Government Executive - Authors - Julie Kosterlitz

More aggressive tax collections pushed as deficit reduction tool

Julie Kosterlitz — Tue, 07 Nov 2006 00:00:00 -0500

Back in the mid-1990s, the IRS was pilloried, from the congressional hearing rooms to the cover of Newsweek, as a combination of the Gestapo and the Keystone Kops. Egged on by a newly ascendant Republican majority and a phalanx of anti-tax groups, Congress codified its displeasure with the agency in the 1996 Taxpayer Bill of Rights II.

As the federal government has gone from budget surpluses to 12-figure deficits, however, Congress is now casting the IRS as a potential savior. The reason: the "tax gap." That's the term in vogue to describe the considerable difference between what Americans owe in taxes and what they actually pay.

The IRS' most recent estimate, made earlier this year, put the tax gap at $345 billion for 2001, compared with $1.8 trillion in taxes paid on time that year. The IRS eventually collected about $55 billion, or 16 percent, of the unpaid sum, leaving a "net gap" of $290 billion. The IRS' figures also suggest that Americans are paying about 84 percent of what they owe.

These numbers have, not surprisingly, fueled the congressional imagination. In April 2004, Sen. Max Baucus of Montana, the senior Democrat on the Senate Finance Committee, called for 90 percent voluntary tax compliance by 2010, saying that would generate "at least an additional $100 billion each year without raising taxes."

This year, he went further, noting that "collecting all taxes legally owed in this country would significantly reduce or wipe out America's annual budget deficits," which declined to $248 billion in the last fiscal year. The IRS itself has proposed trying to increase the compliance rate 1 percentage point to 85 percent by 2009.

Hurriedly and with scant debate, Congress passed a measure last spring requiring the government to withhold 3 percent of its nonwage payments to government contractors this year, a proposal that would have faced much tougher sledding in the political climate of the late 1990s.

The House Democratic leadership has already said it will reach into the tax gap to help finance its agenda, should the party retake that chamber.

In the Senate -- which this year held more than half a dozen bipartisan hearings devoted largely to the tax gap and tax evasion -- the issue has been driven mostly by the ranking Democrats on key panels -- including Baucus, Kent Conrad of North Dakota on the Budget Committee, and Carl Levin of Michigan on an investigative subcommittee.

Baucus has been the most vociferous. He puts out a monthly newsletter devoted to the tax gap, homes in on the topic early and often at hearings and in press statements, and has been escalating demands on the Bush administration to address the problem.

Baucus made the issue a focal point of confirmation hearings this year on Bush's choice of Henry Paulson Jr. as Treasury secretary. He blocked Eric Solomon's nomination as assistant Treasury secretary for tax policy until the department gave him its plan for closing the tax gap. Baucus then declared that the report lacked "specific benchmarks, timetables, and goals" and that he would keep Solomon's nomination on hold.

Treasury spokesman Sean Kevelighan said that the department believes it met Baucus' requirement. Narrowing the tax gap is "a multifaceted, long-term effort" that requires cooperation between the administration and Congress, and an aggressive approach that is also "sensitive to taxpayer rights," Kevelighan said. The failure to confirm Solomon, he added, has hampered Treasury's efforts.

Baucus and other crusading senators have some compelling talking points: The laggards not only are sticking honest taxpayers with an extra burden but also are undermining the whole system of voluntary compliance.

There's little question that enforcement efforts took a hit after the 1996 law was enacted. "Congress blasted the IRS out of its shoes, and the IRS responded by not enforcing the law," says Donald Alexander, IRS commissioner during the 1970s and now a partner at the law firm Akin Gump Strauss Hauer & Feld. Instead, based on what Alexander says was the naive notion that "an educated taxpayer will comply," the service began a big push to help taxpayers figure out what they owed.

Meanwhile, the percentage of individual returns subject to a "face-to-face" audit fell from 1.19 percent in 1984 to 0.72 percent in 1994, and to just 0.15 percent in 2004. IRS enforcement did get an infusion of money and people in the past two years, but the number of skilled personnel is expected to level off, and is still well below what the agency had in the late 1990s.

To find other ways to get Americans to pay more of what they owe, Congress has solicited reports and recommendations from the Government Accountability Office and the Joint Committee on Taxation, as well as from Treasury and the IRS. Having observed how little cheating happens when third parties -- such as employers, banks, and mortgage companies -- report details of taxpayers' income or deductible expenses, or withhold the amount that taxpayers owe, most studies recommend new reporting or withholding requirements.

Several have recommended pressing investment managers to report the original purchase value of stocks to more accurately determine capital gains and losses, for example. Some studies suggest that local governments should provide a more detailed breakdown of a homeowner's assessment, because any portion of property taxes used by a municipality for street or sewer projects that directly benefit the homeowner are not deductible.

But how much money Congress can reasonably expect to extract from the tax gap is far from clear.

For starters, the IRS estimate itself is shaky. The agency used to make estimates based on data gleaned from its most extensive, line-by-line audits, but the IRS stopped doing these unpopular audits in 1988. Until recently, the service was estimating the tax gap by extrapolating from the 1988 data. The IRS' latest estimates cobble together information from a variety of sources and apply some economic modeling techniques.

A report by the IRS' independent inspector general in April concluded that the service didn't have enough information to make an accurate estimate of the tax gap, and it warned that acting without good data could lead to "inappropriate decisions." Although the IRS report shed some light on the sources of the tax gap, for instance, it could not determine how much noncompliance results from willful cheating versus honest mistakes.

A recent GAO report noted that enforcement efforts that initially seem cost effective invariably get more costly as the IRS works from the easiest cases to the more difficult ones.

It's also not clear that the U.S. tax gap is getting worse -- IRS figures on compliance haven't varied substantially over time -- or that other industrialized countries do better. "Most countries would be thrilled to have a voluntary compliance rate of almost 84 percent," Mark Mazur, the IRS' director of research, analysis, and statistics, told the Senate Finance Subcommittee on Taxation and IRS Oversight in late July.

Moreover, IRS crackdowns invariably face some political push-back. Consider that the largest single source of unreported income is self-employed business people, aka mom-and-pop businesses and independent contractors. A whopping 57 percent of "nonfarm proprietor" income isn't reported, for a total of $68 billion -- accounting for more than a third of the total estimated underreporting for the individual income tax, according to IRS data.

Baucus suggests that the foot-dragging he sees from the Bush administration on the tax gap may in fact be political. "This may step on some toes, and that's not something [the Bush administration and Treasury] want to do," Baucus said in a mid-October interview.

But the same could be said of many members of Congress. No sooner did the IRS announce that it would scrutinize a random sample of a certain type of small business known as "S-corporations" than the House Small Business Committee called a hearing last April to berate the IRS commissioner for unfairly going after small businesses.

