The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Monday, the UN Security Council voted to hold Iraq responsible for war damages in Kuwait, President Bush renewed his warning that he may use force against Iraq, but President Gorbachev said a military solution was unacceptable. We'll have details in our News Summary in a moment. Iraqim.

MR. LEHRER: After the News Summary, Paul Solman [FOCUS - GOOD DEAL?] goes through the personal impact side of the new budget package. Then economists Herb Stein, William Niskanen and Jeff Faux tell us what they think of it. Lee Hochberg reports on a State of Washington program [FOCUS - SEED MONEY] for helping the unemployed start their own businesses. And we close with a conversation with William F. Buckley [SERIES - FOR THE PEOPLE?].NEWS SUMMARY

MR. MacNeil: The United Nations increased the pressure on Iraq today. The Security Council passed a resolution demanding that Iraq pay war reparations for the damage it caused to Kuwait. The vote was 13 to nothing, Yemen and Cuba abstaining. It was the ninth resolution condemning Iraq since the invasion on August 2nd. Today's resolution also called on Baghdad to allow food and other supplies into the Western embassies that remain open in Kuwait. President Bush said t/HLy he would have no hesitancy at all in using force against Iraq if provoked. He made the comments at a press conference during a campaign trip for Republican candidates in California. He said he planned to meet with Congressional leaders tomorrow to discuss the Gulf situation. He was asked if he would seek Congressional approval before committing troops to action.

PRES. BUSH: I know the authorities that a President has. I'm working to try to get this matter resolved peacefully. We have a lot of force there. They're well trained, they're highly motivated, and that alone is sending an enormously strong signal to Saddam Hussein, so let's -- before going into a lot of hypothesis about what I might or might not do -- let's take a look at the positive side, some hope that there can be a peaceful resolution. But I'll be talking to the Congressional leaders tomorrow, but history is replete with examples where the President has had to take action. And I've done this in the past and certainly somebody mentioned provocation, we'd have no hesitancy at all.

MR. MacNeil: Sec. of State Baker was also in California today. He spoke about the Gulf crisis in a speech to the Los Angeles World Affairs Council.

JAMES BAKER, Secretary of State: Saddam Hussein must realize that there is a limit to the international community's patience. He must also realize -- and I'd like to stress this point -- that should he use chemical or biological weapons, there will be the most severe consequences. [Applause] The President has made our position clear. We strongly prefer a peaceful solution which is consistent with the mandate of the Security Council resolutions. We are exhausting every diplomatic avenue to achieve such a solution without further bloodshed, but again we have to say that all options are being considered. And let no one doubt we will not rule out a possible use of force if Iraq continues to occupy Kuwait.

MR. LEHRER: Soviet President Gorbachev said today a military solution in the Gulf is unacceptable. He made the comment at a news conference after a meeting with French President Mitterrand. He also spoke of the need to keep the anti-Iraq alliance unified.

PRES. GORBACHEV: [Speaking through Interpreter] We can't allow and should never give grounds for Iraq, the regime of President Hussein, to be able to think and hope that there will be any disharmony or any weakening of the positions.

MR. LEHRER: Gorbachev's envoy to the Middle East, Yevgeny Primakov, met with Saudi Arabia's King Fahd today. He met yesterday with Saddam Hussein. Gorbachev said that meeting indicated there was some shift in the Iraqi position on Kuwait. All the French hostages in Iraq and Kuwait left for home today. More than 260 of them were on the flight to Paris. Also on board were seven French diplomats from the French Embassy in Kuwait. France decided to evacuate that embassy today. The only Western embassies still open and staffed are America's and Britain's. Yesterday Saddam Hussein ended gasoline rationing nine days after it was started. He fired his oil minister for being mistaken in saying Iraq faced a gasoline shortage.

MR. MacNeil: Israel today put new restrictions on Palestinians. Those living in the occupied areas who are convicted of anti-Israel activities and other crimes will now be barred from entering the country. Yesterday a bank on all West Bank and Gaza Palestinians was lifted. That ban was imposed after an escalation of violence between Arabs and Jews triggered by the Temple Mount killings in Jerusalem. Thousands of Palestinians with jobs in Israel held a one day strike today to mark the killings of Arab villagers by Israeli soldiers in 1956.

