O'Neill's days at Treasury numbered

BY ROBERT NOVAK SUN-TIMES COLUMNIST If Lawrence Lindsey resigns as President Bush's national economic director, would the administration's economic leadership problems be solved while Paul O'Neill remains as secretary of the Treasury? The confidential answer from the White House is an unequivocal ''no.''

Lindsey will not stay much longer, but published reports that he will go while O'Neill stays at Treasury as the administration's chief economic spokesman are not in touch with reality. Bush's business supporters have told him for months that he must fill the Treasury portfolio with someone who believes in his tax-cutting strategy, or else follow his father as a one-term president. There are signs the president finally has accepted this advice.

Neither Lindsey nor O'Neill will be handed a pink slip immediately but will slowly fade away, saying they have resigned to tend private concerns. Delay is necessary because there is no clear successor at Treasury. After O'Neill, the White House flinches at the thought of picking another CEO. Nobody in Wall Street looks good. Something very different at the Treasury may result.

The White House recognizes but cannot publicly admit that its problem is Treasury secretary, not national economic director. The latter position was created in 1993 specially for financial maven and Democratic donor Robert Rubin, but he exerted little impact until he moved into the Treasury in 1995.

While confined to a coordinating job, Lindsey for months has been mercilessly battered and blamed in newspaper accounts for lack of a dynamic Bush economic policy. Anonymous administration sources attack Lindsey, a highly unusual practice within the Bush team. The largely mute O'Neill is not the culprit. R. Glenn Hubbard, chairman of the president's Council of Economic Advisers, raises suspicions by invariably coming out well in these stories.

Friends of Lindsey are more than suspicious. They claim hard information that Hubbard, on leave as a Columbia University economics professor, has waged a disinformation campaign against his colleague. Lindsey has said as much to White House aides, who have questioned Hubbard. He denies committing an offense that carries a death sentence under Bush.

Lindsey is a devoted Bushie. He left Harvard's economic faculty to join the White House staff of the elder George Bush, who later made him the youngest Federal Reserve governor ever.

National economic director turned out to be a much tougher job, particularly when Lindsey is compared with the silky smooth performance of his national security counterpart, Condoleezza Rice. Lindsey suffered after he was quoted as estimating a $100 billion cost for attacking Iraq and he failed to get a late-blooming tax stimulus off the ground this fall.

O'Neill is widely perceived as turning up his nose at Bush's tax cuts. Indeed, he insists he believes that any secretary of the Treasury cannot hope to seriously influence the massive U.S economy. Neither political nor ideological, O'Neill was a career civil servant who flourished in the corporate world. He came to the Treasury because Dick Cheney remembered him from Nixon administration days as one of the smartest bureaucrats he ever met.

It is hard to find a prominent Republican who does not consider the O'Neill appointment a serious mistake. However, the president, always loath to punish loyal lieutenants, was immobilized by demands from Sen. Tom Daschle and other Democrats for a new economic team. Now, with his term half gone, the president can consider a change at Treasury.

But who, if not a CEO or a Wall Streeter? Financier Gerald Parsky, Bush's lieutenant in California, was an assistant Treasury secretary in the Ford administration and would vigorously promote Bush's tax policies; but he is a controversial figure, under attack from the California Republican right. Retiring Sen. Phil Gramm knows economics and politics, but is eager to start a new career in investment banking. The name of Democratic Sen. Zell Miller of Georgia is being mentioned in Bush's inner circle. The point is that the president seeks a real advocate at the Treasury for the first time.

Robert Novak appears on CNN's ''Capital Gang'' at 6 p.m. Saturday. E-mail: novakevans @aol.com

Forbes is a great idea! He can use the position to campaign for tax code reform.

Yah, like the VAT he was pushing during the 2000 campaigns.

Here's how tax rates come out for the Armey/Shelby/Forbes Flat Tax, a flat individual/corporate income tax, which leaves all SS/Medicare, Federal Unemployment, excise taxes and tariffs in place and unchanged.

http://www.library.unt.edu/govinfo/subject/vital.html

"The chart below shows a hypothetical set of flat tax rates and allowances that would result in revenue neutrality. This model, produced by the Congressional Budget Office shows that all federal income tax revenues could be fully replaced by a system with a flat tax rate of 13.1 percent and no deductions. Allowing total deductions for a family of four to reach $36,800 (more than double the amount allowed in 1995) would require a 19.9 percent rate."