At the House hearing, the complaints against the IRS were bipartisan. Anti-tax crusader Grover Norquist says that Baucus' current standoff with Treasury suggests that Democrats don't want to lead a crackdown, either. "He knows that Democrats introducing legislation [to reduce the tax gap] is not likely to be a winner," Norquist says. "He wants the president to slit his own wrists and to impose measures on his own. I don't think the administration will fall for that."

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Lack of funding for statistics agencies could hurt economy

Julie Kosterlitz — Fri, 25 Oct 2002 00:00:00 -0400

Given the scale of the budgetary chaos in Congress, the plight of the federal government's statistical agencies naturally hasn't captured many headlines. Economists inside and outside the government, however, say that Congress's likely failure to approve additional funds for a cluster of Commerce Department data-gathering agencies could cause slow but insidious damage to U.S. economic well-being.

To understand why, consider the big kahuna of national economic performance measures: the gross domestic product (GDP). It is an all-important statistical summary of the U.S. economy. Produced by the department's Bureau of Economic Analysis from data collected chiefly by its sister agency, the Census Bureau, and the Labor Department's Bureau of Labor Statistics, GDP totes up all the goods and services produced nationwide.

GDP and its component parts-known as the national income and product accounts-provide information that the Federal Reserve Board relies on to tinker with interest rates and that Congress and the White House rely on to produce budget and economic forecasts.

Those who labor in these statistical vineyards argue that it's in the national interest that the raw material fermented and bottled as GDP be fresh and of the highest quality. As Commerce Secretary Donald L. Evans told a congressional panel this summer, a mistake in GDP-growth estimates of a mere one-tenth of 1 percent can translate into a $230 billion error in a 10-year budget estimate.

Right now, the Census Bureau is supposed to be getting ready to launch the economic census-a survey of roughly 5 million businesses conducted every five years. It generates most of the raw data from which GDP and the national income and product accounts are devised. But this summer, the Senate Appropriations Committee's Subcommittee on Commerce, Justice, State, and the Judiciary passed a bill keeping the agency's funding flat-actually promising 40 percent less than the $87 million that Commerce had requested for the economic census. And while the House subcommittee with jurisdiction over the Census Bureau has yet to pass a funding bill, Commerce officials note that the panel has $4 billion less, overall, to dole out than its Senate counterpart. And while Congress puts off passage of this and other appropriations measures, it has been keeping the statistical agencies' budgets flat.

Economists say that canceling the economic census would be a serious problem-and an event that hasn't occurred for half a century. It would force the government and economists everywhere to try to gauge the state of the economy over the next five years on the basis of a snapshot taken in 1997 supplemented only by smaller surveys and the educated guesswork of economic modeling. "GDP statistics would become increasingly unreliable," said Barry Bosworth, a senior fellow at the Brookings Institution.

Indeed, so unthinkable is the prospect for the career numbers crunchers at the Census Bureau that they're planning to draw on existing funds to send out their 5 million surveys, beginning in December. They hope additional money will come through before the returned surveys start piling up early next year.

The Census Bureau was also hoping to improve on the smaller surveys used to update GDP in between the economic censuses. As the service sector has grown as a share of economic activity, the Census Bureau has argued for surveying that sector once a quarter rather than just once a year.

The Census Bureau also wants to collect new data on business investment in computers and telecommunications. Government statisticians now believe that the lack of such data is a major culprit in the government's recent misestimates of GDP. Unfortunately, says Elizabeth Gregory, a Commerce Department spokeswoman, the funding levels approved by the Senate Appropriations subcommittee seem likely to hobble those plans as well.

Diane Swonk, chief economist at Chicago-based Bank One and a past president of the National Association for Business Economics and the current head of its Business Statistics Council, argues for more and timelier data: "We could have seen the economic downturn sooner, and economic policy could have been more pre-emptive and more clearly thought out in late 2000." The public might also have been tipped off earlier about just how weak the economy was last year.

Also on the chopping block, say Commerce officials, are plans to help trim the cost and size of the decennial census by shifting a raft of questions off the current "long form" questionnaire and onto shorter and more frequent surveys. These could produce valuable data for state and local policy makers. Appropriators said their hands were tied. A subcommittee spokesman said that to maintain fiscal discipline while boosting funding for homeland security programs at the Justice Department and for the Securities and Exchange Commission required freezing all other spending at last year's levels. But economists and Commerce officials are hoping that lobbying by business economists and heavyweight officials at the Fed will eventually persuade Congress to relent. The extra money required "is peanuts in this game, and the benefits far outweigh the costs," Swonk said.

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Treasury Department

Richard E. Cohen, John Maggs, and Julie Kosterlitz — Thu, 28 Jun 2001 00:00:00 -0400

Established: 1789
Address: 1500 Pennsylvania Ave. NW, Washington, DC 20220
Phone: 202-622-2000
2001 Budget:: $389.8 billion
Employment:: 144,019
Web Site: www.ustreas.gov
Functions: The Treasury Department is charged with advising the President on fiscal policy, acting as fiscal agent for the federal government, and performing certain law enforcement tasks through the Secret Service. Treasury also administers tax policy and tax collection; manages the public debt; conducts international monetary affairs; produces all postage stamps, currency, and coinage; and supervises national banks and thrift institutions.

Paul H. O'Neill
Secretary
202-622-1100
O'Neill's reputation as a corporate turnaround specialist might come in handy as he grapples with the uncertainty of a slowing economy. He made his mark as chief executive of Pittsburgh-based Alcoa from 1987-99, (retiring as chairman in 2000), where he vastly cut management, boosted productivity, and repaired frayed relations with workers. From a field of candidates for Treasury Secretary, O'Neill was chosen as the only one not tied closely to Wall Street. A former Ford Administration colleague of Vice President Dick Cheney, O'Neill reportedly impressed President Bush with his direct manner. He has one of the busiest and most varied jobs in the Cabinet-serving as the chief agent and spokesman for economic policy, supervising tax collections, printing money, handling international economic events, and overseeing a large law enforcement bureaucracy. O'Neill got into a few scrapes in his first months on the job, surprising the financial markets with comments on the dollar, and generally earning a reputation as something of a loose cannon, but there is no evidence this has hurt him at the White House. For his tendency to drone on about obscure topics, some career officials call him "Dr. Strangelove," a reference to the early 1960s Peter Sellers movie about a nuclear Armageddon. Before Alcoa, O'Neill held senior posts with International Paper Co. from 1977-87, and before that spent 10 years at the Office of Management and Budget, the last three years as deputy director. He was born in St. Louis in 1935, graduated from Fresno State College with a bachelor's degree in economics, and earned a master's degree in public affairs at Indiana University.