MR. LEHRER: The U.S. Supreme Court today approved a federal judge's strong power to enforce school desegregation. It let stand a case from Kansas City, Missouri, where a judge ordered three predominantly white suburban school districts to accept inner city black students. The court also let stand a Montana law which imposes longer prison terms for criminals who use guns. The case involved a convicted robber who was sentenced to 10 extra years because he carried a gun during the crime.

MR. MacNeil: In Charleston, Indiana, a 17 year old student with a handgun took seven people hostage at a local high school today. One student and a teacher were later released. But the young man continued to hold at least five more students. Police sharp shooters surrounded the building. Officials said no shots had been fired. The student made no demands. Witnesses said he appeared drunk. He had been suspended twice in the past two weeks for discipline problems, including vandalism.

MR. LEHRER: Fighting between rival black groups ignited again over the weekend in South Africa. Sixteen people were killed and more than thirty wounded in a series of gun attacks last night in the black township of Soweto outside Johannesburg. More than 800 people have died since August in fighting between the Zulu-based Inkatha Freedom Party and the African National Congress. And that's it for the News Summary tonight. Now it's on to what's in the new budget package, a new approach to the unemployment problem in the State of Washington, and a conversation with William F. Buckley. FOCUS - GOOD DEAL?

MR. LEHRER: There is no longer a Washington budget crisis to kick around any more. It ended this weekend by votes of Congress and a signature by the President. The end result is a package that will reduce the Federal deficit 492 billion dollars over the next 5 years. First and foremost among the Monday questions are who among us will pay more taxes and how much. Paul Solman is here with the answers.

MR. SOLMAN: As the Wall Street Journal said Friday the deficit cutting changes seem designed to tax the brain as well as the people. So to make sense of it we've tried to simplify the Bill into a few categories and then apply them to some different households at different levels of income throughout the country. Here is our check list and it has five categories. First income tax, the medicare payroll tax, third the so called sin tax, fourth the gasoline tax and finally a catch all which we will call targeted taxes aimed at special groups with in the population like higher deductibles for medicare users at the low end of the income scale for example, special luxury taxes on furs and fancy cars for the wealthiest class of the population as well as capital gains. We have a noted tax expert from Price Waterhouse, George Barbee to join us in the studio and apply the check list to a number of different situations. Mr. Barbee any opening observations.

MR. BARBEE: The only observation would be that this tax legislation has been formed at the very last minute and is going to effect the poor people the least, in fact they might get a slight benefit from it. The middle income folks some up some down. May be it is a wash. And they are going to nick the wealthier people.

MR. SOLMAN: Nick the wealthy. Well Mr. barbee let's give you a few profiles and see how it plays out. Our first tax payer happens to be my grandmother affectionately known in the family as Gran Ma Barbee. She is in St. Petersburg, Florida, she is on medicare and her income is about average for people on Medicare $14,000 a year. How are her income tax and medicare payroll tax effected by this.

MR. BARBEE: Her income tax will probably not be effected adversely. As a matter of fact she might even get some slight additional earned income tax credit. So she is going to be one of the few winners. As far as her medical payroll tax it will probably be unaffected by that.

MR. SOLMAN: That is because it is a flat tax on her income already and it is only going to effect higher people?

MR. BARBEE: That is right higher levels.

MR. SOLMAN: Next are sin taxes and my grandmothers only vice is a glass or two or three chardenay to pick her up when medical problems have her down. What about those?

MR. BARBEE: If she is on the high side of three she may face about $20 a year. A couple bucks a month, maybe $20 a year.

MR. SOLMAN: On the wine.

MR. BARBEE: On the wine.

MR. SOLMAN: Okay she doesn't drive any more so no gas taxes but she is on medicare. Now any impact here?

MR. BARBEE: In the medicare area she is going to face an increase on her deductibility by $25 a I believe here premium will be up by approximately $25 to $30.

MR. SOLMAN: That is a targeted tax. That will effect her.

MR. BARBEE: It is going to single her out.

MR. SOLMAN: Okay so let's look at the check list. No changes in income. no change in medicare payroll tax, sin taxes like the chardaney habit will cost her about $20 you say, gasoline doesn't apply and in the tax targeted to medicare users like her between the increase in deductible and premium she seems to be paying about $45.

