WASHINGTON — Democrats and Republicans could find common ground on business tax reform and infrastructure investment, Treasury Secretary Jack Lew said at a Senate Finance Committee hearing Wednesday.
"There really is bipartisan support for infrastructure, it's not something that is a party-line issue," Lew said. "So we should be able to make progress on it."
President Obama has been focusing on corporate tax reform because it would be very challenging to accomplish individual tax reform unless there's a broader fiscal agreement, Lew said.
In his fiscal 2015 budget released yesterday, Obama included a proposal to use the transition revenue from business tax reform for infrastructure investment. Similarly, the tax-reform plan unveiled by House Ways and Means Committee Chairman Dave Camp, R-Mich., last week would dedicate money to the Highway Trust Fund.
"Now that both Democrats and Republicans have proposed using revenue from the corporate tax code to invest in the surface transportation reauthorization and to make sure the Highway Trust Fund remains solvent so states and communities can continue work on infrastructure projects vital to economic growth, I am hopeful we can work together to get this done in the coming months," Senate Budget Committee Patty Murray, D-Wash., said in a statement Tuesday.
Several senators applauded the infrastructure proposals in Obama's budget at the Finance Committee hearing and during a Senate Budget Committee hearing also held Wednesday.
Sen. Mark Warner, D-Va., said he was pleased that Obama called for an infrastructure bank and noted that he has sponsored a bill, along with five Republicans, that would create a similar financing authority. Sen. Michael Bennet, D-Colo., also has introduced a separate infrastructure bank bill, which Lew noted has overlap with the administration's proposal.
After listening to Republican budget committee members complain that Obama's budget will increase the deficit and debt, Sen. Angus King, an Independent from Maine, said that, "infrastructure is debt" and "we're kidding ourselves" to think otherwise. The failure to maintain and fix infrastructure now will result in more spending later, he said.
Office and Management Budget director Sylvia Mathews Burwell, who testified during the hearing, responded, "I agree. Pay now or pay later."
King also said that there should be a "legal mechanism" that requires any savings from tax reform to be dedicated to reducing the deficit. "Otherwise, all of us will be struck by the oncoming train of interest rates," he said.
"We've been lulled by low interest rates," but they are going to rise, he said.
House Budget Committee chairman Paul Ryan, R-Wis., was more critical of Obama's infrastructure plan, saying in prepared remarks for a hearing his committee held Wednesday, that the president "wants to increase spending from the already insolvent highway trust fund by $90 billion."
Obama's budget also caps the value of the tax exemption for municipal bond interest, the deduction for state and local taxes, and other preferences at 28%. Camp's tax reform plan similarly caps the value of the muni exemption at 25%, but it would completely eliminate the state and local tax deduction. Lew disagreed with Camp's approach to that deduction.
"State and local finances are very important to the stability of our economy, and I think that the complete elimination of the state and local deduction would be something that would be a real challenge for many jurisdictions," Lew said.
Sen. Robert Menendez, D-N.J., appreciated Lew's comment, saying that there's a difference between limiting the value of the deduction for the wealthy and eliminating it for the middle class. Doing the latter would be "an economic body blow" for middle class families, Menendez said.
