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'Stopping bad ideas'

National | Paul O'Neill talks to WORLD about tax reform, global warming, and his goals as secretary of the treasury

Issue: "Abolition of C.S. Lewis?," June 16, 2001

at the Treasury Department-Sitting on a leather couch and lightly fingering the lampshade as if it contained a secret message written in Braille, Paul O'Neill is speaking in a slow, methodical cadence, but his message is upbeat. From his large office just east of the White House, the Secretary of the Treasury in an interview with WORLD hoped for more tax cuts, and eventually a tax system "with no deductions, and no credits, and no bells and whistles, and something you could do on a postcard." The first big achievement of the Bush presidency has already arrived, an estimated $1.35 trillion tax cut over the next 11 years. President Bush signed it into law in an East Room ceremony. Days before, Secretary O'Neill was already pushing the accelerator on this year's tax refund ($300 for single taxpayers, $600 for married couples), prodding the Internal Revenue Service to try to get checks in the mail before the expected deadline of September. The Treasury Department has ordered the paper necessary to print out 95 million refund checks, and next comes the logistical mountain of sending those checks to a population that's constantly moving and relocating. Despite (or perhaps because of) their own party's defections, Democratic leaders were not happy with the outcome. House Minority Leader Richard Gephardt, who once voted for the much larger Reagan tax cut, called the Bush cuts "an outrage to the common sense and decency of the American people." Conservatives were disappointed by slow implementation of the tax cuts in the bill, but did some cheerleading after the victory. Economist Stephen Moore of the Club for Growth, a regular critic of the Bush tax cuts as too minuscule, declared: "The GOP has finally put the 1990 'read-my-lips' debacle behind it. Taxpayers can trust Republicans again." Other than this year's refund check, taxpayers may not feel the rate cuts until 2006, and by that time Democrats may have repealed them. Mr. O'Neill downplayed the possibility of a repeal and predicted more relief would follow. "This is a beginning.... I personally believe we're going to see larger surpluses than what has been forecast, and there's going to be an opportunity to do more tax relief." Tax cutters in the House of Representatives, led by Majority Leader Dick Armey, are already working on further tax reductions. Mr. O'Neill suggested one target was the corporate income tax, since taxpayers pay that indirectly through higher prices on the goods corporations sell. Congress watchers predict that the Democratic takeover of the Senate will produce another increase in the minimum wage packaged with more tax relief for small employers. When asked why IRS representatives, whom Mr. O'Neill now oversees, gave incorrect answers to 47 percent of the questions in a department audit-questions taken off the agency's own list of frequently asked questions-the secretary stayed on his simplification message. "I don't care if we hired only the top 5 percent of the graduates of the best colleges and universities in the country to staff the IRS. There is no way with a 9,500-page tax code, that when you have a random caller call up with a complex tax question, that you're going to get the right answer 100 percent of the time. I don't care how smart the people are. This is analogous to telling Michael Jordan that he's got to do slam dunks in a basket that's 20 feet off the floor." Calls for tax cuts and tax simplification are traditional within the GOP, but the Bush administration is also pushing for modernization and reform of the Social Security system, long a political untouchable. Former Democratic Sen. Daniel Patrick Moynihan and AOL Time Warner executive Richard Parsons are heading a study commission, and Mr. O'Neill is optimistic: "I don't think we ought to concede at the moment that that only means partial privatization. To me, the real question is how do we create a system that will provide for retirement income for the next generation's population without relying on a continuation of an intergenerational transfer system that's going to break down pretty soon?" Mr. O'Neill thinks that once people see how personal ownership accounts work, they'll become very quickly attached to them, and "understand the distinction between having money in a passbook account and having an empty lockbox promise from the government." On taxes and spending, Mr. O'Neill has pleased and surprised conservatives, much like the president who named him. Major media endorsements of Mr. O'Neill's nomination touted his advocacy in the early Clinton years of a stiff energy tax of 50 cents or a dollar a gallon. (With a party full of liberal environmental advocates, Mr. Clinton only raised the gas tax by 4.5 cents a gallon.) But he calls his position then a reaction to massive deficits that no longer exist: "I'm not looking to raise taxes. I'm looking to lower them from what they are." Nevertheless, proposals for a partial or complete suspension of the federal gasoline tax for the summer travel months get nothing but the cold shoulder from Mr. O'Neill, who suggests he's mystified by why reporters would trouble spokesman Ari Fleischer with what he called "stupid questions." Conservative concerns about his environmental stands deepened when reports surfaced in March that he distributed a speech he gave on global warming in a cabinet meeting. That 1998 address to the Aluminum Association warned that the prospect of warming was so serious that the federal government should undertake a massive research effort at the level of the Manhattan Project (which scrambled to build an atomic bomb to end World War II). Mr. O'Neill dismissed conservative critics as uninformed: "They don't know what I think. They don't. I find it really annoying that people have trouble with what I think when they don't know." He recommended they read the speech. But Christopher Horner of the Cooler Heads Coalition, whose outfit sent that speech text all over Washington, disagreed. "The science has completely trended toward skeptics over the last 18 months, so the dedication of Manhattan Project-level resources is utterly unwarranted." He says those dollars should be returned to those who earned them, and dedicated toward solving known problems. "Collapsing science doesn't justify massive increases in funding." O'Neill aides point out that the speech does insist we have "one and a half facts" about global warming and a lot of uncertainty, and argues the Kyoto global warming treaty set emissions targets without any real idea of how much carbon dioxide in the atmosphere is too much. But Mr. Horner was especially concerned about Mr. O'Neill's statements emphasizing the need for government action to curb population growth. In the speech, Mr. O'Neill complained, "Nobody wants to talk about how we keep population from being the major driver of energy consumption and emissions. And I say this to you because if you just sweep that issue away, you've swept away a major potential contributor to helping contain the global climate change problem." Within the administration, the debate hasn't been limited to true believers in an approaching warming crisis. Experts have been called in to the White House for education sessions, dubbed "Climate 101." While some invitees have been conventional green activists like William Reilly, EPA administrator under the president's father, skeptical scientists like Richard Lindzen of the Massachusetts Institute of Technology have also been invited. While dramatic international action is unlikely considering that the U.S. Senate refused the Kyoto global warming treaty 95-0, activists like Mr. Horner worry that a crisis mentality will push Washington into taxes and regulations suppressing energy use, which can hit poor people the hardest. Mr. O'Neill, however, is not the type of person to panic. Former Reagan administration lawyer Michael Horowitz calls Mr. O'Neill "the ablest man I know," and suggests his greatest achievements will probably be the things he stops. "He wants to not make the story, not lead in a crisis, but to avert the crisis." Mr. O'Neill thinks his previous tenure in government makes that sound like a good assignment. "Some of the greatest things that are done in government are stopping bad ideas. Maybe 80 percent of the weight goes on the scale of 'I'm so glad we were able to stop that foolish thing from happening.'"

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