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Former U.S. Treasury Secretary Paul O’Neill discussed tax reform, social security and other financial concerns at his September 15 lunch seminar, the first of the semester for the Mossavar-Rahmani Center for Business and Government’s (M-RCBG’s) business and government seminar series.
Titled “Revolutionary Changes for Revolutionary Needs: Policy Proposals to Foster a Better Financial Future,” O’Neill believes the root of the economic crisis is “permissive excess,” one example of which is the goal of homeownership. “With the best of intentions, many believed that homeownership was an important social condition,” said O’Neill, who went on to cite a statistic that during the first six months of 2007, 30 perecent of all holders of mortgages written that year failed to make the first payment—this was before the financial crisis of 2008. “It was possible to sit outside the government, as I was in 2007, and say, ‘we’re headed to a bad place.’”
A president who can somehow convey the issues and potential solutions to the country’s current financial problems is a first step towards recovery, according to O’Neill. “We desperately need an architectural president…a president who leads by educating [citizens] about the facts of our current condition and how to change our current constructs,” he said.
In regards to federal tax policy, executive leadership should be looking toward a system of collecting revenue as the society needs it, rather than as an instrument of social policy. For example, if society wants to favor homeownership, it should provide citizens with a check from the Treasury to close the gap of being able to buy a home rather than incentivizing through tax breaks. He suggested that at the bottom of each check should be printed a note explaining that it came from “your friends and neighbors” – also known as U.S. citizens. “People don’t understand that that’s where it comes from,” he said. “And you couldn’t tell that from current conversations in Washington, either.”
O’Neill favors putting an end to the individual and corporate income tax system and replacing it with a consumption or value-added tax. “The major problem we have now is that there is an unbelievable record-keeping and tracking system that is impossible to administer,” he said, adding that the current system costs over $400 billion each year to administer and under-collects an equivalent amount due to loopholes, evasion and inefficiencies. “We need a purposeful, clear-headed system that collects the money we need with certainty.”
And to reform social security, O’Neill suggests a federally financed annuity of $25,000, created the day each citizen is born. With compound interest at an average of 6 percent over 65 years, it would reach over $1 million (in current dollars), allowing for $82,000 per year to be withdrawn between the ages of 65 and the average life expectancy of approximately 82. “We need to imagine a society better than the one we’ve been privileged enough to inherit and give credence to the idea that a society is judged by how it cares for its older citizens,” he said. “To do that, we need to start adopting new ideas about financial security.”
O’Neill was appointed the 72nd Secretary of the Treasury Department in 2001 by President George W. Bush and previously worked in the Nixon, Ford and Reagan administrations. He is also the past chairman and CEO of aluminum giant Alcoa.