The consummate insider has the president's trust. But does he have Congress? With a second term, Lew will be the man charged with avoiding the fiscal cliff and setting the fiscal path.
Jacob Lew isn't the most obvious figure to be charged with securing the Obama legacy. The purposefully low-key White House operative is content to work behind the scenes, and he always takes care to speak strictly on behalf of the president. Yet this Jewish son of middle-class parents from Queens, a stranger to President Obama's Chicago-centric universe, could help cement the way the first African-American president is remembered if Lew can cut a sweeping budget deal in the coming months.
To do that, however, he might have to give ground and trigger what critics may see as the first steps in the dismantling of the modern social-welfare state by allowing Republicans to chip away at the very ideal that has inspired and informed Lew's public service since the days he learned Washington's mores at Tip O'Neill's side.
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It's a lot to ask. But that will be Lew's job as Obama's chief of staff, a position that could expire in two months and, with it, his leverage. Should Obama win, Lew is seen as a top contender for Treasury secretary, with the biggest mark against him that he is so highly valued in his current post, Obama might prefer to keep him at the White House. Either way, the task of cutting a "grand bargain" doesn't grow any easier. If Lew can close a lame-duck compact that somehow chops the deficit, avoids the hated sequester, and largely leaves Medicare, Medicaid, and Social Security intact, Obama would be ranked with Presidents Reagan and Clinton, who cut large-scale budget deals that preserved costly entitlements. If he blows it, Lew becomes just another in a long list of aides who couldn't break the stranglehold of dysfunction that has seized the capital.
With the president's backing, Lew is determined to not let that happen. And he has no interest in repeating the mistakes of the debt-ceiling standoff. This time, there will be no chats on the Truman Balcony or glasses of Merlot for John Boehner, as took place in 2011 when the GOP House speaker and Obama tried to strike a grand bargain on the budget.
Instead, the administration plans to play hardball in the six weeks after the election. And the White House is looking not just to House Republicans for the contours of the compromise. Under Lew's direction, the administration instead will reach out to the Senate and to House Democrats to try to build a consensus before dealing too much with the tea party portion of the Republican Party.
At the center of this push will be Lew, a 30-year veteran of budget battles under Presidents Reagan and Clinton. Tall and thin, with Harry Potter-like glasses and salt-and-pepper hair, he looks like a typical Washington technocrat, an image that belies his talent for combat. "He's like a labor-union negotiator. He's not going to give you an inch if he doesn't have to," says Judd Gregg, the Republican former senator and Budget Committee chairman. "He's a true believer in the causes."
By causes, Gregg means Medicare and the rest of the social-safety net. These are the progressive ideals close to Lew's heart, friends and former colleagues say--and programs he will cut or change only in exchange for an equally big prize: in this case, the Republicans agreeing to more revenue, as Obama has called for from the campaign trail.
Lew has long been mindful of the tension inherent in his task. He has spoken publicly for years about the importance of deficit reduction. Yet he believes that budget cuts must be made with care, using a scalpel rather than a butcher's knife. "That is the only way to do it," he said in 2011 in a speech at a conference for a Jewish nonprofit organization. "I describe budgets as a tapestry: When it's woven together, the picture amounts to our hopes and dreams of a nation."
THE WHITE HOUSE PLAYBOOK
Lew's power has grown over less than a year as Obama's chief of staff--and he already has Republicans dreading a budget confrontation with him. Even as they praise Lew for his command of the facts and deep knowledge of the budget, they complain that he's too liberal. "The biggest challenge is that the drivers of a lot of the spending are income-support programs and health care programs," one House GOP staffer says. "Those are the most difficult for him to look at."
Another aide spelled it out more bluntly, saying he doesn't appreciate Lew's negotiating style; as then-director of the Office of Management and Budget, Lew often acted behind closed doors in the summer of 2011 as if he knew what the Republicans wanted out of the conversation. The budget chief came across as presumptuous, unlike other top administration officials, this aide said.
People close to the White House dismiss these complaints as sour grapes. "You don't have to like someone to be able to cut a deal with him. I suspect that most people in the White House don't like the Republicans, too," says John Podesta, former chief of staff to President Clinton, who led the Obama and Biden transition team in 2008. "I think it's not actually that relevant."
The deficit-reduction plan that the president and Lew will most likely unveil postelection will hew closely to the proposal the White House offered in September 2011 to cut the deficit by $4.4 trillion over a decade. It would tax the rich, boost infrastructure spending, and modestly slow the growth in Medicare and other entitlements. Should Obama win, the guiding objective will be to put the issue to rest for a while so that the administration can move on to other issues such as immigration and climate change.
