In a speech at the Center for American Progress, Lew said the automatic spending cuts known as sequestration should be replaced with other budget trimming and called for loopholes to be closed as a means of raising revenue.
"We need to replace the harmful, across-the-board cuts known as sequestration with commonsense measures that rein in spending," Lew said.
He added: "So as we pursue a path of fair and balanced deficit reduction, it is crucial that we close wasteful tax loopholes, eliminate costs where it makes sense, and use some of the resources we free up to make targeted investments in a few key areas like manufacturing, infrastructure, and education."
The sequestration cuts were "designed to be so mutually disagreeable [so that they] ... would compel Democrats and Republicans to come together to create sensible and balanced deficit reduction policies," Lew said, referring to the summer of 2011 when an impasse in a debt ceiling debate resulted in a sequestration budget meant, in part, to scare politicians into a cooperating.
The first round of sequestration spending cuts took effect in March. A second round is due to start in January and those cuts, if left unchanged, will slice deeply into the country's defense spending.
"It is no surprise that a policy never intended to go into effect is now producing results that raise many problems and there is now broad bipartisan concern that these cuts are constraining our ability to maintain crucial commitments in areas like infrastructure, education and defense," Lew said.
"We know sequestration has already been a drag on economic growth and job creation," he said.
Lew called for a far reaching strategy for budget control, including immigration reform, which is expected to help grow the country's economy, passage of a farm bill and cutting wasteful spending.
Another item that should be cut from the budget process is brinkmanship, Lew said.
"We recognize that we do not have a monopoly on good ideas, and welcome thoughts from Democrats and Republicans," he said. "But any bipartisan agreement should be animated by a commitment to doing two things at once: re-balancing fiscal savings to reduce our medium and long-term deficits while taking steps now to make our economy more competitive."