Well, at least we now know what Barack Obama meant by going big, and so does John Boehner.  After Obama insisted on a trillion dollars in tax hikes to accompany the $4 trillion in cuts over the next decade that even Obama has insisted is necessary to solve the debt and deficit crisis, Boehner walked away from the deal.  James Pethokoukis published an e-mail he received from Capitol Hill describing the offer as “beyond bizarre”:

Their fierce insistence on higher taxes is beyond bizarre. After months of demanding ‘clean’ increase to avert economic calamity (default), WH threatens economic calamity (default) unless they get economic calamity (trillions in tax hikes). No wonder these guys are governing over an economic calamity (9.2% & growth malaise), w/ an economic calamity on the horizon (debt explosion as mapped out in president’s budget). The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior.

The Hill reports the stumbling block to the big deal and the direction Boehner now wants to take:

Boehner had initially backed an effort to pursue a comprehensive agreement said to include more than $4 trillion in budget savings over 10 to 12 years. His top lieutenant, Majority Leader Eric Cantor (R-Va.), had opposed the plan because, an aide said, it would include more than $1 trillion in tax increases that Republicans have ruled out.

The smaller deal that leaders will likely now pursue would reduce the deficit by about $2.5 trillion through spending cuts and limited additional revenues, officials said. It is based on the discussions led by Vice President Biden, which ended after Cantor walked over what he said was the continued insistence by Democrats on tax increases.

Pethokoukis compares Boehner to Ronald Reagan at Reykjavik in staring down an opponent that needs a deal much more than he does:

Or maybe Boehner also realized he was becoming a role player in an Obama-directed drama whose dramatic focus was securing a second-term for Obama. Either Obama got his big tax-hike deal and a) created a tea party revolt in the GOP, b) looked like a statesmen and c) partially deprived Republicans of a valuable line of attack in 2012 … or there was no deal, and Obama could hammer the GOP until Election Day for caring more about tax cuts for the rich than fiscal responsibility.

Boehner apparently will take his chances with door #2 and push for a roughly $2.4 trillion deal (with a debt ceiling hike, too) based on spending cuts already agreed to and some non-tax revenue raisers. Deeper spending cuts and structural entitlement reform would be better, but that is going to have to be a 2013 thing. Indeed, what entitlement reforms Obama was agreeing to were insufficient to Republicans.

Indeed, there were arms control agreements after Reykjavik, just as there will assuredly be more debt deals in the future.

Tellingly, the White House rushed to assure people that the grand compromise wasn’t dead yet:

The White House released a statement Saturday night indicated Obama was not giving up on a large deal. “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,” said the statement from communications director Dan Pfeiffer. “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.”

First, the White House clearly didn’t take Round 1 seriously.  The $1 trillion in tax hikes would be more than the supposed value of repealing the Bush-era top rate schedule, which was valued (through static tax analysis) at $700 billion over a decade. Democrats now want an additional $300 billion of new tax hikes on top of that, even though they signed onto a two-year extension of those rates less than eight months ago. With job creation stumbling, the last thing this economy needs is more diversion of capital to the federal government on top of the regulatory adventurism that has investors unable to calculate risk.  Obama isn’t even offering, from these reports, the fig leaf of major tax reform, but instead wants to gimmick the code even further to attack the bêtes noirs of the Left.

The rapid response at the White House shows the weakness of Obama’s position.  Boehner’s desire to go small and deal with just the debt ceiling and accompanying cuts will leave the issue of both debt and exploding federal spending on the table in 2012.  Other than jobs, that’s the most toxic issue facing Obama in his re-election campaign. Boehner’s approach would solve the immediate debt-ceiling crisis but leave Obama in exactly the same position as at the midterms and since.  Obama needs a win that takes the debt and deficit issues off the table for longer than just a year or eighteen months, but he won’t get it as long as he insists on instituting massive tax hikes in what appears to be the start of another recession.

Update: Just how bad was that White House deal?  Jen Rubin explains:

The White House dished out the spin that suddenly the Tea Party crowd had nixed a deal. In reality, the White House had upped the ante on taxes. A Republican House aide told me that the White House “started to backpedal on entitlement reforms too.” He explained, “They [the White House] had started to go back on some of the Medicare and Medicaid reforms they had previously said they were ok with.” In other words, either the White House never intended to present a viable grand bargain, or, if Obama did, the left got to him.

Sounds like the Democrat deal of 1990 — raise taxes now, and maybe later we’ll actually do something about spending.  How did that work out again?  (via Instapundit)