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Lew, US Republicans Agree on Need for Tax Overhaul

U.S. Treasury Secretary Jack Lew testifies on Capitol Hill in Washington, April 11, 2013.
U.S. Treasury Secretary Jack Lew testifies on Capitol Hill in Washington, April 11, 2013.
U.S. Treasury Secretary Jack Lew and Republican lawmakers concurred on Thursday that overhauls of the corporate and individual tax codes should be tackled together, but their agreement ended there.

Diverging sharply on whether new federal revenues should be raised from the affluent, Lew and the Republicans left prospects for comprehensive tax reform cloudy amid persistent partisan conflict on Capitol Hill over tax-and-spending policy.

A day after the White House released a 2014 budget plan it hoped could spark a deal with Congress on cutting deficits and changing the tax code, Lew testified before the House of Representatives' tax-law writing Ways and Means Committee.

Democratic President Barack Obama last year proposed a revamp of the business tax code alone, but Republicans said corporate and individual taxes must be reformed in unison. Lew assured Republicans that Obama agreed with that strategy.

"Just intellectually, one has to look at it as a whole," he said.

Obama called for $580 billion in new revenue from the wealthy in his 2014 budget on Wednesday, including a new minimum tax and curbs to deductions.

Most Republicans criticized the budget as too reliant on raising taxes and inadequate in cutting spending.

Republican Representative Dave Camp, the chairman of the committee, said the tax code should lower rates for all Americans instead of bringing more money into Washington.

"This budget is a first step, but America can do better than what the president is proposing here," he said.

Lew said any agreement must include new revenue.

In his confirmation hearing in February, Lew called tax reform a top priority. Formerly a two-time budget director and Obama's chief of staff, Lew helped pass the nation's last major tax overhaul in 1986 as a congressional staff member.

At a breakfast earlier on Thursday, Camp praised Obama, saying he has "evolved" by explicitly pledging not to raise total corporate taxes as part of a tax overhaul.

Prior budgets had been unclear on that point, and the business community was worried that corporate tax breaks would be trimmed to help curb deficits.

Democratic congressman Jim McDermott complained that Obama kept offering Republicans compromises, such as the White House proposal to change the inflation adjustment for Social Security, but Republicans gave nothing in return.

"The president continues to reach out and Republicans say, 'Yeah we'll take that, but we don't want to take any of the balance that has to go along with it,' " McDermott said, referring to revenue.

Lew also said the administration is willing to talk to Republicans about moving to a territorial tax system, which would largely exempt big companies' foreign income from taxation. But Lew said protections would be vital to prevent companies from moving domestic profits offshore.

Both parties are also largely opposed to a tax on financialtransactions, a popular idea in Europe to make banks pay for the help they got during the financial crisis. Lew on Thursday repeated the Obama administration's opposition to that tax.

Debt Bargaining

Lew also repeated the White House was opposed to using the nation's debt limit as a bargaining chip for fiscal policy.

Republicans have previously balked at raising the debt ceiling without an agreement on further government spending cuts, and are likely to revive the issue this summer after the current suspension of the debt limit expires on May 19.

Once the United States breaches its debt limit, the government would no longer be able to borrow money and make certain payments - though the Treasury can use emergency cash measures to push off the day of reckoning into July.

Some Republicans have proposed legislation to prioritize U.S. payments on government bonds if the United States hits its debt limit in order to avoid a credit default. The moves show their willingness for further brinkmanship.

"There's no way you can choose about paying your bills without being in default on one or another obligation," Lew said.

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