MR. BARBEE: That is right.

MR. SOLMAN: So household number 2 is the New Jersey wing of the family. That is my favorite niece Denice over there. She is an artist and her husband bud is a shop teacher. They earn about $50,000 a year and this is a pretty typical family because most households in our audience and the U.S. in general earn between $20 and $60 thousand a year. So what is the story on them income tax medicare payroll tax first.

MR. BARBEE: They are pretty much unscathed on both. At $50,000 they will not have an increase on their tax rate there. Actually it will be 28 percent and the medicare payroll tax doesn't effect them in any greater amount than it has previously because it doesn't kick in until just over that $50,000 increase.

MR. SOLMAN: That ceiling starts at $51,000 not here. Alright sin taxes Bud and his buddies down about a case bear every week. They are big football fans. Is the new bill going to throw them for a loss?

MR. BARBEE: They are going to get hit on the beer. It is not too bad may be about $30 a year.

MR. SOLMAN: So $30 a year on a case a week. Gasoline they own an old 1981 Chevy Camaro it gets about 16 miles to a gallon. How much of the income is going in to this for guzzling?

MR. BARBEE: The gas tax is increasing 5 cents and if we figure that at a 1000 gallons a year it is going to be about $50 plus or minus.

MR. SOLMAN: Alright any targeted taxes for these people?

MR. BARBEE: I don't think so. They have escaped the targeted taxes by and large.

MR. SOLMAN: So on our check list Denise and Bud income tax no change, payroll taxes no change, sin taxes about $40 for beer and gasoline about $50 and no targeted taxes right.

MR. BARBEE: Right.

MR. SOLMAN: Alright household number three and they are in Dodge City Kansas it is my dear older brother Brett. One time being a Maverick of the family who has straightened out and with his wife and one kid they earn about a $100,000 a year. Income and Medicare taxes for Brett and his family.

MR. BARBEE: On the surface there is sort of a good news bad news situation here. On the surface their tax rate is going to go down from 33 percent. These are the bubble people. Down to 31 percent. So on the surface that looks pretty good. But then they get the whammy on the medicare payroll deduction and the difference between $50,000 and $100,000. all the way up to a $125,000 that will be taxed at a 1.45 percent increased rate. So that is going to just about wash out the difference.

MR. SOLMAN: In other words more of their income is going to be taxed for that medicare income but they get a break on income tax. It is a wash?

MR. BARBEE: It's a wash.

MR. SOLMAN: Okay, Well sin tax is there they are still smoking about a pack a day. What is that going to do to them.

MR. BARBEE: A pack a day times the two of them I think that is around $30 a year.

MR. SOLMAN: And they drive a Honda Accord not a gas guzzler like the younger kids.

MR. BARBEE: Maybe $30 a year.

MR. SOLMAN: Finally as I said they are stuck in Dodge City. Grandma is in Florida a lot of airline trips between them. What is the factor?

MR. BARBEE: There is a small increase in the airline something in the neighborhood of $20 a year. Not a killer.

MR. SOLMAN: So the run down for Brett's household as lower income tax bite but higher medicare just about cancels it out. They will pay more for their sins. Their gas bill will rise only $30 a year and trips to see Grandma about $20 a year. Is that it.

MR. BARBEE: That is it.

MR. SOLMAN: So far it looks as though that people's over all taxes are not going up much and I don't get it because where is the new money supposed to come from.

MR. BARBEE: Well we are just getting to this interesting group that is over a $100.000. When you get over a $100,000 several important things start happening. One is one's deductions start to be phased out. 3 percent of the income over a $100,000. So for example some one making a $150,000 three percent of that difference is $4500 and that $4500 times the tax rate is about $1500 they will loose in deductions.

MR. SOLMAN: So those are itemized deductions that Brett can no longer take.

MR. BARBEE: If he actually writes the deductions he loses $1500 of what they add up to.

MR. SOLMAN: And what about exemptions for a big family. Say Brett has only got three people in his?

MR. BARBEE: The bigger the family after a family gets to an adjusted gross income of a $150,000 you start to phase out the exemptions.

MR. SOLMAN: So you don't get credit for the fact that you have more people in your family?

MR. BARBEE: You start to lose and that gets to be very significant for larger families. Let's say a family of four or six might lose two or three percentage points on their effective tax rate.

