President Obama announces his choice of White House Chief of Staff Jack Lew, right, as the next Treasury secretary on Jan. 10. Lew will replace outgoing Treasury SecretaryTim Geithner. (Mandel Ngan /AFP via Getty Images)
Erskine Bowles remembers what Jack Lew taught him during the Clinton administration, when Bowles was Bill Clinton’s chief of staff and Lew was budget director.
As they worked through details of budget talks with Congress, two things stood out about Lew, Bowles said. He knew all the details of the obscure tax laws and spending programs — and understood how changing them would affect poor people.
Those twin passions will drive the 57-year-old Lew, now President Obama’s chief of staff, if he becomes the next Treasury secretary and leads the administration’s side in upcoming talks about budget cuts, raising the debt ceiling and avoiding a government shutdown this spring, Bowles said.
Obama nominated Lew on Thursday to succeed Treasury Secretary Timothy Geithner.
“He’ll give his opinion in private and carry the president’s water in public,” said Bowles, now co-chairman of Campaign to Fix the Debt, an advocacy group for deficit reduction. “Jack is definitely left of center, but he’s a pragmatist, he’s a realist. I might have moved (deficit talks) to the right, and Jack would be a counterweight to that.”
Lew’s new job would be the pinnacle of 30 years making budget deals for Democrats. A few years out of Harvard, he worked for then-House Speaker Tip O’Neill on talks to restructure Social Security that extended the life of the program’s trust fund 50 years with a combination of higher payroll taxes and a higher eligibility age for full benefits. In the 1990s, he helped lead talks that contained Medicare spending and produced the $236 billion budget surplus that highlighted Clinton’s last year in office.
After stints at Citigroup and New York University while George W. Bush was president, the Queens, N.Y., native returned to Washington to serve as deputy secretary of State in the Obama administration and once again became head of the Office of Management and Budget in 2011. Last year, he took over as White House chief of staff.
Now, he’s headed for a job that will require all his budget skills but where he will also have to convince skeptics that he has enough knowledge of high finance to lead on matters such as trade talks and the implementation of the Dodd-Frank law to regulate the financial services industry.
“There’s a reason to be concerned about Lew’s commitment to financial reform and regulating Wall Street,” said Dennis Kelleher, president of Better Markets, a nonprofit group advocating tighter regulation.
Kelleher cites Lew’s 2011 testimony during confirmation hearings for his OMB job that he didn’t think deregulation was a “proximate cause” of the 2008 meltdown.
But Obama picked Lew for Treasury primarily for his budget expertise, says Mark McClellan, a Brookings Institution scholar who served as deputy assistant Treasury secretary under Clinton before running the Centers for Medicare and Medicaid Services for Bush.
Lew’s deep knowledge of the budget, and especially details of the health care programs Bowles says are the primary drivers of long-term deficits, give the talks a chance to contain Medicare spending growth without cutting important benefits, McClellan said.
Lew may be able to guide the talks to push Medicare to move faster on reforms, such as tying hospital payments to patients’ health outcomes, slashing payments to doctors and hospitals to treat complications resulting from their own mistakes, and prodding providers to use treatments that research has found to be the most cost-effective, McClellan said.
Studies by groups such as the Institute of Medicine have argued that such changes can cut federal health care spending by $250 billion a year within a decade.
“He can bring other, more innovative approaches,” McClellan said. “Instead of just cutting payments, he can help change the way payments are made. It lets you find other, not-so-obvious ways to get to a bargain.”
In a 2011 interview with Politico, Lew said his skill was an ability to understand both politics and policy detail well enough to translate, helping politicians find policies that work and helping policy wonks sell their ideas to their bosses and the public.
“He’s very much a Democrat, in the sense of recognizing a role for the government to protect vulnerable people,” says Jared Bernstein, a former economic adviser to Vice President Biden.
“He’s a strong protector of the safety net, of programs to promote social mobility, and someone who understands that markets fail, even during economic expansions,” Bernstein says. “He fights for that stuff, not just because it’s his job but because he believes it.”
Lew’s combination of attention to detail and forthright defense of larger government has led to friction with Republicans during more recent budget talks.
According to “The Price of Politics,” Bob Woodward’s book about the 2011 talks to raise the debt ceiling, Lew angered GOP staffers by seeming to lecture them about details of how Medicare in particular worked. House Speaker John Boehner reportedly asked Obama to replace Lew as lead negotiator.
“Personal relationships do matter,” said Alice Rivlin, a Brookings economist and former head of OMB. “But I’m very skeptical of that. I’ve never known Jack to be lecturing.”
Wall Street professionals are worried about whether poor relations between the two parties will hamper budget talks, but they think they’re tied more to differences in ideology than personality, says Robert Tipp, chief investment strategist for Prudential Fixed Income.
“It’s not so much a skill set that’s needed,’ to foster a deal, Tipp said. “What’s needed is better growth numbers to improve the negotiating dynamic. Get those, and you’ll have a chance to do something.”
Tim Mullaney reports for USA Today.