bush's economic team resigns; huge tax cuts coming?

By MARTIN CRUTSINGER, AP Economics Writer

WASHINGTON (AP) - President Bush (news - web sites), struggling to demonstrate he can deal effectively with a sick economy, is shaking up his economic team and laying plans to present the new Congress a major stimulus package that will include sizable new tax cuts.


Bush expects to quickly fill the vacancies created with the resignations Friday of Treasury Secretary Paul O'Neill and Larry Lindsey, the director of his National Economic Council.


Two senior White House officials, speaking on condition of anonymity, said late Friday that the president has a candidate in mind to replace O'Neill.


While they refused to disclose a name because a formal job offer has not been extended, the officials said Bush's tentative pick is known on Wall Street and has experience with both the economy and government but is not necessarily a household name.


These officials said Lindsey's replacement to head the National Economic Council is expected to be Stephen Friedman, a former co-chairman of the investment banking firm of Goldman Sachs, where he had worked for three decades.


Friedman's co-chairman at Goldman Sachs, starting in the late 1980s, was Robert Rubin, who left the firm in 1993 to serve as President Clinton (news - web sites)'s first economic director and then replaced Lloyd Bentsen as Clinton's second Treasury secretary, winning widespread praise on Wall Street for his handling of the economy.


By contrast, O'Neill, the blunt-spoken former executive at aluminum giant Alcoa, was held in low regard by many investment executives who believed his shoot-from-the-lip style roiled markets unnecessarily. His views also landed him in hot water with Republicans in Congress who doubted his commitment to tax cuts.


The Washington rumor mill went into overdrive following O'Neill's resignation, spitting out scores of possible replacements, including retiring Sen. Phil Gramm (news, bio, voting record), R-Texas; former New York Mayor Rudolph Giuliani (news - web sites); and Charles Schwab, head of the discount brokerage bearing his name. But the administration officials said none of these is Bush's first choice, a person they described as not a current or former politician.


The departures of O'Neill and Lindsey now add to a list of administration economic vacancies that already included Securities and Exchange Commission (news - web sites) Chairman Harvey Pitt, forced to resign under fire last month, and William Webster, the former FBI (news - web sites) director who had been picked to head a new accounting industry oversight board.


Sen. Charles Grassley (news, bio, voting record), R-Iowa, incoming chairman of the Senate Finance Committee that will have to confirm O'Neill's replacement, said he hoped to move the administration's choices quickly through his panel so that Congress can then turn its attention to making Bush's 2001 tax cuts permanent.


That effort is expected to spark a huge battle in Congress, where Democrats contend the huge price tag — $1.35 trillion for just the first decade — will add to the return of massive government deficits.

"When it comes to the economy, we need more than new people from this administration. We need new policies," said Sen. Hillary Clinton (news - web sites), D-N.Y. "If it is going to be new people with the same old policies, we are in deep trouble."

In addition to pushing to make the 2001 tax cuts permanent, administration officials said that when Congress returns in January the president will put forward a new stimulus package aimed at providing a jump start for the lagging recovery from last year's recession.

Just an hour before O'Neill's resignation was announced, the Labor Department (news - web sites) reported that the nation's unemployment rate shot up to 6 percent in November, matching the highest level it has reached during the recession and weak economic recovery. Analysts predicted the jobless rate will rise even more in coming months, probably topping out at 6.5 percent in the spring.

To provide stimulus to boost demand and get people back to work, the administration is being urged by the Business Roundtable to offer workers a payroll tax holiday that would exempt the first $10,000 in wages from the Social Security (news - web sites) tax, at a cost of $129 billion next year.

The group also wants the administration to speed up the income tax rate reductions that aren't scheduled to go into effect until 2004 and 2006 and also exempt stock dividend payments to investors from taxation, a goal Republicans have long sought.

While these are all ideas the administration wants to pursue, private economists caution that Congress could end up doing long-term harm to the economy in the name of providing quick economic stimulus if rising government deficits drive up interest rates and increase borrowing costs for corporate America.

 

BTW, why's this in sportstalk?

I'd prefer Gramm, Bill Archer, or Steve Forbes at Treasury and Rudi at the SEC (he prosecuted several cases of financial misdeeds as USAG in NY before becoming mayor). I'm a little leery of Friedman though. I'd have to go back and look to see who was holding the reigns at Treasury when Clinton was cooking the books on GDP his last two years and Goldman Sachs has some questions to answer about the way they were handling their IPO's (selling the initial purchase at one price and demanding some one agree to buy x number of future shares at an inflated fixed rate regardless of the actual value of those shares).