MR. SOLMAN: So these people are really getting socked. Now we have here the real sockie I guess. Household number four. It is in Highland Park, Illinois. It is the great success story of our family Uncle Sol who takes a million dollars a year out of the small textile specialty business that he has built. What is the tab, income, medicare for Uncle Sol.

MR. BARBEE: Uncle Sol is going from the 28 percent bracket up to 31 percent. He is going to get hit and if you look at this in aggregate this group is going to increase its taxes about 6 percent a year over all from let's say a $100,000 to a million. But the those in the higher income may be going up 12 to 15 percent in their taxes.

MR. SOLMAN: When you say this group you mean people a $100,000 plus to a million?

MR. BARBEE: To over a million. But as a group 6 percent but those on the higher income level their increase is about 12 to 15 percent.

MR. SOLMAN: Sin taxes his doctor does not let him smoke or drink. He gets around in the company limo so no taxes on gasoline. But isn't he in for some heavy targeted. He has a painting that he bought in the 70s when he sold a piece of the business. He is now thinking of using the proceeds to buy a jet, a fancy car, a really nice boat and a sable fur for his secretary. What are his damages there?

MR. BARBEE: Good news for Uncle Sol is that he looks at capital gains being caped at 28 percent. He might want to consider selling that next year and have the advantage of the lower capital gains rate.

MR. SOLMAN: Good news the Van Gogh cost him very little in the 70s. So he should sell that next year?

MR. BARBEE: Unless there is some very important reason to sell this year he might want to delay that for a year. With the respect to the others he represents several areas that were singled out. I think that you mentioned a fur coat, jewelry and an airplane and a boat. These are all set to a luxury tax above certain limits to 10 percent. In the case of jewelry and furs it is $10,000. It doesn't affect most of us but it does affect Sol and I believe in the airplane it is over $250,000 and the boat is over a $100,000. So if he can think a little smaller he may not have to pay that but if he goes for the big stuff he is going to pay ten percent on the difference above those limits.

MR. SOLMAN: On the car?

MR. BARBEE: The car is $30,000. If he looks at something around $50,000 he might be looking at another couple of thousand dollars.

MR. SOLMAN: So our final check list uncle sol pays more in income tax, more in payroll tax, no sin taxes at the moment at least. Takes a big hit at targeted taxes. So this means that guys like Uncle Sol are bearing the burden on the tax bill. Is that right?

MR. BARBEE: That is the way that is was designed and that is the way that it looks like it is being carried out. Once it all gets signed and goes in to legislation.

MR. SOLMAN: One last thing Mr. Barbee how are tax accountants going to fare under the new bill.

MR. BARBEE: Tax accountants are somewhat protected by this bill because it is very complex as you get above $100,000. These people have very difficult situations and chances are they will look for some help.

MR. LEHRER: Now to the logical next question yes but is it good for the Country. We go now to three economists who specialize in such answers. Herb Stein Senior Fellow at the American Enterprise Institute. Chairman of the President's Council of Economic Advisors under President Nixon. William Niskanen, Chairman of the Cato Institute , Chairman of the Council of Economic Advisors under President Reagan and Jeff Faux President of the Economic Policy Institute. He joins us tonight from Public Station KLDX in Las Vegas. mr. Stein is this final package a good thing for this country economically?

MR. STEIN: I think it is. Of course, you have to say compared to what. But compared to what we might have had or to no package it is as good thing for the Country. I think basically as I look at the country our big problem is that we consume to much. We consume too much both publicly and privately and don't spend enough on investment, education, preventing crime and drugs and such things and this whole package adds in my mind as having a step toward reducing consumption mainly private consumption by taxing people more and giving them fewer benefits.

MR. LEHRER: What about the deficit part of that. That was the whole point of the exercise. Do it do that much? Does it send the right message if nothing else?

MR. STEIN: I think that it sends some message. I think that it does a little bit. I look at the deficit problem as a problem of limiting the expense which the federal government absorbs savings that would otherwise be privately invested. That is why we should be interested in the deficit and in that sense reducing the deficit, reducing the effective deficit especially after a few years it makes a marginal contribution to that problem and in solving that problem. That will make a marginal solution to increasing the rate of growth. It is not a big deal it is not going to make the difference between growth and no growth and between a recession and no recession but basically it is in the right direction in my opinion.

