“I remember walking the tunnels back to the Hart building and saying to Larry, who was in Brazil at some conference at the time, ‘You gotta call Joe Manchin and you gotta do it right now and convince him this is all cool, that this will work,’” Sen. Mark Warner, a Virginia Democrat, recalled in an interview about the final, frenetic days before the vote on the legislation. “And he did that, he made the call.”
It’s an extraordinary turnabout for the voluble former top Obama adviser who has made White House officials bristle over his complaints that their past multitrillion-dollar spending schemes have helped stoke the highest inflation in four decades.
It’s far too much to say that Summers is now suddenly beloved.
Many on the left still loathe him for what they view as his corporate-friendly leanings and warlike stance on inflation. (He recently said Americans needed to face “meaningful economic distress” from higher interest rates to kill inflation, prompting Sen. Elizabeth Warren to blast him as “someone who has never worried about where his next paycheck will come from.”)
Republicans now say he is two-faced on inflation risks, opposing some big spending plans but not others. And pretty much everyone agrees that Summers can be challenging to deal with given his bold views, blunt demeanor and certainty about his own correctness. But for the moment at least, Democrats say he was the right guy at the right time for a party in desperate need of a win.
Summers’ story – a long-running, behind-the-scenes Washington drama that began when he joined the Clinton administration in 1993 – in many ways tracks large fissures in the Democratic Party between left and more moderate figures that have only grown more pronounced as progressives assert more dominance.
For some progressives, the mere invocation of Summers’ name elicits disgust and dismissal of anything he has to say. Summers almost became Federal Reserve chair under President Barack Obama in 2013 before a coalition of progressives convinced Obama to drop his nomination in favor of Janet Yellen.
President Barack Obama stands with his nominee for Federal Reserve Chair Janet Yellen in the State Dining Room of the White House in Washington in October 2013. | Charles Dharapak/AP
Opponents cited Summers’ connections to corporate America and Wall Street, his moderate views, and controversial remarks he made about women’s aptitude for science when he previously served as president of Harvard University.
His current renaissance began with the prescient call on the potential for runaway inflation that he made last year when most pundits – and the Fed – viewed rising prices as transitory. He opposed the American Rescue Plan, Biden’s $1.9 trillion Covid-relief proposal, saying it was way too much money to be pouring into an economy that was already emerging from the pandemic.
But despite many prior disagreements, senior White House staff and lawmakers turned to Summers for help in recent weeks, and now two of his long-time policy goals — a minimum corporate tax rate and more money for IRS enforcement — are pillars of the environmental, health and tax bill now on a path to Biden’s desk after the House voted to approve it on Friday.
And on both Capitol Hill and inside the West Wing, Summers gets credit for helping deliver a bill with the largest-ever investments to battle climate change while lifting taxes on corporations and providing more resources for the IRS.
“Part of why Larry managed to be so effective on the Hill over the last couple of weeks is that he has credibility with people like Manchin who are worried about inflation,” said a person close to the administration’s successful push to get the bill through the Senate who was not authorized to speak on the record. “And he’s really the intellectual architect behind big pieces of it like 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 fact that the bill isn’t larger and bolder. But the legislation offers the party something concrete to campaign on as it faces potentially significant losses in the midterm elections.
Summers declined to discuss his conversations with Biden or other officials in the White House or Capitol Hill. But in an interview, he signaled that he’s as concerned as ever about spiking inflation.
“You can do a variety of sophisticated calculations based on economic models and parameters that are quite dark,” said Summers. “I’d be surprised if we get out of this in a meaningful way without unemployment above 6 percent.”
His influence on the White House has been felt for some time. Senior aides who were either students or former colleagues hold key roles in the administration. He remains close to Chief of Staff Ron Klain. National Economic Council Director Brian Deese was a Summers aide during the 2008 financial crisis. Summers was a graduate school adviser to Council of Economic Advisers Chair Cecilia Rouse.
Vice President Joe Biden, second to left, speaks to the media as Director of the National Economic Council Larry Summers, second to right, listens at the White House in October 2009. | Alex Wong/Getty Images
He has been a long-time friend and tennis buddy of veteran White House aide Gene Sperling, who worked with Summers in both the Clinton and Obama administrations.
He’s friendly with left-leaning CEA members like Jared Bernstein. And he’s been a regular phone confidant of Biden’s with calls occurring at least every couple of months, a frequency that did not diminish even as Summers questioned the American Rescue Plan and its impact on inflation.
And when the White House is engaged in major economic initiatives, senior aides in his network will receive lengthy, detailed and sometimes critical emails about every detail of what they are considering.
Current and former White House officials say these emails – and Summers himself – are not always easy to handle. He can be curt and sharp. But both because what he says is often heavily amplified in the press and because he’s so versed in economic policy, the phone calls and emails are usually answered quickly and cordially.
“It’s not always pleasant to be on the other side of Larry when he disagrees with something you said or did,” said a former Obama administration colleague. “But he generally always does it not because of his ego — or not only because of his ego — but because he thinks it matters and that he’s right, and obviously he was very right about one very big thing.”
The White House declined to comment on Summers’ role.
“The president has for months called for Congress to act on legislation that lowers costs and lowers the deficit,” deputy White House press secretary Emilie Simons said. “We are gratified that a range of experts, economists, business leaders and others agree with this approach.”
Summers’ role was especially critical when Democrats needed new revenue sources in the inflation reduction bill to offset the costs of the environmental and health care initiatives.
Summers — along with many progressives — has long been a proponent of a basic minimum tax on corporations, 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 the adjusted financial statement, or “book,” income of large U.S. companies and foreign firms with at least $100 million in U.S. income.
He has also been a long-time backer of increasing the IRS budget.
The Democrats’ bill includes $80 billion in new IRS funding which the White House says will be exclusively used to target taxpayers with over $400,000 in income to deflect GOP arguments that middle class Americans will face onerous audits.
Summers desperately wanted to close the “carried interest loop-hole” in tax law that allows private equity and other money managers to pay a 15 percent rate on gains that make up much of their income rather than the 37 percent top rate that applies to most ordinary income taxpayers.
In typical fashion, he has been outspoken about yet another Democratic failure to change carried interest tax treatment.
“In case you thought this was driven by the merits, study the patterns of campaign contributions received by major actors and how hard those benefiting from [the] tax break have worked to preserve it,” he tweeted on Thursday. “It wasn’t a particularly inspiring example of our democracy.”
Summers rejects the critique that he has flip-flopped on spending, noting that investments in the IRA are spread over 10 years rather than as direct cash infusions. And he and other Democrats say lowering health care and energy costs will help bring inflation down over time.
“ARP was $1.9 trillionon top of $900 billion and unpaid for,” Summers said, referring to an aid package Congress approved in December 2020. “This was a few hundred billion over a decade and more than paid for with a hyper-conservative estimate of revenue from the IRS.”
His allies still expect him to be critical of the administration when he feels it’s warranted. And they don’t expect his demeanor to change. But at the moment they are mostly appreciating him.
“Larry is brilliant but he’s not always smooth, and I think he’d be the first to admit that,” said Warner. “But the fact that he was willing to take slings and arrows from his own team and turned out to be right on inflation lent him a lot of credibility.”
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