Republicans sample the rhetoric of confidence

Remarks by Treasury secretary Paul O'Neill show an administration now confident enough to spread its wings.

Members of the US cabinet are not supposed to dream out loud. The president, their peers and their own underlings muzzle them, striking each unvetted word. There is a reason for this regime of control. Discordant governments lose credibility fast.

But the all-as-one style of management also tends to reduce the opportunity for policy debate. Its obsession with decorum and process inhibits the sort of vigorous exchanges that can generate a stronger consensus, and bolder leadership.

The tightly managed campaign that George W. Bush ran from Texas appeared to portend the first sort of presidency. So did the administration's early days. This winter, for example, it seemed that the Bush team would confine its work on taxes to copying a blueprint written in Austin. And that blueprint was a limited document. While perceived as huge because of its $1,350bn price tag, the tax legislation put forward by the White House did not even go as far as to push down the bellwether top income tax rate to the level that obtained under the president's father.

This timidity disheartened many Republicans, who hankered after bigger changes. Opponents wondered why the Republican leadership was choosing to spend so much capital on a reform that wasn't.

Lately, though, things have become more interesting. The new defence department has advocated a "strong" America, while Colin Powell, the secretary of state, has been more conciliatory. Now there are signs of differing views being aired on tax.

Consider the interview given by Paul O'Neill, the Treasury secretary, to the Financial Times last week. Mr O'Neill dubbed the recent tax legislation "breathtaking". But he swiftly moved on to present a broad outline for tax reform that made the first work look like so much fiddling. The fact that that initial legislation now looks likely to become law - Mr O'Neill says it may be signed by the president on Friday - probably liberated the secretary's tongue.

But Mr O'Neill is not operating entirely in isolation. Lately, Larry Lindsey, the president's top economic adviser, has also expanded his tax rhetoric, telling The Washington Post that "there is a general moral question about how much of a person's labour a government has a right to in peacetime". By making controversial proposals - Mr O'Neill backs the abolition of taxes on business - the Treasury secretary signals that the administration feels itself stronger than before, and is now ready to tackle larger problems.

For starters, Mr O'Neill says, it is time to review the purpose of taxation. Rather than seeing it as a simple mechanism to raise revenue, America must ask why it exists. It must also challenge progressive taxation, something no Republican administration has done before in a serious way. It must ask "how much money we the people as a collective group need to extract from each other to pay for public goods and services". National defence is a federal responsibility, says Mr O'Neill, but all other outlays need review.

Mr O'Neill would include America's entitlement programmes for senior citizens in his survey. Currently, the government guarantees pensions and senior healthcare. Mr O'Neill questions this guarantee, the roots of which lie in Roosevelt's New Deal. "Able-bodied adults should save enough on a regular basis so that they can provide for their own retirement and, for that matter, health and medical needs," he says.

Uttering such a statement is political dynamite in a Washington that sees its main job as increasing entitlements. At this very moment, Congress is mulling an expansion of benefits for pensioners to include subsidies on drugs. But the entitlement question is interesting, for the US, like other western countries, is reaching the limit of what it can spend on an ageing population.

Mr O'Neill also worries about the complexity of the tax code. The secretary spoke of his horror over a typical taxpayer, who complained of his anxiety that taxpayers "weren't satisfied at the end that they have truly understood and complied with what the supposed law of the land is".

The 9,500-page tax code is so impenetrable that even Americans who seek to follow the law fear running foul of the authorities. This has generated voter cynicism, something it is time Congress considered.

Third, Mr O'Neill "absolutely" backs the abolition of taxes on corporations. Instead, he says, the tax burden should be shifted to the individual. On the surface, this statement seems wildly at odds with the Bush line. It implies, in the short-term at least, higher tax rates on individuals. Led by Mr Lindsey, the administration has tended to argue that tax rates for the individual should be reduced, and that the individual taxpayer is himself a business. Mr O'Neill's own Treasury has supplied much of the statistical ammunition for this argument.

But in economic theory - including theory put forward at other moments by figures such as Mr Lindsey - Mr O'Neill is right. While they may not know it, citizens already foot the bill for business taxes, in higher prices and lower salaries and slower overall economic growth. A rationalisation of the system does not require an increase in the collective tax burden in the long term, and could indeed lighten that burden.

Many will interpret Mr O'Neill's audacity as proof that he is an unreliable maverick, as well as evidence of destructive disunity within the administration. What is more likely is that the Bush team now feels free to spread its wings, and to attempt to become a government of ideas. Given the amount of political disillusionment that exists across the political spectrum, this shift is valuable for its inspirational power alone.

© Copyright 2001 Financial Times

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