Kenneth W. Dam
Deputy Secretary (designate)
202-622-1080
Dam is part of the Reagan revival within the current Bush Administration. Dam and his mentor, former Reagan Secretary of State George Shultz, made news in 1998 when they mounted an attack on the International Monetary Fund and the idea of financial bailouts. In the Clinton years, the deputy secretary took the lead in averting such foreign crises. It is not clear whether Dam will do the same-in the Reagan and first Bush Administrations, the job was more of an administrative position. Meanwhile, Dam's confirmation to the No. 2 job at Treasury, and those of most of Treasury's top nominees, have been held up for months by Sen. Jesse Helms, R-N.C., under the threat of a filibuster. Helms is demanding changes to Customs Service regulations on textiles, but the Bush Administration says the changes must be accomplished legislatively. Dam, 68, has spent most of his career as a law professor at the University of Chicago, specializing in international economics. He held positions in the Nixon White House and then served as Schultz's deputy at State from 1982-85. After seven years as a vice president at IBM Corp., Dam worked in 1992 for a year as president of the United Way to help it recover from a scandal. He grew up in Kansas and attended the University of Kansas and the University of Chicago Law School.

Charles O. Rossotti
Commissioner of Internal Revenue
202-622-9511
One of the few Cabinet department officials appointed to a fixed term, Rossotti intends to complete his five-year service, which expires in November 2002. His chief mandate is to implement the restructuring of the IRS that Congress approved in 1998-with Rossotti's active involvement. He previously reorganized the agency's regional structure, creating four operating divisions that serve individuals; small businesses and the self-employed; large businesses; tax-exempt groups and government entities. Despite his nonpartisan portfolio, he is under considerable pressure from Secretary O'Neill to ensure that an estimated 95 million income-tax rebate checks are distributed quickly and accurately this summer. Rossotti also has placed a high priority on the IRS's years-long battle to upgrade its often-outdated computer system-a project that has consumed huge amounts of dollars and effort, with disappointing results so far. And he must contend with the reality that the IRS remains an agency that Congress, and the public, love to hate; a recent complaint has been excessive audits. Rossotti, 60, came to the IRS from Fairfax, Va.-based American Management Systems Inc., an international business and information-technology consulting firm that he co-founded in 1970. He held administrative positions at the Pentagon during the Johnson presidency. A New York City native, he graduated from Georgetown University and received an MBA from Harvard.

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The overseer of financial markets

Julie Kosterlitz — Mon, 05 Mar 2001 00:00:00 -0500

Undersecretary of Treasury for Domestic Finance

Famed for the dazzling gold blossoms they can sometimes produce, financial markets are nevertheless fragile plants. They can wilt on a whiff of public pessimism, or suddenly succumb to a hidden tangle in their roots.

Treasury Secretaries are supposed to help keep these hothouse creatures thriving. For that, they need credibility on Wall Street and a thorough understanding of the markets' complex subterranean structure -- or at least a good gardener on the staff who can provide both.

The one who wields the trowels, checks for fungi, and stakes droopy stems is actually three tiers down the organizational ladder: the undersecretary of the Treasury for domestic finance. An already-powerful post, it's likely to take on added importance in a department where neither the Treasury Secretary -- industrialist Paul O'Neill -- nor his rumored choice for the No. 2 slot -- law professor Kenneth Dam -- is from the world of high finance.

Persistent leaks have this undersecretary job going to Peter Fisher, who, as executive vice president of the Federal Reserve Bank of New York, has intimate links to the financial powers-that-are: Alan Greenspan and the bond markets.

The job lacks the power of fiat given to the heads of all those alphabet-soup banking and securities regulators, but its breadth gives its holder increasing clout. As technology blurs the lines among banking, securities, insurance, and even commerce, "what's really needed is to bring together the banking and other financial agencies," said Robert R. Glauber, who had the job in the first Bush Administration. The undersecretary's post "is a natural place for it all to come together."

Past undersecretaries have effectively run the President's Working Group on Financial Markets, which looks at threats to the financial system and is composed of top banking and securities regulators.

The undersecretary typically takes the lead in drafting major financial reform bills and shepherding them through Congress. Previous undersecretaries oversaw the passage of the 1999 law that tore down the barriers separating banking, insurance, and securities firms. The next undersecretary will be key in deciding how that actually works, because Treasury and the Federal Reserve now share power to decide what new lines of business banks can enter. Other hot upcoming issues he or she will face include whether to tighten the reins on government-sponsored enterprises such as Fannie Mae and Freddie Mac, and whether to allow insurance companies to be chartered and regulated at the federal, rather than the state, level.

The undersecretary also handles management of the federal debt, a task, ironically, that gets tougher and more sensitive as the debt dwindles.

No one doubts that Fisher -- who is now in charge of carrying out the Fed's monetary policy through the buying and selling of federal debt -- is hugely qualified for the job. But he could face some congressional hazing over his role in the Fed's 1998 salvage operation on that Titanic of hedge funds, Long-Term Capital Management. Return to main story

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Labor Secretary tries to strike a balance

Julie Kosterlitz — Wed, 14 Feb 2001 00:00:00 -0500

If it's diversity you want, Chao, 47, who emigrated from Taiwan at age 8, would be the first Asian-American woman in the Cabinet. Need a strong conservative? How about an alumna of the Reagan and Bush administrations, and a Heritage Foundation distinguished fellow who regularly speaks out against affirmative action and in support of the flat tax? Yet, unlike the incendiary Linda Chavez--Bush's short-lived first choice for the job--Chao has avoided antagonizing her ideological opposites.

She's poised, tough, and a veteran of the presidential confirmation process, and--since 1993--has been married to Mitch McConnell of Kentucky, the National Republican Senatorial Committee chairman.

Her curriculum vitae could be a model for aspiring Cabinet Secretaries: a fellowship in the Reagan White House, a Harvard MBA, a two-year tour at Bank America in California, a stint as administrator of the Federal Maritime Commission, and with curtain calls as deputy Transportation secretary and Peace Corps director in the first Bush administration.

She even bulked up her resume during the past eight years of Republican famine by serving as the president and savior of a scandal-stricken United Way from 1992-96. Since then, from her Heritage pied-a-terre, she has been working the lecture circuit (to the tune of $80,000 in 1999) and gracing corporate boards.

Besides broad experience, Chao has built up a golden Rolodex with extensive contacts in Republican politics and in the corporate and philanthropic worlds. She's even on cordial terms with two labor chieftains--Communications Workers of America President Morton Bahr and AFL-CIO President John Sweeney who, during Chao's tenure, were members of the United Way board.