The accounting mess could be cleaned up quickly and simply if the Pols (both the Pubs and the Dems) had the balls to do it. The simple change in accounting rules of not allowing off the books transactions or the shifting of debt (this should be the law for government spending as well)to subsidiaries or shell companies would give the true picture of a company's financial status. All monies borrowed or loaned should be reported as such and not disguised as something they are not. All perks of CEO's and upper management should be documented as well and noted as company expenses outside of salary.

Lower tax rates in the end equal more revenue to the Treasury. It has worked each time it has been tried. There has been talk that Bush is exploring the feasability of ending the current system of taxation in favor of a National Sales Tax or a Flat Tax. Either would be an improvement. How does the idea of having you determine just how much you are taxed sound to you? A National Sales Tax would allow you to do that. You are only taxed when you make a purchase. Don't buy much, don't get taxed much. Flat Tax you know how much of your income goes to the IRS before hand based upon your salary, no brackets to mess with. Take your total income and multiply if by whatever the percentage they settle on. $20,000 x 13% = $2600. simple, straight forward.

The size and scope of Government needs to be reduced also. The Government can't be all things to all people nor should it try. First they need to separate the SS taxes collected from the General Fund. If all they are going to do is argue about how to fix SS, they need to take the money back from the Treasury and from the clutches of the Pols where they can't spend it on anything but SS. Bush has already taken the step of privatizing government jobs by putting them up for bid. I love this. This will eliminate all the duplication of services and make them function more economically lessening the cost. No business is run like Government with the department heads thinking they have an endless flow of cash and if that's not enough why we'll simply raise the costs and lessen the quality. No real business could survive operating in that manner.

 

Larry, bring back News of the Day. I liked it better when it was separate from R&R, because there were actually many more posts on news when it was separate than now, and in Rant and Rave it just turns to shit. They stayed on topic more in News of the Day.

I know I voted to merge the forums, but I was wrong. I bet if you did a poll now, you'd get almost unanimous votes to bring it back.

I'm all for the flat tax. Fuck all this IRS bullshit after the end of the year. Nothing but a pain in the ass, and just creates more government jobs to suck up our tax money. Make it simple.

 

we're not starting this up again. this is the way it is.

 

this is an obvious attempt by the bush administration to deflect blame towards o'neill and lindsey. on the same day that the 6.0% unemployment pops up- they get axed. to joe q. taxpayer- this action makes them lay the blame on o'neill and lindsey. once again, the bush white house deflects attention away from their ideology, and on to others. this topic will go away in the next few weeks- iraq will be pushed if we keep on tanking. and i expect, with our current policies, we'll be tanking.

we need to have targeted middle-class tax cuts and small business relief (ie loosen depreciation guidelines, offer incentives) to get this economy pumping again.

 

O'neill and Lindsey were fired because they would not toe the party line and say a sow's ear policy could be turned into a silk purse.

I don't care what you say.

 

LJ, no Democrat in their right mind would ever agree with this comment. There is hope for you yet.

I am all for tax cuts for everyone who pays taxes. Americans are being overtaxed as a general rule. People would spend more and drive up demand for products and services.

There are far too many accounting tricks currently available to corporations so that they are essentially only paying payroll taxes.

The world economy will be up and down regardless of which president is in office.

 

IRS stats conclude that....

the top 1% of wage earners pay 37.42% of all income taxes

the top 5% of wage earners pay 56.47% of all income taxes

the top 10% of wage earners pay 67.3% of all income taxes

the top 50% of wage earners pay 96.09% of all income taxes.

now look at who earns what

the top 1% of wage earners make 20.81% of all income

the top 5% of wage earners make 35.30% of all income

the top 10% of wage earners make 46.01% of all income

the top 25% of wage earners make 67.15% of all income

the top 50% of wage earners make 87.01% of all income

from these stats, the bottom 50% of wage earners pay only 3.01% of all taxes while making only 12.99% of all wages.

 

These are available to small business too.

The rate for self/small business is high, but they also have a lot of credits you can do. You can even deduct your kids braces and other medical expences, just by listing them as an employee and calling it a medical benifit. A lot of accountants don't know about some of these tricks, and they are legal. You just have to keep good records in case of an audit.

 

I could roll with either Gramm (consumption tax) or Forbes (flat tax) IF THERE ACTUALLY WAS A SNOWBALL'S CHANCE IN HELL OF THEIR IDEAS BEING IMPLEMENTED. It's not going to happen though.

As it is now, it doesn't really make a shit who ends up at Treasury. We are still going to have an income tax. (Sorry everybody). Basically we are still going to end up arguing about what the various levels of taxation in a progressive income tax system should be. I quoted Agent Smith because his quote is applicable to both business and individuals. As long as people (and businesses) can lower their tax burden through various ways within the current system, there's no way on earth the current system is going to be scrapped.

Politicians wouldn't be able to favor specific groups within the system if we went to either of the alternatives suggested above. That's the bottom line.