In an Uncertain World

by Robert Rubin

  Advancing new programs was not our only difficulty. Once we lost control of Congress, defending the effective programs already on the books, such as the EITC, became a major challenge. Without a large staff or a big bureaucracy, the EITC had made an enormous dent in the size of our poverty population by providing a subsidy to the working poor that was a powerful incentive for poor people to work full-time instead of getting by on public assistance. A group of conservatives in Congress, led by Senators Don Nickles (R-OK) and William Roth (R-DE), pointed to fraud in the program—people who weren’t entitled to the credit were receiving refunds—and we had to threaten to veto the 1997 tax agreement with the Republicans to prevent damage to the program. Fraud was a serious issue, significant reforms had been made, and we were strongly supportive of further reform. But the EITC was an excellent concept—Ronald Reagan, not a leading advocate of social programs, had strongly endorsed it because of its focus on work. And we insisted that the program be fixed, not cut back or thrown out.

  Another program under attack was the Community Reinvestment Act, passed in the 1970s to discourage banks from the practice of “redlining,” or refusing to make loans in minority neighborhoods. The CRA required lending institutions, when seeking regulatory approval, to demonstrate that they had invested in their communities. This measure had greatly increased the availability and flow of credit in inner cities. After the 1994 election, however, we faced constant efforts to roll the program back in one way or another. One argument was that the CRA was simply a way for community and political groups to extort money from lending institutions. CRA almost surely had been misused in some instances—and we were again fully supportive of reforms. But, as with the EITC, we had to fight the all-too-common Washington strategy of using one rotten apple to proclaim the barrel spoiled. Our opponents seized on real issues about misuse in an attempt to eviscerate what had been, on balance, effective and valuable antipoverty programs. Happily, we were able to protect the CRA as well as the EITC. However, I’m not sure what would have happened absent our veto threat, and that is a sobering thought.

  Welfare reform was the highest-profile issue in this area. In 1994, the administration had proposed legislation intended to replace welfare with work. But once Republicans took control of Congress, they passed a bill that was much more stringent. Inside the administration, feelings ran high. Some of us thought the bill Congress passed in 1996 was too severe and could create serious humanitarian and social problems. Others argued that the GOP bill was close enough to what Clinton wanted. Some believed that Clinton’s reelection prospects could hinge on his signing the bill.

  The President convened a meeting of relevant members of the White House staff and cabinet. George Stephanopoulos, who was one of the first to speak, set the tone for the discussion. George was against signing the bill, but he said—as I think everyone in the room thought—that this was an agonizingly difficult decision. A veto could have a decisive impact on the 1996 presidential election, and if that happened, the consequences for people on welfare could also be far worse. I had not been much involved in welfare reform, but I shared George’s view that the President should not sign the bill. I felt strongly that some people on welfare are unable to work for reasons that are beyond their control, whether psychological, physical, or simply through a lack of work skills and work habits. This legislation didn’t seem to me to address any of that sufficiently. What’s more, the notion of cutting food stamps and other benefits to legal immigrants just seemed wrong to me. We needed more of a balance—not only stronger incentives for work, but also a greater effort at preparing and training people to work, and continuing to provide a true social safety net for people who couldn’t work.

  I never knew if that was a real meeting or if the President had already decided to sign the welfare reform bill and was merely mollifying those likely to disagree by allowing them to be heard. In either case, airing the issue in this way was an example of shrewd governmental process. Getting everyone into the room and giving us all an opportunity to speak on an issue about which people felt so strongly minimized subsequent leaks and carping to the press. A couple of well-respected subcabinet officials did resign over Clinton’s decision to sign the welfare reform legislation. But had the President made his decision in a different way, the internal fallout could have been much heavier.

  I never saw welfare as central to Clinton’s reelection, but I understood its larger symbolic significance and the political concern. To me, the central issue was the economy. The country’s continuing economic strength was obviously a powerful argument for giving the President a second term. Bob Dole, by contrast, seemed to me not to have a strong vision for his candidacy. I remember watching an interview with Dole on This Week with David Brinkley one Sunday, when I happened to be a guest. John Cochran asked him why he was running and what he wanted to do for the American people. Dole’s response focused on the politics and the polls, instead of where he wanted to lead the country.

  AT THE BEGINNING of Clinton’s second term, I had to decide whether to stay or leave—possibly to become chairman of the Carnegie Corporation, a foundation involved in an enormous range of issues from education and civic participation to international security and development concerns. The President wanted to get together to discuss the issue and called me at the Jefferson one night at about 10:30 and asked me to come over. I was getting ready to go to bed but was happy to oblige. Since my Secret Service detail had turned in for the night, I went downstairs and walked over to the White House.

  I went to the nearest gate, and the uniformed Secret Service officer inside the gatehouse asked if he could help me. “I’m here to see the President,” I said, mentioning that I was Secretary of the Treasury.

  The guard gave me a suspicious look and sent me to another gate, where they recognized me and let me in. Then I went upstairs to the second floor of the residence, where Clinton and I had a long talk about what I was going to do, interspersed with an open-ended discussion of politics, our views of other people, and the policy issues that animated both of us.

