News story: O'Neill lays out vision for tax

Paul O'Neill, US Treasury Secretary, has laid out a vision for a radical reform of the US tax structure, including a sweeping revision of the Social Security - or public pension - system and abolition of corporate income tax and capital gains tax on businesses.

In an interview with the FT at his Treasury office, Mr O'Neill espoused changes that would reach far beyond the legislation currently before Congress.

As the Senate moved ahead with the Bush administration's initial $1,350bn tax reduction plan, which Mr O'Neill expects to be signed into law next Friday, he expanded on his previous piecemeal attacks on America's tax system.

The present system was "an abomination" that required changes to its "very structure".

" Not only am I committed to working on this issue, the President [George W Bush] is also intrigued about the possibility of fixing this mess," said Mr O' Neill.

One of the most important moves, he suggested, would be abolition of taxation on companies. Corporate income tax, the main form of tax on US businesses, accounts for 10 per cent of federal revenues and has a top rate of 35 per cent.

Among other controversial ideas, Mr O'Neill questioned the the guarantees the government provides for full public subsidy of senior citizens' health care and retirement programmes. "Able-bodied adults who have the ability to earn income have an obligation not to pass part of their own responsibility on to a broader population," he said.

His remarks are bound to reverberate in Washington, where speaking about reductions in elderly care programmes has been taboo. Mr O'Neill's remarks reflect growing determination in the Bush administration to show its willingness to propose radical change to try to secure growth.

Abolishing corporate tax would inevitably lead to higher personal income taxes, but Mr O'Neill believes such a move would reduce the overall tax burden and promote economic growth.

Current corporate tax levels - and their administrative costs - were too high, he said. The system would work better if the government "collected taxes in a more direct way from the people, who were paying the taxes in any event".

Mr O'Neill said simplification of the tax code would also improve US global competitiveness. "It would certainly make us more formidable if we had a simplification of this sort."

Any increase in personal income tax would undoubtedly provoke strong voter opposition. Mr O'Neill, however, says he "absolutely" wants to eliminate corporate income tax. He also wants to do away with capital gains taxes on businesses, and indicated the administration was prepared to put this on a shorter-term agenda.

It is highly unlikely that other members of the Bush administration share every aspect of Mr O'Neill's reformist visions. But the fact that one of the most senior cabinet members would lay out such a detailed and radical programme is a sign that the administration has not been deterred by opposition to its initial tax-cut plan.

© Copyright 2001 Financial Times

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