The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill

from Chapter 2: A Way to Do It

Paul O'Neill arrived at 6:15 A.M. on his first morning in office.

The President, he understood, was also an early riser — in his office by 7 A.M. — and O'Neill mused that maybe this would be part of what defined this administration: people of fortitude and clarity, always first to work. At the very least, this was one thing the President and he had in common.

His secretary, Annabella Mejia, was already there. "You're late," she chided. "Mr. Secretary, it's practically afternoon."

"Thanks, I'll get my own coffee," he said with a chuckle. "Can I get you anything, Annabella?"

Before almost anyone else had arrived, O'Neill had drafted a strategic memo to the President. By midmorning, it was ready. He had his secret pact with Greenspan. But the goal of pushing forward the President's plan was central to his job description. A core responsibility. O'Neill decided he could be a team player and still feel like himself. Good policy could make good politics — at least, it was possible. With a surplus number of $5 trillion — a number O'Neill understood from a friend at the Congressional Budget Office would soon rise to $5.6 trillion — he needed to help the President set the right priorities.

Memorandum to the President

From: Paul H. O'Neill

Subject: Tax Reform

Date: January 22, 2001

I believe there is an opportunity to get quick action on your tax proposal if we move now.

You have won the general argument on the desirability of a tax cut and the opposition has been cornered into arguing how large the cut should be, and, their numbers are moving toward your numbers and scope....

O'Neill knew that special interests, with their congressional advocates, were already lined up at the White House door, pushing for midsize proposals — abolishing inheritance taxes or offering a tax credit for each legitimate child — along with perennials like tax incentives for ethanol production or inner-city fix-ups. Bundling everyone's favorite items would create "a working majority" and "a way to get a quick victory in the tax arena," O'Neill wrote, aware that this was something that the President's political team found attractive. Considering the election results, any show of strength, or weakness, would be read as a trend. A quick victory was crucial. The problem, he wrote the President, was that his proposed across-the-board reductions in marginal tax rates might be left behind.

O'Neill had made his own decision about priorities. The bundle of many targeted credits and exemptions, with their myriad schedules and provisions, would be difficult to rein in with a trigger. A broad tax rate reduction would have a kind of simple, manageable clarity. It would progress, year by year, on a schedule, depending on whether there was a surplus. If the excess were to be used up, the rate reductions would halt.

Now, he had to help the President see that this was also the strategically sound move. One of the keys was speed. "Growing agreement, even alarm in some quarters, with regard to the slowing economy," O'Neill wrote, could justify swift action on this one defining issue, provided they could get a proposal to Congress in a few weeks and push through marginal rate cuts — most likely through a tweak of withholding — retroactive to January 1.

The only congressional argument to counter this "insurance policy against the slowing economy," he noted, would be that "it doesn't fit their process." Failure to act, moreover, would expose members to blame if the economy slipped into recession.

Embrace reality, he suggested. This plan would take us out of the "morass about the theology of economics" — a shot at anyone who might be whispering about supply-side concepts — and stress that "we care about taking practical action right now." Meanwhile, it would leverage the current economic uncertainties. "We know the real economy has slowed and the official statistics will reflect the slowing over the next quarter, at least. If the current slowness starts moving toward re-acceleration late in the second quarter, it would weaken the argument for quick action."

After a few paragraphs about the need to stress how this rate reduction would benefit low- and middle-income Americans and "stop the drumbeat about a tax cut for the rich," O'Neill unsheathed the blade.

In order to stay within your total tax reduction numbers and provide early implementation for marginal rates we will have to stretch out implementation of some of the other initiatives. We should argue that we will revisit implementation dates for other features, if the economy permits us to do so.

He read it, satisfied — the meat of fiscal reality, with a dash of conditionality, between two slices of political strategy — and typed in, "cc: Vice President Cheney, Larry Lindsey." Of course, the current proposal — even if it were retroactive to January — wouldn't provide much actual stimulus. But if they hitched their wagon to the need for stimulus, they'd be obligated to actually create something that resembles a stimulus...at some point.

"Pablo?"

"Mr. President."

"Let's get comfortable," George Bush said as O'Neill entered the Oval Office.

The President moved toward the wing chair near the fireplace, tucked between one of two sofa-and-chair clusters in the thirty-nine-by-twenty-two-foot oval. Bush sat in the wing chair facing the clock, where presidents always sit — and O'Neill sat on the near end of the small adjacent mustard-colored couch, where someone sits if he or she is the only visitor. As O'Neill navigated all this — he'd been here many times and knew the complex seating rules — his mind raced back to a conversation with George W. Bush just before the mid-December press conference in Austin, where the President-elect had announced his nomination...yes, there may have been a "Pablo" thrown in among the "Paul"s. O'Neill didn't think anything of it. He didn't know, back then, about Bush's odd enthusiasm for nicknames.

He knew now and settled into the couch...and his new identity: a sixty-five-year-old man named Pablo.

"So, whatta ya got?" the President barked, all business.

It was the afternoon of Wednesday, January 24, the third day of the Bush administration. The President calls the meetings. It is traditional protocol. One might suggest the need for a meeting to an Andy Card or Cheney, who would then pass it along, but the President issues the summons.

Bush had O'Neill's memo — Paul figured they'd talk about that — and then they'd discuss whatever came up. Cheney had said to him at one point that it might be valuable for Bush at the start of his presidency to have these meetings. To range around a bit.