She also cemented her ties to Bush campaign--and now White House--insiders by becoming a contributor and fund-raiser extraordinaire. As one of the Bush campaign's elite "Pioneers," she raised at least $100,000 from individuals. She herself gave $27,000, all told, to the Bush campaign and state and national Republican Party funds in the 2000 election cycle, and she chaired the Kentucky GOP's get-out-the-vote committee, which raised at least $1 million.

Business has greeted her nomination with enthusiasm; labor's reaction--in contrast to the chilly reception given to Chavez--ranged from gushing (Bahr) to studiedly neutral (Sweeney). Though Chao has dealt with unions in earlier jobs, her lack of a high profile on labor issues is probably a plus. "She's very well prepared, knows the issues, is very smart, and has good political instincts," said Samuel K. Skinner, her former boss at Transportation who is now president of USFreightways Corp.

Unfortunately for Chao, neither her abilities nor her contacts may be enough to ward off the Curse of the Labor Secretary. The department is notorious for being a non-entity in administrations of both parties. Its twin constituencies--labor and management--are congenital enemies. And even far less divided Congresses than this one have invariably served as graveyards for labor and management initiatives alike.

In her nomination press conference, Chao sounded themes with broad appeal: job opportunities for welfare recipients and the disabled; job training for the disadvantaged; and help for parents juggling work and family pressures. But after two terms of a labor-friendly administration, business is insisting on a return to the status quo ante. "The job of Labor Secretary is going to be very tough ... tougher this first couple years than most," Skinner said.

Even if the captains of industry don't push for all their pent-up demands, they will insist on reversing the most reviled actions of the Clinton administration, including the new ergonomics standard and a regulation that bars businesses without a satisfactory labor record from bidding on federal contracts.

Just what Chao's role in all this will be isn't clear. For redress of existing gripes, most business groups are looking to Congress and the courts. And any high-stakes activism--such as efforts to curb labor's political clout as part of campaign finance reform--will likely be initiated by the White House.

Business does hope Chao will find a way to sell an overhaul of Depression-era labor laws to the public and Congress as a progressive imperative, and not the conservative backsliding that labor has branded it. But realists aren't holding their breath. Chao "has the skills to build consensus on some of the marginal issues, and to help us a little with some others," said Thomas J. Donohue, president of the U.S. Chamber of Commerce.

Making the department more business friendly will be challenge enough. "The bureaucracy over there is enormous and entrenched," said Pat Cleary, vice president for human resources policy at the National Association of Manufacturers, and a former Reagan administration Labor official.

Still, Chao could use her administrative powers to help business with lower-profile matters, he said. "We've learned a thing or two" from the Clinton administration, Cleary said. "You don't really have to get legislation--you can do huge shifts in policy through opinion letters and advisories." Count on business to propose that Chao do likewise.

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Labor to Clinton: No Thanks

Julie Kosterlitz — Tue, 06 May 1997 00:00:00 -0400

jkosterl@njdc.com

Whatever happened to thank-you notes? President Clinton took Gerald W. McEntee out for a spin on Air Force One, invited McEntee and his wife to a White House state dinner, and recently appointed McEntee, the president of the American Federation of State, County and Municipal Employees (AFSCME), to a blue-ribbon health care commission.

But in late April, McEntee summoned a bunch of reporters and blasted the White House for starting its second term on the wrong foot. "We're concerned with the direction of the President and the Administration in a number of areas," he said.

McEntee and his union have extended the President a few courtesies of their own. McEntee was one of the first labor leaders to endorse Clinton during the Democratic primaries back in 1992, when most of them were backing Sen. Tom Harkin of Iowa.

In the last campaign, AFSCME contributed $1.1 million in "soft money" to national Democratic committees, the second-highest amount from any group. It also snapped up $322,464 in inaugural tickets and, despite a ban on labor or corporate contributions to Clinton's legal defense fund, got members to contribute $4,000, according to documents that former White House aide Harold M. Ickes released earlier this year.

Moreover, McEntee, president of the AFL-CIO's political committee, was largely responsible for the federation's aggressive political advertising campaigns and get-out-the-vote drives, which not only helped Clinton, but slimmed down the GOP's majorities in the House. "I thought we won the elections," McEntee griped at the press conference.

At first glance, McEntee's laments might seem surprising. After all, many recent Clinton Administration proposals, which don't require congressional action, were calculated to please labor.

Vice President Al Gore arrived at the February meeting of the AFL-CIO's executive council (of which McEntee is a member) in Los Angeles with the promise of an executive order that would require government suppliers to have "satisfactory" labor practices and might compel federal construction projects to use unionized workers. The Administration got several U.S. companies to sign a voluntary "anti-sweatshop" agreement. Executives pledged to abide by basic pay and working standards in overseas factories. Clinton also promised federal workers that they could take additional, unpaid leave for family or medical reasons. He told labor leaders that he would declare workfare enrollees to be employees--making them eligible for the minimum wage and perhaps able to unionize.

But because Republicans and business leaders considered the executive order that Gore promised such a giveaway, a Senate vote on Alexis M. Herman, Clinton's choice for Labor Secretary, was delayed until April 30, when the President agreed to back off from the idea.

In any event, labor sees most of the President's policy gestures as more symbol than substance--much like the favors showered on McEntee. Being on board Air Force One can be nice, but not if you're simply going to be taken for a ride.

Even the promised executive order--which could have meant money and power for the building trades unions--was viewed from the start by some labor leaders with a sense of deje vu.

At last year's AFL-CIO executive council meeting, recalls Teamsters political director William Hamilton, Gore "showed up with a bag of goodies" that included a promised executive order barring federal contractors from hiring permanent replacements for strikers. Labor cheered, he recalls, although union lawyers worried that the order wouldn't hold up in court.

It didn't--and this year's promised executive order had already been vastly whittled down in negotiations with congressional Republicans.

"It's all part of a pattern," Hamilton said. "At the beginning of a Republican Congress, the White House stakes out the high ground with labor." But the Administration doesn't always hold its ground. Clinton's favors matter little, next to the damage labor fears from Clinton's To Do list: a balanced budget agreement with Congress and new free-trade agreements.

McEntee summed up labor's concerns concisely: The Administration has seemed willing to cede too much to Republicans on Medicare, Medicaid, capital gains and inheritance taxes. And it's sending mixed signals on whether to lower the consumer price index--which would slow the rise in Social Security benefits and, perhaps, in workers' wages as well.

McEntee, who represents 1.3 million public service workers, also has a set of bread-and-butter concerns. Most of them concern Clinton's promise to retrofit last year's welfare reform bill. The President, McEntee complained, has not spelled out the details of his proposed $3 billion plan to help create jobs for welfare recipients, or fulfilled his promise on workfare enrollees.

