Sunday, January 18, 2004

O'Neill Says Bush Was Set on Cutting Taxes, Too:
"Mr. O'Neill has provoked a political firestorm with his contention that President Bush tilted toward war with Iraq almost as soon as he took office; the administration has vigorously denied that. But the former Treasury secretary described a similar pattern in Mr. Bush's push to cut taxes by at least $1.7 trillion over 10 years.

Mr. O'Neill was openly skeptical about the need for big tax cuts and expressed concern about frittering away what were then huge budget surpluses.

In hindsight, he may have been too sanguine about the economy's prospects in early 2001 and too dismissive of the value in cutting taxes as a way to soften the downturn. But Mr. O'Neill may also prove to have been prescient about other issues that are likely to have long-lasting significance. One was the idea of building 'triggers'' into Mr. Bush's tax cuts, provisions that would prevent some of the cuts from becoming effective if budget surpluses evaporated."

Behind the scenes, Mr. O'Neill described how he quietly collaborated with Alan Greenspan, chairman of the Federal Reserve, to press for such triggers.

As recounted by Mr. O'Neill, the president and his top advisers wanted no part in such precautions.

Though the Treasury secretary had one-on-one meetings with Mr. Bush almost once a week, Mr. O'Neill said the president listened to him in stony silence. And when Mr. Greenspan testified in favor of making future tax cuts conditional on the government's fiscal health, the White House balked.

There were questions about whether the triggers would have done any good. Congress, in theory, operated under "pay-as-you-go'' rules in the last years of the Clinton administration, under which any spending growth above the rate of inflation was supposed to be offset by budget cuts or tax increases. But tax revenue soared so quickly as a result of the stock market bubble and the booming economy that spending increased much faster than inflation.

Tax-cut advocates like R. Glenn Hubbard, then chairman of the White House Council of Economic Advisers, argued that the tax cuts had to be predictable and permanent to achieve their intended impact. If people thought the cuts would expire, he and others argued, they would have less confidence about spending their extra cash.

Shortly after the tax cuts, the government's seemingly inexhaustible surpluses evaporated. Revenues plunged as the economy slid into a recession and the stock market endured a three-year plunge that wiped out investment profits. Then came the terrorist attacks on Sept. 11, 2001, followed by huge increases in spending on domestic security and the wars in Afghanistan and Iraq.

Projections by Congress and the Bush administration of surpluses of $5.6 trillion over 10 years, the outlook in 2001, have turned into estimated deficits of at least $1.4 trillion and possibly as much as $5 trillion.

Mr. O'Neill strongly suggests that Mr. Bush worried little about budget deficits and did not want advice about them.

http://www.nytimes.com/2004/01/18/business/yourmoney/18view.html?pagewanted=print&position=

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