MR. LEHRER: No big deal but in the right direction Mr. Niskanen?

MR. NISKANEN: No this budget is an economic mistake a political disaster?

MR. LEHRER: Other than that what do you think about it. Why is it an economic mistake?

MR. NISKANEN: The economy is weak right now and will be hit this fall with three big hits. The oil price increase will cost us about a 1/2 percent of GNP. Clean air act will cost us about the same amount and this new tax bill will cost us an additional 1/2 percent. Those are three big hits on the economy in a weak economy.

MR. LEHRER: But if you go with Solman and Company just now the people that are paying the taxes are the people who make the most money. Define us here?

MR. NISKANEN: Us is the American people all of whom will pay more taxes of some form. Those taxes themselves will be a drag on economic growth. In addition to all these other hits that we have already been hit with.

MR. LEHRER: You disagree then with Mr. Stein that it is a good thing because it will begin to help restrain the consuming American?

MR. NISKANEN: The consuming American is the working American and he works in part to consume. And that will reduce his incentives to work and improve his well being.

MR. LEHRER: Mr. Faux what is you general view of what happened?

MR. FAUX: Well I think there are two positive and one negative here. The positive are on the tax side. Clearly this has made the tax system more progressive, more fair. I think that it is quite proper that those in the upper income brackets pay more taxes since they are getting more out of the economy. I think the other plus that this agonizing process of the debate over the budget has educated the American people to some degree in the problems that we have got. We've got a big debt to pay off. I think that the people have began to understand the problems of Reaganomics. The failure to develop enough healthy growth in order to pay for the fiscal needs of the country. Those are the two positive. I think thenegative is that it has done nothing to deal with the third big deficit problem and that is the deficit in public investment that the country has. We don't put in enough of our resources in to education, into training, in to transportation, civilian research and development. That is a chronic and long term problem for this country. The problem with the deficit is only in part in size. The other part of the deficit is the composition of spending over the past 10 years. If we would put the money that we borrowed in to these public investments, into education and training and so forth we would be in a lot stronger position today. One of the problems with this budget deal is that it locks in the domestic and military spending over the next three years. That means that it is going to be much more difficult if not impossible under current restrictions to shift money from the military to the domestic side.

MR. LEHRER: In other words there was no major shift in priorities. Is that what you are saying?

MR. FAUX: There was a slight shift. Clearly we cut back in defense a bit. But given the fact that the Soviet Union is a military basket case there is certainly a lot more there that we could cut and shift in to these critical need areas.

MR. LEHRER: Yes Mr. Stein.

MR. STEIN: No I think that is the wrong answer. I think there was a shift in priorities. I think the shift in priorities was to reduce the total part of the national income that goes to consumption. That is what we are doing by increasing these taxes and by increasing the medicare fees and reducing the subsides to agriculture and a few other things. So that is an important priority shift because our main error in priorities up to this point has been that we consume to much and these other problems are still on the table. It is still up to the Government and the Congress to decide how much of its spending it wants to go on such things that Mr, Faux talks about and how much it wants to go to other purpose and as far as our limiting our ability to use the defense program as a kind of bottomless purse in which we can always suck another 10 or 20 billion dollars to put in some civilian program I think that is great. I don't like the idea of regarding the defense program as that kind of endless resource.

MR. LEHRER: Mr. Niskanen what do you think of Mr. Faux's point that Reaganomics is over and over for a while if not forever?

MR. NISKANEN: The budget doesn't change priorities very much but it does start to move away from the principles that led to the tax reform of 1986. Establishes four or five different taxes that have not been thought out.

MR. LEHRER: Like what?

MR. NISKANEN: Well we have split the earnings base for medicare from the earnings base from Social Security for the first time. For the first time we are committing a substantial part of the gas tax to the general revenues. For the first time we have these rather strange status goods taxes. On the goods that cost over a certain price. We are saying that we are not increasing marginal tax rates but in fact we are doing it in a number of different ways. Now I agree with Mr. Faux that this does not represent a significant shift in priorities. There has been no substantial change in defense. Little changes in medicare, little changes in agriculture. Odds and ends kind of taxes. I think that is an act of desperation and I think that it is an excuse for thinking what ought to be done with the budget.