AFSCME is worried that Clinton may bow to pressure from some Republican governors and allow states such as Texas to contract out the administration of their welfare programs to private firms. That could lead to an erosion of membership in what has been one of organized labor's few growth areas.

McEntee says he can't figure out why the Administration would consider breaking faith with labor--especially given that Gore could well face a race against labor-friendly House Minority Leader Richard A. Gephardt of Missouri for the Democratic nomination in 2000.

But he probably knows all too well. In the last election, Clinton made it clear that he was drifting to the center--and labor backed him anyway. There's no guarantee that the Democratic nominee won't do the same in 2000.

If anyone understands that kind of pragmatism, it is McEntee. "It would be great to have a candidate who says everything we want," he told the Los Angeles Times earlier this year, explaining why he backed Clinton in 1992, "but if they don't get inside that White House . . . then that isn't worth three cents."

For all of labor's vaunted talk of a political comeback during the last elections, and despite the Republicans' complaints of labor-bought elections, it appears that labor is still more the captive of Democrats than vice versa.

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Labor Ally Swats White House

Julie Kosterlitz and National Journal — Fri, 25 Apr 1997 00:00:00 -0400

jkosterl@njdc.com

A powerful labor ally of the Clinton administration Thursday harshly criticized the president's unfolding second-term positions.

"We're concerned with the direction of the president and the administration in a number of areas," Gerald McEntee, president of the 1.3 million-member American Federation of State, County and Municipal Employees, told reporters at a briefing on the union's legislative conference, which begins here Monday.

McEntee, who heads the nation's second largest union and who was the first labor leader to endorse Clinton in 1992, complained the administration appears willing to give too much ground to Republicans in budget negotiations on cuts in Medicare, Medicaid and estate and capital gains taxes. "I thought we won the election," said McEntee, whose union was a top Democratic National Committee contributor during last year's campaign.

McEntee's comments came as a letter asking Clinton not to accept an increase in defense spending at the expense of domestic programs has garnered the signatures of about 100 House Democrats.

It would be better to push the budget debate into the 1998 election year than to cave on Medicare, McEntee said, adding that labor is poised to fight any perceived capitulation. McEntee also complained that the administration had not delivered on promises to retrofit last year's welfare reform law, a major bread and butter concern for AFSCME members. He noted that the administration has not detailed its proposed job creation initiative nor extended labor law protections to welfare-to-work participants. The union also wants guarantees that welfare programs will not be contracted out to private sector firms, he said, and is prepared to launch a court challenge if they are.

Meanwhile, McEntee professed that any campaign finance reform measure curtailing contributions to candidates or parties, although unlikely to pass, would work to labor's advantage.

Unlike most interest groups, he noted, unions could still spend substantial funds to "educate" their own members.

McEntee's comments occasionally appeared to up the ante in the widely anticipated contest between Vice President Gore and House Minority Leader Gephardt for the 2000 Democratic presidential nomination.

Gephardt, he noted at one point, was prepared to offer his own job creation legislation. Gore, he commented later, has delivered some of the "best pro-worker speeches of anyone, but the proof's in the pudding."

Both Gephardt and Gore are slated to address the union's convention.

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Striking Out

Julie Kosterlitz and National Journal — Mon, 31 Mar 1997 00:00:00 -0500

The great Detroit newspaper strike may be over, but the hard feelings are not, and neither are the legal battles.

After 19 bitter months on the picket line, the 2,000-plus workers who were striking against the Detroit News and Detroit Free Press offered in mid-February to go back to work. Unfortunately for them, somebody else already had their jobs. The newspapers outlasted the strikers, thanks both to the deep pockets of the papers' parent companies, Gannett Co. and Knight-Ridder Inc., and to the replacement workers they hired with the promise of permanent employment.

The strikers can come back, say the newspapers, but only as openings become available. And mailroom, pressroom and circulation workers shouldn't wait by their telephones: During the strike, the papers discovered they could get by with nearly 700 fewer of them. Ironically, management's original contract offer had proposed only a 120-person reduction.

Management says the unions have only themselves to blame and calls its contract offers generous and fair. "They thought they could take the strike, shut us down and then get whatever they wanted," said Timothy J. Kelleher, senior vice president for labor relations and legal affairs at Detroit Newspapers Inc., a subsidiary of the two publishing companies that runs both papers' business and production operations under a joint operating agreement. "They miscalculated. People bought the papers, advertisers advertised in them and we never missed production."

The unions, for their part, have complained that the company repeatedly broke the rules. "The company refused to bargain in good faith, from way before the strike," said Nancy Dunn, formerly state news editor and copy editor at the Detroit Free Press, and now a spokeswoman for the six unions that participated in the strike. "They wanted to break the union. It's as simple as that."

The dispute may soon focus attention on a federal agency that most Americans have never heard of: the National Labor Relations Board (NLRB). The board, a creation of the 1935 National Labor Relations Act, may order the Detroit newspapers to reinstate most of the strikers. But whatever the outcome, the case could escalate a long-simmering controversy over the NLRB's role in a workplace that has changed markedly since the agency's inception.

If the five-member NLRB--a sort of special labor court--ultimately rules in favor of the Detroit unions, the papers will have to reinstate the strikers and give them back pay from the time they offered to return to work. If the NLRB's regional director, who has found merit to the unions' complaint, decides that waiting for a ruling by the board would mean an unreasonable delay, he could pursue the unions' request that he seek a court injunction requiring that the strikers be put back on the job ASAP.

Naturally, with the money, jobs and community sensitivities at stake, any ruling will spark second-guessing. "There's potential for all kinds of unhappiness," acknowledged William C. Schaub, the NLRB's regional director in Detroit. And barring a settlement between the unions and the papers, any NLRB decision will almost surely be appealed to the federal courts.

When your job is to resolve the private sector's most intractable labor disputes, controversy comes with the territory. But these days, the NLRB is itself embroiled in a bruising struggle with the business community and with congressional Republicans, and those clashes threaten to paralyze the agency--as well as undermine its authority.

"With a normal board, I might have some confidence" in the NLRB's decision in the Detroit case, said Daniel V. Yager, general counsel for the Labor Policy Association, a Washington advocacy group for large employers. Under the current board, he added, "it does not look good for the Detroit newspapers."

Grumbling Grows

Accusations of bias at the NLRB are nothing new. Charges that the agency tilts either toward labor or toward management have cropped up plenty of times during previous Administrations, but they have reached a fever pitch during the tenure of the current NLRB chairman, William B. Gould IV, a former Stanford University labor law professor who assumed the post in 1994.

"The controversy has erupted from what appear to be some decisions and decision making that are not balanced," said Jerry M. Hunter, the NLRB's general counsel during the Bush Administration and now a partner in the St. Louis law firm of Bryan Cave LLP. "The business community is pretty outraged at some of these decisions."

