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U.S. News
Paul O'Neill on the Bush tax cut: 'I would not have done it'

Saturday, January 11, 2003

By Steve Massey and Christopher Snowbeck, Post-Gazette Staff Writers

Former Treasury Secretary Paul O'Neill, in his first public comments since being forced out of the Bush administration in December, said money from the president's $674 billion tax-cut plan would be better spent on shoring up the nation's ailing Social Security system.

Former Secretary of the Treasury Paul O'Neill, shown on a monitor, talks with John Craig and Stacy Smith during the taping of the Editors program at KDKA studios Friday. (Robin Rombach, Post-Gazette)

In an interview Friday for the KD/PG Sunday Edition television show and in comments afterward, O'Neill said he saw minor value in eliminating taxes on corporate dividends as proposed by Bush but added, "I would not have done it."

O'Neill made clear he preferred to avoid direct criticism of Bush, even though it has been suggested their parting was less than amicable. "I was never angry with the president," he said, when asked about his abrupt departure. "I was happy to leave."

The former Alcoa chairman touched on his return to his hometown, where he will work to improve the way health care is provided and to promote patient safety. He said the model being developed locally could help cut health care costs in half nationwide. Health costs now account for 14 percent of gross domestic product.

But most of his conversation, to be broadcast today at 11 a.m. on KDKA-TV, focused on the economy, his views about leadership and his two-year tenure in the Bush administration.

O'Neill was particularly critical of a political and media environment in the nation's capital that he said stifled honest and substantive discussions about problems confronting the country.

"It's all about sound bites, deluding the people, pandering to the lowest common denominator," said O'Neill. "I didn't adjust [in Washington] and I'm not going to start now."

Many believe O'Neill's exit from the Treasury was driven by his blunt appraisal of Washington and recurring statements that roiled the markets and rankled Republican leaders.

O'Neill once characterized a House Republican economic stimulus package as "show business" and described traders on Wall Street as people who "sit in front of a flickering green screen" all day, not the sort of people you would want to help you think about "complex questions."

He also had said it was "not acceptable" that Bush had failed to file a timely disclosure of his 1990 sale of Harken Energy Corp. stock while a member of the company's board. Bush sold the stock shortly before the company announced $22 million in losses. When O'Neill was queried about the matter, he responded: "Did I ever do an untimely filing of Form F? No. Any other questions?"

While O'Neill had been criticized during his tenure for being absent from the national stage at times of troubling economic news, he reiterated during a break from taping the KD/PG show that government shouldn't be expected to provide short-term economic fixes.

Referring to numbers released Friday that showed the nation's businesses shed 101,000 jobs in December, continuing a string of disappointing monthly jobless reports, O'Neill said: "The notion that government can actually do something about that in the short term is ridiculous."

O'Neill said the current 6 percent unemployment rate is "not bad" when viewed in the context of the past 30 to 40 years. He said believes the economy, bolstered by "amazing" productivity gains the past five years, has the potential to grow at a 3.5 percent to 4 percent rate "for as far into the future as anyone can see" once the recovery takes root.

In fact, he said, productivity gains have been one of the forces holding back employment as businesses learn to do more with fewer workers. Another challenge for the economy, he said, is accommodating the influx of immigrants entering the labor force -- the economy must generate roughly 100,000 to 125,000 jobs a month just to absorb new entrants into the work pool.

To achieve that level of job growth, O'Neill said, requires new ideas about how to do business. Unfortunately, creative leadership -- in Washington and in many corporations -- is often lacking, he said.

"Real leadership requires you to stick your neck out and have a point of view that other people, at least not a lot of other people, have," he said. "People [don't] want to stick out their neck because they don't have the courage of their convictions that they can really succeed in raising things to a higher level of performance."

During his brief stint at the Treasury, O'Neill slashed the time it took the department to complete its year-end financial accounting from five months to three days. He achieved similar feats at Alcoa, where as chairman from 1987 to 1999, he embarked on a range of initiatives that made the company a world leader in safety and efficiency.

O'Neill said his time in Washington was worthwhile. He credited Bush for dealing effectively with the threat of terrorism and said the president hasn't gotten enough credit for the concern he brings to education issues.

O'Neill on the Washington political environment: "It's all about sound bites, deluding the people, pandering to the lowest common denominator . . . I didn't adjust [in Washington] and I'm not going to start now." (Robin Rombach, Post-Gazette)

"I'm a supporter of the institution of the presidency, and I'm determined not to say any negative things about the president and the Bush administration," O'Neill said. "They have enough to do without having me as a sharpshooter."

One of his biggest regrets, O'Neill said, is leaving behind unfinished business, such as reforming the tax code and addressing Social Security's long-term ills.

He called the current tax code "an abomination ... there's no single human being who understands it all." Due to the tax code's complexity, he estimated that roughly $200 billion a year goes uncollected and an additional $200 billion a year is spent by businesses and individuals to comply with the tax rules.

"In the time that I was at the Treasury, I had people collecting all the best ideas that have been put forward over the past 30 years about fundamental tax reform and put them into a catalog to begin having discussions with the president," O'Neill said. "I hope that work will go forward."

As for Social Security, O'Neill favored creating, over several decades, a new system that would let individuals build up to $1 million of savings by the time they retire.

He admitted such a plan would be complicated and hard to achieve, in part because it would be viewed as replacing guaranteed payments with investments that would be subject to the whims of the economy.

But he also noted that the current system, which is expected to start sending out more money than it takes in as baby boomers start to retire, cannot be sustained because it relies on existing workers paying for retirees.

"I believe that we need to have a system that guarantees that people are going to have wealth when they retire that can sustain them through their non-working years," he said. "And the way to do that is to have mandatory savings."


Steve Massey can be reached at smassey@post-gazette.com or 412-263-1174. Christopher Snowbeck can be reached at csnowbeck@-post-gazette.com or 412-263-2625.

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