEO CLIP)
OBAMA: Working stiffs out there, ordinary folks who are struggling, everyday. And they know they are getting a raw deal. And they are mad at everybody about it. They are mad at Democrats and Republicans because they know somehow, no matter how hard they work, they don‘t seem to be able to keep up.
And what they are looking for is somebody who‘s willing to look out for them. That‘s all they‘re looking for. And, you know, for us not to be keeping those folks in mind every single day, when we‘re up here—for us to be more worried about what some thunder says or some talk radio show host says or what some columnist says, or what pledge we signed back when we were trying to run or worrying about having a primary fight—for us to be thinking in those terms, instead of thinking about those folks, is inexcusable.
(END VIDEO CLIP)
SMERCONISH: Chris Cillizza, whether folks agree or disagree with him, he sure is an effective communicator. I think it sets the stage for a tough order for John Boehner coming up in just a minute.
CILLIZZA: You know, Major mentioned this at the top. But I think it‘s important. That speech right there was 100 percent politics. I know he talked a little bit about the policy, that was a political speech. This is about winning—
SMERCONISH: Directed to whom?
CILLIZZA: Directed to the American people. This is about winning the blame game now, Michael. We are now beyond a big deal. You don‘t do a press conference like that if you think there is a shred of possibility that a grand bargain, a big deal can get done.
You know what‘s fascinating about it, Major mentioned in the beginning when we were talking about middle class that the president has really made up some political ground, talking about the middle class. What I thought of when I watched that clip, what I thought up when I watched it originally and when I was just re-watched it—real echoes of Al Gore, people versus the powerful. That‘s about as close as Barack Obama is going to get to a populist kind of “we need someone to stand up for the middle class,” framing this as a debate between the powerful special interest and Republicans not willing to get over.
He didn‘t mention it by name but he basically did. Grover Norquist and Americans for Tax Reform, worried about primaries. While he is looking out for the middle class for the people who I would just remind folks, tend to decide elections, the middle class, he is their champion.
(CROSSTALK)
CILLIZZA: Go ahead. Yes?
SMERCONISH: I remember the fact that his op-ed in “USA Today, this morning, the final line made a plea not only to R‘s and the D‘s, but also to I‘s, meaning to people of no party.
CILLIZZA: And, you know, Michael, just quick point I would say
SMERCONISH: Hey, here comes Speaker John Boehner right now. I‘m going to interrupt. We‘re going to go live and then we‘ll analyze.
REP. JOHN A. BOEHNER (R-OHIO), SPEAKER OF THE HOUSE: I want to be entirely clear, no one wants to default on the full faith and credit of the United States government. And I‘m convinced that we will not. Starting tonight, I‘ll be working with colleagues here in the Capitol, both the House and the Senate, to find a responsible path forward.
And I have confidence in the bipartisan leaders of the Congress that can come together and to ensure that we have an agreement that—that will allow the country to avoid default and meets the principles that we‘ve outlined. Spending cuts that must be greater than the increase in the debt limit and no tax increases.
The discussions we‘ve had with the White House have broken down for two reasons. First, they insisted on raising taxes. We had an agreement on a revenue number. A revenue number that we thought we could reach based on a flatter tax code with lower rates and a broader base that would produce more economic growth, more employees and more taxpayers.
And a tax system that was more efficient in collecting the taxes that were due the federal government. And let me just say that the White House moved the goal post. There was an agreement on some additional revenues. Until yesterday, when the president demanded $400 billion more, which was going to be nothing more than a tax increase on the American people.
And I can tell you that Leader Cantor and I were very disappointed in
in this call for higher revenue. But secondly, they refused to get serious about cutting spending and making the tough choices that are facing our country on entitlement reform. So that‘s the bottom line.

I take the same oath of office as the President of the United States.
I‘ve got the same responsibilities as the President of the United States. And I think that‘s for both of us to do what‘s in the best interest of our country. And I can tell you that it‘s not in the best interest of our country to raise taxes during this difficult economy.
And it‘s not in the best interest of our country to ignore the serious spending challenges that we face. No I want to say this is a serious debate. And it‘s a debate about jobs. It‘s a debate about our economy. And frankly, it‘s also a big debate about the future of our country.
You know, until recently the president was demanding that the Congress increase the debt limit with no strings attached. Matter of fact, the Treasury secretary sent me a letter two days after we were sworn in, in January demanding that we give him a clean increase in the debt limit.
