- The Washington Times - Thursday, March 22, 2001

Treasury Secretary Paul O'Neill is the latest administration official to say President Bush's House-passed tax cuts do not provide enough stimulus to pull the economy out of its slump this year.

At a private meeting with about two dozen Democratic and Republican senators who call themselves the Centrist Coalition, Mr. O'Neill bluntly stated that the slowly phased-in, six-year tax reduction plan is not "stimulative enough in the first years," an aide to one of the senators told me.

"He acknowledged the bill did not have a large enough early stimulus," said an aide to another Republican senator who attended the closed-door, off-the-record meeting.

A third top aide who sat in on the briefing said Mr. O'Neill's remarks about the heavily back-loaded tax cuts was a clear signal he is "looking for ways to speed the tax cuts up."

At one point in the meeting, Mr. O'Neill who has voiced deep doubts about whether fiscal policy can provide any immediate stimulus to the economy remarked, "Look, I'll be in trouble if this gets out."

But the former Alcoa chief executive has clearly begun to join those who fear the tax cuts are phased in over too long a period and that they are too weak in the first year to get the economy moving again. White House economic adviser Larry Lindsey shares that view.

"He said it would be nice to have a bigger stimulus up front," Mr. O'Neill's chief spokesman, Michele Davis, told me. That seems to be the view of many of the senators he met with recently.

Among those at the meeting were Sens. John Breaux, Louisiana Democrat, and Olympia Snowe, Maine Republican, who co-chair the pivotal centrist group. Democratic Sens. Evan Bayh of Indiana and Ben Nelson of Nebraska also attended.

The news media have been spinning the Senate tax-cut battle as almost a lost cause for President Bush. Actually, the chances have increased that the Senate will pass a bigger, more front-loaded tax cut.

Several Democrats appear ready to come over to Mr. Bush's side in the coming weeks. Georgia Sen. Zell Miller is already on board, and Senate Republican insiders tell me that Democratic Sens. Max Baucus of Montana, Nelson and possibly Breaux are likely to sign up soon.

With perhaps one or two defectors in the GOP's ranks, Republicans are lining up solidly behind Mr. Bush on this one. A big sign that party moderates will be in the president's corner when the roll is called came when Ohio Sen. George Voinovich who was not a tax-cutter as governor gave his full support to the tax cuts, urging that they be accelerated this year.

Some, like Mrs. Snowe, have withheld their endorsement until a bill emerges from the Finance Committee. But a key GOP leadership official told me, "They are looking for a way to come over and be supportive."

Meanwhile, the charge by House and Senate Democratic leaders that Mr. Bush is partly if not totally to blame for the economy's decline because he has been talking it down since he took office is preposterous on its face.

The economy was in a steep decline last year, falling from a 5.6 percent growth rate in the second quarter, to 2.2 percent in the third quarter, to a nearly dead-in-the-water 1.1 percent in the fourth quarter.

The manufacturing sector has lost 371,000 jobs since last June (mostly during 2000). These workers surely do not blame Mr. Bush for last year's job cuts, which came when we were in the final year of the Clinton economy.

Are we headed for a recession? There are lots of data to suggest we are not. The stock market has turned deeply bearish, but the stock market is not the entire economy.

Retail sales, while still soft, have been better than expected in the past two months, especially for cars. Job growth last month was positive. Sales of new and existing homes are up, and they are expected to climb even higher as a result of lower mortgage rates. Inflation is almost nonexistent.

With the Federal Reserve Board cutting interest rates further, and with Congress preparing to pass a budget that slows the rate of growth in federal spending to make room for Mr. Bush's coming tax cuts, the prospects for an economic comeback in the last half of 2001 look good.

As for fears the surpluses will not be there in the last several years of the tax-cut plan, even the most cautious, below-par growth estimates show the surpluses will be larger than earlier forecasts.

"The surplus will be more, not less, than we project," White House Budget Director Mitch Daniels told me last week. In fact, it's possible that it will be $2 trillion more.

Keep the faith. The future looks a lot brighter.


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