Larry Summers emerges as the most unlikely Democratic hero

“I remember walking through the tunnels to the Hart building and saying to Larry, who was in Brazil at a conference at the time, ‘You gotta call Joe Manchin and you gotta do it right now and convince him that everything is cool, that it will work”, senator. Mark Warner, a Democrat from Virginia, recalled in an interview the frantic final days before the vote on the legislation. “And he did that, he made the call.”

It’s an extraordinary turnaround for the talkative former top Obama adviser who has made White House officials cringe when they complain that their past multi-trillion dollar spending plans have helped fuel the highest inflation in four decades.

It’s saying too much that Summers is now suddenly loved.

Many on the left still hate him for what they see as his pro-business leanings and belligerent stance on inflation. (He recently said that Americans faced “significant economic distress” from higher interest rates to kill inflation, prompting Sen. Elizabeth Warren to call him “someone who never worried about where his next paycheck was coming from”.)

Republicans now say he has two faces on inflation risks, opposing some big spending plans but not others. And just about everyone agrees that Summers can be hard to deal with given his bold opinions, tough attitude, and certainty about his own accuracy. But for now at least, Democrats say he was the right guy at the right time for a party that desperately needed a win.

Summers’ story – a long-running behind-the-scenes drama in Washington that began when he joined the Clinton administration in 1993 – in many ways follows major rifts in the Democratic Party between figures on the left and more moderate that have only grown stronger as progressives assert more dominance.

For some progressives, the mere invocation of Summers’ name elicits disgust and rejection of anything he has to say. Summers nearly became Federal Reserve Chairman under President Barack Obama in 2013 before a coalition of progressives convinced Obama to drop his nomination in favor of Janet Yellen.

Opponents cited Summers’ ties to corporate America and Wall Street, his moderate views, and the controversial remarks he made about women’s aptitude for science when he was formerly president of Harvard University.

Its current renaissance began with the prescient appeal about the potential for runaway inflation that it made last year when most pundits — and the Fed — saw rising prices as transitory. He opposed the US bailout, Biden’s $1.9 trillion Covid relief proposal, saying it was far too much money to pour into an economy already emerging from the pandemic.

But despite numerous prior disagreements, top White House officials and lawmakers have looked to Summers for help in recent weeks, and now two of his longstanding policy goals — a minimum tax rate on corporations and more money for IRS enforcement – ​​are the mainstays of the environmental, health and tax invoice now on a path to Biden’s office after the House voted to approve him on Friday.

And both on Capitol Hill and inside the West Wing, Summers is credited with helping deliver a bill with the largest investments ever made to fight climate change while raising taxes for corporations and providing more resources to the IRS.

“Part of the reason Larry has managed to be so effective on the Hill over the past two weeks is that he has credibility with people like Manchin who are worried about inflation,” said a person familiar with the administration’s successful campaign to pass the bill. Senate which was not authorized to speak officially. “And he’s really the intellectual architect behind big chunks like the IRS enforcement and the corporate tax rate.”

The legislation lacks many provisions on taxes, child care and other priorities that progressives and the White House wanted. And some blame Summers in part for the bill not being bigger and bolder. But the legislation offers the party something concrete to campaign on as it faces potentially big losses in the midterm elections.

Summers declined to discuss his conversations with Biden or other White House or Capitol Hill officials. But in an interview, he signaled that he was more worried than ever about soaring inflation.

“You can do a variety of sophisticated calculations based on economic models and pretty gloomy parameters,” Summers said. “I would be surprised if we got away with it significantly without unemployment above 6%.”

His influence on the White House has been felt for some time. Principal assistants who were either students or former colleagues hold key roles in administration. He remains close to Chief of Staff Ron Klain. National Economic Council Director Brian Deese was an aide to Summers during the 2008 financial crisis. Summers was a graduate advisor to Council of Economic Advisers Chair Cecilia Rouse.

He is a longtime friend and tennis buddy of veteran White House aide Gene Sperling, who worked with Summers in the Clinton and Obama administrations.

He is friends with leftist CEA members like Jared Bernstein. And he’s been a regular Biden phone confidante with calls at least every two months, a frequency that hasn’t diminished even as Summers questioned the US bailout and its impact on inflation.

And when the White House is engaged in major economic initiatives, top aides in its network will receive long, detailed and sometimes critical emails about every detail of what they are planning.

Current and former White House officials say those emails — and Summers himself — aren’t always easy to deal with. It can be dry and crisp. But both because what he says is often heavily amplified in the press and because he is so well versed in economic policy, phone calls and emails are usually answered promptly and cordially.

“It’s not always nice to be on the other side of Larry when he disagrees with something you’ve said or done,” said a former Obama administration colleague. “But he usually still doesn’t because of his ego – or not only because of his ego – but because he thinks it’s important and he’s right, and obviously he was very right about a very big thing.

The White House declined to comment on Summers’ role.

“The president has been asking Congress for months to act on legislation that cuts costs and the deficit,” said White House deputy press secretary Emilie Simons. “We are pleased that a range of experts, economists, business leaders and others agree with this approach.”

Summers’ role was especially critical when Democrats needed new revenue streams in the Cut Inflation Bill to offset the costs of environmental and health care initiatives.

Summers — along with many progressives — has long been a proponent of a basic minimum corporate tax, which can often use complex accounting methods to reduce what they owe, in some cases to zero.

Summers, along with former student Natasha Sarin, now at the Treasury Department, helped craft the minimum that applies to adjusted financial statements, or “books,” of earnings for large U.S. companies and foreign companies with at least 100 million dollars in US revenue.

He has also been a longtime supporter of increasing the IRS budget.

The Democrats’ bill includes $80 billion in new IRS funding that the White House says will be used exclusively to target taxpayers with more than $400,000 in income to deflect GOP arguments that the Middle-class Americans will face onerous audits.

Summers desperately wanted to close the “carried interest loophole” in the tax law that allows private equity and other fund managers to pay a 15% rate on the gains that make up a large part of their income. rather than the maximum rate of 37% that applies to most. ordinary income taxpayers.

Typically, he was candid about another Democratic failure to change the tax treatment of carried interest.

“In case you think this was merit-driven, study the patterns of campaign contributions received by key players and how much those who benefit [the] tax relief helped preserve it,” he said. tweeted Thursday. “It was not a particularly inspiring example of our democracy.”

Summers dismisses criticism that he flip-flopped on spending, noting that IRA investments are spread over 10 years rather than direct cash injections. And he and other Democrats say cutting health care and energy costs will help lower inflation over time.

“ARP was $1.9 trillion in addition to $900 billion and unpaid,” Summers said, referring to an aid package approved by Congress in December 2020. “It was a few hundred billion over a decade and more than paid with a hyper-conservative estimate of IRS revenue.”

His allies still expect him to criticize the administration when he deems it necessary. And they don’t expect his behavior to change. But for the moment, they mostly appreciate it.

“Larry is brilliant but he’s not always smooth, and I think he’d be the first to admit that,” Warner said. “But the fact that he was willing to take slings and arrows from his own team and turned out to be right on inflation gave him a lot of credibility.”


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