By Simon Kennedy and Anna Willard, BridgeNews
Washington--Jan. 25--There is no doubt the U.S. economy has slowed and America's policy makers have agreed that there must be tax relief, with the only debate concerning how much taxes need to be lowered and how soon, Treasury Secetary Paul O'Neill said in an interview with Business Week magazine. He claimed to be baffled by the suggestion that he is at odds with President Bush over the issue of tax cuts.
* * * Refusing to accept that the economic growth and consumer confidence had dropped precipitously, O'Neill accepted that "there is no doubt that the economy has slowed" in an interview released Thursday on Business Week Internet site.
"Final demand still looks good in some sectors, and some of what's going on is a consequence of inventory accumulation that needs to be worked off," he said. "What you can't know is the combination of consumer sentiment and balance sheets and expectations about income levels--what does that add up to six months from now?"
With Bush calling for $1.6 trillion in tax cuts over the next 10 years and Democrats calling for a more modest package of $700-800 billion, O'Neill said that "the leadership of the country had agreed that we should have tax cuts" and that "the only debate is how much."
"Maybe there's a corollary question of how soon," he added. As for how large the eventual tax relief package is, O'Neill said it would be "naive" to think that Congress would rubber stamp it immediately but that "the president feels he made a commitment to a certain level of tax reduction, and he will send it to the Congress."
On the charge that he and Bush differ over the wisdom of sweeping tax cuts, the new Treasury Secretary said: "I'm frankly amazed at some of the headlines about the President and me being in different places on the tax bill. Wait until you see my colors in the battle, and you won't have any doubt."
While he said all the components of the tax package were important, if the discussion concerned "an insurance policy against a recession, then the thing that will have the most immediate impact is the marginal rate cuts. They also have the most beneficial impact on low- and moderate- income families"
O'Neill also said that outside estimates of future budget surpluses provided "a fair degree of comfort in being able to take the tax reductions, continuing to pay down the national debt, and paying for the specific initiatives the President has called for."
As for international policy, O'Neill echoed comments made in his Senate confirmation hearing. He said that financial crises arise from a "failure of anticipation" and that it should be possible to have an information-collection network that puts you in a position where you can better anticipate countries that are heading into a financial crisis. "I'd consider myself a hero if I was never called on to (rescue) Mexico or Indonesia," he said.
Asked about the relations ship between national security policy and international economic policy, O'Neill said that the administration is currently going through a phase of settling in. There has been speculation about the power Treasury will have in deciding international economic policy because national security adviser Condoleeza Rice as well as top Bush economic adviser Lawrence Lindsey will have some responsibility for it as well. They will also have a deputy who reports to both of them on international economic policy. BridgeNews cited private sector sources Tuesdayas saying that position was likely to be filled by Bush policy adviser and venture capitalist Gary Edson.
"Usually, it gets sorted out in favor of who knows what they're talking about and who can bring facts to the table. I have talked to Lindsey and Rice and (U.S. Trade Representative) Bob Zoellick," he said. "There is a joint view that it's desirable to see if we can improve the degree to which U.S. policy doesn't mean a collection of agency or department ideas, but is truly well-considered." O'Neill also talked about Japan. "Japan is facing a situation that is bigger than the [savings and loan] problem we had in the U.S.
The Japanese know that," he said. "But not translating it into the financial statements of companies creates a problem of assets being squeezed and squeezed. (Fixing that) is a necessary step, and there's some indication they're leaning in that direction."
It would be hugely beneficial if Japan's economy lived in the world market, which means prices were market prices, he added. He said that in the last 10 years or so, it has been accepted that Japan is no longer an engine for world growth because the U.S. economy has been doing so well. "From a world point of view, it's necessary to think about that--not to meddle in Japan's affairs but to think about the things we might do to help them deliver a real growth rate of 4% to 6% a year," he said. "There needs to be more than one engine for the world economy." End
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