MR. LEHRER: An act of desperation. What was the desperation? In other words did they have to pass something to get outof town?

MR. NISKANEN: They had to do something and they had to have something to show. The package that was approved this weekend in my sense is worse than the package that House defeated three weeks ago. Conviction that I predicted at the time. Bush went in this year with two aces in his hand. He gave both of them away and he ended up with a busted flush.

MR. LEHRER: Go head Mr. Stein?

MR. STEIN: I agree that the final outcome was worse than the package that was presented to the House a few weeks ago but I think the source of this problem goes back a long way and Mr. Reagan and Mr. Bush are responsible for it. Drawing all these lines in the sand. No new taxes, the idea that Social Security is untouchable, medicare is untouchable. That all created a system for a basis for a train wreck that we are leading here and I think one of the great things that has happened is that we have broken through some of these arbitrary limits. I think it is a great thing in my opinion that taxes are now on the table. It is now a discusable subject as it should be in any democracy. I think that we are beginning to see that entitlement such as Social Security and medicare are now on the table and we may I hope begin to think about why we do have this particular path that we have for the size of the budget deficit. So I think that we have liberated the discussion of budget policy to a considerable degree. Not as a result of any high degree of rationalization in the Congress or any where else in Washington but because an unsustainable position had been reached.

MR. LEHRER: That was your point earlier, was it not, Mr. Faux, that one of the good things that came out of this was at least the debate was joined in a new way, is that right, and that you think the American public now understands what the real choices are?

JEFF FAUX, Economist: Yes. Well, I don't know if they understand what the real choices are. That really depends on how the debate unfolds, but I'm very clear that this budget deficit deal and the tax part of it, which I think by the way was better than the original compromise, I think that this has made the point that fairness is an important issue and we've come to grips with it. Yes, it's been months in struggling and agonizing. I think that's good. I think finally the Congress of the United States and to some degree the White House off and on, finally we're addressing real questions. I think now, now that we've got the fairness issue on the table, I think that we have to look at the other side of the economic policy coin and that is growth. One of the lessons over the last 10 years is that the idea of growth that we've been pursuing, the notion that it is solely the function,j the result of what a private investor does, and the market takes care of everything, we've tested that proposition. And I think now the Congress and the American people are coming to the conclusion that that doesn't quite work.

MR. LEHRER: Excuse me. I just wanted to let Mr. Niskanen come back on that.

MR. FAUX: Let me finish the point.

MR. LEHRER: All right.

MR. FAUX: Because that is one notion of growth, but it's a different notion than the strategy that the United States pursued for most of its development, which is public investment and private investment working together. We have starved public investment over the last 10 years and now it's time to treat it.

MR. LEHRER: Mr. Niskanen, do you agree that the judgment is in now on Reaganomics, I mean, the policy that you helped implement, that it did not work and that it did not help the country grow?

WILLIAM NISKANEN, Economist: The rate of growth of productivity in the '80s was twice that in the period from '73 to '79. That helped the economy grow. That was a major part of the economic growth during the 1980s.

MR. LEHRER: But you don't believe that this budget -- in other words, you don't agree with Mr. Faux, or you don't agree with Mr. Stein either, that some real, some decisions have been made by the politicians if not by the people that they want to go in a different direction?

MR. NISKANEN: That is correct, but that doesn't mean that the ideas behind Reaganomics are over and that they will not be revived by other people in a different forum. I think that the basic ideas of promoting economic growth have not been challenged by this.

MR. LEHRER: What as just a practical matter, Mr. Stein's point, that he says, you know, at least the people, the politicians will quit drawing these arbitrary silly pieces of, what did you say --

MR. STEIN: Lines in the sand.

MR. LEHRER: -- lines in the sand, and that when economics is now talked about, everything will be on the table and it will be an honest discussion.

MR. NISKANEN: I wouldn't want everything on the table. I wouldn't want the Constitution to be subject to a majority rule vote for example. Mr. Bush's no tax pledge was the most important thing he said in the 1988 campaign. It was the reason for a substantial part of his vote. It was the glue that held the Republican party together, and when politicians, leading politicians go back on pledges that are that firm and that well understood, they have crossed the American people.

MR. LEHRER: Mr. Stein.

