"Read my lips: no new taxes," said President George Bush (the father) in an infamous and unfulfilled campaign promise that possibly cost him a second term in 1991. But, after the elder Mr Bush enraged core Republicans by bringing in new taxes, he found at least one enthusiastic supporter in Paul O'Neill, a former staff member in the Nixon administrations, who had gone on to head and turn around Alcoa, the world's largest aluminum company. Indeed, Mr O'Neill withdrew Alcoa from the US Chamber of Commerce when it opposed the president on the tax issue.
As Mr George Bush (the son) reclaims the White House tomorrow for the family, the same Paul O'Neill, now 65, will be by his side as incoming treasury secretary, with the task of fulfilling Mr Bush's own "read my lips" pledge of a 10-year, $1.6 trillion (€1.7 trillion) tax-cut package, including across-the-board income tax rate reductions and credits. "What's the reason not to give the taxpayers back some of their money? I don't know that," Mr O'Neill said on Wednesday, after sailing through confirmation hearings. Addressing the concerns of some economists that tax cuts would threaten the budget surplus and trigger inflation, the new Treasury boss explained that it would be part of the
preparation "for the next round of expansion in our economy". Unfortunately for the Bush presidency, it will be some time before it can put extra spending money on people's credit cards - nobody saves in this country - to bolster the economy.
While Mr O'Neill plans to produce the president's first round of tax cuts "in six weeks or so", aimed at eventually replacing the 39 and 36 per cent tax brackets with a 33 per cent top rate, it is unlikely to get through Congress for many months, and then only after it has been chopped and sliced in the committee grinder.
"You have to question whether that's going to have the impact desired," said Senator John Kerry, one of several Democrats to raise doubts about whether lower taxes could stimulate the economy.
Meantime, the US economy is steadily slowing down and Mr O'Neill, who has a reputation for arriving at work before 5 a.m. each day, and Bush's economic adviser, Larry Lindsay, will be saddled with the task of restoring confidence at home and abroad.
As in the first Clinton term, Mr Bush starts with the same figurative sign hanging over every desk in the White House: "It's the economy, stupid". The most pessimistic economists see evidence of an approaching Japan-style period of stagnation in the United States, though it must be said that only two out of 54 economists polled by the Wall Street Journal in December predicted a full-blown recession. Japan enjoyed a boom in the 1980s similar to that of the US in the 1990s, with soaring stock values, full employment and low inflation, but plunged into recession when its over-valued stock market took a dive. The problem in Japan was that people stopped spending.
The same could happen in the US, as investors see their stock portfolios fall sharply in value and are assailed daily by reports of redundancies and predictions of reduced profits by corporations. The tech-driven new economy, which produced the surging growth rates of recent years, is in danger of unravelling. Higher energy prices could also affect spending. Mr Bush is not helped by a record cold winter and this week's cut in production by the oil-producing nations of OPEC.
Consumer confidence in the US is falling. December sales at stores recorded their smallest increase, 0.2 per cent, in 10 years. Tiffany's New York sales fell 8 per cent and Gap sales nationwide fell 6 per cent. Sears announced it would close 89 stores after a 1.1 per cent fall in sales. The big on-line retailer eToys, a symbol of booming e-commerce, announced it would lay off 700 of its 1,000 staff, close two warehouses and would run out of cash in four months. All sectors are feeling the cold. The political lifestyle magazine George has ceased publishing due to a lack of advertising. Car sales in December were down 8 per cent.
As spending slows down, manufacturers' inventories are rising. The president-elect has warned of signs of a recession in the short term, but then he would, wouldn't he? Concerns about negative growth would generate support for his tax cuts while encouraging a belief that the Clinton administration was responsible for the coming storm, although US presidents tend to get the blame or the credit for what happens on their watch, whatever the reasons.
Such talk is nevertheless risky, as it could undermine the effort of Federal Reserve chairman Mr Alan Greenspan to restore investor confidence with his 0.5 per cent interest rate cut, announced abruptly on January 3rd.
Mr Greenspan, another early bird who likes to rise before dawn to contemplate the economy in a hot bath, was evidently seeking to limit the severity of a downturn by his move. In the words of former Federal Reserve vice-chairman Mr Alan Blinder: "I think he saw the whites of a recession's eyes."
Revered as a celebrity guru at the height of the boom - was it really just a few months ago? - Mr Greenspan is now taking some heat for allegedly displaying signs of panic. While President Clinton always declined to comment on Federal Reserve decisions, Mr Bush jnr is more likely to remember his father's economic woes and try to lean on the Fed so that this slowdown does not become a recession.
As Mr Bush settles into the Oval Office tomorrow evening, he may reflect that the one person on whom he most depends, other than Mr O'Neill, to get him out of the economic mess, and over whom he has little control, is the same Mr Greenspan whom his father blamed a decade ago for not cutting interest rates quickly enough to prevent the 1990-1991 slowdown becoming a recession. What goes around comes around.