And I made it clear that we would not increase the debt limit without cuts that exceeded that increase in the debt limit, that there would be no new taxes and that there would be serious spending reforms put in place.
Listen, it‘s time to get serious, and I‘m confident that the bipartisan leaders here in the Congress can act. If the White House won‘t get serious, we will.
QUESTION: Your own aides say that the package of cuts that was on the table were worth about $3 trillion. How can you say that the White House wasn‘t serious about spending cuts? That‘s even more than you were asking for initially.
BOEHNER: Listen, we‘ve put plan after plan on the table. You know, the House passed its budget. We had our plan out there. The House passed Cut, Cap and Balance. Never once did the president ever come to the table with a plan. It was always—we were always pushing.
And you know, when you get into these negotiations, sometimes it‘s good to back away from the tree and take a look at the forest.
And yesterday afternoon, after the president demanded more revenue in this package, I‘d (inaudible) came back against—away from the tree to take a look at the forest.
I spent most of the morning and afternoon consulting with my fellow leaders, members of our conference, and others about the way to go forward.
And I‘ve just—want to tell you what I said several weeks ago, dealing with the White House is like dealing with a bowl of Jell-o. I‘m not going to get into the partisan sniping that we heard earlier.
But I can tell you that there was every effort in the world to avoid the real cuts that we need to make in order to preserve the fiscal integrity of our country and, frankly, the real cuts that needed to be made, that need to be made, to preserve our entitlement programs, which are important programs, to tens of millions of Americans.
QUESTION: Speaker Boehner, Speaker Boehner you‘re frustrated (ph) with the White House.
But how can you conceive that you can forge an agreement here just (ph) exclusively with people in the House and the Senate without having some buy-in from the (inaudible)?
BOEHNER: I think that we can work together here on Capitol Hill to forge an agreement. And I‘m hopeful that the president will work with us on that agreement.
QUESTION: Speaker Boehner, (inaudible) President Obama said that you did not return his phone call. Has this permanently damaged your relationship with the president?
BOEHNER: Listen, the president and I have gotten to know each other pretty well over the course of the last six months. And I can tell you that in all of our conversations, they were respectful. They were firm.
There was frustrations on both sides. But I don‘t—I don‘t believe that our relationship is permanently damaged.
QUESTION: (Inaudible) to the White House tomorrow morning. Are you going to go?
BOEHNER: Yes, ma‘am.
QUESTION: Speaker, do you trust the president and (inaudible) weeks of negotiating (inaudible) come to any sort of agreement on this. I mean, you say you back away from an offer he made. Do you trust him as a (inaudible)?
BOEHNER: I do trust him as a negotiator. But let‘s understand that every step of this process was difficult. You know, there‘s a reason why we have two political parties. There‘s a reason why the president and I are come from different political parties.
The president believes in the size of government, in more taxes from the American people. Listen, every weekend, when I‘m not stuck here in Washington, D.C., I‘m out somewhere in America and I‘m out around my district.
And I run into people, small business people, who don‘t understand why they pay the taxes they pay, don‘t understand all the regulations that are coming out of Washington impeding their ability to grow their business and to hire more people.
And when you—we boil all of this down, yes, we‘ve got to save the fiscal future for our country, but we‘ve got to get our economy growing again, and we‘ve got to give people confidence in our economy. And the way to do that is to have real spending cuts now.
QUESTION: (Inaudible) in revenue set. It sounds like you and the White House (inaudible) about $400 billion (inaudible). That‘s about $40 billion (inaudible), considering (inaudible) federal budget. It‘s not really that much. (Inaudible) is so high? (Inaudible).
BOEHNER: The extra $400 billion would have had to come from increasing taxes on the very people that we expect to invest in our economy and to create jobs.
QUESTION: (Inaudible) the president suggested that you walked away from this because you couldn‘t control your own caucus, that there are people that are Republicans—and when we have the Republicans who say the default isn‘t something they‘re concerned about and don‘t want to see the debt ceiling raised under any circumstances, is there any truth that you were pressured to walk away from something that you might have otherwise (inaudible)?
BOEHNER: Absolutely not. I gave the president‘s proposal serious consideration. But let‘s understand something, there was an agreement. There was an agreement with the White House at $800 billion in revenue. It‘s the president who walked away from his agreement and demanded more money at the last minute. That is the—and the only way to get that extra revenue was to raise taxes.