MR. STEIN: I think that was an act of responsibility for him finally to give up that pledge. It was a silly pledge, as a matter of fact. Although Mr. Reagan lived by the principal that he was against taxes, in every year after 1981, he had a big tax increase. He was clever enough to be the champion of no tax increase and yet have one every year. Mr. Bush didn't figure that out and I think we really needed a tax increase or at least we needed to think about the tax increase. I would like to say something about this fairness issue though. I think the fairness issue is now on the table, but I don't think that it is now determined that the fairness requires more and more progressivity. I think with this present situation is that people who are opposed to more progressivity are now challenged to explain why they are. Up to now, they have hidden behind the facade that we're not just against taxes on the rich; we're against taxes on anybody. Well, you can't be like that anymore. You have to decide who you want to tax, and if you don't want to tax the rich, you have to put up some good reasons.

MR. LEHRER: Mr. Faux, a quick word, you wanted to --

MR. FAUX: Yes. Well, I certainly think that both fairness and growth are on the table. I think the Democrats have succeeded finally in bringing fairness up. Now the question is how do we grow.

MR. LEHRER: I hear you.

MR. FAUX: I think clearly the lesson is clearly Reaganomics has not provided the growth that we need and now we have to look elsewhere.

MR. LEHRER: All right, gentlemen, thank you very much.

MR. MacNeil: Still ahead on the NewsHour, turning the unemployed into businessmen, and a conversation with William F. Buckley. FOCUS - SEED MONEY

MR. MacNeil: Next we look at one state's novel solution to the unemployment problem. The State of Washington is offering thousands of dollars in SEED money to unemployed people who want to start their own businesses. It's an experiment that has attracted national attention as Lee Hochberg of public station KCTS-Seattle reports.

MR. HOCHBERG: His name is Marvin Mills, but the workers on this loading dock in Vancouver, Washington, call him Cecil B. D. Mills, the movie maker. Only a few months ago, Mills was an unemployed pipe fitter who liked dabbling with a home movie camera, but he's one of 300 Washington State residents who instead of receiving weekly unemployment checks elected to received a lump sum of $4,000 to start a new business. Mills opened See First Video, his own video production company.

MARVIN MILLS: There was never a time in my life where I didn't think that I would own my own business one of these days. I was never sure of what it was going to be or when it was going to be, but I knew that eventually I would own my own business. This is something I love to do. I wake up in the morning and I'm excited about being able to go out and make videos.

MR. HOCHBERG: Mills' eight month old business isn't making him rich, but he says it is paying his bills. His and other entrepreneurial success stories have convinced Washington State officials that they have found a way to give unemployed people a better chance to succeed and spawn some new companies in the process. [BUSINESS SEMINAR]

MR. HOCHBERG: About 44,000 unemployed people in Washington State were randomly invited to participate in the experiment. About 5 percent showed interest in running a business. That's about the same percentage as in the general population. They came to classes like this where they got four days of training in business basics and shared some business ideas with trainer Bob Rodwell.

BOB RODWELL: [Talking to Class] It might be that after you've got going in the program you decide that going into business is not for you. I told you about the fellah that came in and he wanted to buy an island. He was going to raise a million and a half dollars and buy an island and build a hotel. Well, he's changed his mind. He's going to open a delicatessen now.

MR. HOCHBERG: Seventy year old Annie Mae Lawley who had been laid off as a nursing assistant in Seattle visualized opening up her own maid service.

ANNIE MAE LAWLEY: We do good work. If you do your work good, they're going to keep you because they know you and they have nothing to worry about.

MR. HOCHBERG: Participants like Mills get 10 weeks to develop a business plan that program trainers think can succeed. When they do, they receive a lump sum payment equal to all of the money left in their unemployment account, more than $7,000 in some cases, to start their business. Administrator Judy Johnson says 35 percent of the people who tried have received SEED money. It's the first time the option of entrepreneurship has been included in unemployment benefits.

JUDY JOHNSON, SEED Program Manager: The current unemployment insurance program does not allow people to be self-employed. Under the current program you must be out looking for a job and be willing to accept work to be eligible for your unemployment benefits. Under the SEED program as this test we're conducting, we're seeing if there makes a difference if they can create their own job and maintain their own self-sufficiency.