Yager is perhaps Gould's most vocal antagonist. Yager and other business supporters say the current board, appointed by President Clinton, has abandoned all pretense of neutrality. But labor partisans, not surprisingly, counter that business just got spoiled from having its way during the 12 years of the Republican Reagan and Bush Administrations.

Gould, in an interview, insisted that he's just doing his job to "encourage the practice and procedure of collective bargaining," as the 1935 law's preamble puts it. The problem, he says, is that "there is a substantial element in this country that rejects the basic purposes of the National Labor Relations Act."

The real problem goes deeper: Over the past two decades, the economy and the workplace have undergone a major transformation, while the laws governing labor-management relations have not.

Both labor and management efforts to refashion the law according to their respective worldviews have ended in political stalemate. "It has proved almost impossible to revise and reform the law in Congress," said Paul C. Weiler, professor of law at Harvard Law School. The last major change in the law, he notes, was enacted in 1959.

Unable to reach resolution, Congress and the President have essentially handed off the contentious issue of how to apply the law in this new economic era to the NLRB, a board of short-term political appointees.

Now it's coming back to haunt them.

Modern-Day Meltdown

The Detroit newspaper strike painted a vivid picture of the new realities of labor-management relations and the landmines they lay for the NLRB.

Not so long ago, it would have been unthinkable to hire permanent replacements for striking workers in Detroit, where long-dead labor bosses such as Walter Reuther of the United Auto Workers and Jimmy Hoffa of the Teamsters still cast long shadows.

Back then, though, the newspapers didn't have a lot of high-tech gizmos, like the one they have now that spits advertising flyers into newspapers using a lot less manual labor. And management at the Detroit papers hadn't yet decided that greater reliance on merit pay would buy more bang for the buck in the newsroom than uniform pay hikes.

In Detroit and elsewhere these days, the juggernaut of advancing technology, deregulation and expanding global markets have put companies under greater competitive pressures. It has also made them more resistant to unions and union demands.

But the 1935 law doesn't address companies' financial imperatives. "All we do is make sure the procedures are followed. The law doesn't permit any consideration of the substance of negotiations," Gould said, nor of "the reasonableness" of either party's position.

The law doesn't require that management and unions reach a settlement in contract negotiations--only that they bargain in good faith until they reach an impasse. Then, management can impose the terms of its last offer.

When it comes to the question of good-faith bargaining, however, distinguishing between law-breaking and plain old head-butting--as the NLRB has been asked to do in the Detroit case--isn't an exact science. In many labor disputes, "you've got to be a goddamn genius to figure out when an impasse has occurred," as distinct from bad-faith bargaining, said Samuel Estreicher, director of the Center for Labor and Employment Law at New York University School of Law. "When both sides go through the motions [of negotiating], it's very hard to determine. Both sides play games."

Businesses' increasing use of permanent replacements for striking workers, as in the Detroit newspaper strike, has only upped the ante.

Although the Supreme Court in 1938 deemed the practice legal in a ruling now referred to as the "Mackay doctrine," permanent replacements rarely were used before the 1980s. It was then that new competitive pressures increased the incentive to play hardball, and President Reagan made it respectable. His 1981 decision to permanently replace striking air traffic controllers "had a huge effect in removing the stigma" once associated with the practice, said AFL-CIO general counsel Jonathan P. Hiatt.

Using permanent replacements has turned disputes over dollars and cents into fights about people. "It becomes a huge, very political, emotional issue, one that's very hard to compromise on," Hiatt said.

It has also increased the importance of NLRB decisions on unfair labor practice complaints. That's because the Mackay doctrine allows permanent replacements to be used only during strikes over economic issues, such as pay. Permanent replacements cannot be used in strikes prolonged or caused by an employer's unfair labor practices.

In this highly charged environment, Yager has, in a recent manifesto, accused the NLRB's Clinton-nominated general counsel Fred Feinstein, as well as the Gould board, of subverting a policy they don't like by attempting to "convert every strike where replacements are hired into an unfair labor practice strike."

Yager's evidence is hardly conclusive, but the voluble Gould hasn't helped matters by sounding off on the striker replacement issue. In an interview, he repeated his stance that the 1938 Supreme Court ruling "is wrong, and should be changed." But he insists that this "bears no relationship to my consideration" of cases involving permanent replacements--and he seems indignant that anyone would suggest otherwise.

Republican Backlash

Economic changes pose many other challenges for the NLRB, other than those evident in standoffs like Detroit's. Frequently, the agency's approach in these areas has run smack into business and GOP opposition.

Take the burgeoning use of temporary and "contract" workers. Until now, the board's interpretation of the law has made it nearly impossible for unions to organize these workers--even some who function a lot like permanent employees--or to bargain on their behalf. Labor has argued for a new interpretation of the law, and late last year, Gould agreed to revisit the issue when three key cases come before the board.

Eleven House Republicans, led by Harris W. Fawell of Illinois, quickly fired off a letter to Gould arguing against change. "Clearly, the law is well settled based upon provisions that have been in the statute for almost 50 years. . . . Any sudden changes in these interpretations could have a seriously destabilizing effect on the U.S. economy," they wrote.

It's not the first time GOP Members of Congress have clashed with Gould.

Republicans balked at his nomination, citing his earlier pro-union writings and his critiques of the 1935 law. Gould survived a bitter confirmation battle mainly because the Administration bartered with Senate Republicans for an NLRB nominee (whose term has since expired) whom they had picked.

Irate House Republicans proposed slashing the agency's budget by 30 per cent in the last Congress, although the proposal got lost in the larger budget standoff with Clinton. They may take another run at it during this Congress. In the meantime, the Republicans have resorted to legislative riders and letter-writing campaigns to block controversial agency initiatives.

The traditional system of horse-trading between the parties, which often allowed NLRB nominees to be confirmed in a divided government, has so broken down that of the three current board members, only Gould has been confirmed by the Senate. The other two members have temporary appointments that expire later this year. A fourth board member died in February, and another position has been vacant since mid-1995.

That impasse has added even more fuel to the political fire. Republicans have argued, for example, that the agency shouldn't even take up the temp workers issue when there are so few confirmed members in place.

Although Gould has become a lightning rod, he isn't the only--or even the major--cause of the controversy dogging the NLRB. Like judges, the board's members are expected to be independent and impartial. But as short-term political appointees, they don't have the remove of many judges. Moreover, in the polarized field of workplace relations, it's hard to find nominees, even from academia, who don't have strong leanings.

At bottom, the board's difficulties arise from the fact that Congress and the President have asked it to resolve something they can't decide themselves: how--and perhaps even whether--to promote workplace democracy in the bewildering new economic order.

