Two former Treasury chiefs wary of another stimulus

WASHINGTON -- The economy will improve slowly, and another round of fiscal stimulus probably wouldn't be effective, former Treasury secretaries Paul O'Neill and Robert Rubin said.

Rubin, who served under Democratic President Bill Clinton, said the United States is "going to have slow and bumpy growth," during a taped interview on CNN's "Fareed Zakaria GPS" that aired Sunday. A "major second stimulus" might create more uncertainty and undermine confidence, he said.

Companies concerned about demand won't expand facilities or hire employees until sales have improved, said O'Neill, who was Treasury secretary under Republican President George W. Bush. "We are moving forward at a pretty gradual pace," he said. "But I don't think things are terrible."

The world's largest economy may be cooling in the second half of the year as a scarcity of jobs limits consumer spending. At the same time, concern about the surging fiscal deficit has prompted President Obama to urge lawmakers to let the Bush administration tax cuts for the wealthiest Americans expire this year.

While Rubin backed Obama's stance, O'Neill reiterated that he strongly opposed the Bush tax cuts of 2003 and said the president and lawmakers need to focus on overhauling the tax system rather than on the expiring cuts.

"The tax code we have is proof we're not an intelligent people," said O'Neill, a senior adviser and consultant to New York-based Blackstone Group LP. "The president could earn a lot of credit and he could make a huge difference if he would lead the charge for fundamental tax reform," which might include a "consumption-based tax."

Obama wants to let the tax cuts expire for households earning more than $250,000 a year and maintain them for households earning less than that. The tax reductions, enacted in 2001 and 2003, expire Dec. 31. Treasury Secretary Timothy Geithner has said the government can't afford to extend tax reductions for the wealthiest group, as the breaks don't pay for themselves in economic growth.

Rubin said he'd create an estate tax, increase taxes for the top two brackets of upper-income Americans and leave in place the middle-class tax rates "for a limited period" because economic growth will take time to quicken. He would also try "over the next six months to put in place a very serious beginning of deficit reduction that would take effect at some specified time in the future."