Outgoing Treasury secretary immersed in fiscal-cliff negotiations
In the postelection showdown over expiring tax cuts and automatic spending reductions, seasoned crisis fighter Timothy Geithner will play a crucial role as the administration’s top economic official and a liaison to both Capitol Hill and the financial markets.
Geithner, who had long announced that he would retire as Treasury secretary at the end of President Obama’s first term, will be heavily involved in talks on the looming “fiscal cliff” during the lame-duck session, mostly by providing technical economic-policy advice within the administration. The former New York Federal Reserve Bank president, a lead architect of the response to the 2008 financial crisis, will also focus heavily on gauging Wall Street’s potentially jittery reactions as negotiations unfold.
Geithner plans to stay in the Cabinet through Inauguration Day, Jan. 21, White House spokesman Jay Carney confirmed at a press conference on Friday.
“I expect Geithner to play a major role in this,” said Kevin Jacques, who spent 14 years as an economist at the Treasury Department, including under President George W. Bush and on the President’s Working Group on Financial Markets under President Clinton.
“He has an understanding of the horrendous ramifications of the fiscal cliff. He’s in touch with Wall Street; he understands the markets ... he has credibility in the markets. So regardless of what happens, he’s going to be working very hard on the fiscal-cliff issue in particular.”
For months, Geithner has been fielding questions on Capitol Hill about the market consequences of going over the fiscal cliff.
During the dramatic debt-ceiling negotiations in 2011, which ended with the shaming loss of the government’s triple-A credit rating, Geithner assumed a major public role for the administration, taking to the airwaves frequently to stress the importance to the markets of not defaulting on the U.S. debt and warning about the repercussions from doing so.
Treasury has already said it expects to hit the ceiling by the end of the year, and it warned that it can only use “extraordinary” measures to stave off default until sometime in early 2013.
During the fiscal-cliff debate this fall, Geithner will keep a steady focus on when to pursue an increase of the debt limit, with the goal of staving off a repeat of the panicked market upheavals that caused the Dow to plummet 600 points the last time around.
“Geithner’s role is going to be to ride shotgun on the debt limit and make sure that everybody is sufficiently alarmed about that,” said Robert Bixby, director of the Concord Coalition, a nonpartisan advocate for responsible fiscal policy. “And that would help bring a negotiation to a conclusion.”
His public persona on the fiscal cliff will be guided by how much pressure the administration thinks it needs to apply to its negotiations behind the scenes, said sources familiar with the situation.
Treasury has other tools and choices to consider in its efforts on Capitol Hill, where Geithner will be intimately involved. Should lawmakers fail to reach a deal to extend some or all of the expiring Bush tax cuts, Treasury could decide to intervene to provide continuity by ordering the Internal Revenue Service to keep tax tables and withholding levels constant. Such action could be taken if the administration’s prevailing assumption is that lawmakers will retroactively extend tax cuts next year.
Still, it’s unlikely that Treasury will need to weigh in during the lame duck with detailed advice on reshaping the tax code. If lawmakers and the White House are able to patch together any deal before the end of the year, it’s likely to be a largely political agreement, setting a framework and process for replacing the $1.2 trillion in automatic cuts of the budget sequester, rather than a comprehensive fiscal package.
That means Obama and White House Chief of Staff Jacob Lew—a 30-year veteran of budget battles who is the leading contender to succeed Geithner at Treasury—will take the pole position in negotiations with House Speaker John Boehner, R-Ohio, and other congressional players.
“I strongly suspect they will not reach a major deal on taxes and spending,” said Steve Bell, a budget expert with the Bipartisan Policy Center, who served as staff director on the Senate Budget Committeeunder former Sen. Pete Domenici, R-N.M. “Therefore, although his advice will be sought, he’s not going to be one of the eight or nine people in the room in the lame duck when the decisions are made.”
Budget-battle-worn Democrats, policy analysts, and Hill aides offered similar perspectives. They argued that Geithner will be assuming more of a supporting role rather than a leading one in negotiations because of the nature of the deal that is likely to be struck in the compressed time frame—and somewhat awkward political dynamics—of a lame-duck session.
“The negotiations here are going to be less at a staff level or even at the level of Cabinet secretary than they are between Boehner and Obama,” said Stan Collender, a national director of financial communications at Qorvis public relations and a former Democratic aide to the House and Senate Budget committees. “This is going to be the highest-level negotiations. This is not going to be a lot of staff preparatory work, especially because I don’t expect a big deal to get done. This is either kick the can down the road or let the cliff happen.”
As Geithner prepares for his swan-song fiscal battle, attention is already centering on who will succeed him at Treasury. Besides Lew, other contenders for the secretary's post are former Clinton Chief of Staff Erskine Bowles and Laurence Fink, the chief executive of money-management firm BlackRock.
Sources following the situation believe that Obama would like to make an announcement about his next Treasury secretary nominee soon to reassure the markets.
Niraj Chokshi contributed.