WASHINGTON (AFX) - Treasury Secretary Paul O'Neill said the tax cut enacted by President George Bush should boost U.S. GDP growth by three-quarters of a percentage point in the second half.
"Whatever the underlying rate (of GDP growth) is, this should add three- quarters of a percentage point in the second half of this year, and a half a percentage point of real growth going forward, which is an enormous amount," O'Neill said in an interview on Fox television. The eleven-year, 1.35 trln usd tax cut is set to return 40 bln usd to taxpayers through September, he said, and 70 bln in the first part of the fiscal year beginning in October.
The "front-loaded" nature of the tax relief should provide the stimulus to near-term growth, he said.
Asked about the prospects for the federal budget under the tax legislation, O'Neill predicted surpluses will continue to grow. "I think if we can live true to our potential, with 3.5 pct real growth, we're clearly going to produce more surpluses than what we have in the current numbers, which don't anticipate that," he said.
The Treasury Secretary said ideally the tax burden should be set so that the federal budget is in surplus with 1 pct economic growth, allowing a return of tax revenue to taxpayers at higher rates of growth.
He also said any new proposals for federal spending should include specifications for "where the money is going to come from to pay for it."
Asked about plans to privatise the federal government's Social Security system, O'Neill stressed that "if we're going to actually have a fund, a real fund that's earning interest ... the money needs to be invested in the private sector."
The Bush administration's plans are widely expected by analysts to include individual investment accounts.
O'Neill said that, with hindsight, the Social Security system should have originally included "a full, contributory fund, so that in fact the accounts that people have would have been owned by them." The current system is a pay-as-you go program.