QUESTION: At this point what‘s the likelihood of doing a short term debt limit increase? And would that be something that you and the president agreed upon (ph)?
BOEHNER: The president and I have never discussed a short term increase in the debt limit. I‘m not really interested in a short term increase in the debt limit. I believe that we have two challenges; that we have to increase the debt limit and we have to deal with our deficit and our debt.
And the sooner we do that, the better off our country will be.
QUESTION: You mentioned that there‘s three possible options; Cut, Cap, Balance, the big deal or the McConnell plan. Cut, Cap, Balance has failed in the Senate. The big deal has collapsed. What else is there to do?
BOEHNER: I‘ll be working with the bipartisan congressional leaders on a path forward and I‘m confident—I‘m confident that Congress can act next week and not jeopardize the full faith and credit of the United States government.
SMERCONISH: That was House Speaker John Boehner just following up the president‘s impromptu Friday night press conference on the failure of these budget negotiations and budget talks. The president, of course, took the floor earlier and said that Speaker Boehner had walked out. This was the response from Speaker Boehner.
NBC‘s David Gregory, of course, moderator “Meet the Press.”
David, I was taken with the fact that the first thing John Boehner said when came out is that he is looking forward to working with his colleagues in Congress—didn‘t make reference to the White House at that moment.
DAVID GREGORY, MODERATOR, “MEET THE PRESS”: He didn‘t but he is going to go to this meeting tomorrow. So that was news. So, now, we have a new set of negotiations after these negotiations are broken.
But it‘s been stunning what we witnessed here in the space of an hour and a half. This day began with everyone talking about the prospect of a grand bargain, that big deal spending cuts and revenue increases being back on the table. And now, we end the day with no deal being a real possibility. And let‘s just ignore politics which are pretty huge right now. And look at the substance here.
I mean, you‘ve got ratings agencies who are warning about downgrading America‘s credit rating now. And even if there‘s a deal, if they think it‘s too small. I mean, look what‘s going on in Europe with countries defaulting, spurring on those rating agencies to take a hard look at the United States, which is on the brink now as we face this potential default.
It all comes down to taxes if you hear the speaker talked about it and indeed White House officials saying as well, that the back-and-forth negotiations have to do with this attempt by the president to achieve some balance. If there‘s going to big spending cuts, there‘s got to be some revenue increases as well. The White House described it simply as Speaker Boehner not being tough enough to stand up to his own Republican caucus where there are the likes of Leader Cantor and others, you know, vying for the speakership. And that he won‘t bend to that because there are members of his caucus, conservatives, who won‘t vote on any tax increase, period.
At the same time, Democrats worry about the size of the entitlements cuts.
So, this is Washington not working. You‘re seeing the full glare.
SMERCONISH: David, I heard the president clearly say that of which he was putting forth he thought was more generous than that, which was proposed by the so-called “gang of six.” Then you hear the speaker coming up and say, well, the White House only wanted to do was raise taxes and they weren‘t serious about spending cuts.
Is the American public able to follow along and come to some determination at end as to which side they believe?
GREGORY: No. These are two behemoths who are spinning how these negotiations are going. We know that there was a big package of spending cuts that was being agreed to.
That there were tax increases, tax reform that would have resulted in new tax revenue to help pay for some of it. They were also in the works.
Speaker Boehner‘s aides talk about how frustrating they were when that so-called “gang of six” proposal, six senators, bipartisan group. When word started to leak out about what they were talking about and then even the White House said, look, if we are talking more in terms of spending cuts, the tax increases have to go up as well. And that‘s where things continue to break down.
But, again the level of optimism that, in fact, he could sell this thing, that completely vanished by this afternoon when Boehner said it won‘t gaining to happen.
And the back story here, too, Smerck, is interesting because you heard Luke Russert asked Speaker Boehner about it, the president couldn‘t get his phone calls returned --
SMERCONISH: Right.
GREGORY: -- after they had, you know, so much conversation. The president calling last night at 10:00, couldn‘t reach Boehner. And, then, finally, Boehner‘s office saying, well, the speaker will call the president at 5:30 and not before them. And that was the call saying --
SMERCONISH: Yes. But, David, when I hear something like that, it makes me wonder—is Boehner not able to deliver those that he represents, or he is the problem or is it some combination of both?
