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Republicans, Lew clash over revenue plans in Obama budget

French Finance Minister Pierre Moscovici (R) and U.S. Treasury Secretary Jack Lew leave at the end of their joint news conference after a me
French Finance Minister Pierre Moscovici (R) and U.S. Treasury Secretary Jack Lew leave at the end of their joint news conference after a me

By Anna Yukhananov and Kim Dixon

WASHINGTON (Reuters) - Treasury Secretary Jack Lew and Republican lawmakers sang the same tune on Thursday on Capitol Hill about the need to revamp the corporate and individual tax codes simultaneously, but there was no harmony on how to get there.

The Republicans and Lew - named by President Barack Obama in January as his new economic policy chief - sharply disagreed on raising new revenues through the tax code, a major impediment to comprehensive tax reform.

In sessions that did little to clear away that obstacle, Lew testified to two congressional committees a day after the White House released a 2014 budget plan that sought $580 billion in new tax revenue from the wealthy.

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

Michigan Representative Dave Camp, the Republican chairman of the tax-writing House of Representatives Ways and Means 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," Camp said at the first of the day's back-to-back sessions before lawmakers for Lew.

NEW REVENUE

Lew said any fiscal deal must include new revenue, as did Democratic Senator Max Baucus, chairman of the Senate Finance Committee, at the second hearing later in the day.

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.

Obama last year proposed revamping the business tax code on its own, but Republicans responded by saying that corporate and individual taxes must be reformed in unison.

Lew assured Republicans at the House panel hearing that Obama agreed with their view, at least on that issue. "Just intellectually, one has to look at it as a whole," he said.

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.

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 financial transactions, 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.

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.

SOCIAL SECURITY

Democratic Congressman Jim McDermott complained that Obama kept offering Republicans compromises, such as his offer 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.

An administration proposal to move to chained CPI, a different measure of inflation, would mean slower growth in benefits under the Social Security pension program.

In the Senate, Democrats criticized the chained CPI idea, which they say would unnecessarily hurt senior citizens.

"It is not his first choice of policy," Lew said, referring to Obama. Lew added, "I'm not walking away from the proposal. I can defend it as being a more accurate measure of inflation."

He said Obama was responding to Republican demands that chained CPI be included in any deficit-cutting deal.

Republican Senator Orrin Hatch said Obama did not go far enough in paring costs for government programs, calling the chained CPI proposal a "small step."

DEBT LIMIT BARGAINING CHIP

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 - although the Treasury can use emergency cash measures to push off the day of reckoning into July.

When asked, Lew could not give a date as to when the use of these emergency maneuvers would be exhausted.

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.

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

(Editing by Kevin Drawbaugh, Cynthia Osterman and Eric Walsh)

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