Jacob Lew and Jon Kyl: Differences Over Taxes, Spending Still Hold Back Budget Talks

White House budget director and Republican senator believe deal will be reached

WASHINGTON, JULY 17, 2011— -- While budget negotiations continue to try to reach an agreement before the Aug. 2 deadline, differences over taxes and spending continue to hold back progress on a final deal.

But White House budget director Jacob Lew says he believes an agreement will be reached before the country is at risk of defaulting on its debt obligations.

"I do not believe that responsible leaders in Washington will force this to default," Lew told "This Week" anchor Christiane Amanpour. "I think that all the leaders of Congress and the president have acknowledged that we must raise the debt limit, and the question is how."

"I think that what we face now is not a challenge of do we have time. It's a question of do we have the will," Lew added. "The president has shown through his leadership that we must take action, we must take it now."

Lew said there are still "multiple tracks" being debated, including efforts by Sen. Harry Reid (D-Nev.) and Sen. Mitch McConnell (R-KY) on a fallback agreement to give President Obama authority to raise the debt ceiling without enacting major spending cuts.

"The minimum is I believe that the debt will be extended," Lew said. "I think notwithstanding the voices of a few who are willing to play with Armageddon, responsible leaders in Washington are not."

"I think the question is do we do more than that," Lew added. "Do we also do as much as we can to reduce the deficit and provide some assurance that we're taking seriously the fiscal problems this country faces?"

The White House budget director said that to reach a larger agreement, raising taxes on the wealthy has to be a component.

"In order to get the kinds of structural reforms that will be needed in the long run, there has to be a balanced package that taxes -- revenues -- as well as spending on the table," Lew said. "It's not fair to ask senior citizens to pay a price, to ask families paying for their college educations for their children to pay a price, but to leave the most privileged out of the bargain."

But Senate Minority Whip Jon Kyl (R-Ariz.) maintained the Republican position that raising taxes should not be part of the final deal, and that spending remains the larger problem.

"Unless the president gets off his absolute obsession with raising taxes, Republicans are not going to agree to do anything that will harm our economy," Kyl told Amanpour. "And job killing taxes will harm our economy."

"Raising taxes on a weak economy is not good for economic recovery and for job creation," Kyl added. "That's why we're insistent that we should focus on the problem, the spike in spending, and not this phony problem of taxes."

Kyl also said that President Obama has to make firm commitments on enacting spending cuts before a final commitment can be reached.

"All the President would say is he was willing to look at unspecified reforms," Kyl said. "Republicans are not willing to make a deal based upon some vague commitment that some time in the future the President might be willing to look at something's that he won't identify.

Lew, however, disputed that notion, saying there have been "detailed conversations on many, many subjects" between the White House and House Speaker John Boehner on specific spending cuts, including to entitlement programs.

"I think the Speaker knows quite well how far the president is willing to go," Lew said. "The president has shown that he is willing to move into a space that is a very hard place for Democrats to go."

Kyl did, however, agree with Lew that he does believe an agreement will be reached before the Aug. 2 deadline.

"The country will not default," Kyl said. "Whether or not there are savings achieve in the process remains a question."

Lew said the "world is watching" to see if U.S. leaders can reach a deal before any negative consequences of default.

"There are some extreme voices that are saying we should push it over the edge," Lew said. "I think the risk of taking that path is just enormous. It would mean higher interest rates, which are a tax on all Americans, it would undermine our standard in the world, and it could have a cloud for a long time over the United States."

"It's kind of unfortunate that things always have to get to the last minute," Lew added. "Right now we are in a place where the world is watching, and we should get our business done."