Jewish World Review Feb. 8, 2001/ 15 Shevat 5761
http://www.jewishworldreview.com -- TREASURY SECRETARY Paul O'Neill brought the Bush Administration's tax-cut offensive to Wall Street today, meeting for breakfast with a number of CEOs, investment managers and assorted economists.
What was most surprising about the encounter was not the former Alcoa CEO's strong tax-cut defense, but that there was no tax-cut dissent among the members of the breakfast group.
Several CEOs who did not support tax cuts during the recent presidential campaign have changed their mind. One former tax-cut opponent, a CEO who runs a major worldwide financial institution, expressed worry about declining consumer sentiment. He told the group "We need tax cuts, and we need to accelerate the tax-cut plan." This is a change in his thinking, and a welcome one.
Secretary O'Neill fielded questions on a number of topics, including consumer confidence, investor spirits, Japan, Social Security personal retirement accounts and the energy fiasco in California. The Treasury man responded with detailed, almost encyclopedic knowledge in every case.
He was particularly forceful in criticizing the class warfare arguments in Washington that "rich people" shouldn't get tax cuts, and asked the Wall Street group for help in combating that view.
"We don't want a flathead society where income is leveled like communism," O'Neill said. "It makes sense to move marginal rates down; stop the upward creep." Then he added, "We can keep our engine going with relatively low rates. No more than one-third of income should be paid in taxes to Washington."
Yesterday, in a Washington Post interview, O'Neill said, "I think we've demonstrated as a people that we don't think some form of socialism is a way to run a society." Also in that interview, O'Neill blasted the International Monetary Fund, especially its bungled 1998 bailout of Russia. This was a point he reiterated in the Wall Street breakfast.
O'Neill expressed hope that Congress would pass tax legislation quickly this year. There is a rumor that the House Ways and Means Committee plans a tax bill markup by President's Day, February 19, less than two weeks away. The Senate Finance Committee, however, will take longer. As President Bush has already stated, the administration would like the tax-cut start date to be made retroactive to January 1.
In response to questions about a possible capital gains tax cut, and a corporate tax-rate reduction, O'Neill was non-committal. The Treasury Secretary did, however, indicate general support for investment tax relief. And he reiterated his long-held view that the corporate tax should be abolished. The Bush plan is to submit their campaign tax-cut package (which includes estate tax relief and lowers personal rates to 33%, 25%, 15% and 10%) and then see what additions come from Congress.
Participants in the Wall Street breakfast meeting came away impressed with Mr. O'Neill and his solid grasp of issues. Though O'Neill is not himself a Wall Streeter, he has considerable knowledge of financial matters from his days at Alcoa and International Paper. What's more, it is rumored that each morning he checks the metals commodity markets to see the London opening quotes.
If true, this is a very positive sign with respect to the Treasury Secretary's responsibility to maintain a steady currency and domestic price stability. Commodity markets have far more forecasting information than Phillips curves or other flawed econometric models. A Treasury man who truly believes in markets, not just in manipulating them, is a welcome development.
Unfortunately, the well-heeled Wall Street breakfasters came away hungry. Believe it or not, there was no breakfast actually served at the breakfast meeting. At one point Secretary O'Neill asked an assistant to go and find some breakfast for the group. "I'm hungry," he said. "All I had was coffee this morning." The assistant came back with a small plate of fruit, setting it next to the Secretary's podium. But he was too busy talking to eat. And no one else got anything. Not a crumb was left on the High Table of world financial policy.
Oh well, with lower tax-rates we'll all be able to afford plenty of breakfasts. And the Investor Class will enjoy a supply-side banquet of capital formation, productivity and economic growth. Stock market bears beware: better times are
JWR contributor Lawrence Kudlow is chief economist for CNBC. He is the author of American Abundance: The New Economic & Moral Prosperity. Send your comments about his column by clicking here.
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