I always wondered if there is a dichotomy between Cantor and Boehner that in the end was going to doom this.
GREGORY: Look, let‘s remember that there‘s political posturing going on and there‘s negotiation going on. And what do Republicans want? They want as much as they can get in spending cuts and they don‘t want tax hikes. And that was the price of getting the debt ceiling raised.
They may ultimately get a smaller deal that raises the debt ceiling. Maybe you know, Boehner seems to—he denied it there but others have said he wants a shorter term deal. He gets some down payment on spending cuts and kind of keep coming back to this over and over again. That‘s not what he says he wants a grander deal.
I don‘t know how you get to the truth of the matter other than working both sides to this and talking to people who are involved. We know for the past two weeks that a grand bargain was actually in the works, that there was a combination of tax reform and tax cuts, spending cuts. That has melted away.
So, to your point, could he not sell this? That‘s still the issue. What‘s going to pass, what will get out of House, what will get out of the Senate, and Republicans, even after they have their say this week where they passed, cuts and a cap in spending an balanced budget amendment, that didn‘t get through the Senate. They were able to cast the votes that they wanted to. That wasn‘t enough.
SMERCONISH: I noticed that the president, in response, I think it was to our own Norah O‘Donnell who posed the question, said that he was willing to make available, it was something like the tick-tock of what had gone on here, I mean, people‘s eyes might glaze over.
But I for one would love to know exactly where the break down came.
GREGORY: Well, those details are going to come out because both sides have an interest in publicizing those details to make their own point.
But let‘s bottom line this a little bit. Even if you are seriously injured in the political entry, which, of course, you know, we are and that‘s a big part of the process and break down in trust. There‘s something very significant on the line.
And there is an extreme failure of leadership of both sides here not to be able to bring a deal to the table.
So, it‘s a little bit unclear to me where they go next. They‘ll get together, do they do a smaller deal? In other words, less in the way spending cuts? Are tax increases taken off the table completely or do they go back to what you call kind of the Alamo position here, which is, do McConnell‘s deal give the president the authority, don‘t have to cast a vote at all, you can vote against him getting the authority to raise the debt ceiling and then somehow it gets raised.
The marker is Monday.
SMERCONISH: David, Kelly O‘Donnell was standing by on Capitol Hill.
Kelly, tell us what you know.
O‘DONNELL: Well, as you were talking about the timeline, we actually got some of those details in that briefing that I mentioned before where I was talking with senior leaders, saw speaker there as well. We were told that on Sunday that Secretary Geithner and the negotiators for the White House—the president was there briefly as well—had agree on this number. And then on Monday, they were expecting—Republicans were expecting to get some paper from the White House and they said nothing happened. By midday Monday, they said still nothing.
On Tuesday, the day that the “gang of six” kind of reemerged, they told us that they then heard in a conversation about how these targets needed to change.
And then by Wednesday, the default mechanism they said would need to change. And by that I mean what triggers would happen in a deal which, if Congress didn‘t act, there would be some penalty.
So, Eric Cantor and John Boehner believed they could sell the deal on taxes when it was a lower tax rate, a flatter rate, but expanding what you could tax, meaning getting rid of some deductions. When the White House insisted that the highest earners would still have to pay at pre-Bush tax cut rates, so there rate would be, in effect, going up from a Republican point of view. That‘s what they couldn‘t sell.
So, they could sell a change in tax code with you when you talk about the $400 billion that the speaker referenced, that would have been what, you know, the term they like it use is job creators, hirers, people who hire, and that‘s where they felt they couldn‘t sell it.
In addition, they also thought if the adult mechanism, the way if Congress doesn‘t act, then they would be left with the White House getting what it wanted with higher taxes. They wouldn‘t get the spending cuts.
So, it‘s the details that fell apart and the concept it began to shift, at least according to the Republicans‘ take on this.
SMERCONISH: Kelly, there‘s been a lock set in the last 24 hours about how many in the House, I think 221, had signed Grover Norquist‘s pledge that under no circumstances would they raise taxes. How much of it came down to the semantics of what he‘s been saying in the last 24 hours as to whether not extending the Bush tax cut would or would not have been in violation of the pledge?
