Valliere: 'Tax Cuts by Memorial Day'
DEBORAH MARCHINI, CNN ANCHOR: Well, there's some reports of a rift in the new administration, specifically, Treasury Secretary O'Neill not said to be too enthusiastic about the tax cut seen championed by President Bush.</s>DAVID HAFFENREFFER, CNN ANCHOR: And with us now is political economist Greg Valliere of Charles Schwab Washington Research Group. What do you make of this -- these reports?</s>GREG VALLIERE, SCHWAB WASHINGTON RESEARCH GROUP: Well, I think it's an exaggeration. Over the weekend, Bob Novack (ph) and a lot of the supply-siders said, oh, my God, Treasury Secretary O'Neill isn't enthusiastic about tax cuts. I think they missed the entire point, quite frankly. What O'Neill did last week in his testimony is send a message to Alan Greenspan that O'Neill learned the lesson that Bob Rubin taught everyone; and that is, be deferential to the Fed. What did O'Neill do? He talked up the dollar. The Fed loves that. And he indicated that the real stimulus for the economy wasn't necessarily tax cuts; it's the Fed. And I tell you, David, this could pay dividends as early as next week, when I think there is a good chance we get a 50-basis-point rate cut from Alan Greenspan.</s>HAFFENREFFER: If it's -- if it's Federal Reserve rate cuts that do the trick better than tax cuts, isn't -- wouldn't somebody be able to conclude, then, who would not be supporting a tax cut?</s>VALLIERE: I think if you look at his testimony, he indicated that again, the Fed would be the major source of stimulus. But with the surplus as huge as the one we're going to see, I think he and a lot of Republicans make the point that fiscal policy is out of whack. We should be able to give some of the money back. And I think that, as I've said it before with you guys, and I'll say it again, I think we'll get a tax cut by Memorial Day.</s>MARCHINI: And is it retroactive?</s>VALLIERE: Yes, ma'am. I think we get it retroactive to Jan. 1. I think it will be something on a state tax reform. I think there will be something on marriage penalty reform. And the thing to watch for -- two things very quickly. Number one, I think Greenspan, when he testifies to Congress later this week, will indicate that he has no problem with a tax cut. And number two, I think a lot of Democrats, starting with Senator Miller from Georgia, will indicate they also have no big problem.</s>HAFFENREFFER: Yes. How significant is it that Sen. Zell climbed on board -- or that -- Senator Zell Miller, rather, as you mentioned...</s>VALLIERE: Yes.</s>HAFFENREFFER: ... came on board for the full 1.3 trillion?</s>VALLIERE: It's a lot that he went for the full amount. I think some other Democrats will inch toward that $1-trillion mar. But I think sooner or later, a lot of Democrats will realize that they, too, will have to support this.</s>MARCHINI: Either way of thinking has an impact. I want to switch gears if I can now. President Bush facing an old foe of his father's, Saddam Hussein.</s>VALLIERE: Yes, you're right, Deborah. The honeymoon is over. I had a great weekend. Everybody had a good time. Now, the honeymoon is over. And I think there are three big problems for the new president. Number one, a leak in this morning's "New York Times" that Iraq is rebuilding its chemical weapons plants. I think that's something that people like Colin Powell have dealt with before and may have to deal with again. Number two, a Republican, John McCain, could be a real thorn in the side for Bush over the next week or so. And number three, there is the whole issue of energy. And while I think Bush will have success on tax cuts, I am not so sure he will have success in getting even a drop of oil out of Alaska.</s>HAFFENREFFER: What are the hurdles there for that?</s>VALLIERE: Well, to get any new oil or gas out of Alaska, you've got to get through a Senate that's tied 50/50. And while I think Gale Norton, the new interior secretary, isn't quite as radical as the environmentalists make her out to be, I don't think she has the political support to get any of this new oil or gas anytime soon.</s>MARCHINI: We're seeing evidence the California energy crises is starting to take big hunks out of economic growth in that state and maybe around the country. What, if anything, can or should the president do?</s>VALLIERE: I think he probably won't do anything. And I think to look at it purely from a political standpoint, he will leave this to the Democratic governor of California. It is their problem. I think that Bush realizes that if he gets involved, he could be part of the problem as well. So I think the Bush administration will leave hands up. Really, when you look at energy, Deborah, I think the trump card that this administration has is with OPEC. There are enough contacts they have with the Saudis and others to, maybe, keep production at a pretty low level to keep prices -- or at a high level, rather, to keep prices stable. I think that's their best hope.</s>MARCHINI: Yes, and we do hear some comments out the Saudi oil minister today saying that the cutbacks won't be as severe as indicated...</s>VALLIERE: That's right.</s>MARCHINI: ... as it is not full production. All right, Greg Valliere, Charles Schwab Washington Research Group, we'll talk to you in our last hour...</s>VALLIERE: OK.</s>MARCHINI: ... on CNNfn.