Former White House Chief of Staff Jacob J. Lew won Senate confirmation to become U.S. Treasury secretary, a job that will immediately thrust him into fights with Congress over the country’s debt limit, spending cuts and a threatened government shutdown.
Lew, 57, was approved on a 71-26 vote to succeed Timothy F. Geithner, who left last month. Lew gained the support of 20 Republicans, even as some party members criticized him over a bonus payment he received while an executive at Citigroup Inc. during the financial crisis. His margin compares with the 60-34 vote in favor of Geithner’s confirmation four years ago, the closest for a Treasury secretary in the post-World War II era.
Lew’s confirmation comes two days before the scheduled start of $85 billion in automatic spending cuts for this year. His first month in office will see the March 27 expiration of a funding measure, known as the continuing resolution, threatening a partial government shutdown. Less than two months later, a temporary suspension of the country’s debt limit will expire, which may force him to resort to extraordinary measures to avoid breaching the ceiling.
“The U.S. economy is riding on how well he handles the job,” said Ed Mills, an analyst at FBR Capital Markets & Co. in Arlington, Virginia. “Lew faces a budget crisis, from day one he faces the sequester, a new continuing resolution for government funding, the return of the debt limit and an agenda that includes corporate tax reform and entitlement reform.”
As Treasury secretary, Lew will oversee a staff of more than 100,000 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,” President Barack Obama said in a statement released by the White House after the Senate confirmation. “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 was an adviser to House Speaker Tip O’Neill during the 1983 Social Security overhaul, President Bill Clinton’s deputy budget chief during the tax-and-spending standoffs of the mid- 1990s, and Obama’s budget director during the 2011 debt-ceiling talks. Obama called Lew a “master of policy” in tapping him last month to succeed Geithner.
During Lew’s tenure as Clinton’s budget chief in 1998-2001, the U.S. ran a surplus for three consecutive years.
The federal 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 on Feb. 5.
The deficit will begin climbing again in subsequent years as baby boomers swell the ranks of Medicare and Social Security. The government will rack up at least an additional $7 trillion in deficits over the next decade, which will push the publicly held debt up almost to $20 trillion by 2023, the CBO said.
Federal spending reductions due to start in March could lower gross domestic product by 0.6 percent and cost 750,000 jobs by the end of 2013, according to the CBO. The U.S. economy unexpectedly shrank in the fourth quarter, logging the worst performance since the second quarter of 2009, when the world’s largest economy was still in a recession, according to Commerce Department 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 all rebounding. Economists at FTN Financial said in a report last week that while being characterized as a recession risk, sequestration cuts are less than a third the size of the tax increases on Jan. 1.
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 nine basis points since Jan. 31, and were at 1.90 percent at 5 p.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 at the State Department. 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 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.