  Sometime after 2:00 X, I finally said, “Mr. President, I’ve just got to go home. I need to get up and be at work tomorrow.”

  “Okay,” Clinton said. “Thanks for coming over.”

  There was just one problem. I’d left home without my wallet.

  “Can you lend me five dollars for cab fare?” I asked. “I’ll pay you back tomorrow.”

  “Well, I don’t carry money,” Clinton said. “Maybe Hillary has some.” But she was already asleep, and he didn’t want to wake her up.

  I suggested borrowing money from the Secret Service. So we asked them, and they immediately offered to drive me home.

  There was another job possibility for me if I stayed. Leon Panetta was heading back to California and the President needed a new chief of staff to run the White House. Leon tried to convince me that I should take his place. For years, when I worked on Wall Street, I had always thought that being chief of staff to the President—which put you at the very core of the U.S. government and involved you in virtually all matters—would be the most compelling job in America. But now that this had—beyond my wildest imagination—become a real possibility, I knew I would pass.

  While the job retained much of its appeal in the abstract, I didn’t think my being chief of staff would actually work, either for the President or for me. When you’re chief of staff at the White House, you can be an effective advocate for your own views, but you’re ultimately a personal assistant to the President and you’re deeply involved in all of his politics. I’d read some books about how previous administrations had functioned, and from them, as well as from working in the White House myself, I understood that an integral part of the chief of staff’s job was taking calls at one in the morning about whatever was on the President’s mind and dealing with complaints about newspaper articles he didn’t like. As Erskine Bowles said to me once, you may be the “chief” but you’re still “staff.” I couldn�
��t see being at the beck and call of anybody, even a President I liked and respected as much as I did Clinton. And after four years of commuting back and forth between Washington and New York, I didn’t want a seven-day-a-week, twenty-four-hour-a-day job. Finally, the position involved more immersion in politics than I wanted. At Treasury I could focus more intensely on a host of policy issues that I felt deeply engaged with.

  So I took my hat out of the ring. But that left the question of who should be Clinton’s chief of staff. Erskine Bowles, who had resigned as Panetta’s deputy to return home to North Carolina and his financial career, had called to try to convince me to accept the job. We went through an Alphonse-and-Gaston routine: Erskine thought I should take it; I thought Erskine should do it. He didn’t want to come back to Washington. But Erskine has a strong sense of responsibility, and with Clinton leaning on him to return, he felt he either had to find someone else acceptable to the President or take the job himself. Somewhat reluctantly, Erskine agreed to become Clinton’s third chief of staff. But there was a price for me as well: Erskine wanted my chief of staff at Treasury, Sylvia Mathews, to become his deputy at the White House.

  At the same time this was happening, I knew Larry Summers was thinking about leaving as well. He had been offered a high-level academic job and was also a leading candidate to become chairman of the Council of Economic Advisers. That caused me to think seriously about resigning. The Treasury Department was a team run by Larry, Sylvia, and me. Sylvia was essentially our chief operating officer; Larry provided a lot of intellectual leadership for what we did and played a big role in management. Both were superstars, with the kind of political savvy that’s critical in the ever-dangerous world of Washington, and, not unimportantly, we had a comfortable and good-humored relationship with each other. Perhaps I could have built a new team of equal effectiveness, perhaps not. In any case, my life at Treasury would be quite different, and I wasn’t sure I wanted to start all over again. I was mindful that I had had four good years and that in Washington things can change completely at any minute of any day. New York also held many attractions for me, including the prospect of being home again.

  If, however, I could convince Sylvia or Larry to remain at Treasury, staying would become much more appealing. Sylvia was willing to stay and Erskine would have let her—albeit with great regret—but I didn’t want to hold her back from something she wanted to do. I thought the better alternative was to persuade Larry, whose importance to the administration was great and underappreciated, to remain in place. In government, as in business, the top person often has a complicated attitude toward the second in command. Some people think a powerful deputy will upstage them or make them look weak. I’d seen chiefs follow an instinct—conscious or unconscious—to prevent capable seconds in command from succeeding them. But I’d long had just the opposite view: having an extremely bright and skillful deputy greatly increased Treasury’s effectiveness. I also thought it made me look good, just as I thought that Gene Sperling’s prominence as my deputy at the NEC was good for the NEC and good for me. For two years, Larry and I had worked together as partners and shared credit for the department’s accomplishments. If I left before the end of Clinton’s presidency, I thought he would be the best possible choice to succeed me.

  So I worked out a rather complicated proposal to make Larry comfortable with staying. I told him that my intention was to remain for two more years. I would try to get the President to agree that if I served two years into the second term, he would then name Larry as my successor—assuming, of course, that the President was still comfortable with Larry. If I left sooner, there would still be what lawyers call a “rebuttable presumption” in Larry’s favor. If I decided to stay longer, Larry could do as he saw fit. Larry said jokingly that he would understand if something dramatic happened that made my leaving after two years impossible. We both laughed at that. As it turned out, there were two such events: a global financial crisis and the President’s impeachment.

