- The Washington Times - Thursday, July 5, 2001

Treasury Secretary Paul O'Neill believes the U.S. economy's decline is over and that it will begin climbing again as this summer's tax rebates and lower withholding income tax rates begin to kick in.
Mr. O'Neill, a tough, no-nonsense executive who turned Alcoa into one of the great U.S. corporate success stories, is not given to reaching conclusions about anything unless he is confident of the numbers on the bottom line. And the numbers he sees coming out of the economy right now tell him we are poised for a strong comeback.
"I still think we have the potential to grow by 3.5 percent to 4 percent," he told me in a lengthy interview over breakfast in his office earlier this week.
Ever cautious about making precise forecasts about growth estimates, he says he is sure about one thing. "I don't think we're going down anymore. We're bouncing around at a low level of real positive growth," he said.
The sluggish U.S. economy, which began slowing last year, was growing by an anemic 1.2 percent rate in the first three months of this year. The second quarter is expected to be roughly in the same range. But the administration now believes the economy will show marked improvement by the fourth quarter and will be growing by more than 3 percent in the first six months of next year.
The other thing Mr. O'Neill is sure about is the budget surplus: Despite a slowdown in tax revenues because of a slowdown in the economy, the surplus is only going to get bigger, he said, in the short-term and in the long-term.
He thinks Democrats like Senate Majority Leader Tom Daschle who say the tax cuts will eat up the surpluses and plunge the government into unending budget deficits are "wrongheaded."
The simple fact is that, "because of the tax cuts, we are going to have more revenue than we otherwise would have had," he said.
"We are slowing down a little bit, but the fiscal year is not over until Sept. 30. We're still going to have fairly large surpluses. The surplus is still going to be well over $150 billion to $200 billion in this fiscal year."
Tax revenues are going to pick up substantially once the economy does and will provide the feds with more than enough money to offset the tax cuts and to finance the government's needs. We're still looking at nearly $6 trillion in surpluses over the next 10 years, and more than $25 trillion in spending.
As for the whining and complaining coming out of Democratic quarters about the tax cuts enacted by Congress, Mr. O'Neill dismisses it as so much posturing that he thinks is laced with a lot of hypocrisy. "I have yet to receive a request from a single member of Congress asking us to make sure that we let their constituents know that they didn't want them to get tax rebates that they are going to get."
Mr. O'Neill brings some fresh thinking into the government. He is someone who is not tied to old orthodoxies but believes, as Lincoln once said, that we should think anew so we can act anew.
He is on record as saying we should repeal the corporate tax in the belief that corporations do not pay taxes, consumers do. The tax, a not-so-hidden federal sales tax, is embedded in everything we buy.
More recently, he has been out on the hustings talking up the need to reform the Social Security system by letting workers put a small portion of their payroll taxes into safe, IRA-type stock-and-bond investments that will yield a much higher return on their savings than the 1 percent to 2 percent the government will pay them on retirement.
But on this particular day when we met, Mr. O'Neill was fired up about the European Union's action to block the General Electric and Honeywell Corp. merger. The EU's regulators, he says, were abusing their antitrust authority, meddling in economic affairs far "outside their jurisdiction."
"The European process is in my judgment flawed in the sense that the people who are making the judgments are not elected by anyone and their judgments are not subject to a judicial review or any kind of relief," he said.
The EU decision was not based on traditional antitrust concerns about what is in the best economic interest of consumers "but on protecting competitors," i.e., protecting European avionics and jet engine industries and airlines, he said.
In a stinging broadside against the European Commission, that could sour future economic relations between the U.S. and the EU, Mr. O'Neill accused it of "reaching into the affairs" of the U.S., to the detriment of the American economy. He said the EU's regulatory process was "flawed" and in need of a major overhaul, "especially in those cases where they are making judgments about business combinations of companies that are completely located outside their jurisdiction, such as General Electric and Honeywell."
Mr. O'Neill goes to Rome this weekend to attend the finance ministers meeting of the world's seven richest industrial countries. He says he doesn't expect it to "make news," but after his remarks about our EU trading partners this week, the discussion behind closed doors should be lively.

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