O‘DONNELL: Well, in the strictest, Norquist said that it would not violate it. But when you‘re talking about going to a higher rate than people had been paying for 10 years, in the everyman sense, that was an increase and that would be something that would be very tough for House Republicans to sell. Changing the rate and bringing down the corporate tax rate and for as you know, the people who pay for their small businesses, on an individual tax rate, that‘s where Republicans are most concerned, they are trying to squeeze that so individuals and corporations paid a closer tax rate. They thought that would appear fairer and they could sell that to their members.
So, the frustration from the Republican point of view, having sat through the conversation today, they felt that the speaker felt the goalpost moved. And once that happened, it really began to crumble, according to the Republican point of view. We‘ll hear from White House insiders as well with their take on how this tick-tock went. But Sunday was pivotal. Monday, nothing from the White House, they say. Tuesday started to change, and Wednesday, there was a turn. That‘s the way they bring it us to.
SMERCONISH: Major Garrett, to the extent, there‘s a silver lining in any of this. I‘m sitting here reflecting on fact that it‘s Friday night. The markets won‘t be open tomorrow. Hopefully, they‘ve got 24-48 hours where they can achieve something because I‘m fearful of the message will be come Monday morning if they haven‘t.
GARRETT: And it‘s clearly not a coincidence, Michael. There is no way Washington would have this public fight, this acrimony, playing out on television if the markets: (a), were open. And at the beginning after trading week as opposed to closed, at the end of a trading week, when they had at least two days for the markets to assess whether or not Washington was calming down, whether it was reengaging, and whether it was doing anything serious to avert a default on August 2nd.
You asked a question a moment ago about whether John Boehner can control his caucus. Well, so far, he has. But I wrote for “National Journal” last week, there‘s a fundamental between this speaker‘s relationship with this House Republican conference, and that the Speaker Gingrich had. Speaker Gingrich went around the country used cassette tapes, the medium of that era, and videotapes, to inspire lots of Republicans to run for the House. When he was speaker, and there was tough vote, especially early on his speakership, he can look at those members and say, you‘re here because of me.
Quite differently now, Michael, many of these freshman, the 80-member
freshmen class and maybe be elected just one term before that look at
Speaker Boehner and say, you know, there was a grassroots fire out here,
that was sort of a reaction to institutionalist establishment Republicans -
kind of like you. So, John Boehner, you‘re a speaker because of us.

And that‘s a fundamental difference in the way this Republican conference operates and the limits of Speaker Boehner‘s power at times like this. I‘m not saying that scuttle this deal entirely. But that difference in relationship gives him less latitude, less maneuverability than Speaker Gingrich sort of had under similar circumstances.
SMERCONISH: Major Garrett, many thanks. Kelly O‘Donnell, David Gregory, Chris Cillizza, everybody sticking with us. It‘s an extraordinary night. Much more on the breakdown of the deficit talks.
You‘re watching HARDBALL, only on MSNBC.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
OBAMA: I remain confident that we will get an extension of the debt limit and we will not default. I am confident of that.
(END VIDEO CLIP)
SMERCONISH: That‘s President Obama late today. Let‘s get more now from the White House with NBC‘s Kristen Welker—Kristen.
KRISTEN WELKER, NBC NEWS CORRESPONDENT: Hi there, Michael.
Well, we are learning a little bit more at this hour about why these talks broke down. One of the main reasons, you heard Kelly O‘Donnell talk about the $400 billion in changes to the tax code. Republicans saying the White House moved the goalpost on that $400 billion. White House officials saying that‘s not the case. They say that was always on the table.
Another point they are making, they wanted those changes to the tax code to take effect by about 2013. And to do that, they really had to had triggers to make Congress come back to the table to get those changes in order. And Republicans were asking the triggers to be a repeal of the individual mandate in the healthcare reform bill that had been passed. White House officials didn‘t want to go along with that. Democrats wouldn‘t go along with that.
And then, a third thing, there was a lot of argument, a lot of back and forth over how deep the cuts and entitlements should be specifically over Medicaid. So, really, those three issues are why the talks broke down, according to senior White House officials.
Now, one more interesting point here, Michael, according to those officials. They‘re saying that President Obama called Speaker Boehner last night, didn‘t get a call back, called them again at 3:30 this afternoon and was told he would get a call back. And at about 5:30, that 5:30 call was when Speaker Boehner got in contact with the president and told him that, in fact, he was pulling out of this deal—Michael.
SMERCONISH: And what do we know, if anything about, what was said exactly in that call? How heated did it get?
