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Tax-Package Personnel?
Bush's new economic-team picks are half right.


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Larry Kudlow

It’s likely the White House chortled Monday when President Bush offered up CSX Corp. chairman John W. Snow as the new Treasury secretary. They deserve a chortle or two. In the heavy speculation that followed Paul O’Neill’s firing, Snow’s name wasn’t on anyone’s list of possible successors.

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Apparently Vice President Dick Cheney quietly led a search team that came up with Snow. In contrast, the White House loudly leaked the name of investment banker Stephen Friedman to replace Larry Lindsey as head of the National Economic Council. Neither the stock market nor the rest of the world (nor me) knows much about these men. But after two dozen phone calls on the subject I learned that Snow is highly regarded and Friedman is not.

Let’s start with Snow.

“Very good!” Jack Kemp told me. The supply-side father said that as a member of the Kemp Commission on tax reform in the mid 1990s, Snow bought into the economic-incentive model, understood the link between risk and reward, and fully supported the flat-tax recommendations of rate reduction, simplification, and reform that were proposed by the commission.

Heritage Foundation president Ed Feulner, also a member of the Kemp Commission, seconded this praise. Feulner said “[Snow] signed on enthusiastically to the flat-tax recommendation,” attended all meetings, worked hard, and was effective.

Former Reagan budget director Jim Miller said Snow got high reviews at CSX, where he started out as a Washington rep, moved to operations, and quickly rose to CEO. He said Snow is a great organizer and communicator, and added that Snow studied under free-market nobelist James Buchanan when working for his PhD in economics at the University of Virginia.

Snow is also a strong deregulator, especially in transportation (a weak Bush link under Norman Mineta). In addition he’s a staunch advocate of better corporate governance and ethics. If he has a downside it’s that he might be an obsessive over deficit reduction. According to Jim Miller, Snow echoed this misguided sentiment when he was head of the stodgy Business Roundtable. Miller added that “it’s important that Snow move back to first principles.”

It is surprising the White House would recommend two old-economy candidates for the Treasury post. First it was O’Neill from the aluminum industry. Now it’s Snow from railroads. Many would have preferred a younger, new-economy Treasury man, someone more in tune with the critical technology sector. But it can be reliably anticipated that John Snow will carry the ball for the Bush administration’s forthcoming pro-growth tax-cut package.

Unfortunately the same cannot be said for former Goldman Sachs executive Stephen Friedman.

In a half dozen phone calls I couldn’t find a positive word for Friedman. Naturally, no one wanted to be quoted. But from deep-background interviews I can report comments like “nasty,” “arrogant,” “ineffective,” “not a detail guy,” and “unpopular.” One former Goldman partner told me he still can’t understand why Friedman abruptly left the lucrative partnership in the mid 1990s. “He just walked out the door one day,” he said. A money manager who knows Friedman said he jumped ship because Goldman’s earnings were imploding. This individual, a conservative, said, “Look, I may not have agreed with him, but [Clinton's Treasury chief] Bob Rubin was a smart guy. Friedman was not.”

Several people expressed dismay at Friedman’s link to the Concord Coalition, a group that consistently opposes tax cuts and obsesses over deficits. Friedman was vice chairman of the group, and apparently had no strong political views other than deficit bashing. Another source said Friedman contributed at least as much to Democrats as to Republicans, including heavy support for Sen. Chuck Schumer and at least some help for Hillary Clinton.

I do not know Friedman nor much about him. Of course, his critics could be wrong, and numerous supporters may pop up in the days ahead. That said, seldom have I heard such uniform badmouthing and disparagement of any one person.

Snow and Friedman will supposedly help Bush put the final touches on an excellent pro-growth plan that includes a lower tax burden on dividends, faster write-offs on business investments, expanded supersaver IRA and 401(k) accounts, and an acceleration of last year’s income-tax cut. My early investigations suggest that John Snow will be a strong supporter of this package at Treasury, but that Stephen Friedman could be a tax-cut opponent in the White House. Should Friedman embrace the faux politics of class warfare and deficit obsession, he’ll only chip away at the tax cuts that will drive growth and the 2004 election.

Hopefully this bipolar combination won’t occur. The last thing Bush needs is more economic warfare among his own senior staff. Democratic opposition will be problem enough.



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