Democracy Dies in Darkness

PostPartisan | Opinion

Jack Lew's 'art of the deal'

By David Ignatius

October 6, 2016 at 6:51 PM

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Treasury secretary nominee Jack Lew appeared before the Senate Finance Committee for his confirmation hearing on Wednesday. (The Washington Post)

MEXICO CITY — The "art of the deal," in Donald Trump's version, has a hard edge. It involves public bluster, threats of litigation and confrontational negotiations. It's about winning rather than compromise.

But there's another version of dealmaking that's more relevant to how Washington actually works. It's about passing budgets and avoiding shutdowns. It involves creating space for agreement on taxes and spending. These negotiations usually take place out of public view. And they're shaped by one of Washington's most powerful but least understood institutions, the Office of Management and Budget.

This hidden side of government is exemplified by Jack Lew, the treasury secretary and a two-time former OMB director. Quiet and self-effacing, Lew may be the most important official most Americans have never heard of. He illustrates the paradox of how Washington has continued to function over the past several decades even as the nominal institutions of government have become deadlocked and increasingly dysfunctional.

Lew's story is like one of those movies where you know disaster is coming in the third reel, but there's nothing you can do to stop it. After nearly 20 years of being the trusted intermediary in budget fights, Lew became a lightning rod for GOP criticism in the bitter budget debates of 2011 that centered on raising the federal debt ceiling.

I had an unusual glimpse of Lew's world last week when I traveled with him to Argentina, Brazil, Colombia and Mexico. During the trip, we had multiple conversations about his 35-year career and the lessons he's drawn from it. I also talked to nearly a dozen people who have worked with Lew, including some sharp critics. What emerged from this reporting was a picture of the insiders' world — the quiet men and women you see whispering in the politicians' ears as they struggle to make decisions.

Treasury Secretary Jack Lew speaks at the Universidad Torcuato Di Tella in Buenos Aires on Sept. 26. (Courtesy of U.S. Treasury Department)

The American public is angry in this election year at a political elite that makes promises but doesn't deliver results. To some critics, Lew is an example of an out-of-touch elite who's disconnected from the middle class. Certainly, Lew helps sustain a U.S. government that some Trump voters want to dismantle. And he leads the global network of finance ministers and central bankers, gathering in Washington this weekend at the International Monetary Fund and the World Bank, which directs the globalized economy.

What's interesting about Lew is that he's a doer, not a talker, closer to a flight mechanic than a pilot. He's part of a chain of OMB directors who have kept the nation operating through its political machinations since the 1980s, among them Republicans David Stockman, Richard Darman, Mitch Daniels, Josh Bolten and Rob Portman; and Democrats Leon Panetta, Alice Rivlin, Frank Raines and Sylvia Mathews Burwell. For the most part, these aren't famous people, but they've kept the federal government's operating system from crashing.

"We come from an old school," says Panetta of this bipartisan club of budget directors. "The first commandment was to get things done, to resolve issues, to find whatever compromises are needed to keep going. … Usually when politicians gather in a room, knowledge goes out the door. It remains for people like us to say, 'No, here are the numbers, here's how people will be affected.'"

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Lew's education as Mr. Insider began with his first boss, House Speaker Tip O'Neill. As one of the speaker's chief policy aides during the 1980s, he was the point of contact with congressional Republicans and the Reagan administration. He was O'Neill's emissary to the commission headed by Alan Greenspan that fixed a broken Social Security system in 1983 by raising payroll taxes.

Today, Lew has several pictures of O'Neill in his Treasury office, along with the gavel used in passing the 1983 Social Security Reform Act, which O'Neill gave him.

The partnership between Democrats and Republicans continued during the Reagan years, particularly on the 1986 tax reform act, which simplified the tax code, cut top rates and eliminated some egregious loopholes. This legislation had many prominent sponsors, such as Sen. Bill Bradley (D-N.J.) and Rep. Jack Kemp (R-N.Y.). Lew carried the messages back and forth reliably.

"Lew is a throwback to the Reagan-O'Neill years," says Ken Duberstein, a prominent Republican who worked in the Reagan White House, eventually as chief of staff. "Principled compromise is what you get with him. He's into governing, not show and tell."

Lew told me he learned from O'Neill that you have to separate politics and policy. The technicians must order the choices clearly and honestly, leaving space for compromise on major issues. But the politicians must make the compromises to close the deal.

