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Ex-Obama Treasury secretary: We left a 'pretty strong' economy, but it won't grow at Trump's 3% goal

Key Points
  • The potential for sustained U.S. economic growth is certainly "north of 2 percent," Jack Lew says.
  • "If we don't make mistakes, the economy will continue to grow," Lew predicts.
  • "It would be an enormous mistake to have a tax cut that we can't afford, " he argues.
Jack Lew: Just lowering tax rate won't necessarily lead to increased growth

The potential for sustained U.S. economic growth is certainly "north of 2 percent," but not the 3 percent that President Donald Trump believes is possible with the implementation of his policy agenda, former Obama Treasury Secretary Jack Lew told CNBC on Wednesday.

"We left the economy in pretty strong shape," said Lew, referring to what he sees as positive results from steps taken during Barack Obama's presidency to recover from the depths of the 2008 financial crisis. "The benefit of the strong economy we left is putting us in a place, if we don't make mistakes, the economy will continue to grow."

"I always tried to be an optimist when I was in office; I'm still trying to be an optimist," Lew said on "Squawk Box," predicting gross domestic product growth "north" of 2 percent on a long-term basis but not 3 percent.

The government last month reported a 3 percent advance in third-quarter GDP after a 3.1 percent increase in the previous quarter.

Trump has taken credit for the uptick in economic growth from the first quarter of 2017 and last year.

But Lew, who also was Obama's White House chief of staff, said it's too early to tell whether those 3 percent levels are here to stay. "We've seen over the last five [or] 10 years a trend of quarters being very uneven," Lew said, pointing out that there were quarters during the Obama administration that were "better than we just saw."

"You've got to take the long view," Lew said. "It is very hard for an economy to consistently grow beyond potential unless you see the population grow and the productivity increasing."

"We have demographic issues that are just a constraint that anyone would face right now," he added, warning that denying such factors "could lead you to make big mistakes."

One of those mistakes would be to implement the approach to tax reform that Republican leaders advocate, said Lew, formerly director of the Office of Management and Budget during Bill Clinton's presidency. "I think it would be an enormous mistake to have a tax cut that we can't afford based on numbers that are unreliable on the hope that we get where you're going."

Trump and Republican tax writers maintain that any tax cuts would be paid for by the accompanying bump in economic growth, a method of measuring the potential impact of policy measures known as dynamic scoring. But Democrats, like Lew, believe that the potential impact of GOP tax cuts should be judged without factoring in any economic change, a practice called static scoring.

House Republicans, in consultation with Trump on Tuesday evening, postponed the release of their tax bill by one day until Thursday. "We just had a few finishing touches to do," House Budget Committee Chair Diane Black told CNBC on Wednesday morning. "We wanted to make sure we had this right when we put it out."

WATCH: Full interview with Jack Lew

Watch CNBC's full interview with Former Treasury Secretary Jack Lew

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