Treasury Secretary-designate Paul O'Neill told senators Jan. 17 that President-elect Bush's tax cut would not threaten the budget surplus or trigger inflation. He confirmed that Bush is considering whether to make the cuts retroactive to boost the flagging economy.
"If we're going to have a tax reduction ... I don't know why we wouldn't want it now," O'Neill told the Senate Finance Committee. "It won't hurt. We'll get ready for the next round of expansion in our economy."
The Bush tax plan, O'Neill added, would be submitted as legislation to Congress "in six weeks or so" after the new president takes office Jan. 20.
O'Neill said, however, that Bush has not yet decided whether to adjust his 10-year, $1.6 trillion tax cut package -- including across-the-board income tax rate cuts -- so that more of it takes effect in earlier years. But he said Bush is also examining whether to make it retroactive, as some Republicans in Congress are suggesting.
"What's the reason not to give the taxpayers back some of their money? I don't know that," O'Neill said.
Democrats were more skeptical. Senate Democratic leader Tom Daschle of South Dakota said O'Neill will inherit both "a remarkably strong fiscal situation" and long-term challenges such as the solvency of Social Security and providing prescription drugs under Medicare. The tax cut, he suggested, might jeopardize those issues.
"We must prepare for it now. We cannot afford to dig ourselves into a fiscal hole as we did in the 1980s," Daschle said. "We cannot afford to return to the fiscal irresponsibility and weakness of times past."
O'Neill, however, said "there is room to fit the president-elect's tax proposal" within the projected surplus even if economic growth continues to slow. O'Neill said he shared the goal of keeping the budget balanced and paying down public debt.
Other Democrats said Bush's tax cut as proposed would likely do little to stimulate the economy because much of it would take effect in the later years.
"You have to question whether that's going to have the impact desired," said Sen. John Kerry, D-Mass.
Republicans, however, said tax relief is the right course with the economic skies beginning to darken.
"A tax cut would probably be the right thing to do at this moment in time," said Sen. Olympia Snowe, R-Maine. "We all recognize we need to have strong and sustained economic growth."
O'Neill, the retiring chairman of aluminum maker Alcoa Inc., is expected to win easy Senate confirmation, likely on Jan. 20.
Martin Regalia, chief economist at the U.S. Chamber of Commerce, said O'Neill brings a "clean slate" to government that the confirmation hearings will begin to fill in.
"With the tax debate coming up quickly, we'll get to see him in action very soon," Regalia said. "You would expect that the tax cuts would be pushed heavily and vociferously by the treasury secretary. I haven't seen him doing that."
Conservatives raised alarms when O'Neill was selected because of statements he made in 1992 supporting President Clinton's proposed fuel tax increase to reduce the budget deficit. The incoming GOP chairman of the Finance Committee, Sen. Charles Grassley of Iowa, called that support "stupid" but is now satisfied that O'Neill has put the matter to rest, a spokeswoman said.
One key relationship O'Neill can count on is a close friendship with Federal Reserve Chairman Alan Greenspan dating from their service together nearly 30 years ago in the Ford administration.
Greenspan, who helped O'Neill become chairman of Alcoa as a then-member of its board, endorsed O'Neill as "an exceptional and talented person. I look forward to again working closely with my old friend and colleague."Copyright © 2014, Los Angeles Times