WELKER: Well, you heard Speaker Boehner say that all of their conversations have been cordial, have been respectful. No one has commented specifically on the tone of that call. But we can, of course, tell you that president seemed quite frustrated. Some of the angriest rhetoric we have heard from the president during the entire debt talks.
So, it is safe to assume it was likely heated conversation. But again, Speaker Boehner made the point that all of their dialogue has been respectful. But no doubt, president expressing frustration that he didn‘t get a call back this afternoon and we are now learning he called him last night as well—Michael.
SMERCONISH: Kristen Welker, thank you for being at the White House and joining us.
Still with us, TheWashingtonPost.com Chris Cillizza and we‘re joined now by “The Washington Post‘s Jonathan Capehart and MSNBC political analyst Pat Buchanan.
Pat, I thought we saw quite an exercise of bully pulpit power earlier tonight. John Boehner then responded in kind.
What are the political optics of this?
PAT BUCHANAN, MSNBC POLITICAL ANALYST: Well, I think the optics of it and reality of it is we‘re not going to be able to put humpty-dumpty together again in one week. There is no question about that. The president of the United States was very political. He savaged the Republicans.
Boehner walked out. He‘s not going to be able to put a deal together with the Senate.
So, what do we have, Michael? What is the bottom line? What do we all agree on?
We all agree that we need the debt ceiling raised for the good of the country. We don‘t want go into default. We don‘t want to shut down half of the government one or the other.
The second thing is we do agree that there‘s got to be major tax cut. I mean, excuse me, spending cuts. Those are the only things everyone agrees on. I think we‘re going to reach a situation next week where the president of the United States is going to have to yield and we‘re going to have to have a short term increase in the debt ceiling of six months or nine months because you cannot put this complex deal together again in seven days.
SMERCONISH: Jonathan Capehart, is that what you heard? A savaging by the president of the GOP?
JONATHAN CAPEHART, WASHINGTON POST: No, what I heard was a president who was really ticked off. A president who is as Pat said, you know, he‘s trying to do something that‘s good for the country. For the United States to default on August 2nd would be an unprecedented action that even the markets say they don‘t know exactly how thing will go.
What we saw today, Pat might want to call it savaging the Republicans.
It‘s chief executive staring at the—going over the waterfall. And it‘s
you know, we‘re not just talking about raising the debt ceiling and whether to do this short term or long-term. The ratings agencies have already made it clear that a short term deal is not going to be acceptable to them.

S & P has already gone on record saying that they would like to see a debt ceiling increase but also cuts in the range of $4 trillion. If they don‘t see that they will consider a downgrade of the United States bond rating. If that happens, for the first time in history, from AAA to AA, that could have severe consequences for the United States.
And if you are Barack Obama—and I also want to say, if you‘re Speaker Boehner and Senate Majority Leader Reid, and Minority Leader McConnell and Majority Leader Cantor, if you are looking at that, you have to stop playing the political games and stop wet heated rhetoric and get into a room and solve this.
SMERCONISH: Jonathan, let me follow up with Pat for a moment.
Pat, when you say that there‘s general agreement relative to cuts that are necessary and raising the debt ceiling, I‘m not so sure on the second of those. The president made the observation there are some who are ideologues within the GOP who to them it is just fine, if, in fact, not only the debt ceiling isn‘t raised, but that there‘s default as a result.
I think that is a mind-set. I know, I hear from people who call me every day.
BUCHANAN: I‘ve heard that there are Tea Party members who simply will not vote to raise the debt ceiling.
I think, in my judgment, after they got their cap and cut, I think that would be irresponsible. I do believe that you have to have the debt ceiling raised temporarily.
Look, I know what Jonathan is saying. But it is an impossibility to see how this deal can be cobbled together, put down on paper, agreed to, and enacted in seven days.
And if you can‘t, you don‘t want to default. You don‘t want to shut
down half the government, so you extend the debt ceiling. How do you do
that? Take cuts that have been agreed upon by Joe Biden, by the Democrats
in the Senate, by the Republicans in the Senate and everyone in the House -
a share of those cuts, and put them on that debt ceiling and pass it for six months or nine months so that you‘ve got time to do something.

I know about the ratings agencies but, look, you‘re not going to get the big deal, Michael, in one week. Deal with it. You cannot make the best, the enemy of the good.