President George H.W. Bush preserved this bipartisanship with 1990 Budget Act, which raised taxes (violating Bush's 1988 pledge, "Read my lips: No new taxes") but set the country on a stable course of narrower deficits and an eventual surplus. Bush's insider in that deal was OMB's Darman. But by the 1990s and the Bill Clinton presidency, this spirit of behind-the-scenes cooperation began to wane.

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Jack Lew in 2000 during his first tenure as director of the Office of Management and Budget. (Ray Lustig/The Washington Post)

Lew entered the Clinton White House as a mid-level aide. But he managed to help the president craft one of his few early legislative successes, the national-service program known as AmeriCorps. In 1995, he was dispatched to OMB as an assistant to Panetta, later becoming director in 1998. That's where he discovered the gearbox of the federal government.

"At OMB I learned how we could offer things that would make a deal possible," Lew told me. It wasn't just that OMB had the numbers; its professional staff understood the mechanics of government and had ideas about how to make programs work.

Politics and policy clashed sharply during the Clinton years, as House Speaker Newt Gingrich (R-Ga.) forced government shutdowns in 1995 and 1996 to push for lower federal spending. Those efforts ultimately backfired because of public anger, and Gingrich was chastened. Lew remembers that subsequent budget negotiations with Gingrich and his colleagues produced important advances on such programs as the earned-income tax credit, Medicaid, Supplemental Security Income and the Children's Health Insurance Program.

Says Panetta, who led the negotiations with Gingrich: "When you put the numbers on the table, you have a lot of power because no one can contest what those numbers are."

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Treasury Secretary Jack Lew and Colombian Finance Minister Mauricio Cárdenas at the Museo Botero in Bogota, Colombia, on Sept. 28. (Courtesy of U.S. Treasury Department)

Part of America's global power is the overwhelming dominance of the U.S. financial system. America's banks and the Federal Reserve control the network through which the world does its business. As treasury secretary, Lew has tried to leverage that power to form a string of personal relationships with his counterparts around the world.

That power was evidenced on Lew's trip to Latin America, in his meetings with finance ministers from Argentina, Brazil, Colombia and Mexico — four countries that are trying to move toward freer markets, smaller government subsidies and less tax cheating. The reform process is fragile, and Lew spoke publicly in each capital about how the United States stands behind the changes. At each session, there were worried questions from local journalists and students about what would happen to this U.S. support if Trump is elected. It was a question Lew couldn't answer.

In dealing with foreign officials, as in budget negotiations at home, the essential element is trust. That's hard to develop across cultures, but I saw an example in Mexico City. Finance Secretary José Antonio Meade, a Lew-like veteran of a half-dozen cabinet posts, took Lew on a long, guided tour of the magnificent murals painted by Diego Rivera in the Finance Ministry. Meade understood that in these few minutes, carved from a frantic schedule, he was weaving the fabric of cooperation.

The Mexican art history lesson was striking because two days before, Lew had told me about a similar effort he had made to establish rapport with China's Vice Premier Wang Yang, who has a key role in Chinese economic policy. When Wang visited Washington in 2013, Lew organized a private tour of the National Gallery, in which he explained American history through the paintings and the experience of his own immigrant family, followed by dinner in a room overlooking the Capitol. When Lew traveled to China the next year, Wang arranged a similar personal tour of China's national museum.

What difference do these intimate, inside contacts make? When China's financial markets took a sudden nose-dive in August 2015, Lew was on the phone frequently with Wang, offering advice about the best communications strategy for calming the markets.

Lew has tried to apply his skills as a negotiator to some recent international crises, especially the Greek debt fiasco. When it had become nearly impossible for Greek Prime Minister Alexis Tsipras to talk to German Finance Minister Wolfgang Schauble, Lew tried to play the role of "marriage counselor," in the words of one German official. Lew estimates that he had more than 20 phone calls with Tsipras in the run-up to the bailout deal that was finally reached in August 2015.

Lew told me that his message to Tsipras was: "I've helped to keep our government from shutting down during some budget crises. I've had to do things that I didn't want to do." In other words, compromise was necessary.

This U.S. intervention isn't always welcome. Some IMF officials feel that Lew's channel to Tsipras got in the way of hard bargaining. But a German official says that "the deal bought time" and that the Greek mess "has disappeared from the headlines."

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Jack Lew shakes hands with President Obama in the Diplomatic Reception Room of the White House on July 13, 2010, after Obama named him director of the Office of Management and Budget for a second time. (Ron Sachs/Pool via Bloomberg News)

The acrimonious budget battles of 2011 and 2012 mostly faded from memory. Few can remember the catchphrases that made headlines back then: the "fiscal cliff," the "grand bargain," the "road map" and the "Gang of Eight." What people remember is the crackup, and it's a moment when the dealmaking skills that Lew had accumulated over three decades seemed to desert him.

