Treasury Secretary-designate Paul O’Neill yesterday supported President-elect George W. Bush’s $1.6 trillion tax-cut proposal and said it would be sent to Congress quickly.
Mr. O’Neill, the white-haired former chairman of Pittsburgh-based aluminum manufacturer Alcoa Inc., also asserted the economy is slowing. That reflects statements Mr. Bush has made the past four weeks.
“There is no doubt we are experiencing a slowdown,” Mr. O’Neill, 65, told the Senate Finance Committee during his confirmation hearing yesterday.
He said fiscal-policy changes like a tax cut can help improve the economy, but monetary policy should be the federal government’s “first line of action.”
But Mr. O’Neill endorsed the president-elect’s tax-cut plan and said Mr. Bush is considering making the cuts retroactive to Jan. 1.
“I don’t know why you wouldn’t want [a tax cut] now … . If we’re going to have a tax cut, do it now and get ready for the next round of expansion,” said Mr. O’Neill, a deputy director of the Office of Management and Budget under President Ford.
The Federal Reserve Board cut interest rates by one-half a percentage point Jan. 3. The stock market surged after the unexpected announcement, which led to the busiest day of trading in Wall Street history. But Mr. Bush has maintained he wants to enact the tax cut to offset the economy’s slowing growth.
Mr. O’Neill said a tax cut that places money back in the hands of Americans can help stimulate the economy in part by leading taxpayers to pay off mounting debt.
“What’s the reason not to give the taxpayers back some of their money? I don’t know the answer to that,” he said.
Democrats were skeptical and suggested that the Federal Reserve was better equipped to counter an economic slowdown. The Fed can more quickly affect the economy with an interest-rate change than the Bush administration can through tax cuts, which may not reach Congress until summer, Democrats said.
“We cannot afford to return to the fiscal irresponsibility and weakness of times past,” said Sen. Tom Daschle, South Dakota Democrat and, until Saturday, Senate majority leader.
Republicans rushed to Mr. O’Neill’s support.
“It seems to me the argument for the Bush tax cut is stronger than it was on Election Day,” said Sen. Phil Gramm, Texas Republican.
Democrats expressed concern that Mr. Bush would be unable to maintain his tax cut while increasing military spending and keeping Social Security solvent.
“It doesn’t add up,” said Sen. Max Baucus, Montana Democrat and outgoing chairman of the Senate Finance Committee.
Mr. O’Neill wrote in testimony submitted to the committee that Mr. Bush supports debt reduction.
Democrats emphasized that despite a slowing economy, Mr. O’Neill would inherit a much stronger economy than his predecessors. While former Treasury Secretary Robert E. Rubin inherited record deficits when he took office in 1995, Mr. O’Neill will inherit record surpluses, Mr. Daschle said.
Mr. O’Neill also said:
n He is unclear what role the federal government should play in bailing out utilities in California’s energy crisis.
n The nation’s tax system needs to be improved.
n He doesn’t know enough about the debate over taxing on-line sales to have an informed opinion on the issue.
Mr. O’Neill is widely expected to win confirmation from the committee, and approval could come as early as Saturday.