• This is a partial transcript from "Your World with Neil Cavuto," March 9, 2005, that was edited for clarity.

    NEIL CAVUTO, HOST: Here's a plan to fix Social Security (search) you have not heard before. It's simple and get this: it makes sense. And my next guest says it is time for somebody in Washington to listen to it. Now is their chance.

    Exclusive chat, joining us now, the former U.S. treasury secretary, Paul O'Neill (search), who no longer gets Christmas cards from the White House.

    Good to have you.

    PAUL O'NEILL, FORMER TREASURY SECRETARY: It's nice to be here. Thank you.

    CAVUTO: You caused quite a stir some time back with that book.

    O'NEILL: Actually, I do get Christmas cards. You know, the mailing list doesn't get culled or something.

    CAVUTO: All right. But you're not invited back to the White House.

    O'NEILL: That's true.

    CAVUTO: OK. Well, there's so much I want to get into with you, Mr. Secretary, but let's first talk about your plan for Social Security. You think we're chasing the wrong ghost here. What do you mean?

    O'NEILL: I do. I think there's an opportunity now to do something really important, and it's related to this question. What meaning should we, the American society, give to the notion of financial security for people over 65? I think that's the right question.

    And my answer is, we ought to create a system so that when people get to be 65 years old, they have a substantial amount of money, and the numbers I put together would suggest $1 million.

    And the way to do that is on the day that a child is born, we, the American people, put $2,000 into an account in their name. And every year for the next 18 years, we put in another $2,000, and with the six percent interest rate, when they get to be 18, that account would have $65,000. And if left to accumulate to retirement at 65, it would be worth over $1 million.

    CAVUTO: And they can't touch that money?

    O'NEILL: They can't touch that money.

    CAVUTO: What happens to Social Security in the meantime?

    O'NEILL: Well, I want to get to Social Security in a minute. First, I think we, as a society, should define our objective, and for me, the objective should be people have real financial security when they get to be 65, without regard to what they do in their life.

    If they're born in America, there should be meaning when you get to be 65 of real financial security, which means enough money to pay for your health and medical care needs and your housing and your food and your transportation and everything else. And the only way to really do that is to save and save early...

    CAVUTO: A lot of people haven't.

    O'NEILL: Because babies don't have earning capacity, I would say that those of us who are already working ought to create real savings. Instead of the tax and spend system that we have now...

    CAVUTO: And we rob that. We rob that piggy bank.

    O'NEILL: There's nothing in the piggy bank, really. And so, this is a way to take care of both Social Security and Medicare (search), which is a much bigger problem.

    CAVUTO: Right, for those babies eventually become retirees. But protecting, let's say, the 65 and under crowd right now that's very leery of what the president is proposing.

    O'NEILL: OK. Well, see, what I would do is, first of all, I would establish where we're going. You know, you have to be a little long-headed to do this. You need to be thinking kind of in a Chinese mode about the future.

    So, what are we going to see? What are we going to leave as an inheritance for our children and their children? So we get that established.

    And then we have remaining the issue of how do we take care of the financial requirements? How do we meet our obligations under the current system?

    CAVUTO: How do you do that?

    O'NEILL: I think there are bunch of different things that you could do.

    CAVUTO: Radical, raise the retirement age, yes or no?

    O'NEILL: Yes, it's a little bit of tinkering.

    CAVUTO: All right. A little tinker. Now what about fat cats like yourself? Get no Social Security? Means tested?

    O'NEILL: Personally, I don't care about that, but I think a lot of people would care about that. Personally, it's a point of indifference to me.

    CAVUTO: Raising the income threshold above $90,000.

    O'NEILL: I think that's all right.

    CAVUTO: That's OK. How about raising the FICA tax, period?

    O'NEILL: Well, eventually, what I'd like to do in my system is get rid of the FICA tax. If you think about it right now, the 12.4 percent Social Security contribution is a tax on labor. You don't pay it on capital equipment; you pay it on labor.

    So that if we could design a system so that we provided financial security to the retired population through the savings process, when that system kicked in, the 12.4 percent tax on labor could go away. And labor would be in a much better position than it is today, as a factor of production.

    CAVUTO: But if we do nothing for Social Security, the administration has argued that it will eventually go broke.

    O'NEILL: That's true. That's true. And it's going to happen faster than Medicare and if not...

    CAVUTO: The Democrats say it's fine. The Democrats say it's fine.