Bush shakes up economic team
WASHINGTON (AP) – President Bush, 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’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, R-Texas; former New York Mayor Rudolph Giuliani; 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 Chairman Harvey Pitt, forced to resign under fire last month, and William Webster, the former FBI director who had been picked to head a new accounting industry oversight board.
Sen. Charles Grassley, 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, 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 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 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.