Joint Economic Committee

Revenue Neutral Tax Rates for Alternative Allowances and Exemptions Under a Flat Tax

Standard Allowances Option 1 Option 2 Option 3 Option 4 Option 5

Single $13,100 $13,100 $ 6,550 $ 6,550 $0

Joint $26,200 $26,200 $13,100 $13,100 $0

Head of Household $17,200 $17,200 $ 8,600 $ 8,600 $0

Dependent Exemption $ 5,300 $ 2,650 $ 5,300 $ 2,650 $0

Revenue Neutral Tax Rate 19.9% 19.4% 16.8% 16.3% 13.1%

Source: Congressional Budget Office, 1995.

**Revenue Neutral Tax Rates for Alternative Allowances and Exemptions Under a Flat Tax**
Standard Allowances	Option 1	Option 2	Option 3	Option 4	Option 5
Single	$13,100	$13,100	$ 6,550	$ 6,550	$0
Joint	$26,200	$26,200	$13,100	$13,100	$0
Head of Household	$17,200	$17,200	$ 8,600	$ 8,600	$0
Dependent Exemption	$ 5,300	$ 2,650	$ 5,300	$ 2,650	$0
Revenue Neutral Tax Rate	19.9%	19.4%	16.8%	16.3%	13.1%

Under the Armey "flat" tax, as it is currently proposed,(HR1040 introduced 3/15/2001) a single person would pay:

7.65% ---- 7.65%(SS/Medicare) tax on wages/salary income below $13,600,
26.65% --- 19% + 7.65%(SS/Medicare) tax on wages/salary and other taxable income from $13,600-$75,000
20.45% --- 19% + 1.45% Medicare tax on wages/salaries and other taxable income from $75,001 up.
0% -------- on savings & bond income and stock dividends.

And that single person's business/employer pays,

19% ------ on earnings (Gross Receipts less allowed business deductions, exemptions and credits)
13.65% ---- 7.65% on SS/Medicare employment excises + 6% federally mandated unemployement excises levied on each employee's on wages up to $75,000.
7.45% ----- 1.45% on Medicare employment excises + 6% federally mandated unemployement excises levied on each employee's wages greater than $75,000.
Plus additional selective excises and tariffs dependant upon the nature of business engaged in.

Note: The base "Flat Tax Rate" is subject to meet revenue neutrality requirements under the Budget Enforcement act. The 19% rate stated in the Armey/Shelby Flat Tax proposal does not meet these requirements and would of necessity be adjusted upwards, and/or personal exemptions and business deductions be reduced to meet revenue neutrality criteria for enactment.

Further the Flat Tax is a VAT in the manner in which it transfers tax onto the consumer from business which is taxed at all stages of production and passed on to the consumer hidden in price of retail goods an services.

http://waysandmeans.house.gov/fullcomm/106cong/4-11-00/4-11kotl.htm

"Robert Hall, one of the originators of the proposal(Flat Tax), who describes his Flat Tax as, effectively, a Value Added Tax. A value added tax taxes output less investment (because firms get to deduct their investment.)"
"The Flat Tax differs from a VAT in only two respects. First, it asks workers, rather than firm managers, to mail in the check for the tax payment on that portion of output paid to them as wages. Second, it provides a subsidy to workers with low wages."

The Flat Income Tax (FIT) proposal, H.R. 1040, has two elements: a Flat Income Tax on an individual's earned income, and a VAT on businesses. The Flat Income Tax on businesses, is, by admission of Professors Robert E. Hall and Alvin Rabushka, who "wrote the book" on the FIT, a subtraction method Value Added Tax.

Quoting Hall and Rabushka ("The Flat Tax," Hoover Institution Press, 1995, pp55,56):

"To measure the total amount of income generated at a business, the best approach is to take the total receipts of the firm over the year and subtract the payments the firm has made to its workers and suppliers. This approach guarantees a comprehensive tax base. The successful value-added taxes in Europe work this way. The base for the business tax is the following:

Total revenue from sales of goods and services
less
purchases of inputs from other firms
less
wages, salaries, and pensions paid to workers
less
purchases of plant and equipment."

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