"It is the White House's first priority, not its main priority," says Robert Greenstein, president of the Center on Budget and Policy Priorities. "The administration does not relish the idea of having four years of pitched battles over the budget." No deficit-reduction plan would call for immediate austerity, Greenstein says. The hope is to put the country on a more sustainable path. Because of the 10-year window, the brunt of the cuts likely could occur after an Obama second term.
The six weeks following the election will be all about setting a tone and coming up with a framework the two parties could support, with the details filled in during the first half of 2013.
"The success of the next four years is built around the success of the next four months and whether the president can develop and execute policies based on the political leverage he will have from a reelection," Podesta says. "I don't think [the administration] has settled on the idea that the fiscal cliff is a fait accompli, but if the Republican leadership won't budge on the Bush high-end tax cuts, that's where we'll probably end up. The pressure is really back on them."
Lew will manage the conflict in a way similar to past budget and fiscal-policy deals--such as the one he helped cut in 1983 to save Social Security or the balanced-budget agreement of 1997 that produced a surplus. Joining him will be Rob Nabors and Gene Sperling, both senior White House officials and fellow alumni of the Clinton era. If history is any guide, Lew will approach the fiscal cliff with careful preparation, detailed explanations, and black binders full of data. During the budget negotiations led by Vice President Joe Biden in spring 2011, for example, Lew gave overviews of each program at stake before the bipartisan group would launch into a political discussion, recalls a Republican aide who attended the sessions.
Lew brings the binders in case he needs to marshal a data point, and he speaks in the same calm, even-tempered tone that he uses on TV. Congressional aides say that he is the most cautious in making sure he speaks for the president, never himself, in these sessions. It's a way of talking that's unique to professional Washington: speaking strictly in the third person, laying out what one's boss desires.
Postelection, the stakes for Lew are huge. The annual deficit has exceeded $1 trillion for the past four years, economic growth is tepid, and unemployment is stubbornly high. Further prolonged gridlock on the debt could prompt another downgrade of the U.S. credit rating, and the long-term economic consequences of failing to solve the budget problem could eventually be severe. By contrast, when Lew was budget director under Bill Clinton during the late 1990s, the economy was booming. Clinton left office with a budget surplus of $236 billion. The climate in Washington has changed, too. The ideological chasm between Republicans and Democrats has widened, making compromise more difficult.
The basic problem and largest obstacle in Lew's path is that neither party in 2013 may be willing to take the hard votes needed to reach a budget deal or, for that matter, overhaul the tax code. "At the end of the day, what is misunderstood about this whole area is that no one really wants to vote to do what you have to do to balance the budget," says former House Majority Leader Richard Gephardt. "Politically, it's toxic. It's the toughest thing you'll ever do in public life."
Lew declined to speak on the record for this story, but interviews with 42 friends, lawmakers, congressional staffers, and former colleagues paint a picture of a longtime Washington hand and budget savant who takes comfort in his family and his deep Jewish faith. He holds great sway within the White House, and if Obama wins reelection, Lew will play a major role in deciding the way the country grapples with the budget, social programs, and the deficit for years to come, all the while avoiding the limelight as best he can.
THE POWER OF THE PROCESS
Although Lew now occupies an oversized office down the hall from the president, his first major job in Washington was as a staffer for the influential Democratic House Speaker Thomas (Tip) O'Neill, known for coining the famous political axiom, "All politics is local."
By the time Lew took the position in 1979, O'Neill was already a larger-than-life power broker known for his brass-tacks political maneuvering; his commitment to the social-safety net, shaped by coming of age in Boston during the Great Depression; and his ability to cut deals across the aisle (to say nothing of his collegiality with members of both parties during cocktail hour).
Lew landed his job in the speaker's office through a connection. His roommate and friend Ari Weiss hired him as a policy staffer for the House Democratic Steering and Policy Committee, which, in those days, oversaw appropriations, the federal budget, taxes, and health care spending. The joke was that they were two young Jewish guys adrift in a sea of Irish pols. Lew had not set out to become a budget expert, but he ended up as one. "Budgets are places with details. Inescapably, you can't put a budget together on slogans. It appealed to Jack and his nature and his talents because it is something that is essential," Weiss says.
Soon Lew grasped the power inherent in the budgeting and appropriations process. All government money and financial decisions flowed through this legislation. It was a chance for him to apply his analytical skills and make a difference in people's lives by protecting programs for the poor and the working class. He hews faithfully to this stance--always insisting that politicians and staffers understand the impact of the cuts or program changes they propose.
The young aide bonded with O'Neill over these shared values. "No one understood better than my father what these policies meant to people," says Christopher (Kip) O'Neill, a D.C. lawyer and the late speaker's son. "Growing up within public service himself and the Depression, my father knew how important a job was and is--and how much a helping hand at certain times gave people dignity in their lives."
