Paul O'Neill, Treasury-Secretary Designate, Says Tax Cuts Won't Give Immediate Help To Economy

Mike Godfrey, Tax-news.com, Washington

18 January 2001

In a 3-hour confirmation hearing yesterday, Treasury Secretary-designate Paul H. O'Neill said he thought that the tax cuts proposed by President-elect George W Bush should happen, but that he didn't see them as being likely to have much of an immediate effect on the economy. "I'm not going to make a huge case that this is the investment we need to make sure we don't go into a recession," he said. "But if we are going to do it anyway, then the sooner the better." In an exchange with the Senate Majority leader Trent Lott, who has been pushing a reduction in capital gains tax, Mr. O'Neill said he thought that this was also unlikely to have a stimulating effect on the sluggish US economy.

The former Alcoa chief said that the Federal Reserve, through its control of monetary policy, was the "first line of action" to fight a downturn in the economy. O'Neill said he favored tax relief because he did not see the harm in lowering the tax burden while the government had big surpluses. Ex-President Gerald Ford said at the weekend that Mr O'Neill knew more about the US budget than anyone he had ever met.

Mr O'Neill repeated his known belief in a balanced budget, saying that the Clinton administration's record on fiscal discipline was 'wonderful'. He said the Bush administration should aim to collect enough in taxes to pay for government operations each year without going into debt — even when the economy barely expands. "The tax system should be structured so that even with low or no growth, we are not borrowing from our children," said the Treasury-secretary designate.

Mr O'Neill's repeatedly emphasized that un-needed revenues should be returned to the taxpayer, but his lukewarm support for tax-cutting may not be helpful to Mr Bush' plans: with Congress so closely divided between the two political parties, any weakening among senior Republicans may be seized upon by those of the rank-and-file who are closer to the political centre.

The prospective Treasury Secretary lived up to his reputation as a trenchant speaker, with a mind of his own, seeming readier than most confirmees to take issue with questioners he disagreed with. He himself joked about his reputation for outspokenness, which has come in for a good deal of media comment, getting a laugh when he said: "I'm thinking about whether I can still get away with being a maverick for a few more days."

There were no obvious objections to Mr. O'Neill's qualifications to head the Treasury during the hearing, and his confirmation seems highly probable. It could come as early as Saturday.

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