  No guarantees were involved. I could decide to stay, or the President could simply say he wasn’t comfortable with Larry as Secretary for whatever reason. But we had an agreement in principle. For it to work, though, absolute confidentiality was essential. The only people who knew about this arrangement, as far as I knew, other than the President, Larry, and me, were the Vice President—whose agreement was requisite and readily given—Erskine, Sylvia, and Judy. For two and a half years, no hint of this understanding ever leaked—which was remarkable.

  With Larry in place, I asked Michael Froman to take over Sylvia’s job as chief of staff. Mike had come to Treasury from the NEC staff some months after I had moved. He had a doctorate from Oxford, a law degree from Harvard, where he’d been an editor of the Law Review, a strong intellect, a deep interest in policy issues, and good practical judgment. Mike, like Sylvia, was straightforward, worked well with people, was highly effective managerially, and had an irreverent sense of humor—sometimes, alas, directed at the Secretary. One recent instance sticks in my mind. During the 2000 presidential campaign, my name briefly and implausibly surfaced as a potential running mate for Al Gore (along with all kinds of other people). Froman commented that it would be an interesting ticket: Gore and I would be on the stage fighting over who had to kiss the babies.

  FOR THE TREASURY DEPARTMENT, the second term soon brought a crisis in one of the most basic functions of government: tax collection. The battle we fought with Congress—both Democrats and Republicans—over the Internal Revenue Service in 1997 stands in retrospect as a microcosm of much that I learned about Washington: the central importance of management; the complexity of managing effectively in government; the great difficulty in most circumstances of anticipating when matters will explode into political conflicts; the need to frame issues in ways that resonate; the power of the media to shape the political agenda and drive events; and, finally, the challenges of dealing with a political firestorm in the public sector.

  Years before moving to Washington, I had clipped and kept an interview that Michael Blumenthal had given to Fortune magazine after resigning as Jimmy Carter’s Treasury Secretary in 1979. Blumenthal said that management tends to be taken much less seriously in government than in the private sector. Unlike CEOs, Treasury Secretaries aren’t remembered for how well they ran the place. Nonetheless, I had a strong interest in management and paid a lot of attention to management problems in the department. I was able to recruit Nancy Killefer, a partner at the consulting firm of McKinsey & Company, as assistant secretary for administration. Nancy brought great expertise and skill to issues such as the Treasury’s own budget and created flexible rewards for employees within the existing rules, as well as improving training and personnel practices.

  Our greatest management challenge during my first two years at Treasury was our largest agency, the Internal Revenue Service. At that point, the IRS’s most widely publicized problem was an automation effort that in large measure hadn’t worked. The technology failure related to more general problems in the way the agency was run. Since the Second World War, the commissioner of the IRS had always been a tax lawyer, someone capable of navigating the labyrinths of a tax code that had grown to 9,500 pages. Larry Summers, who convened a working group to focus on the wayward technology project, convinced me that an organization of the IRS’s size, complexity, and importance needed a CEO experienced in management, not taxes. Larry and I spent a great deal of time at the beginning of Clinton’s second term interviewing candidates for this post. The person we liked best was Charles O. Rossotti, who had run a large Virginia-based consulting firm and was an expert in information technology.

  We worked hard to address Rossotti’s concerns about the job, which included a fear that for political reasons we would commit ourselves to overhauling the IRS overnight. Rossotti knew what we knew: that the agency’s problems were vast and serious. Morale among employees was low and sinking lower. We were concerned that because of its antiquated technology, the system—which p
rocesses 95 percent of the revenues of the federal government—might simply break down.

  While we worked quietly on this effort, others were becoming more vocal. Senator Bob Kerrey had set up a commission on restructuring the IRS, and its hearings became a forum for using complaints against the IRS to argue against the progressive income tax itself. The House majority leader, Dick Armey (R-TX), came and testified in favor of his flat tax. The conservative activist Grover Norquist, who was chosen as one of the Republican members by Newt Gingrich, tried to turn the hearings into an investigation of whether the IRS had politically targeted conservative organizations such as the Christian Coalition—a baseless accusation. Around that time, bumper stickers that said X began to appear.

  Senator Kerrey tried with mixed success to resist the effort by some conservatives to turn the hearings into an antitax, antigovernment platform. He also used it to promote one of his own favorite ideas: the separation of the IRS from the Treasury Department. Despite my regard for Kerrey, a man with enormous personal charm, this proposal appeared to me to be monumentally wrong. The notion, which reappears periodically, of breaking out discrete parts of government into independent units reporting to boards, seems to me to be a formula for less accountability and hence less effective government. In this case, a board would never have the knowledge or the continuity of focus that Treasury could have. And unlike a private-sector CEO—the argued analogy—a freestanding IRS chief wouldn’t have to worry about his share price or stockholders. Kerrey and I had some fairly contentious meetings in which I failed to persuade him of my position and he failed to persuade me of his. I felt strongly enough to recommend that the President veto the reform legislation that Kerrey was planning to introduce on this issue.