BC NBC's KATIE COURIC: Now to former Treasury Secretary Paul O'Neill. In a new book out today, Secretary O'Neill calls his former boss, President Bush, disengaged but eager for war in Iraq well before September 11th. Well, now the Treasury Department is investigating whether O'Neill improperly revealed classified documents to Ron Suskind, the author of that book called "The Price of Loyalty: George W. Bush, The White House and The Education of Paul O'Neill." Secretary O'Neill and Ron Suskind, good morning, nice to have you both.

PAUL O'NEILL, FORMER TREASURY SECRETARY: Good morning.

RON SUSKIND, AUTHOR: Hi, Katie.

COURIC: All right, let me ask you about the news of the morning. What do you think about this investigation being launched by the Department of Treasury that somehow you took classified documents and they were used, in fact, in the writing of this book?

O'NEILL: The truth is I didn't take any documents at all. Ron approached me after he heard me give a speech last January wanting to write a book about my ideas. And after I had read the things that he'd written before, I decided to cooperate with him and I called the chief legal officer at the Treasury Department, the general counsel and said to him, "I'd like to have the documents that are OK for me to have." And about three weeks later, the general counsel, the chief legal officer of the Treasury Department, sent me a couple of CDs which I, frankly, never opened. I gave them to Ron believing, as I do, if you're going to trust someone, you need to trust them completely. So I gave Ron the CDs. And if you look at the document that seems to be in question...

COURIC: It was shown on "60 Minutes," correct?

O'NEILL: If the cover page and the attachments were secret, the cover page was not secret. And so I'm not surprised that the Treasury Department has said they are going to take a look at how all this happened. What they will discover is the general counsel, the chief legal officer of the Treasury Department, went through all these documents and sent me things. Under the law, he's not supposed to send me anything that isn't unclassified. And so if there's anything in that file that's unclassified, the general counsel failed to be sure that everything was clear.

COURIC: So perhaps he's the one who should be investigated?

O'NEILL: No, I don't think so. I don't honestly think there's anything that's classified in those 19,000 documents. There was a cover sheet that had classified attachments, but the attachments were not included in the file.

COURIC: The White House has said it would be irresponsible not to investigate this properly.

O'NEILL: Of course. If I were secretary of the Treasury, I would have done the same.

COURIC: Is this payback? They insist it's not. But do you think in a way it is?

O'NEILL: I don't think so. As I said, if I were secretary of the Treasury and these circumstances occurred, I would have asked the inspector general to take a look at this. I'm surprised they didn't first call the general counsel and say, "What are the circumstances of this?" And hopefully today they will do that.

COURIC: And it will be a done deal; I mean, it will be over.

O'NEILL: Yeah, and the other thing that's good, today the book is going to be available, and this red meat frenzy that's occurred when people didn't have anything except snippets -- as an example, you know, people are trying to make a case that I said the president was planning war in Iraq early in the administration. Actually, there was a continuation of work that had been going on in the Clinton administration with the notion that there needed to be regime change in Iraq.

COURIC: So you see nothing wrong with that being at the top of the president's agenda 10 days after the inauguration?

O'NEILL: Absolutely not. One of the candidates had said this confirms his worst suspicions. I'm amazed that anyone would think that our government, on a continuing basis across political administrations, doesn't do contingency planning and look at circumstances. Saddam Hussein has been this forever. And so, I was surprised, as I've said in the book, that Iraq was given such a high priority. But I was not surprised that we were doing a continuation of planning that had been going on and looking at contingency options during the Clinton administration.

COURIC: Because of the Iraq Liberation Act that was passed in 1998 almost unanimously by the Senate and near unanimously by the House.

O'NEILL: Absolutely.

COURIC: Ron?

SUSKIND: I mean, to be sure, you know, Paul and other people in the room in that first NSC meeting were surprised, as Paul says in the book, that Iraq was at the top of the agenda and that it was more about the hows than the whys: how to affect regime change, rather than whether we should engage possibly the U.S. military in doing that. That's what the book says. When people read the book, they'll see it. You know, is that important? It's crucial for public dialogue. But it's the kind of thing that unless people read the book, they can draw assessments that may not be in the book.

