Transcript: Fmr. Treasury Sec'y Paul O'Neill

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 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, 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, 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.

O'NEILL: That's not true. It's simply not true.

CAVUTO: OK. So on this, you agree with the president?

O'NEILL: We need to fix these systems, but nobody has talked about what we need to do about health and medical care in this country. I have, but it's hard to get any air time for this subject.

CAVUTO: That's true. Are you bitter as a result of that, that it is tough for you to get the word out?

O'NEILL: No. You know, it's the way it is. It's a very interesting thing, you know? The president gets all the air time that he wants, whether he has anything to say or not. And it's awfully hard if you have ideas to get people to pay attention.

CAVUTO: Do you like him?

O'NEILL: I can't hear you.

CAVUTO: Do you like him?

O'NEILL: I can't hear you.

CAVUTO: Really? Do you feel bitter? You still sound a little bitter.

O'NEILL: No, I'm not bitter at all. But I want to finish my point about...

CAVUTO: I know what you're saying. It's a great idea. And I don't want to dismiss it. But this is my first time to chat with you since all of this broke. And the read from Republicans was that you were a loose cannon. You were let go. You were angry, you were bitter. Were you?

O'NEILL: No. I'll tell you what: I was glad to leave, because I could not figure out a way to make a connection with the president and the decision-making process.

CAVUTO: Did you have much time with him, one on one?

O'NEILL: Before 9/11, I had quite a bit. But I didn't find it was very satisfying, because I couldn't find a way to get on his wavelength and have the kind of discussion we're having about what should we do about Social Security?

CAVUTO: So, you had all these big ideas, and they fell flat with this president?

O'NEILL: Absolutely.

CAVUTO: You also came out in the book and then saying at the time, because I remember at the time, you were not a gung-ho supporter of all of the tax cuts.

O'NEILL: I thought the third tax cut was a bad idea. And if you remember, it was being discussed at the end of 2002, you know, a month or so before I got fired. And I was against it for these reasons.

CAVUTO: Did you know you were going to get fired?

O'NEILL: No, I had no idea.

CAVUTO: How was it told to you?

O'NEILL: The vice president called me and told me the president...

CAVUTO: And you and the vice president were long-time friends, right?

O'NEILL: That's what I thought. In any event, the vice president called me and said, "The president wants to make some changes, and you're one of the changes."

And I said to him, "That's fine with me. The president should have with him people that he wants." So I was perfectly OK with that. But I want to go back to why not do the third tax cut? Four reasons.

First of all, it was pretty clear to me from the economic models that we had that the economy was going to be OK without another tax cut.

Secondly, this is before we went to Iraq, and I suspected we were going to have to spend a lot of money in Iraq. We needed the money for that.

Thirdly, I thought that we needed to begin working on this problem of Social Security and Medicare, and by giving away more money, and further taxing...

CAVUTO: But would you argue that those tax cuts actually generated more economic improvements?

O'NEILL: I don't think so.

CAVUTO: So you just think that was just icing on the cake?

O'NEILL: Yes, I think so. You know, the models we had. We had this conversation...

CAVUTO: So why were the first two OK and not the third?

O'NEILL: Well, because the third was over the top and the economy was OK. The first tax cut...

CAVUTO: But, I'm sorry, but the Republicans who argue that more money in people's pockets is better than money in Washington's pockets. And you seemed to subscribe to that when you were in power.

O'NEILL: As a general concept, I think that's right.


O'NEILL: But we, the people, do have obligations for the common good, including, I think, national security, as obviously a social responsibility that we should share.

CAVUTO: What do you think of people who say you sound like a Democrat now?

O'NEILL: I don't care. Because I'm not a politician. I really don't give a damn about all that. I really don't. I have never considered myself a party person.

CAVUTO: Did you always...

O'NEILL: I'm an idea person.

CAVUTO: I remember reading your book, Paul, when you first came in there. You just couldn't adjust to — I forget the term you used for the bureaucracy, but the way Washington works. You know, you, when you rail about corporate America, you know, it was boom, boom, boom. You call orders. You make decisions. Things happen. Not that way in government. And so that you were a square peg in a round hole?

O'NEILL: I didn't want to front for things I didn't believe in. And I didn't believe in the third tax cut. I thought it was a bad idea.

CAVUTO: Did the administration sense this guy's not on board?

O'NEILL: Yes. Absolutely.

CAVUTO: And so that's why you were given the heave-ho?

O'NEILL: Sure. Sure.

CAVUTO: So no bitterness?

O'NEILL: No. I'm not bitter.

CAVUTO: No anger?

O'NEILL: No anger.

CAVUTO: Who did you vote for in the last election?

O'NEILL: I'm not going to tell you that.

CAVUTO: Paul O'Neill. Very good seeing you.

O'NEILL: Nice to see you, too. My pleasure.

CAVUTO: The former treasury secretary of the United States, who always called it as he saw it, Paul O'Neill.

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