Lew also learned from O'Neill the importance of tending to relationships on Capitol Hill in paving the way to compromise. With his affable manner, Lew would try to parse out where lawmakers and their aides stood just before a negotiation, without giving up too much up about O'Neill's own position. Many of the young members that Lew got to know during that time--Rep. Henry Waxman, then-Rep. Tom Daschle, or Rep. Steny Hoyer--still hold influence. Though Lew had a gravitas about him unusual for a twentysomething, he could dryly poke fun at himself to break up the seriousness of deep policy talks.
In 1983, the Democratic speaker and Reagan hammered out a deal to keep Social Security solvent. The moment was informative and instructive for Lew. The final legislation raised payroll taxes and cut benefits. But, ultimately, the deal's success lay in the sales pitch. Democrats called it a tax increase, while the Republicans deemed it a benefit cut, yielding a win for everyone.
That negotiation taught Lew the imperative of allowing both sides to find something that allowed them to stay true to their principles, without embarrassing anyone. "Jack understands the importance of the win-win," says Ken Duberstein, a former top aide to Reagan. "He understands that getting more than 50 percent of what you want is victory, not a defeat."
Lew has carried these lessons through a career in which he has served as OMB director under two presidents; executive vice president and chief operating officer at New York University; chief operating officer of one of Citigroup's investment units; No. 2 to Secretary of State Hillary Rodham Clinton; and now, one of President Obama's closest advisers.
Although Lew is in some ways the ultimate Beltway insider, he's a New Yorker at heart. His father, a Polish immigrant, was a lawyer and ran a mail-order rare-book business on the side. His mother was an office manager who had finished high school at 15 and immediately went to work to help her family during the Depression.
Lew, 57, is a graduate of Harvard University, but before that he attended public schools in Queens, where he has said he sported long hair and wore boots and ripped jeans. He wrote for his high school paper and thought he would crusade against the world's injustice by becoming a journalist, as he recounted in a 2011 speech at his alma mater, Forest Hills High School. Instead, he caught the political bug early on and landed in government.
Lew is devoted to his family. He married Ruth Schwartz, his high school sweetheart, and they travel back and forth between an apartment in Washington and a house in Riverdale, an upscale neighborhood in the Bronx. Friends say Schwartz is as low key as her husband.
Lew has two grown children as well as a baby grandson whom he has brought to the White House to meet the president. His son, Danny, lives in New York City, while his daughter, nicknamed Shoshi, lives in D.C. and has followed in her father's footsteps. She attended Harvard as an undergraduate and worked in the Office of Management and Budget and the White House as a senior policy adviser on energy issues before moving to her current job at the Bureau of Ocean Energy Management, Regulation, and Enforcement, a move she made once Lew took over at the White House.
Faith is another guiding force in Lew's life. An Orthodox Jew, he tries to observe the Sabbath. This means forgoing work, cars, phone calls, and other technology from sundown on Friday until sundown on Saturday, hardly an easy commitment for a man who has answered to two presidents. The full day of respite from a bruising Washington schedule helps him maintain his characteristic calm, friends say.
Lew's faith inspires his liberal instincts and his desire to protect programs for the poor and needy. As Weiss explains, Judaism is about deeds. "It's about how you act. It is part of what instills in him a sense of responsibility to others."
His even keel is one of the reasons Lew is one of the few outsiders to have become such a trusted player within Obama's tight inner circle. The president, himself known for his "no drama" style, puts a premium on that trait in those he works with most closely. "He's the classic kind of successful Obama staffer: He's loyal, he keeps his head down, he's not a headline grabber, he works behind the scenes and is very good at keeping the drama to a minimum," says David Rothkopf, a former Clinton administration official.
Lew is Obama's third chief of staff in less than four years. His immediate predecessor, William Daley, a Commerce secretary in the Clinton administration, brought ties with the business community that the White House felt could be helpful in its outreach to the corporate sector. Daley also had a rapport with Boehner, something that was seen as a plus as the administration began the budget talks with the GOP in 2011. Despite sharing Chicago roots with the president, Daley ultimately did not gel as well as Lew has with Team Obama, and he left at the beginning of the year.
Obama's first chief of staff, Rahm Emanuel, also a Chicagoan, wielded huge clout within the administration, but his intense, profanity-laced style sometimes created a frenetic West Wing atmosphere.
Unlike Emanuel, Lew rarely raises his voice. In negotiations, he takes time to listen to everyone, and, as one senior Democratic congressional aide put it, he never thinks about the way legislation will affect the Democratic Party's fundraising. "There are no Rahm stories about Jack. I defy you to find one. He is not a bully," says Alice Rivlin, a predecessor of Lew's at OMB who has also held various other senior policy jobs, including head of the Congressional Budget Office and former vice chair of the Federal Reserve Board.
