Picture this: it’s the summer of 2011 at the height of the debt ceiling battle between then-Speaker John Boehner and President Obama.
Boehner, Obama, and the Senate leaders had all reached an agreement in principle, leaving their aides to work out the fine print.
Inside the White House, then-Treasury Sec. Tim Geithner is warning colleagues that only hours remain until a fiscal calamity that would bury the U.S. economy for decades.
Jack Lew, then the White House budget director, is listening on speaker to a phone call with a senior aide to Sen. Mitch McConnell, Rohit Kumar, who pushes to extend the “sequester” spending cuts – originally Lew’s idea – to Medicaid, a program that would be spared the cuts by precedent.
Lew loses it, erupting in anger, taking over the call to scream at the top of his lungs at the Republican aide: “No! No! No!” The call ends.
Under the circumstances, does that seem like the behavior of a balanced, responsible adult who should be given enormous responsibility over the U.S. and global economy?
And yet this, according to veteran reporter Bob Woodward’s account in The Price of Politics, is exactly what transpired.
(Kumar’s calm and generous response, by the way, reminds me of something one would say to a child: “we’re not going to have a conversation where people are yelling”).
In fact, throughout the negotiations, Lew had done his best to keep the president from making virtually any concessions. As Boehner recounted, Lew would say no “999,999 times out of a million.”
With Geithner counseling Obama to work towards a deal, it was Lew who urged stridency, pushing the world’s economy to the brink in an attempt to prevent any spending cuts of a government that was drowning in red ink.
Woodward’s account is not kind to Lew, and the veteran reporter drops the mask at the end of the book to directly criticize Obama, and to a lesser extent Lew himself, for their intransigent behavior.
And yet, this was decidedly not the lesson Obama learned from the episode. Immediately after blowing up sensitive negotiations with a childish temper tantrum as the clock ticked towards economic doomsday, Lew told Obama what had just occurred. The president, Woodward reports, told him it was the right thing to do!
Which explains why today, Lew is Treasury Secretary, having been elevated into a position of even greater authority by a president who is deeply and calculatingly ideological – the same determined and canny left winger he was as a “community organizer.”
Traditionally, Treasury secretary is the person who helps bring the concerns and perspectives of the business community to the administration’s policy debates. Lew appears to be trying to burn down the business community.
His latest is an effort to unilaterally erect an economic Berlin Wall around U.S. firms in order to keep them paying the developed world’s highest corporate tax rate.
April 4, Lew announced a new regulation targeting corporate “inversions,” when an overseas company buys a U.S. firm, allowing the merged company to pay taxes in the parent company’s country. Unless the parent company is in Chad or United Arab Emirates, the two nations on earth with a higher corporate rate than the U.S., the result is a lower effective tax rate for the formerly U.S.-based company.
You can see why that might be attractive to company executives, but economists who have studied the issue say the end result is preferable for American workers and consumers because that company will no longer be competing internationally at a serious disadvantage.
Sensible people have suggested that perhaps we should lower the developed world’s highest corporate tax rate in order the reduce the incentives for future inversions. After all, eventually new companies will just form in low tax jurisdictions in the first place.
This is not Lew’s approach. Instead he dramatically changed Treasury’s regulations in a way that maximally harmed a proposed merger between two drug companies, the U.S.-based Pfizer and Irish Allergan, which was announced last November and based on the rules that existed then.
Almost immediately, the companies scrapped the $160 billion business deal, just as Lew hoped. Shortly after, the CEO of Allergan hit back. “For the rules to be changed after the game has started to be played is a bit un-American, but that’s the situation we’re in,” the CEO, Brent Saunders, said on CNBC.
Lew’s response to this says volumes about his (lack of) perspective on what it takes to run a business at the scale of an Allergan or Pfizer, a monumental undertaking that requires the diligent efforts of literally thousands of highly qualified professionals.
“Let’s be clear. It was not retroactive,” Lew said in his own CNBC interview, which aired Thursday.
Yes, let’s be clear, Mr. Lew. The regulation’s effective date was April 4 – the very day it was announced. Barack Obama was demagoguing this thing in the Rose Garden before the text of the regulation was even released!
Unlike ordinary regulations, this one didn’t even have the pretense of following a legal process. There was no proposal, no debate. All the normal hoops were bypassed. It emerged ex nihilo – sending Allergan’s stock into a tailspin and providing an unmistakable lesson to the markets: the rules can change at any time.
News flash: $160 billion business deals take longer than a day. So yes, for all intents and purposes, this was retroactive, and only a left-wing zealot would fail, like Lew, to understand that.