Jacob J. Lew’s confirmation as the next U.S. Treasury secretary plunges him into the budget battle between the Obama administration and Congress with automatic government spending cuts set to begin tomorrow.
Approved on a 71-26 Senate vote yesterday, Lew won support from 20 Republicans, overcoming criticism of a bonus payment he received while working at Citigroup Inc. during the financial crisis. The tally compares with the 60-34 vote in favor of his predecessor Timothy F. Geithner four years ago, the closest for a Treasury secretary in the post-World War II era.
Lew takes office amid $85 billion in across-the-board cuts that start tomorrow for the current fiscal year, followed by the March 27 expiration of a funding measure for U.S. agencies. Less than two months later, a temporary suspension of the country’s borrowing limit expires, possibly requiring him to take extraordinary steps to avoid breaching the debt ceiling.
“He has the most difficult domestic job in the administration,” Steve Bell, senior director of economic policy for Washington-based Bipartisan Policy Center, said in an interview. “He is a tough negotiator and will have a tremendous impact on budget negotiations next month.”
Lew, 57, most recently served as President Barack Obama’s chief of staff. As Treasury secretary, Lew will oversee a department with more than 100,000 employees and his looping signature will appear on the nation’s currency.
“As my chief of staff, Jack was by my side as we confronted our nation’s toughest challenges,” Obama said in a statement yesterday. “I will continue to rely on his advice and sound judgment as we work to create good, middle-class jobs, provide more people with the skills those jobs require, and ensure every hardworking American can earn a decent living.”
Testifying before the Senate Finance Committee on Feb. 13, Lew emphasized his ability to work across party lines and spoke in favor of revamping the corporate tax system to lower rates and eliminate loopholes. He supported “sensible reforms to Medicare that will help the program stay sound in the future.”
Lew previously served as an adviser to House Speaker Tip O’Neill, a Massachusetts Democrat, during the 1983 Social Security overhaul, President Bill Clinton’s deputy budget chief during tax-and-spending standoffs in the mid-1990s, and as Obama’s budget director during the 2011 debt-ceiling talks. Obama called Lew a “master of policy” in selecting him last month to succeed Geithner, who left office on Jan. 25.
The government will post an $845 billion deficit this year, the first time in five years the shortfall has dipped below $1 trillion, the Congressional Budget Office said Feb. 5. During Lew’s tenure as Clinton’s budget chief in 1998-2001, the U.S. ran a surplus for three consecutive years.
Federal spending reductions due to start in March could lower gross domestic product by 0.6 percentage point and cost 750,000 jobs by the end of 2013, according to the CBO. The U.S. economy barely expanded in the fourth quarter as a shrinking trade deficit helped overcome the biggest plunge in defense spending since the Vietnam War era, Commerce Department figures showed today. Gross domestic product grew at a 0.1 percent annual rate, up from a previously estimated 0.1 percent drop, according to revised figures.
For all the concern in Washington about the cuts, investors are signaling that the economy is strong enough to weather any reductions in spending, with home sales, consumer confidence and employment rebounding.
The Standard & Poor’s 500 Index has climbed 6.3 percent this year, better than the 5 percent gain for the MSCI All Country World Index. Yields on 10-year Treasuries have dropped 10 basis points since Jan. 31, and were at 1.89 percent at 8:47 a.m. New York time. The U.S. Dollar Index, which tracks the currency against six of America’s biggest trading partners, is near a five-month high.
Lew worked as an executive at Citigroup from 2006 until 2009, when he joined the Obama administration as a State Department official. Republican critics, led by Senator Charles Grassley of Iowa, criticized Lew for perks he received while at Citigroup and in an earlier position at New York University.
Grassley questioned Lew’s personal involvement in a fund in the Cayman Islands and a $940,000 bonus that Lew received in January 2009 as Citigroup was receiving federal bailout funds. Lew said he didn’t know that the fund, offered to him as a Citigroup employee, had a Cayman Islands address and that he was paid in the same manner as other private-sector employees in similar jobs.