This is a partial transcript from "Your World with Neil Cavuto," March 16, 2005, that was edited for clarity.
NEIL CAVUTO, HOST: First things first, the Wolfowitz news, to head the World Bank. Why him?
KARL ROVE, DEPUTY CHIEF OF STAFF: Because he has a keen understanding of international economics and development issues. He was an ambassador to Indonesia. He's got — former Johns Hopkins academic, has studied this, understands this, understands it particular from a free market perspective, understands that we need reform of this institution to make it durable and viable in the 21st Century.
Was Colin Powell ever given serious consideration for this job?
ROVE: I think Colin Powell — I can't speak for — about that, but my sense is that Colin Powell had a desire after, you know, four years as secretary of state to return to retirement and had some goals in mind and not include — didn't include World Bank.
CAVUTO: How about Bono? Was he ever...
ROVE: No. I don't think so, unfortunately for U2, whose albums are doing great despite that. So...
CAVUTO: He needs to stay with U2 and not the World Bank.
ROVE: Well, he also, as you know, has a keen interest in debt issues and water issues for Africa and has got a magnificent heart and has really mobilized a lot of the international community to confront both of these issues in a very positive way.
CAVUTO: Does it bother you, Mr. Rove, that this president has earmarked more money for helping the African continent, for helping those who have been ravaged by disaster there, for AIDS, for everything else, than all prior presidents combined and he doesn't get a lick of credit for that?
ROVE: Well, look, the more important thing is the right policy. And as you say, he's pursuing the right policies. He was deeply moved by his visit to Africa. He feels keenly about the necessity of confronting AIDS. He feels that we really need to reform our foreign assistance programs and drive them towards meeting the real needs of people across the globe. And he's done a magnificent job of it. These new...
CAVUTO: That's not reporting in the media.
ROVE: Well, that's OK. That's OK. History will record it as being the right thing, and America will be in the...
CAVUTO: So it doesn't bother you when you see in the media this is a stingy president, he doesn't do much for global aid, whenever there are these protest marches out there? And people don't — obviously, they don't look back (ph).
ROVE: Let me get this straight. The mainstream media and the left don't get this president? What's new? So, you know, that's fine. And — and some do. I mean, look, Bono is not a man of center right, and he understands and applauds what this president is doing. He's worked with us on AIDS and debt relief and the — the Millennium Challenge to come up with a new way that we're delivering foreign aid to countries that are deserving and which have demonstrated that they'll spend it in appropriate and good ways.
So there's begrudging respect on the other side for him.
CAVUTO: Let's talk about your side, the Republican side. I've spoken to a number of prominent Republicans who sort of said Social Security reform, at least where the president wants to see it, is now dead.
ROVE: Absolutely wrong. I mean, every time we go through a major initiative, whether it's tax cuts or the education bill or Iraq, somebody says everything's all bollixed up. And then it happens, and it comes through, I think we're in very good shape.
The polls are now showing — yesterday, for example, "The Washington Post" ran a poll, and they put one thing in the headline but what they buried in the story was that support for personal retirement accounts was at a six-year high. Since they began asking the question about personal retirement accounts...
CAVUTO: Yes, younger people like it. But the 50-, 51-, 52-, 53-, 54-year-olds, they're not altogether keen.
ROVE: Not necessarily. A new poll out — and I hate to rely on so many polls, but there's a new poll out today showing that those age 55 or older, if told that the accounts are voluntary and will not affect their benefits, that they support it by, I think, a margin of, like, 57 to 39. And that AARP members are more likely to support personal retirement accounts than non-AARP members.
Look, this is a powerful idea. People understand the power of markets. Our country has gone in a very short period of time from a nation which a — those that are invested in the markets represented a small minority of all households to the day where over half of American households are invested in the market and nearly two-thirds of all voters are invested in the market.
CAVUTO: But do you think the timing is what hurts you, though, now? That the markets have sort of — they haven't been doing miserably, but they've been kind of stumbling along, as this debate...
ROVE: Well, a lot of people, people have a mature — they've got a mature view about it. They know that markets go up and markets go down, but over the long haul, markets go up. And they understand, too, that some of the best time to buy is when things are sort of stuck there, after having come down from the highs in 2000. And now is a good time to get in.
They know over the long haul — look, Social Security, if you retire today, you're reaping a two percent return on your Social Security. Even a conservative mix of bonds and stocks would have gotten you two or three times that over the course of your lifetime. And that's a powerful, a powerful message.
