The stakes are high for President Bush in his address to an evenly divided Congress on the 38th day
of his presidency with a big tax cut to sell and an unconvinced Congress and public to sell it to.
Fox News Channel's Neil Cavuto talked to Treasury Secretary Paul O'Neill about the big tax cut push on Your World.
Q: Are we in a recession?
O'Neill: Don't think anyone can tell yet. I think we're running a very broad band someplace around zero. Whether we are negative or positive we won't know until six months from now.
Q: Do we get any benefit to correct the slowing economy from a tax cut?
O'Neill: I think we do. There's discussion going on right now in Congress about making the tax cut retroactive and accelerating some of the provisions so we can get money into people's hands right away.
And I think it would make a difference if we could get this done quickly and get money flowing to people. I also think people are not unlike businesses, they have discount present value function. If they see that money is going to be coming to them, over a period of time they will make different decisions about investing in new homes and paying off their credit cards and the rest. So yes, I think it does make a difference.
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O'Neill: I'd like to say Congress is going to act with speed in this instance.
Q: You really think so?
O'Neill: Well, it is my sense we might see something out of the House before you blink three times and then the issue is squarely on the Senate. What I would like is to be an observer of the fastest tax cut action that ever happened in the United States Congress. It would be a wonderful thing. I think it would be consistent with what happened in the private sector. People have picked up their pace and there's no reason we can't do it in Washington.
Q: Are you worried the votes are not there?
O'Neill: I'm not worried at all. I have a high degree of confidence that this is going to come shooting out of the house very quickly. Then I think it is going to be a question of whether people are really willing to say either no or let's delay in the face of the continuing difficult economic news we're seeing.
Q: There has been talk from the Democrats that they don't need the size tax cut that they are getting. And that maybe the administration is open to accommodating that. What do you say?
O'Neill: Well first I'll make some observations. There's been a creep in tax rates for everyone in the top brackets. We've moved from what was 28 percent in 1986 to almost 40 percent. In fact, if the Congress just took what the president proposed for the high tax bracket the rate would go back to 33 percent. That's still 2 percentage points higher than it was in 1992.
So I think we're talking about unprecedented territory, and lots of people who pay at those high marginal rates are small business owners. And that is where the life-blood of entrepreneurship comes from. By the way, there's a very substantial tax relief for low and moderate-income taxpayers in this proposal.
Q: Wall Street has had a curious reaction to this, while it generally welcomes a tax cut it hasn't done much in response to it. What is going on?
O'Neill: Well, you know my own view is that Wall Street is a reflection of what people are going on or what they anticipate is going on in the real economy. I think the market is saying we'd like to see some evidence of future revenues and proof that profits are going to be better and then we'll react to it. In the meantime, we're going to stay in the trading range.