WASHINGTON — For Treasury Secretary Paul H. O'Neill, the moment of truth had arrived. Seated in the Oval Office on Sept. 4, 2002, he looked President Bush in the eye and told him that another big tax cut could prove disastrous.
"Mr. President, if you start pushing through a second major stimulus plan, you run out of money," O'Neill said, according to a new account of his two years as Bush's Treasury chief. "You won't have any money to do anything you want to do, such as changing Social Security or fundamental tax reform, for the rest of your term. Now's the time to keep your powder dry. Any other path is not responsible."
O'Neill knew he had presented Bush with a stark choice: If the president wanted to pursue the tax-cut plan being pushed by other administration officials, he would have to fire his Treasury secretary first.
"Got it," Bush reportedly replied. Two months later, O'Neill was out of a job, and the tax cuts were headed for passage.
The fateful exchange, recounted in "The Price of Loyalty," a book written by journalist Ron Suskind with O'Neill's assistance, involved more than a contest of wills between two determined political leaders.
It underscored what, in O'Neill's view, was a monumental struggle over policy priorities and the ultimate triumph of fiscal recklessness over budgetary caution within an administration split from the start between ideologues and pragmatists.
In the latter camp was Federal Reserve Chairman Alan Greenspan, who allied himself with O'Neill in a campaign to keep future deficits from getting out of hand.
In the end, O'Neill said, the ideologues prevailed.
O'Neill's assessment is shared by some independent analysts, who say the wisdom of the tax cuts will be debated long after the initial furor over the book's revelations of personality clashes and administrative spats fade from view.
Already a central issue in the 2004 campaign, the sudden shift from big surpluses to record deficits may leave as big an imprint on Bush's legacy as the war on terrorism or the invasion of Iraq, some economists say.
"Without a doubt, he was a voice of caution," former Congressional Budget Office director Robert Reischauer said of O'Neill. "He wasn't listened to. He should have been the most important policy voice in this area."
Robert E. Rubin, Treasury secretary during the Clinton administration, said Bush's tax reductions set the stage for an "endless string of projected deficits" that could trigger a crisis of confidence in financial markets, dampening U.S. economic growth for years. "I haven't read his book," Rubin said of O'Neill. "But I don't think we should have put in place either of those tax cuts."
White House spokeswoman Claire Buchan said Wednesday that she had not read the book, but disputed any suggestion that Bush was not concerned about future deficits.
"He believes the budget needs to address America's priorities, which are fighting the war on terrorism and promoting America's economic security," Buchan said. "The budget reflects those priorities. In addition, it reflects spending restraint in other areas."
Not all administration observers agree with O'Neill's interpretation of events, and some question the book's accuracy.
Suskind, a former Wall Street Journal reporter and a winner of the Pulitzer Prize in 1995, said the book was based on extensive interviews with O'Neill and other administration officials, as well as 19,000 government documents, including meeting minutes and transcripts. O'Neill proofread the manuscript before publication, and dialogue "was vetted by all sides," Suskind said.
Former Bush economic advisor Lawrence Lindsey, a tax-cut advocate who lost his own job soon after O'Neill left, wrote in a Wall Street Journal column published Wednesday saying that O'Neill's descriptions of Bush and his economic policy "do not comport with my recollection or with the public record."
The book, he said, "does a grave injustice to the president, to the truth, and to Mr. O'Neill himself."
Conservative economist Bruce Bartlett said participants in a key tax-cut discussion described in the book told him that statements attributed to the president and other officials bear little resemblance to what was actually said.
"Mr. O'Neill may think he is getting revenge on a president he believes treated him shabbily," Bartlett said. "But I think all he has really done is remind people of why he never should have been named Treasury secretary in the first place."
According to the book, O'Neill said as much to Bush in late 2000, when the president-elect asked him to leave his position as chairman of Alcoa Inc. to become the nation's chief financial officer.
"I like to say what I think," O'Neill reportedly told the president-elect. "In Washington these days, that might make me a dangerous man."
"We know all that stuff," the book quotes Bush as replying. "Doesn't matter. We want you to take the job."
That same evening, O'Neill received a call from Greenspan.