I just read a letter to the editor where a fellow had started working at 19 and paid into Social Security. At 23 — he was a good saver, obviously — he started saving as much money as he could. Roughly the same amount of money that he put into Social Security, he put into a personal investment account.
Today, he's retired. He's got two checks, his paycheck from the government and his paycheck from his personal retirement account. The check from his personal retirement account is four and a half times the size of his Social Security check. Put the same amount of money into it, and yet over time, because of the growth of the market and the power of compound interest, he's now getting a much more generous check from his private, personal investment than he is from...
CAVUTO: I think most people would readily agree with you that the stock market over time does very, very well. But it appears to be falling on deaf ears, at least among the power brokers in Congress. And I'm wondering whether it's because they feel you have to give a pound of flesh here.
One of the ideas that's been raised is raising the income threshold above and beyond $90,000. Are you for that?
ROVE: Look, as the president said, everything is on the table...
CAVUTO: Including raising the threshold.
ROVE: ... except — except raising the payroll tax rate.
ROVE: We're not...
CAVUTO: I want to be clear on this. Does that mean that you would be open to raising that $90,000?
ROVE: Everything is on the table, but we're not going to negotiate with ourselves. If people want to come to the table and say, "We want to work with you on a solution, and here's what we want to have in there." And we're willing to listen to all ideas." What we...
CAVUTO: Well, one of those ideas, the conservative columnist who I know you know very well, George Will, has been open to the idea espoused even by some conservatives on Capitol Hill to raise that threshold figure to get that monkey off the Republicans' back and to say, "All right. We're for this. If that's what it takes to get you on board."
ROVE: Yes. I repeat. We're not going to negotiate with ourselves. Everything is on the table. We're early in the process. I love how people are, you know, saying now, "Oh, it's stuck. It's not going to go anywhere." Well, they said the same thing about the tax cuts in '01. I went back and read some of the articles from April of '01, where they said this is stuck and going nowhere. And of course, we got it.
And we're going to get this, too, because it is so important that we do it right. I mean, we are facing a Social Security system that is going to go bankrupt by the time our kids and grandkids retire. And we'd better do something about it.
Senator Joe Lieberman, a Democrat of Connecticut, said something very important the other day. He said every year we fail to act adds $600 billion to the cost of strengthening and saving Social Security. That's why we need to act and to act now.
CAVUTO: But even Alan Greenspan, of all people, is saying on Capitol Hill yesterday that maybe Al Gore had it right. I think what he was quoted as saying, sir — I didn't want to get it wrong for you — is that this lock box analogy actually was a very thoughtful insight as to what the real problem is.
ROVE: Well, he's put his finger on the problem. People think that there's a lock box. They think that there's an account with their name on it and into that account goes all the money that they pay into Social Security. But that's not the way the system operates.
It's a pay as you go system. So the money that comes into Social Security first goes to pay the benefits due retirees today. It's not kept in your name. It goes into a big pot of money from which current retirees draw their checks.
The balance of it is the so-called surplus is then borrowed by the rest of government and spent. And in return, Social Security gets a piece of paper that says we, the other part of federal government, owe the Social Security trust fund this amount of money plus a very modest amount of interest to be paid at some future date. Those pieces of paper are kept in one drawer of one file cabinet of Parkersburg, West Virginia. About a billion — about a trillion five in promises from one part of government to the other part of government.
CAVUTO: So the whole Social Security thing as it is now is essentially a sham?
ROVE: Well, what happens is, is that — that in 20 — in 2008, three years from now, payments into the Social Security trust fund, the surplus, those peak and begin to decline. By 2018, the surplus — we're no longer paying in more than we're paying out. We then in 2018 begin to pay out more and draw down the surplus. By 2042, that so-called surplus is exhausted, and the system is bankrupt.
What happens between 2018 and 2042 is that we've got to redeem all those notes that are in that file cabinet in West Virginia. And what that means is, in the first couple of years, Congress is going to have to find some, you know, $3 billion, $8 billion, $10 billion. But that amount escalates rapidly so that by 2022, actually 2027, it's $200 billion that Congress is going to have to come up with in order to pay the promises and repay those pledges.
CAVUTO: Those who oppose you say better that than the trillions more you're going to spend in the interim just to fix it.
ROVE: Well, first of all, we have a nearly $10.4 trillion obligation to Social Security that we're going to have to pay. Doing nothing means that you've got to come up with $10 trillion.
