WASHINGTON -- Even after President Bush decided he needed a new face at the Treasury, Paul O'Neill still did not have a clue as to what was happening. He was talking tax increases when the president had decided on tax cuts. O'Neill was described as totally surprised at last Thursday night's demand that he submit his resignation.
O'Neill's distance from reality was demonstrated Nov. 25 in Manchester, northern England, after he addressed the Confederation of British Industry to conclude a two-week international tour. Interviewed by the Financial Times, he called for changes in the tax code that are "not very costly," hinting at proposals aimed at raising tax revenue. At that moment, Bush aides were pushing relief on taxation of dividend income that, in the short run, would be "very costly."
Stunned after he read the Financial Times, one international investor telephoned the White House to ask what was happening. He was told not to be alarmed because O'Neill did not know what was happening and was on his way out. Indeed, sacking the Cabinet's principal domestic official after less than two years was as early as possible a departure could be short of extreme embarrassment.
Even administration officials admit that selecting O'Neill was a terrible mistake from the start. He was endorsed by Vice President Dick Cheney, based on their Nixon administration relationship more than three decades earlier, and by Federal Reserve Chairman Alan Greenspan, based on ongoing personal relations. Bush handicapped himself by failing to determine whether he and O'Neill were on the same page ideologically.
The warning signs were always there. During his long tenure as Alcoa's CEO, O'Neill became an advocate of global warming theories. He was a tax-raiser rather than a tax-cutter, pushing the first President Bush toward his disastrous tax increase and recommending a carbon tax for President Clinton. To the last, he never signed on to the need to improve economic growth through tax reduction.
So, why was he selected? As a 33-year-old civil servant working closely with 28-year-old political appointee Cheney in the Nixon administration, he was fondly recalled by colleagues as the smartest person they ever met. Probably more important was the link with Greenspan.
Nearly two years ago, when O'Neill was unveiled as Bush's top choice at the Treasury, he delivered an embarrassing exposition of how he and Greenspan during the Ford administration "became not just professional associates but close friends," reiterating that they were "longtime friends and associates." That buttressed the whispered view that the new, insecure president wanted somebody at Treasury on good terms with the powerful central banker, whose policies had contributed to the elder Bush's defeat for re-election.
Greenspan's embrace did little to help O'Neill, who joins the parade of recent undistinguished Republicans at the Treasury. He arrived in Washington from Pittsburgh without any associates from Alcoa, and policy posts at the White House were filled by Greenspan-endorsed strangers. O'Neill tried to duplicate Alcoa's organizational techniques at the Treasury, where morale collapsed.
National Economic Adviser Lawrence Lindsey was as surprised as O'Neill by his sacking, but its causes were quite different. Lindsey, a tax-cutting enthusiast, was on the same page as Bush ideologically. While O'Neill was in Manchester hinting at tax increases, Lindsey was conferring personally with the president on tax cuts. The complaint about Lindsey was that he did not effectively sell the Bush program.
The fact that one name was bruited about the capital for weeks before the O'Neill-Lindsey sacking as a possible appointment raises doubt about how much has been learned during two years. Investment banker Stephen Friedman, the former Goldman Sachs chairman, was talked about as a replacement for either job -- but more probably Lindsey's. He is a member of the Concord Coalition, the Council on Foreign Relations and the Trilateral Commission. Friedman is a Republican, but has contributed recently to Democrats Bill Bradley, Jon Corzine, Bob Kerrey and Chuck Schumer.
There is no record of Friedman being an enthusiastic tax cutter, and that is what Bush's business advisers say is needed in both jobs. Whether or not he is a close friend of Alan Greenspan, the next secretary of the Treasury should be an enthusiastic supporter of George W. Bush.