Obama-era Treasury secretary: Tax law will make bipartisan deficit-reduction talks harder

Obama-era Treasury secretary: Tax law will make bipartisan deficit-reduction talks harder
© Lauren Schneiderman

Former Treasury Secretary Jack LewJacob (Jack) Joseph LewOvernight Finance: US reaches deal with ZTE | Lawmakers look to block it | Trump blasts Macron, Trudeau ahead of G-7 | Mexico files WTO complaint Obama-era Treasury secretary: Tax law will make bipartisan deficit-reduction talks harder GOP Senate report says Obama officials gave Iran access to US financial system MORE said on Thursday that passage of the GOP tax law will make it more difficult for Republicans and Democrats to discuss developing a bipartisan deficit-reduction plan.

The tax law "has left the political landscape with no clear way back to any kind of a balanced discussion of fiscal responsibility," Lew, who served in the Obama administration, said in an interview with MarketWatch

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The law, passed overwhelmingly by Republicans in December, has been estimated to pay for itself by reducing the $1.5 trillion cost of the tax cut to $1 trillion in added debt over 10 years before accounting for economic growth. Earlier this year, the Congressional Budget Office projected that the deficit will hit almost $1 trillion by 2020, in part because of the tax law.

"Democrats are not going to want to participate in a conversation about any kind of a deficit-reduction plan if it looks like it is paying for the tax cuts that shouldn’t have been passed in the first place," Lew said.

No Democrats voted for the tax law due to deficit concerns, as well as worries that the measure largely benefits the wealthy rather than the middle class.

But the former Treasury secretary said it's also going to be challenging for Republicans to push for spending cuts after enacting the tax cuts.

"For Republicans, who unanimously voted for this, they are not going to be able to come back now and say we need to cut spending to pay for this, not without bearing full responsibility for explaining how cutting benefits and cutting investments and research are being used to pay for the tax cuts," he said. Twelve Republicans, however, voted against the tax law.

Lew said he believes the tax law will end up adding more than $1.5 trillion to the deficit and predicted that temporary provisions will be extended. 

Lew also accused the law of creating new tax loopholes, which could allow for a short-term boost in economic growth but could ultimately be harmful due to higher interest rates and deficits.

"I think the economics of having a massive stimulus package late in a recovery cycle is an experiment," he said. "I think it is an experiment that is going to have unhappy results."

Democrats have floated rolling back parts of the tax law if they win back control of Congress in November's midterm elections. But Lew said it's "not realistic" to think that Democrats will be able to undo the tax cuts anytime soon.

"I think it is highly unlikely that you end up with a landscape where Democrats get to dictate the policy," he said. "The odds of both houses turning are not that high, and then you still have to deal with the White House."