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Agriculture, Business And Financial Affairs: Potential GOP Targets

Sat, 16 Nov 1996 00:00:00 -0500

AGRICULTURE DEPARTMENT

griculture Secretary Glickman has his job as long as he wants it. Just under two years in the post, Glickman, a former Democratic House Member from Kansas, has put down deep roots.

Unlike his boss in the Oval Office, he's extremely popular in the Farmbelt. Glickman has already said that he will attempt to make the most of his standing and push Congress to modify the 1996 Freedom to Farm bill that Clinton said he signed ``with reluctance'' because it leaves farmers without a safety net when prices bottom out.

In a Nov. 7 speech in Washington, Glickman said that, among other changes, he would ask Congress to loosen the new law's restrictions that, he said, can deny creditworthy farmers access to government-backed farm assistance. Noting that many farmers fret about being able to hold their own in the international marketplace, Glickman said his department will develop new risk management tools to help farmers stabilize their income in the new global economy.

Meanwhile, running a sprawling department that's often cited as a model of bureaucratic inefficiency will be a challenge.

Ellen Haas, the undersecretary for food, nutrition and consumer services who is responsible for the food stamp and other nutrition programs, has come under fire from critics on and off Capitol Hill. Congressional Republicans have complained about her management practices. School lunch advocates assert that she focuses too much on the goal of reducing fat in children's diets at the expense of other priority issues.

The U.S. Forest Service, which manages millions of acres of federal land and has more employees than any other Agriculture Department division, will continue to cause Glickman headaches. Timber companies and environmental activists have been virtually at war in the Pacific Northwest. Jack Ward Thomas, chief of the Forest Service, announced shortly before Election Day that he planned to step down. Separately, undersecretary for farm and foreign agricultural services Eugene Moos has said he's leaving. Glickman has asked his own deputy, Richard E. Rominger, a California farmer, to stay on the job.

COMMERCE DEPARTMENT

There wasn't nearly as much talk of dismantling the Commerce Department in the second year of the 104th Congress as there was in the first. And congressional Republicans are presumably even less likely to target the behemoth agency as the new Congress gets under way. Still, the fund-raising activities of former Commerce official John Huang could keep the department's activities--in particular its foreign trade missions--under close scrutiny.

A possible successor to outgoing Secretary Kantor is Chicago lawyer and Democratic operative William M. Daley (the Chicago mayor's younger brother), who's also talked about as a candidate for other Cabinet positions. Another possibility: former White House chief of staff Thomas F. (Mack) McLarty III, whose name has long been mentioned for the Commerce job. McLarty helped organize the 1994 Summit of the Americas in Miami. ``He has an awfully good relationship with the business community,'' a lawyer who's close to the Administration said.

Commerce undersecretary for international trade Stuart E. Eizenstat might seem to be a logical candidate for promotion. But despite his substantial trade expertise and years of government service, he's clashed with Kantor, whose views are likely to influence the President. Other names in play for the Commerce slot include Rep. Bill Richardson, D-N.M., and Democratic fund raiser Terence R. McAuliffe.

ENERGY DEPARTMENT

As the Administration weighs possible successors to Energy Secretary O'Leary, one of the trickiest questions is whether Republican conservatives in Congress will renew their crusade to dismantle her department. ``If Clinton wants to keep the department, he needs someone up there in a position to defend it,'' a well-placed energy industry lobbyist said. If the President is not enthusiastic about retaining the department, the lobbyist continued, he may delay nominating a replacement for O'Leary.

Industry insiders and some Members of Congress would like to see deputy secretary Charles B. Curtis get the top job. Curtis's resume includes a stint as chairman of the Federal Energy Regulatory Commission and as a Capitol Hill staff specialist on energy issues.

Others being mentioned for the job include former White House chief of staff McLarty; Rep. Richardson; Colorado Gov. Romer and Timothy E. Wirth, the State Department's undersecretary for global affairs. Environmental Protection Agency (EPA) administrator Carol Browner, whose name has also been floated for the post, has told associates that she doesn't want the Energy job.

Almost from the start, O'Leary made clear her intent to leave after four years. But even if she hadn't, White House officials would certainly have pushed her toward the door. During her first two years, O'Leary, the first black woman to hold the top Energy job, was praised for permitting public access to department files on secret radiation testing conducted by the Atomic Energy Commission during the Cold War. But for much of the past two years, sparks have been flying. The department has been frequently zapped for spending millions on questionable international trade missions and for hiring a public relations consulting firm to identify its ``enemies.''

Assuming it remains open for business, the department will soon be squarely in the middle of a building political and policy struggle over competition in America's electric utility industry. The next two years will also be a critical time for the nation's nuclear waste disposal program. Under a July court ruling, the federal government has until 1998 to take possession of the commercial nuclear waste now piling up at 110 nuclear power plants; a repository under construction in the Nevada desert won't be completed by then.

LABOR DEPARTMENT

He loved the job, and the public image that came with it--the little guy standing up for the little guy. But after a year of commuting to Boston, where his wife and their two teenagers live, Labor Secretary Reich has decided to take permanent family leave to enjoy his sons' last years at home. ``You can't make an appointment with a teenager,'' he said in an interview. He plans to serve through the January inauguration.

He'll be a tough act to follow. During his tenure, Reich effectively converted his department from a parochial backwater for a dwindling interest group into a bully pulpit for articulating the concerns of downwardly mobile workers.

Centrists in the Administration ground their teeth when the liberal former Harvard professor lectured big business about its social responsibilities, and deficit hawks nixed his plan for using payroll taxes to pay for worker training. But Reich proved his value to the President, an old friend and fellow Rhodes scholar, by gaining loyalty from labor unions initially wary of the Administration, winning a few key legislative battles--chiefly the minimum-wage hike--and by supplying Clinton with some of the popular education themes and programs of his campaign for a second term.

Possible replacements include White House director of public liaison Alexis M. Herman, a former director of the Labor Department's Women's Bureau, and former Sen. Harris Wofford, D-Pa., former Pennsylvania labor commissioner who now heads the federal AmeriCorps program.

But the same rumor mill contends that Herman, who has developed better ties to the business community than to unions, may not be Cabinet material and is needed where she is. Wofford's old-guard liberal credentials may not help the President redefine himself as the centrist for the 21st century.

Whatever else Reich's successor chooses to do, he or she will be charged with trying to shepherd through the Congress some of the President's already-announced initiatives. These include the option of compensatory time instead of overtime pay for hourly workers; expanded family and parental leave to allow parents to attend a child's school conferences or doctor's appointments; a health insurance program for the unemployed; and college tuition tax subsidies. The Labor Secretary will also co-chair the President's announced council on health care quality and consumer protection.