COURIC: At the same time though, Mr. O'Neill, you do talk about the fact that you were in National Security Council meetings for 23 months, you saw a variety of documents and nowhere did you ever see evidence...

O'NEILL: I think I saw everything unless something was withheld from me that I didn't know about.

COURIC: Well, we'll get to that in a moment. But you say nowhere did you ever see evidence that Iraq possessed weapons of mass destruction. Well, an intelligent person would draw the conclusion that those charges were being trumped up by the administration as a rationale for the invasion.

O'NEILL: No, that's not what I've said. I have a very high standard for what represents evidence. If you told me that you put your hands on weapons of mass destruction, I'd probably believe you because you are a public person. If someone that I believed in told me they'd actually seen it, that's evidence for me. But it's possible -- and certainly there were lots of inferences and circumstantial things that the national security assessments pulled together in looking at this question of mass destruction. I'm not denying or gainsaying the fact that one could make a case. What I have said is I never saw anything that I considered to be concrete evidence of weapons of mass destruction. I think the fact that we haven't found them makes the point. That also doesn't make a point that we shouldn't have gotten rid of Saddam Hussein. I'm not making that case. I'm making the really clear case that I know the difference between evidence and what is allusion and assertion and the rest. That's my point.

COURIC: Well, do you think an invasion of a country should be based on allusion and assertion?

O'NEILL: Well, I think one has to look very hard at the apparatus we have with the national intelligence assessments. And it's why we have presidents. At the end of the day there's one person who gets to decide is what he considers to be convincing proof of basis for going to war, and we elected George Bush and he decided it was good enough.

COURIC: Well, let's talk about your assessment of the president and, I guess, his leadership style, for lack of a better term. You do describe him as disengaged. You do describe, I think if I can, sort of, try to assess your description, as policy having no process, kind of, being put together willy-nilly. You do describe him as a blind man in a room full of deaf people. So what are you saying about the way policy is established in this White House?

O'NEILL: Well, I'd say several things in response to your question. One, in hundreds of hours of conversation with the author -- let me not put this off on general case. I used some vivid language that if I could take it back, I'd take that back, because it's become the controversial centerpiece. And I am afraid that it will cause people to have an impression without actually reading the book. I hope people will read the book. But having said that, I want to also say this: This is Ron Suskind's book. This is not my book. I have no economic interest in it, contrary to the inference in the Wall Street Journal this morning. I hope people will read it because I think it makes a contribution to illuminating, especially for young people, what I consider to be a bipartisan, broken political process.

COURIC: What's broken about it?

O'NEILL: Well, this is a very long story. I'll tell you what's broken about it, Katie. The conversation we have, for example, about the need for fundamental reform of Social Security and our health and medical care system and our tax reform system -- which is what I would have written about if this were my book; we probably would have sold 25 copies to my extended family because people don't seem to have the interest. Television doesn't seem to have the interest in drilling into really consequential issues with any depth. And both political parties are caught up in the same kind of stuff. You know, one of the presidential candidates has said we should have a lot more troops in Iraq and when he's asked the question, "How many do we have now?" he doesn't know. And people are not startled and think what's the matter with us if we don't insist on people having credible evidence and ideas about what they're doing instead of the line of the day and looking for the red meat stuff that's about controversy -- it's not about what's right for the country.

COURIC: You do talk about some of the real philosophical differences you did have with this White House, or at least some members of the White House, vis-à-vis tax cuts.

O'NEILL: I didn't think the third tax cut was a good idea, because I was pretty confident, from 40 years worth of experience and looking at the data, that in the fourth quarter of 2003, the real growth rate would be 6 percent. It turned out to be 8.2 percent. I think the 2.2 percent came because of the third tax cut, but the price we are going to pay for it is enormous because it reduces our fiscal flexibility to fix Social Security, which we desperately need to do.