The long negotiating process began when Lew was OMB director for the second time, in 2010, and continued through his move to the White House as chief of staff in 2012. One difficulty was the many competing forums for discussion: Lew facilitated intense bargaining between Vice President Biden and then-House Majority Leader Eric Cantor; he staffed a separate, secret dialogue between President Obama and then-House Speaker John Boehner; a third set of talks involved House budget expert (and now speaker) Paul Ryan and the other members of the Simpson-Bowles Commission.

The whole unwieldy process came crashing down in July 2011 with a brief shutdown that produced a time-buying agreement to set up a super-committee that would reach a tax-and-spending deal in 2012 — or impose draconian, across-the-board defense and welfare spending cuts through sequestration. The super-committee failed and the sharp cuts were imposed.

What happened to derail the negotiations? As Republicans tell the story, one of the culprits was Lew, the supposed "Mr. Insider." In his book about the budget talks, "The Price of Politics," Bob Woodward quotes two of Boehner's top staff aides describing Lew as "obnoxious" and "disrespectful and dismissive." Boehner himself told Woodward that in the negotiations, Lew said no "999,999 times" out of a million, and that "at some point, I told the president to keep him out of here." So Lew, the facilitator, was actually excluded by Boehner from some key discussions in July 2011.

"Jack couldn't cut the deal. We didn't have the right person in the room," argues Michael Sommers, who was Boehner's chief of staff. Because of the recent budget battles, he says, Lew "is not a well-liked person among House Republicans."

But Sommers cautions that some of the tension between Lew and the GOP was inevitable, given Lew's OMB training and his mastery of the numbers. "I didn't appreciate the role of OMB until I got to the George W. Bush White House," explains Sommers. "Everyone understands the 'B,' but not the 'M.' Everything gets managed through the OMB. … The OMB is a natural friction point, and a necessary one."

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Nothing is ever really over in Washington, at least in the budget arena where agreements must be hammered together, somehow, to keep the public's business intact. In the aftermath of the budget brouhaha, Lew moved to Treasury and began to accomplish, piece by piece, some of the budget reforms that had exploded in 2011 and 2012.

Sequestration, brutal as it was, slowed the pace of spending by about $1 trillion over 10 years; a 2013 tax agreement raised top rates and added over $700 billion in revenue; budget deals from 2013-on have cut close to another $200 billion in spending. Most of the cuts in these post-2011 negotiations came from a budget menu that emerged in the early talks between Lew, Biden and Cantor.

"We've implemented piecemeal what would have been a major budget deal," argues Lew. Cantor agrees with him. "Jack's suggestion that we had the basis for a working compromise is absolutely true. It lasts to this day." Unlike his old rival Boehner, Cantor credits Lew for his "desire to get something done."

Even the tax system, Trump's favorite target, is again a topic for bipartisan discussion. Lew began talking seriously last year with Ryan about a corporate tax-reform package that would eliminate loopholes, tax offshore earnings and cut top rates for business to somewhere between 25 and 28 percent. The campaign talk may be about whether Trump pays taxes, but the technicians in both parties continue to explore quietly what a fairer system would look like.

What does this fragile art of government dealmaking look like when it works? Congress, after stalling, this year supported IMF reforms that will give China and other emerging economies a larger role. Congress also rescued the Export-Import Bank, which had been under right-wing attack. May's agreement on a bailout for Puerto Rico is an example. Some aspects of the deal were anathema to each side. But Ryan promised House Minority Leader Nancy Pelosi that he would report out a bill this year, and he did. Some of the key language was written in Lew's office at Treasury. Passage of the bill was hailed as Ryan's first big bipartisan win as speaker. According to the Hill newspaper, Lew called to congratulate him while Ryan was mowing the lawn at his home in Wisconsin.

Lew helps us think in this election year about what government actually involves — when it works and when it fails. This is a kind of dealmaking that Trump disdains, but it's hard to see his blunderbuss negotiating tactics succeeding on such delicate issues as Social Security, Medicaid or international financial crises.

Lew himself summed up the lessons of his own long career in the trenches of government a few years ago, in a comment quoted by Woodward: After more than three decades of negotiation, he said, he had learned that "high-wire acts get resolved by landing."


David Ignatius writes a twice-a-week foreign affairs column and contributes to the PostPartisan blog.

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