TRANSPORTATION DEPARTMENT

With the departure of Transportation Secretary Pena, the front-runner for the job is probably Chicago lawyer Daley, who came close to getting the slot in Clinton's first term. Other possibilities include Rodney E. Slater, head of the Federal Highway Administration and an old Arkansas buddy of Clinton's who once ran the Arkansas Highway Commission; former Virginia governor Gerald Baliles, who headed the President's 1993 Commission for a Safe and Competitive Airline Industry and has also lobbied heavily on behalf of U.S. airlines seeking access to routes to Japan; former U.S. Ambassador to Canada James J. Blanchard; and Acting U.S. Trade Representative (USTR) Charlene Barshefsky.

Several other Transportation Department seats will need to be filled as well. Federal Aviation Administration (FAA) chief David R. Hinson has announced that he's stepping down. His deputy, Linda Hall Daschle (wife of Senate Minority Leader Thomas A. Daschle, D-S.D.) will serve as acting administrator, but she reportedly doesn't intend to stay around either.

Whoever ends up in the top Transportation slot is likely to be busy. The so-called ISTEA (pronounced iced tea) bill (the 1991 Intermodal Surface Transportation Efficiency Act, which determines how federal transportation money is doled out) is up for reauthorization. Thorny international aviation disputes with Great Britain and Japan also remain to be resolved, not to mention a trucking fight with Mexico. At the FAA, one of the biggest issues facing the agency will very likely be its own finances: The White House is pushing to finance the agency's activities through a new user fee.

U.S. TRADE REPRESENTATIVE'S OFFICE

There's still a question mark over Barshefsky's future. A stalwart of the Washington trade bar, she is widely admired by Democrats and Republicans alike as a tough negotiator with a formidable grasp of trade policy. But her past legal work for the Canadian government, depending on how it is interpreted, may fall afoul of a new lobbying law that bars anyone who's represented foreign governments in trade disputes with the United States from top trade posts.

The latest indications are that Barshefsky would like to stay and that the Administration will send her nomination to the Senate Finance Committee. The White House may argue that Barshefsky isn't covered by the law because the case in which she advised the Canadian government wasn't really a trade dispute. It was a countervailing duty case, involving allegations of unfair government subsidies to the Canadian timber industry, in which the U.S. Commerce Department is--at least on paper--supposed to play a quasi-judicial rather than an adversary role.

But although Finance Committee chairman William V. Roth Jr., R-Del., is likely to give Barshefsky a sympathetic reception, some of her boosters fear that the case in her favor, while maybe legally valid, risks sounding like an effort to circumvent the broad and untested new lobbying law. In the post-John Huang era, some trade hands worry that the knives will be out on Capitol Hill for any policy or personnel decisions that raise the specter of foreign influence in U.S. decision making.

If Barshefsky doesn't get the nod (there's talk she might end up as Transportation Secretary), Chicago's Daley is a strong possibility. Daley helped the Administration pass the North American Free Trade Agreement and has provided valuable political support in Illinois. ``He's probably owed more than anybody,'' a trade lobbyist said. Other names being floated for the top trade job: deputy national security adviser Samuel R. (Sandy) Berger and former Oklahoma Rep. and U.S. Ambassador to Mexico James R. Jones.

Robert D. Kyle, a trade specialist with a joint appointment at the National Economic Council and the National Security Council (NEC), is being mentioned as a potential deputy USTR. ``He's a strong candidate for any sub-Cabinet job in the international economic area,'' including slots at Treasury or Commerce, an Administration source said.

The immediate issue facing the next USTR will be extending ``fast-track'' trade negotiating authority. After that--and looming larger than any other trade issue--will be the question of trade relations with China.

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Fiscal and Economic Policy: Making Ends Meet Won't Be Easy

Julie Kosterlitz, National Journal, Ben Wildavsky, and Jeff Shear — Sat, 16 Nov 1996 00:00:00 -0500

TREASURY DEPARTMENT

aving ridden into his second term in large part on the strength of the national economy, Clinton was hardly likely to dump Secretary Rubin.

Rubin, the low-key former investment banker who was, early in the President's first term, head of the NEC, has won points for keeping the Administration focused on deficit reduction and for his adroit handling of various potential crises, from a falling dollar to the Mexican bailout. When House Republicans refused to raise the debt limit to pressure Clinton during last year's budget standoff, Rubin's deft maneuvering allowed the government to keep paying its bills anyway, and to keep the presssure on the House.

Rubin wants to stick around for the entitlement reforms he considers key to continued deficit reduction, and to prove the economic Cassandras wrong about an impending recession. He'll also focus on pet projects: finding new ways to channel capital to inner cities, rolling out his promised new inflation-indexed bonds and using the bully pulpit to exhort spendthrift Americans to save more.

NATIONAL ECONOMIC COUNCIL

With director Laura D'Andrea Tyson headed back to Berkeley, Calif., some analysts say the NEC is at a crossroads. The council is supposed to coordinate the Administration's economic policy making, and Tyson's critics faulted her for not doing enough to prevent end runs to the President by Cabinet members.

``The President has to decide, does he want the NEC to be restored to the role it had in its first two years under [Treasury Secretary and former NEC head] Rubin?'' a trade lobbyist said. ``That is not a question of structure, that's a question of personality and the perception of who is head of it.''

Candidates to replace Tyson include deputy national security adviser Berger and Tyson's two deputies: Gene B. Sperling and Daniel K. Tarullo. Still another name that's been bandied about for the top NEC slot: Princeton University economist Alan S. Blinder, former vice chairman of the Federal Reserve and a onetime colleague of Tyson's on Clinton's Council of Economic Advisers (CEA). Along with good managerial skills, Blinder would bring a track record as an economic popularizer--he once wrote a monthly column for Business Week. But he's not a political heavy-hitter, which some argue is a vital quality for anyone who wants the NEC to have a central role in policy making. If CEA chairman Joseph E. Stiglitz moves on, Blinder could well be a candidate for that job.

OFFICE OF MANAGEMENT AND BUDGET

By all appearances, OMB is a happier place these days. That's because for the first time since the beginning of the Administration, Panetta is out of the picture. Though much admired, the former OMB director and White House chief of staff was first and foremost a political animal. And that, some at OMB thought, got in the way of a budget agreement.

Franklin D. Raines, who in September was confirmed as OMB's latest director, ``is re-energizing the place,'' an analyst who's familiar with the agency's operation said. Not that Raines's immediate predecessor, Alice M. Rivlin, wasn't highly regarded and capable. But she always had Panetta looking over her shoulder and negotiating for her. ``Leon is a brilliant budgeter, but he's a politician,'' the source said. Raines, a former vice chairman of the Federal National Mortgage Association and an OMB figure during the Carter Administration, has already called for early budget talks involving both ends of Pennsylvania Avenue.

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