And what we've got to do is find reforms that allow us to bring the promises back into balance with what we can pay. And then we've got personal retirement accounts so that younger workers have the option of taking some of their money, putting it in the market and getting a better rate of return.
We cannot solve this problem by raising taxes alone. If you raise taxes today — today, through the payroll tax and said, "We're going to raise it just the amount necessary to pay the promises the government has made that we don't see the money in the bank for," you'd have to raise it so the average family of four would pay $1,400 more a year in taxes. Plus, it would have to be matched by $1,400 from their employer, $2,800 a job in America.
If you don't think that can be done without harming job creation and the economy in America, you know, you're kidding yourself.
CAVUTO: But could I just ask you this? You're a great student of history, and you refer to history quite often. Do you think FDR, in his wildest imagination, ever intended Social Security to be the stand-alone means of support it is for millions of Americans today?
ROVE: No. But he saw it as part of three — he saw it as part of three — a three-legged stool.
CAVUTO: I know that. But people, it's the only leg today.
ROVE: Well, for many people.
CAVUTO: But why can't people want to, Republicans and Democrats, just say, "Guys, wishful thinking"?
ROVE: Right. Well, I think that's — look, the president is saying we need to recognize the strengths and shortcomings of Social Security. A lot of people depend on it for a substantial part of their retirement.
You've got to get into the part of the country where I come from. My mother-in-law derives virtually all of her retirement income from her Social Security. I know many people, relatives and friends throughout the South who have — who in turn have relatives or they themselves depend upon Social Security for...
CAVUTO: It was never meant to be that way.
ROVE: Never meant to be that way, but it is a reality. So we've got to make certain that we keep the promise of Social Security that — that there is a safety net among America's poor, underneath America's poor. But we have to reform the system so that it is there for our kids and our grandkids. It will go broke if we don't.
CAVUTO: But what about the guy who gets burnt on his stock market investments? Is the government obligated to help him?
ROVE: Look, the fact of the matter is, as you know, there are ways that you can structure an investment so that you protect yourself against risk. A couple of ideas. First of all, our thought is that you not be able to invest in individual stocks or individual bonds but that you invest in index funds.
I'm a federal employee. I invest in my retirement in a thing called the Thrift Savings Plan. I'm given the option of putting it into a bond fund, money market fund, international stock fund, all market fund or small — small company fund.
CAVUTO: What do you choose? ROVE: I put it in the all stock market fund. And we ought to have a similar set of investment vehicles available, simple, conservative investments. One idea that's interesting and that's been talked about is to have a lifestyle account so you can say this is the year that I'm going to retire.
CAVUTO: It gets a little conservative the closer you get.
ROVE: So it gets more conservative. And it's done automatically for you, the mix between when you're 20 years old, the mix between stocks and bonds is weighted heavily towards stocks. When you're 55, it's weighted more heavily towards bonds. And it's done automatically by the system.
And as we know from the Thrift Savings Plan, the cost of this to the — to the investor as the retire — potential retiree is very, very small.
CAVUTO: So you wouldn't be investing in individual stocks under the Bush plan?
ROVE: No. No. CAVUTO: Let me ask you, switching gears a little bit, on this close to second year anniversary of the war in Iraq. A split poll read today from "The Washington Post," the ABC folks. It says most do believe Iraqis are better off, but most, given their druthers, say it was a mistake. What do you think of that?
ROVE: Well, look, we don't govern by polls, thankfully. And I suspect we'd have different outcomes in history if people during critical times in our history said, "I'm not going to be guided by what is right and what is in the country's best interest but instead what I read in the momentary polls produced by 'The Washington Post'." You'll excuse me if I don't find most polls reliable and predictable as to what real opinion is.
Look, Americans — Americans feel keenly, I know, the — that we have put our nation, for we think good reason, at — at peril. I mean, you know, we have Americans — I've got a family, and I've just returned from Iraq, second tour of duty in the 82nd Airborne in Mosul. I feel this keenly. I understand where — how people feel about this.
But this was the right thing to do, and think about how much good has come from it. A dangerous dictator is gone. An entire part of the world is changing dramatically. In 113 days, people of Afghanistan, Ukraine, the Palestinian Authority and Iraq went to the polls. A hundred million people who lived — who are now living under a democracy, never experienced it before, never had free elections.
I mean, this is a dramatic change...
CAVUTO: But it's all got to work out to justify everything.