SMERCONISH: Chris Cillizza, doesn‘t it come down to 60 or 80 GOP members of the House, voted with Tea Party support, all of them who signed Grover Norquist‘s pledge, who are looking at this and saying, how can I go home and sell it? Isn‘t it to that constituency that John Boehner and Eric Cantor were looking and recognizing they couldn‘t get the votes?
CILLIZZA: Yes. You know—and I think if you good on the other end, which is what we were talking about 24 hours ago, Michael, which is Medicare and Social Security, Barack Obama putting those on the table, we saw what the reaction was from Democrats in Congress. So, that‘s the problem.
I agree with Pat and I agree with Jonathan. We ultimately were talking about the full faith and credit of the United States, right? Defaulting seems to be not an option.
I‘ve always been of the belief, just because I look at it through a political lens, that neither side really wants this because the political consequences—forget the huge economic consequences—the political consequences are too unpredictable. Too chaotic. No one knows who will blame who.
The thing I just—one quick thing Michael.
SMERCONISH: Quick comment because then I got to break.
CILLIZZA: Yes, one big step back. Independents look at this. They are not interested in the details like we are. All they see is Washington not being able to get anything done. I just kept returning back to my main point—it is bad for both parties.
SMERCONISH: Of that mind said, and my mantra is one of shared pain. If they can cobble together a deal and I like express it this way, where everybody has skin in the game, then I think it is saleable. But if the impression is that the wealthier are getting a free ride or entitlements haven‘t been touched, or the Defense Department—I hear from people who are appalled by the idea we opened 750-plus bases and we keep going a at a time when we can ill afford.
Hold all of your thoughts. Chris Cillizza, Jonathan Capehart, Pat Buchanan are sticking with us.
Much more on the break down on the deficit talks and where we good from here. You are, of course, watching HARDBALL, only on MSNBC.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
BOEHNER: The president and I have gotten to know each other pretty well over the course of the last six months. I can tell you that in all of our conversations, they were respectful, they were firm, there was frustration on both sides. But I don‘t—I don‘t believe our relationship was permanently damaged.
(END VIDEO CLIP)
SMERCONISH: That‘s House Speaker John Boehner after deficit talks with President Obama broke down. And still with us, TheWashingtonPost.com Chris Cillizza, plus, the “Washington Post‘s” Jonathan Capehart and MSNBC political analyst Patrick Buchanan.
Hey, Pat, I want to spend a moment on the Democratic side of the aisle, but not the president. You know, this has been such a crazy day, I‘m reflecting on the fact that much earlier today, it seemed like the impediments putting a deal together might be D‘s. For example, Barbara Mikulski said when we heard these reports that this mega-trillion dollar cuts with no revenues, t was like Mount Vesuvius, many of us very volcanic.
Should we have not taken it for granted that the president should keep his house in order if we do not put in order the GOP?
BUCHANAN: Well, this is why I do believe the president is acting in good faith. I believe the president has made one retreat after another after to get this deal done. So, I do not fault him there. But I think we‘re being unfair to the Republicans, Mike.
SMERCONISH: How?
BUCHANAN: In this sense, they say, well, the Republican, simply, the Tea Party is bullying Cantor and Boehner, but apparently, Cantor and Boehner agreed to $800 billion in revenue enhancement down there and they were prepared to solve a deal until the president moved the goal posts on them. So, I mean, they were ready to do that.
I still think that when you get to the bottom line, we have got to have a debt ceiling increase, and you‘re going to have to have budget—excuse me, yes, budget cuts, that‘s what everyone agrees on. Let‘s get it done, give ourselves some time and move down the road and try to put the big deal back together.
(CROSSTALK)
SMERCONISH: The polling data that I have seen in the span of the last two weeks shows a fairly significant shift the Americans would also be willing to go with revenue enhancements, tax increases, if, in fact, there‘s a shared responsibility.
CAPEHART: Exactly. That‘s what the American people had been said for months now, if not a few years. They recognize the problems that the country is facing. They recognize that everyone has to be a part of it and everyone has to sacrifice. The problem is that down here in Washington, the folk who is need to get that done aren‘t getting it done and continue to play games.
Look, Michael, we‘re between two very difficult places right now. We either default or we get a downgrade by the ratings agencies which will ultimately become a tax increase on the American people.
