Lew Says Budget Talks Must Focus on Both Revenue and Spending Reductionss

White House budget director Jacob Lew said the administration wants to shift the focus of budget talks from spending cuts to long-term deficit reduction, which will force Republicans to discuss raising government revenue.

Shrinking the budget shortfall from a projected record $1.6 trillion this year over the longer term will require going beyond slashing programs to addressing entitlement programs such as Social Security and taxes, Lew said during a Bloomberg Breakfast yesterday in Washington.

“One cannot solve our deficit problem by simply cutting away at it,” Lew said. “There is going to have to be a serious conversation with everything on the table in terms of revenues and mandatory spending, and that’s hard.”

Lew said he is optimistic about reaching an agreement to fund the government for the rest of the fiscal year, which ends Sept. 30. He said Republican leaders in Congress have taken a pragmatic approach to negotiations, and indicated President Barack Obama is open to additional spending cuts.

He cautioned that efforts by some Republicans to attach so- called riders on the legislation to limit or eliminate funding for social programs such as family planning or environmental regulation enforcement may hinder any deal on 2011 spending.

The Republican-controlled House of Representatives on March 15 approved another short-term measure to pay for government operations until April 8. It includes $6 billion in cuts, which would keep Republicans on track with their push to reduce the budget by $61 billion this year. Leaders of the Senate’s Democratic majority have said they expect to pass the stopgap bill today and send it to the president for his signature.

Temporary Authority

The government has been operating under a series of temporary measures and the current spending authority, enacted earlier this month, expires March 18.

Lew said that until lawmakers complete talks on this year’s budget they can’t have a serious conversation about long-term deficit reduction.

The actions so far by the House don’t add up to substantial deficit reduction, Lew said. Republicans haven’t offered a detailed budget plan for 2012 and beyond, he said, and they want to extend indefinitely the 2001 and 2003 tax cuts for individuals earning more than $200,000 a year and on estates.

While Obama signed an $858 billion bill to continue Bush- era tax cuts through 2012, he opposes another extension.

‘Big Hole’

“We have got specific proposals out there on many areas of spending; they are still developing them,” Lew said of the Republicans. “I don’t know what they are saving, they are going to have a big hole to fill to show real deficit reduction.”

Brendan Buck, a spokesman for House Speaker John Boehner, Republican of Ohio, faulted the administration for the lack of progress on the deficit.

“It’s awfully hypocritical for the White House to call for a dialogue on solving our deficits when they completely punted on this issue in their budget,” Buck said.

He declined to discuss whether Boehner and other congressional Republicans would look at raising revenue. Party leaders will offer a budget blueprint next month to tackle “the long-term challenges that we face,” Buck said.

Lew defended Obama’s $3.7 trillion budget request for the 2012 fiscal year, saying it “does an awful lot more on revenue than the current political system is ready to process.”

While Obama’s plan, released last month, aims to reduce deficits by more than $1 trillion over a decade, it doesn’t include changes to Medicare, Medicaid or Social Security. Those entitlement programs represent about 40 percent of the federal budget and are primary drivers of long-term deficits.

Republican Letter

In a letter to Obama yesterday, almost two-dozen Republican senators said they probably would oppose increasing the U.S. debt limit Barack Obama led a push to begin cutting entitlement programs. The government will reach its current legal limit on borrowing sometime between April 15 and May 31, according to the Treasury Department, and raising it requires congressional approval.

Obama’s budget also skirted recommendations from the president’s own deficit-reduction commission, led by Alan Simpson and Erskine Bowles.

“Simpson-Bowles had a plan, the president had a plan,” Lew said. “They are not exactly the same, but I think it’s important to kind of start there.”

Lew said that while there are fundamental disagreements on budget priorities, Republican leaders are approaching the negotiations on this year’s spending in good faith.

“One could have put a $6 billion package together that was $5 billion of things that were acceptable and $1 billion of things that were daring us to veto,” Lew said of the temporary spending measure. “They didn’t do that. I applaud them for that.”

Compromise

For the next round of negotiations, Lew said there likely is more room for spending cuts “that we could live with” between current spending levels and the additional trims the Republicans want.

“I hope we can work our way towards that,” Lew, 55, said. “With the choice between optimism and pessimism, I always choose optimism.”

Still, he said Obama has drawn a line at Republican attempts at “shutting down government activities in areas that involve science and environmental health and safety enforcement” through the budget resolution.

Those issues are “more emotional sometimes than the individual funding levels,” Lew said. “That’s why we were so clear right at the start that it was not acceptable to put extraneous social policy and broad policy directives in a must- fund continuing resolution. It’s not going to be acceptable to us, and we’re going to have to work our way through that.”

He declined to say whether Obama would refuse to sign another stopgap funding bill after the three-week extension, which is the sixth temporary spending authority approved this fiscal year.

“I don’t think it’s helpful to the process for us to deliver ultimatums,” Lew said. “I’m not going to say what he would do. I didn’t say he would, I didn’t say he wouldn’t.”

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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