GREGORY: It's probably fair to be cynical about whether people should pay too much attention to a budget outline when budgets don't get passed in Washington for 1,000 days, but I do want to ask you about the president's blueprint because it's seen in some ways as an election year document. This is how The New York Times described it in part and I want to have you react to this. "`President Obama pledged to cut the deficit in half by the end of his term,' said Stephen Miller, he's a spokesman for Republicans on the Senate Budget Committee. `Their optimistic projection is that next year's deficit will be almost a trillion dollars--after four straight trillion-dollar deficits. So the White House is bragging about a broken promise?' But deficit reduction may be beside the point. Mr. Obama appears to be laying out a campaign document that pits jobs programs paid for with tax increases on the rich against the deep spending cuts that will be the heart of the Republican Party's economic program, rebuilding vs. austerity."

I want to ask you this, I asked New Gingrich this last week, why shouldn't austerity be a centerpiece of what the United States government is about these days given how high the budget deficit is and how much economic uncertainty that fiscal insanity contributes?

LEW: You know, David, I think that there's pretty broad agreement that the time for austerity is not today. We need to be on a path where over the next several years we bring our deficit under control. Right now we have a recovery that's taking root and if we were to put in austerity measures right now, it would take the economy in the wrong way. So The New York Times, for example, has very much argued that 2012, 2013 is not the time for austerity.

GREGORY: Mm-hmm.

LEW: The challenge is how do you do two things at the same time. How do you put money forward for things like the payroll tax holiday, for things like getting a jump-start on infrastructure, for building schools, and make the decisions for long-term deficit reduction. The president's proposed a plan that would do that. He was willing over the course of last year to negotiate a bipartisan agreement that would do it.

GREGORY: Mm-hmm. But cutting the deficit should not be the number one priority.

LEW: We've seen, we've seen from, we've seen from Republicans in--particularly Republicans in the House, but with Republicans generally, that they don't want to be part of any plan that raises taxes at all. The president's budget has $1 of revenue for every $2 1/2 of spending cuts. This can be done, but it can only be done when we work together.

GREGORY: But just to understand you, cutting the budget should not be the number one priority when you've got a slow economic recovery. That's your message.

LEW: I think that...

GREGORY: Cutting the deficit, I should say.

LEW: I think that for, for the next short period of time...

GREGORY: Mm-hmm.

LEW: ...our number one priority is Congress needs to do its work and extend the payroll tax cut. They have two, two weeks now to do the important business that they don't get in the way of our economic recovery. Congress should take seriously long-term deficit reduction. The president takes seriously long-term deficit reduction. That's why he's putting out a plan that has serious long-term deficit reduction. I hope that we can get to work on that this year, but it's not because it should take effect right now.

GREGORY: Jack Lew, thank you very much.

LEW: Good to be with you, David.