Former Treasury Secretary Jacob Lew said Democrats won’t be able to derail the Trump tax cut in the short-term and understands that they may take out their frustration by putting forward their own budget-busting priorities like guaranteed employment or single-payer health care.

In an interview with MarketWatch, Lew said the Republican decision to ram through the tax cut has poisoned the well, and cooperation between the parties to maintain the country’s fiscal heath may be lost for a long time.

Asked if Democrats were finished with being the party of austerity, Lew said: “Frankly, the proponents of this tax bill deserve the responsibility for that.”

After the 2016 election, Lew moved back to New York to teach at Columbia University’s school of international and public affairs. Last fall, he became a partner at Lindsay Goldberg LLC, a private equity firm that invests in family-run businesses and entrepreneurs.

Second-quarter economic growth is looking pretty good. The Atlanta Fed GDPNow sees growth over 4%. The administration is touting all this to show the tax cut was a good idea. What’s so wrong with their analysis? Growth is certainly stronger than it has been.

Well I think if you look over the last two years, growth has continued on a trajectory that is not new. I mean, it had been climbing over seven years, it is the ninth year of a recovery. There is no question that you have macroeconomic stimulus and there is going to be some short-term bump. I think the question about the fiscal policy, the tax cut in particular, is at what price? I think the economics of having a massive stimulus package late in a recovery cycle is an experiment. I think it is an experiment that is going to have unhappy results.

The immediate concern I have is [that] it is like throwing oil on a fire, when it burns off, what are you left with? I think you’re going to be left with higher interest rates. I think you’re going to be left with less resources to deal with the next economic downturn. And we are going to be left with a rising deficit, rising debt as a percentage of GDP, at a time when most fiscal policy planners would have said you should be doing the opposite. So getting a little bit of extra growth for the short term, I think, is a dangerous experiment with a potentially high price.

You think the Fed is really going to have to really push interest rates up, more than they otherwise would have?

I don’t mean to be predicting exactly what the Fed is going to do. I think we are in a period of time when the Fed has signaled widely that it is on a pathway towards gradually increasing rates and gradually withdrawing from quantitative easing. The signals that come from the kind of stimulus that has been put in the economy are inflationary. Now they are going to be trying to thread a needle not to move too quickly and not to move too far, but when you create things that are likely to have an inflationary impact, you make that job harder. So what I’ve heard them say is they are going to try not to move too quickly.

But if they watch data — and the short-term data are showing more signs that there is reason to move — that could affect their judgment over time. It is also not the only inflationary policy that is being pursued right now. The trade policies are inflationary policies. You put tariffs in place and you are driving up prices. I think that is just an awful lot of unconventional economics at a time when the economy is doing quite well. You know if you look at the point that the administration came in, they are very happy to say that they are responsible for kind of taking over and returning to growth, but they don’t say the economy has been growing for seven years. You know, the foundation for this growth was set a long time ago. And, yes, I think the tax cut has the effect of creating some more economic activity in the short run. But if you look at analysis, like Goldman Sachs did a report a few weeks ago, they think the increases in the deficit could add 30 basis points to interest rates TMUBMUSD02Y, 0.136% . That is not insignificant.

“ It is like throwing oil on a fire, when it burns off, what are you left with? ” — Jacob Lew

So the tax cuts might have the perverse effect of ending the recovery sooner than maybe it would have ended?

And, when the recovery ends, as recoveries always do, at some point, the tools to deal with a softening economy are far less robust than they were before. So if you don’t have fiscal tools it puts all the burdens on monetary policy.

In November, we will have the midterm elections and there is talk the Democrats would retake the House. Would you be telling them to try to reverse the tax cut? Won’t it be hard to do?

I think it is highly unlikely that you end up with a landscape where Democrats get to dictate the policy. The odds of both houses turning are not that high, and then you still have to deal with the White House. So I think that any kind of notion that the Democrats can ride in and reverse this are not realistic, certainly not in the short-run. There are elements of the tax cut that are more obvious targets than others, but I think anything, anything, that would be done to reverse it would be frustrated in the near-term.

You had to sit through a lot of lectures when you were treasury secretary from corporate CEOs about balancing the budget and the need to control the deficit. In hindsight, was it disappointing how businesses jumped at this tax cut?

If you compare the statements that many CEOs made, for example, about the Bowles-Simpson report, to the actions they took on this tax cut, inconsistency would be the polite word to describe it.

What is a fair corporate tax rate?

I think there was no disagreement between myself and the Republicans in Congress, or between the administration and Congress, that we needed to fix the corporate tax rate.

The corporate tax rate, the statutory rate, was the highest in the developed world. And the system was full of loopholes and deductions, and credits that if you were to reverse them, could have been used to pay for a lower rate and have a more efficient, more sensible tax system. I think the argument of going to a particular number is something that is kind of made up.

You know, being at the highest number is a problem, being at the lowest number, frankly, is not even a place where the United States should want to be because we have long criticized other countries for being, kind of, in the race to the bottom.

So we wanted to get the rate to somewhere between 25% and 28%, whatever we could pay for. Once the decision was made not to bother paying for it, this 21% became kind of a holy grail. Obviously they started with 15%, they thought it was a compromise.