O'Neill, as Treasury Secretary, institutionally designated to be the President's leading voice on the economy, offered a fifteen-minute overview on what he considered the informed opinion (that is, his and Greenspan's) and said that they were in the early stages of either an apparently mild recession or a pronounced inventory correction. The key was to remain sober. To watch the numbers. If we look concerned and talk up recession too much, he said, it will depress spending and encourage a downturn. O'Neill explained that the major problem was not the "encumbrances on capital" — there was plenty of low-cost capital out there, unable to find a profitable home. The problem was on the consumption side. The real numbers, he assured the President, did not support the bleakness of some "economic theorists."

O'Neill referred to items of his memo. Marginal rate cuts, if they were affordable, should be the priority. He said the tax cut plan, under almost any permutation thus far proposed, wouldn't provide measurable stimulus in the short term; what would create positive economic effects is "a sense that fiscal discipline has been preserved" — something that should boost equities markets and keep long-term bond rates in check. All that left the economy well suited to respond to a rate cut from the Fed.

There were a dozen questions that O'Neill had expected Bush to ask. He was ready with the answers. How large did O'Neill consider the surplus, and how real? How might the tax cut be structured? What about reforming Social Security and Medicare, the budget busters? How will we know if the economy has turned?

Bush didn't ask anything. He looked at O'Neill, not changing his expression, not letting on that he had any reactions — either positive or negative.

O'Neill decided therefore to move from the economy to a related matter. Steel tariffs. It was a simmering issue — the U.S. steel industry was hurting and pushing for protections. He said to the President, "You were admirably clear during the campaign about your stance in support of free trade — it's the only stance to take — and there's no way it can be squared with tariffs." He suggested that, as Treasury Secretary, he round up all the world's major producers and create a structure of shared incentives and sacrifices that would avoid tariff wars. He'd already tried some of this to good effect with the aluminum industry in 1993.

The President said nothing. No change in expression. Next subject.

Certainly, each president's style is different. But O'Neill had a basis for comparison. Nixon, Ford, Bush 41, and Clinton, with whom he had visited four or five times during the nineties for long sessions on policy matters. In each case, he'd arrived prepared to mix it up, ready for engagement. You'd hash it out. That was what he was known for. It was the reason you got called to the office. You met with the President to answer questions.

"I wondered, from the first, if the President didn't know the questions to ask," O'Neill recalled, "or did he know and just not want to know the answers? Or did his strategy somehow involve never showing what he thought? But you can ask questions, gather information, and not necessarily show your hand. It was strange."

With steel tariffs left hanging, O'Neill shrugged — if this was to be a monologue, he'd better make it sing.

They'd both been at that education conference five years before, so he went with that. "No Child Left Behind, I like that," O'Neill said, "but the idea that really moves us forward — a real action plan — is One Child at a Time."

It was an idea he'd road-tested with educators for years — that we need "an individualized mandate, where children would be constantly be assessed, one child at a time, in order to help create a little strategic plan for each student," a personalized learning strategy to fill gaps and develop latent potential. "It's a rethinking of what's possible, Mr. President. There's nothing more important than nurturing our human potential as a nation — our future depends on it."

Bush shifted in the wing-back chair. "Right, that's the concept of disaggregation" — a term used by educational statisticians to break down test scores — "I have that covered."

O'Neill wondered if he should point out that the President might be misusing that term but thought again. Instead, he spoke of the need to rigorously assess how federal money is spent in key areas and how to get more value for each dollar and apply it "to the trillions we've spent in foreign aid over the years...what were the goals underlying those expenditures and what were the outcomes." Once that evidence is gathered, O'Neill said, it would be appropriate to examine whether institutions like the World Bank and the International Monetary Fund needed restructuring.

The President seemed to nod in affirmation. O'Neill couldn't be sure.

Using the same model, O'Neill proffered a structure to assess the value of America's role in international economic crises — such as Mexico in 1995 or Indonesia in 1997. O'Neill was no longer expecting a response. He discussed ways to apply "value analysis" to the reform of health care and shrink federal expenditures, an area where he is considered by many as one of the country's most original thinkers. Then he offered a similar analytical framework to approach Japan's economic woes and craft an appropriate role for the United States.

O'Neill took a breath. The Oval Office's eighteenth-century grandfather clock — eight feet ten inches of mahogany with satinwood inlays — was to his back. He glanced at his watch. He'd been talking for just over fifty minutes. The meeting was scheduled for an hour.

"All right, Mr. President, maybe to finish up we could talk about global climate change..." Along with his memo on the tax cut strategy, O'Neill had sent over a booklet Alcoa had produced in 1998 with the text of an extensive speech he had given — a thorough analysis of the issue, what was known and as yet unknown, and principles to guide future actions. Bush seemed to indicate with a tilt of his head that he'd read it. But, again, O'Neill wasn't certain.

He pushed forward, adding his current thoughts on what the President might do on the issue — a flash point for environmental policy. He assessed the flaws of the Kyoto treaty and offered thoughts about how they might be remedied.

Both men are precise. And the hour was up. They stood at the same moment to shake hands.

"Get me a plan on global warming."

O'Neill nodded, a bit surprised.

Bush said it again. "Get me a plan on it."

Yes, fine, he'd create a plan, O'Neill said. Then he slipped out of the Oval Office, wondering whether that meant he was supposed to call EPA administrator Christie Whitman — the person designated to handle that area — or to not call her.

Copyright © 2004 by Ron Suskind