Boehner and the president are not going to let default happen. And so, now, what we‘re faced with is being in the good graces of S&P and Moody‘s and Fitch, that they don‘t pull the trigger on their downgrade of the United States‘ bond rating, because that ultimately would be devastating to this already struggling economic recovery.
SMERCONISH: And, Pat, I think the politics of this thing, not to exclude Chris Cillizza as well, but the politics of this, I think you‘ve got those who entrenched against the president, those who are entrenched for him, and the rest of the country, whatever, 20 percent or so, trying to figure out who is being reasonable in this. What‘s the answer to that question?
BUCHANAN: Well, you might say—I mean, first, I think the president is being intransigent in saying, I will not take a short-term debt increase in the debt ceiling, because I don‘t want to deal with it in an election year, you might say the Republicans are being intransigent.
Again, let me make a case for the Republicans. A, it‘s not simply they made a promise and a commitment and it violates their principles. Michael, I don‘t know the economic theory, where we got an economy flat on its back with a real unemployment/underemployment rate of 16 percent, you start hammering businesses and individuals with tax hikes. I don‘t understand the economic theory.
That‘s one reason why the Republicans are standing on principle in opposing it. They don‘t think it will be good for the major job, which is getting this economy going again.
SMERCONISH: Jonathan and quickly to Chris.
CAPEHART: Really fast. If I remember correctly, and, Chris, correct me if I‘m wrong, these revenue enhancements, tax increases, wouldn‘t come right now. They were set to go into effect later on past the presidential year, isn‘t that correct?
CILLIZZA: I think that‘s true.
Look, here‘s—you know, Major Garrett mentioned this earlier, and
this is what I think is hard. We never had something to look at. I think
the reports of the deal were greatly exaggerated. To Jonathan‘s point, we -
honestly, Jonathan, I can‘t answer the question because we never had something that said, here are the tenets of this alleged $3 trillion deal. So, we don‘t know what that leaves us with, unfortunately is, Barack Obama‘s side of the story of what went wrong and John Boehner‘s side of the story of what went wrong.

And, Michael, to your point, that 20 percent in the middle on this issue is also the 20 percent that‘s in the middle on just about every issue. They are the people who decide elections, and they‘re the people who again, I hate to sound like a ringing clock—but they are the people who are going to look at all this back and forth and say, Washington is broken.
I‘ll point out 80 percent of people in “Washington Post”/ABC poll that came out earlier this week, 80 percent of people said they were angry or dissatisfied with the way Washington is working—highest number since 1992.
SMERCONISH: I don‘t see any winners in this. I don‘t think anybody is coming out of this looking good, but I think that those folks who were trying to do an assessment of who‘s trying to make it work, they‘re going to hear the president say I was prepared to make a imbalanced deal. I was prepared—
(CROSSTALK)
CILLIZZA: Michael, we know that the president, the power of the bully pulpit, we know that‘s the case. Look, Barack Obama can have a press conference every single day between now and the time the deal gets done, or now and August 2nd, and it‘s going to get huge amounts of coverage. John Boehner, less so.
That is the power of the presidency. We know it. Go to ‘95, ‘96 government shutdown, how Bill Clinton won that PR war against Newt Gingrich. You have a level of power to communicate with the American public, particularly when you‘re a good communicator like Barack Obama, you have the power with the American public that a House speaker lax.
SMERCONISH: Pat, go ahead and take the final thought.
BUCHANAN: But also, the Republicans are asking, they said the president did not produce any pieces of paper about what he was going to do. That‘s a good question: where is the White House paper proposals that they made to the Republicans?
SMERCONISH: They said they were going to release it. I mean, you heard the response by the president, he said he‘d release the paper trail that would show the deal.
I want to see it.
BUCHANAN: Well, this is what—Boehner said—after he‘d make these offers, he never gave us a piece of paper with the words on it as to exactly what he was committed to do.
SMERCONISH: Jonathan Capehart, quickly, final thoughts?
CAPEHART: Look, I can‘t wait to see—like you, Michael, I can‘t wait to see the paper. I cannot wait to read the paper trail. But again, we are between two terrible places, default and downgrade.
SMERCONISH: Men, thank you. Chris Cillizza, Jonathan Capehart, Pat Buchanan.
That‘s HARDBALL for now. Thanks for being with us. Chris will be back on Monday.
“THE LAST WORD” with Lawrence O‘Donnell, it starts right now.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
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