COURIC: You talk about after the Republicans won big in the mid- term elections, winning back the U.S. Senate, that you sensed a change at the White House, a certain smugness, a sureness. And you once again pointed out the danger of rising deficits to Vice President Dick Cheney, but he said, "Reagan proved deficits don't matter. We won the mid-terms. This is our due." You profess shock at that statement. And I'm not an economic expert, but isn't there a pretty significant school of economic thought, Keynesian, that deficits are not that damaging to the overall economy? I mean, why did you consider this so blasphemous?

O'NEILL: Because it has such a long-term implication. If we were going to have a deficit with a year or two worth of additional stimulus, I would have said, "OK, suck it up, we're going to have to do this." But with the profound changes we've now made, and the president urging we make them permanent, we're going to have a very difficult time finding the money to do a fundamental fix of Social Security, and I thought that was a more compelling need. You know, and I thought 6 percent real growth was not an unreasonable level of real growth that we were likely to have without an additional tax cut. Now, are people going to keep bashing each other for the unemployment rate is too high? Yes. The truth of the matter is, government on a long-term basis can fix the conditions that affect the level of employment, but the truth of the matter is no politician, I don't care who they are, they cannot make a difference in short-term employment rates because it's a complicated consequence of what's going on in the whole world economy, not some politician standing up saying, you know, "We're going to have more jobs." That's all garbage.

COURIC: Let me read the Wall Street Journal editorial today. It says, "The Non-Treasury Secretary. Mr. O'Neill cooperated fully with author Ron Suskind, a former Wall Street Journal reporter and well- known Bush antagonist."

SUSKIND: I disagree with that.

COURIC: "Sharing recollections and 19,000 documents, as well as fact-checking the final manuscript. "After reading it, we're amazed he wasn't fired sooner. Mr. Bush apparently thought he was getting a smart veteran of the Nixon and Ford administration, a former CEO recommended by Dick Cheney and Alan Greenspan. The expectation was that Mr. O'Neill would be credible with business and politically astute. Instead he got a policy and political blunderbuss who must not have been paying attention during the 2000 presidential campaign. "Mr. O'Neill in the book reveals that he disagreed with much of the Bush agenda, especially with tax cuts. Three years later, the record shows that Mr. Bush was right to ignore Mr. O'Neill's counsel. The Bush tax cut helped to make the recession one of the mildest on record, despite the burst stock market bubble, corporate scandal, September 11th and war. And now the recovery is well under way with the third quarter's 8.2 percent growth rate; the fastest since 1984."

O'NEILL: I was on board for the first tax cut, I had no problem at all. I went and represented it to the Congress, worked with the moderates to put some actual front-end stimulus into the tax bill, because there wasn't any in the initial proposal. I had no problem at all with the first one. I had no problem at all with the second one, which people forget about. The third one I thought was not a good idea for four reasons. One, there's still a continuing danger of another terrorist attack. At that time, we didn't know whether we were going into Iraq or not, and I thought we needed some contingency money for that; turned out I was right about that. Thirdly, I didn't think the economy needed additional stimulus, and I thought Social Security fundamental reform was more important.

COURIC: We're almost out of time. This is television after all. But I was surprised, and many other people were, when you told Lesley Stahl on "60 Minutes" you didn't think this was an unflattering portrayal of President Bush.

O'NEILL: I hope people will read the book. They can draw their own conclusions.

COURIC: But you insisted you didn't think -- you seemed befuddled, and most people watching that thought, "Are you out of your mind?"

O'NEILL: Well, go read the book. You've read the book?

COURIC: Yes.

O'NEILL: Do you think it is personally critical of the president? It's not my intention to be personally critical of the president or of anyone else, but to cooperate with Ron in trying to depict, kind of, what turned out to be a chronicle of 23 months at the top of the government.

COURIC: Very quickly, will you vote for President Bush in November?

O'NEILL: Probably. I don't see anybody that strikes me as better prepared and more capable. But I really do think we have a bipartisan problem of a broken political process, and I think the American people need to demand more of people who would be their leaders.

COURIC: All right. Well, Paul O'Neill and Ron Suskind, you didn't get much in.

SUSKIND: Well, I figure Paul gets the chance to talk today, I was on yesterday.

COURIC: Thanks so much for coming by this morning. We appreciate your time.

O'NEILL: It's a pleasure. Thank you.