Nor is Lew a media distraction like former Budget Director Peter Orszag, a health care wunderkind known for his geeky-chic glasses, his outspoken stance on the federal budget, and his busy and complicated love life that garnered almost as many headlines as the passage of the Affordable Care Act.
Lew's seasoning in budget policy includes his work on the 1997 balanced-budget agreement that cut Medicare and taxes in exchange for the creation of the children's health insurance program. That was the country's last big deficit-reduction plan. Since then,he has kept up his close ties on Capitol Hill, broadening his former network of House Democrats to include Republicans and Senate Democrats.
But for all of the talk of Lew's commitment to protecting the vulnerable, friends and former colleagues say he is also a pragmatist who understands that to save programs, you sometimes have to alter them.
"Jack believes that government is a positive force in ensuring that we help people that need help, but also he is old school in that he believes in order for the country to work, you have to create compromise," says Hoyer, the veteran Maryland Democrat. "He is not ideologically stuck. That is an important aspect in building confidence in those who do not agree with Obama."
KEYS TO THE TREASURY
Lew will undoubtedly play a major role if Obama wins a second term, but it's unclear which chair he'll occupy. Treasury Secretary Timothy Geithner has said he plans to leave Washington when Obama's first term ends, creating a highly coveted Cabinet opening. Lew is considered a front-runner, with the thinking that Obama might appoint him shortly after the election to reassure the markets about continuity of fiscal policy, but that Lew would remain in the White House post for budget negotiations until confirmation. Former Clinton Chief of Staff Erskine Bowles is also mentioned as a contender for Treasury, as is Laurence Fink, the chief executive at money-management firm BlackRock.
One potential argument against Lew is that despite his stint at Citigroup, he does not have the deep ties on Wall Street that some of his predecessors have had. But in the wake of the financial crisis, that credential might not carry as much weight as it once did. Lew has had a shot at a top Treasury job before. He talked with Geithner about a deputy position during 2008, Podesta says, but ended up at State instead.
Members of the financial community describe Lew as a budget wonk whose intelligence and responsiveness to phone calls is appreciated. Still, he's not one of them--nor does he have an outsized public persona like former Treasury chiefs Henry Paulson Jr., Robert Rubin, and Lawrence Summers. "He's not viewed as hostile to the business community, like most policymakers are," says a financial-services industry leader who asked not to be named because of his dealings with the administration. "From an industry standpoint, we could do a heck of a lot worse."
Still, that's hardly a ringing endorsement for a man who could potentially oversee a huge deficit-reduction plan with market implications, rewrite the tax code, or, God forbid, formulate a response to a financial crisis like the one that plunged the U.S. into the Great Recession.
Lew's friends and former colleagues respond that he's a government pro--fast approaching the status of Washington wise man, as personified by Defense Secretary Leon Panetta or James Baker, who headed both Treasury and State and served as chief of staff to Presidents Reagan and George H.W. Bush. "Having Lew on your team is the equivalent, as a coach, of having the luxury of putting someone at almost any position on the team and knowing he will do well," says Daschle, the former House member and Senate majority leader.
If Lew became Treasury secretary, members of the business sector and political observers say, it would send two messages from the administration to Wall Street and the financial community. First, that they don't have an ally or one of their own in Washington. Second, that the White House intends to keep close watch over tax policy and international financial decisions.
The choice would make the Treasury job an extension of the White House's economic team. "And [appointing] Jack Lew suggests that [Obama] is going to continue to be the principal economic spokesperson because Jack Lew is not Mr. Outside. He's Mr. Inside," says Rothkopf, the former Clinton official.
Only two of the 42 people interviewed for this story broached the idea of Lew's next step if Obama loses. Both said that Lew would happily return to his hometown. "He has paid a price financially and in terms of energy for the roles that he has filled during these years," Weiss said. "I'm not reflecting anything that he said to me, but it would not be shocking if he felt completed."
The only other person who has worked with Lew closely and who brought up an alternative ending was Daley. "I could see Jack wanting to go home and have a different life," Daley said in mid-October, just a few days before Obama's race with Republican Mitt Romney tightened into a dead heat. "Jack is not somebody who longs for the attention of Washington, or the approval of the Washington chattering class, even though he respects them."
It's a wild idea to imagine a three-decade career shifting so quickly, when Lew has spent so much time cultivating goodwill, trust, and relationships within D.C.'s power networks of lawmakers, congressional staffers, budget experts, think-tank vice presidents, former colleagues, and presidents.
Come Wednesday morning, Lew will either be one of the most powerful nonelected men in the federal government who will help to lead the future of major spending and tax policy for the next decade, or he'll be a figurehead, a dean of past budget deals, plotting an escape and heading north toward home.
This article appeared in print as "The New Wise Man."
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