The cost of going to 21% from 25% is one of the things that blew a hole in the budgetary picture. And, frankly, I have yet to meet a business person who has made a case that the difference between 21% and 25% was really worth that kind of risk. I haven’t even met that many who say it makes a material difference in terms of business planning. Being where we were was a problem. I think we should have stuck with [the plan to] pay for it and reduce it by having deficit-neutral, revenue-neutral tax reform bill. I think it was a big mistake to do it on pay-for.

Do you think the tax cut will cost more than $1.5 trillion?

Yes I do. First of all the bill was full of gimmicks to try and reduce the apparent cost for the whole tax bill. There are provisions that expire and, as is the practice, they are not necessarily the least popular provisions. They set out there to expire things that are going to be hard for Congress to let expire.

So I think you’re going to see this process of the sunsets not occurring and the costs will grow because of that.

Secondly, I think this bill created whole new loopholes that are going to be an attractive nuisance for economic behavior.

The pass-through provisions — the estimates were costly, in real life, it could be far more costly when the accounting and legal industries figure out how to structure things for more to take advantage of them. And you know that that work is going on. We all get emails that tell us there are new opportunities here. And I am sure those emails are going more to the people who are in a position to take advantage of it. So I think the costs are going to be higher. Yes, I do.

I also think that it has left the political landscape with no clear way back to any kind of a balanced discussion of fiscal responsibility. For Republicans, who unanimously voted for this, they are not going to be able to come back now and say we need to cut spending to pay for this, not without bearing full responsibility for explaining how cutting benefits and cutting investments and research are being used to pay for the tax cuts.

Democrats are not going to want to participate in a conversation about any kind of a deficit-reduction plan if it looks like it is paying for the tax cuts that shouldn’t have been passed in the first place.

I am not saying you never get back to a bipartisan conversation. It has always been hard to get the parties together to have those kind of conversations, I think passing a bill like this makes it harder. There is almost going to be to have to be some period of time where there is some step back from what was in the tax bill to open the door to that kind of conversation. And this isn’t coming at a random time. It is coming at a time when the baby boom is already retiring and the ability to make any kind of changes in the near-term get much more difficult, so kicking this out by some number of years may actually mean kicking it out quite far.

So any suggestion of entitlement reform, it would be a non-starter?

Look, I don’t know how you would justify voting, even if you believe that there is a need to address what we just saw in the Social Security trustee report, the long-term funding of Medicare. Right now, those issues have been joined.

The legitimate case that you needed to look at the trend of health-care spending merges with “we just put 2 trillion dollars on the debt.”And now you want to cut Medicare? Now you want to cut health care? Even reforms look bad in that light. So I think this is going to have a chilling effect on making progress on important things.

While Democrats won’t be able to make decisions on their own for the foreseeable future, there is already talk that if the Democrats retake the White House that they shouldn’t emulate the austerity policies of Clinton and Obama. In other words, since the Republicans have busted the budget, it will be time for the Democrats to do it for their wish-list, like single-payer health care, or guaranteed employment or public investment. What is your reaction?

You know, I had the privilege to be OMB director for three years in the Clinton administration and we had a balanced budget in each of the years and projected a surplus of over $5 trillion over the coming decade. And we had a serious possibility of paying off the national debt if we just let the baseline move forward.

A few years later the deficit was rising again. Why? Because of tax cuts that were supposed to pay for themselves but didn’t, and that argument didn’t carry much water with me then, but certainly after not working in the 1980s and not working in 2001-2003, you know shame on anyone who believed it in 2016-2017.

We had two wars that, whether you agreed or disagreed, they were put on the deficit. They weren’t paid for. And then we had an economic crisis and a recession where natural stabilizers went to work and we had to have an enormous amount of spending for the economy to recover. Net result, we left a $5 trillion projected surplus in 2001, and when I come back to OMB in the Obama Administration, we are working to get a $1 trillion deficit down to $600 billion and to reduce the deficit as a percentage of GDP from 10% to 3%. Now, we did that. When we left, the deficit was not at 10%, it was at 3% of GDP. It was stable for a decade.

And you can look back at the track record in the Clinton years and the track record in the Obama years, they were years of fiscal responsibility because we left in place a sustainable fiscal position and time to deal with some of the longer-term challenges in a bipartisan way. That was not the case at the end of the administrations that we came in after and it won’t be true at the end of the current administration. Whoever comes in next is going to see a rising deficit, rising debt, and the object lesson for people who have done the hard work that people like me did is: you do the hard work and then someone else goes out and spends it on their priorities.

That is not a recipe for a great conversation the next time.

I’m not predicting what people are going to do, but, frankly, the proponents of this tax bill deserve the responsibility for that.

There wasn’t a moment when you couldn’t maybe have done something to work together and instead it was a party-line vote to do something profoundly fiscally irresponsible and equally unfair in terms of the distribution of the benefits.

So, that’s a long way of saying, I understand the frustration of people who say we keep cleaning up a mess and others keep creating it - spending money on their priorities. I have obviously devoted a lot of my career to solving those problems and believe it is important that we solve those problems. I don’t think it’s going to be easy the next time around.