November 26 2007: 1:04 PM EST
Email | Print    Type Size  -  +

Cheney: No bailouts, no tax hikes...more oil

Vice President Dick Cheney wields considerable power on economic policy. In a Fortune exclusive, the free-market fan weighs in on the credit crisis and his biggest fear.

By Nina Easton, Washington editor

WASHINGTON (Fortune) -- President Bush's economic legacy is emerging as a central debate point in the 2008 presidential campaign. But it's important to remember that this is also Dick Cheney's legacy - the fact is, the Vice President plays a surprisingly major role in shaping the administration's economic policy.

In the coming months, as the administration struggles with the threat of recession brought on in part by the subprime credit crisis, White House insiders say the staunchly free-market Vice President can be expected to resist any impulse to soften the blow with government action.

"The fact is, the markets work, and they are working," said Cheney in an interview in his White House office. "And people - some of the big companies obviously - have taken risks. Risk means risk. And there's an upside as well as a downside in some of the choices they've made. We have to be careful not to have this set of developments lead us to significantly expand the role of government in ways that may do damage long-term for the economy."

The same goes for Democratic efforts to curb the predatory lending practices that left naive homeowners in trouble, says Cheney: "We don't want to interfere with the basic, fundamental working of the markets."

Those words carry weight on Pennsylvania Avenue. Inside the White House the Vice President's role is both formal and informal.

"I sit in on virtually all the economic policy sessions," Cheney says, including the regular Wednesday luncheon of economic principals. And he stands out as the one economic policy advisor with routine private access to Bush.

As he did with intelligence matters, Cheney has built his own independent network of information gathering, relying on an outside brain trust of economists.

As the 2008 presidential race shifts into high gear, watch for the supply-sider Vice President to robustly defend the twin tax cuts of 2001 and 2003, which he played a central role in crafting.

Each of the major Democratic candidates wants to allow much of that tax relief to expire - especially for wealthy Americans.

Cheney opposes any rollback. "This is identical to a big tax increase," Cheney argues. "And it will slow down the economy. We already have a tax system that is very, very progressive. The top 1% [of earners] pay 36% of all the income taxes in the country."

So what is Cheney worried about? Oil. Specifically, the prospect of sabotage aimed at disrupting the oil market.

"Clearly the world depends on a global supply of oil, and that will continue to be true for some considerable period of time. Efforts to shut down the flow of oil could conceivably have a significant impact."

Cheney has done more than worry about it. When President Bush's 2008 budget was coming together, with the goal of balancing the budget in five years, Cheney nevertheless insisted on a $947 million line item: a speedup of the flow of crude into the Texas and Louisiana salt caverns housing the nation's Strategic Petroleum Reserve.

The budget guys pushed back: Can't we wait until crude prices level off? No, the word came back from Cheney, this was urgent. That was all it took. "He doesn't weigh in on a ton of issues," said a person close to those negotiations. "But when he does . . ." To top of page