ROVE: No. Look — I think, look, Iraq has — Iraq has already been justified. We have removed one of the terror — most terrible dictators of the 20th Century. He's gone. He is no longer a threat to us. He's no longer a threat to his people. And so many good things have already happened because Baghdad fell and...
CAVUTO: So right now, we're justified in being there?
ROVE: You bet. Absolutely.
CAVUTO: But I know you don't pay attention to polls, but when a majority of Americans don't agree with that, there's...
ROVE: Well, I know. Look, I think a majority of Americans agree Iraq is better off, and a majority of Americans, a dramatic increase, and if you want to cite that poll, a dramatic increase in the percentage of people, I think it's nearing 60 percent, who believe that Iraq is capable of developing a democracy, which will be in our best interests.
So look, the polls come and go. But I think over the long haul, the poll that matters the most is what opinion says at the end of — at the end of the effort and at the end of the effort, the American people will clearly understand how important this was to do.
CAVUTO: You are considered by both camps, Republicans and Democrats, among the most brilliant political strategists of the last century, which ain't too shabby. Even Bill Clinton says that.
ROVE: Well, it goes to show President Clinton's mistake.
CAVUTO: But let me ask you. I mean, everyone is saying, "Who's Karl Rove's horse in the 2008 race?" You have one?
ROVE: I — no, my horse is George W. Bush, and I work for him. So...
CAVUTO: Anyone intrigue you?
ROVE: I'm not thinking about '08. I'm focused on '05, '06, '07.
CAVUTO: All right. Because they — the argument is that the Republican Party, if it still stays largely conservative, would never nominate a Rudy Giuliani or a John McCain.
ROVE: You know, well, first of all, I think our party is broadly center right, and I think that there's going to be a lot of openness on the part of party members towards a variety of candidate in 2008.
There's a — there's a geological age that will pass between now and the '06 election and another geological age that will come into being and go through — go through...
CAVUTO: But the pro-life contingent is considered so strong within your party that it would never accept Rudy Giuliani.
ROVE: Well, we'll see, you know?
CAVUTO: But so far you are not necessarily looking at it?
ROVE: Sir, I work for George — President George W. Bush. That's where my allegiance is.
CAVUTO: Hillary Clinton seems to be more conservative every day. What do you make of that?
ROVE: Well, I think that some Democrats recognize that their party is — is, you know, at danger of sort of drifting far too much to the left. And they're — some Democrats are attempting to do things that at least acknowledge that there's a center in American politics from which their parties become unhinged.
CAVUTO: So is she doing the right stuff? ROVE: Well, look, what matters is not what you say but what you do. It doesn't matter what — whether you have the nice rhetoric. It matters where your votes are and what policies you espouse. And look, again, time will tell whether or not that's — that's credible and seen as authentic.
CAVUTO: Is she the Democrat to beat?
ROVE: There is plenty of time. We'll see.
CAVUTO: Do you accept Condi Rice at face value when she says not interested?
ROVE: I do, but I thought she was underplaying her desire to be the NFL commissioner.
CAVUTO: Finally, let me talk about Alan Greenspan, then I'll let you go. I know you've got a busy day. He has said that, if he had to look back at the 2001 tax cuts, knowing what he does now, is a little different than knowing what he did at the time, when we had surpluses as far as the eye could see. Was that Mr. Greenspan's way of saying maybe not?
ROVE: I don't know. I think he's also on record rather emphatically saying the 2001 tax cuts were necessary and did — that they were the economic jolt the economy needed at the time. I mean, think about it. The market peaks in March of 2000.
I remember the final stages of the 2000 campaign, when the president, then candidate Bush and candidate Dick Cheney raised issues about the strength of the American economy and raised — said there were warning signs on the horizon. The Democrats, particularly Dick Gephardt, attacked us for down — for talking down the economy. But sure enough, by the time the president took the oath of office in the first quarter of 2001, the economy was in recession.
Then came 9/11. We lost a million jobs in the 90 days after 9/11. Think about that. That's an extraordinary job loss. And then corporate scandals undermined confidence in the American economy.
Yet these tax cuts have given us a strong economy. We've got the strongest economy of any major industrialized country in the world. We've created more jobs in the last year and a half than France, Germany, England, Japan and...
CAVUTO: So does it bug you when France and Germany lectures this country on economics?
ROVE: Well, they're entitled to their opinion. We're entitled to our performance.
CAVUTO: OK. Karl Rove, thank you very, very much.
ROVE: Thank you, sir.
CAVUTO: Appreciate it.
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