DIXIE GANTKA: She's going to have a little scooped collar and a little short dress with short sleeves and lace every place you can put it. The more lace on a doll the better.

MR. HOCHBERG: The experiment allowed 52 year old Dixie Gantka to live out a life long dream. Gantka was laid off from her secretarial job a year ago. Instead of hustling for another job, she drew up plans to start manufacturing exquisite China-like dolls in her Vancouver home. Now she's president of the Doll Company.

MS. GANTKA: I make dolls and cook with the same utensils. I wash them in-between though.

MR. HOCHBERG: Gantka is producing about a dozen dolls a month now, selling from 40 to $150 apiece at doll shows in a local candy store. Sales are generating an income of about $500 a month, enough for her to get by on, she says.

DIXIE GANTKA: This just keeps building and building, and my income is going up. And I just, I'm having too good a time. I will do everything under my power to see that I do not have to go back to work in a secretarial capacity and I think I can make it work.

MR. HOCHBERG: Despite stories like this, a powerful coalition of unlikely bedfellows is trying to put SEED out of business. Labor groups and business groups both say it's fine to start new businesses, but the plan to pay for those businesses with the unemployment insurance fund is a gross distortion of how those funds are supposed to be used.

MR. KENNEY: Now if you're going to start these new businesses, you don't start them with somebody's unemployment check.

MR. HOCHBERG: The AFL-CIO's Larry Kenney notes that SEED entrepreneurs get far more money than the average unemployment recipient would. Many unemployed people find a job after 14 weeks, but SEED grants can be equal to 30 weeks worth of money. Furthermore, Kenney says that's not enough money to start a successful company with anyway.

MR. KENNEY: You're not talking about enough money to start any kind of substantial business. If you're talking about starting a bunch of under capitalized businesses, you're wasting money.

MR. HOCHBERG: Pro business lobbyists like UBA fear just the opposite is true, that a national SEED program funded by a tax on business would create new business competitors.

ELDRED HILL, Business Lobbyist: It will be the person who worked in the cafe will want to start his own cafe. The guy that worked as a plumber will want to start his own plumbing business. So you are forcing his employer, his previous employer, to subsidize the creation of new competition for him.

KATHY COUNTRYMAN, SEED Program Director: We haven't seen very much evidence of an urge to go into direct competition with their former employers. We've seen evidence of people living their dreams.

MR. HOCHBERG: The state's Kathy Countryman cites a Small Business Administration study that says more than half of American businesses start with less than $5,000. She acknowledges though that of the first SEED recipients, 9 percent were out of business two months after getting their grant, effectively wasting the SEED money. Critics say some of those people planned all along to take the money, then fold their business and run. But Countryman discounts that idea.

MS. COUNTRYMAN: There are much easier ways to make money than to attend classes and develop business plans and get very serious about a business.

MR. HOCHBERG: She says the true gage of the program will be how many of the new entrepreneurs are able to shepherd their businesses into a second or third year. The union's Kenney predicts few of them will.

LARRY KENNEY, AFL-CIO: You're not going to teach somebody to be a good manager in 10 weeks. People go to graduate school. People get four years of college plus two years of graduate school and get their MBA and run a business into the ground. No corporation is going to hire somebody with 10 weeks training and say, okay, you're a manager. [INFORMATION PARTICIPANT LISTENING TO TAPED INSTRUCTION]

MR. HOCHBERG: As if to underscore the risk of spending money this way, Annie May Lawley three weeks into planning her maid service was forced to rethink her business venture.

ANNIE MAE LAWLEY: I woke up one morning and I had a pain in my leg. And I had to go to the doctor and the doctor said my back was shot, so he said to me, you're in the wrong profession, you're going to have to change to something else. [

MS. LAWLEY LISTENING TO TAPED INSTRUCTION]

MR. HOCHBERG: Lawley thought she'd found a better business for her, providing household tips and child care remedies by phone on a 900 phone number. In the end, she was unable to get this business on track either within the required 10 weeks. She never received a SEED check and she's working a part-time job now, but she says if she can, she'll try again later.

ANNIE MAE LAWLEY: I always worked for somebody else and now I want to work for me. I would like to work for Annie Mae. [FORMER PROGRAM PARTICIPANT ON PHONE ARRANGING APPOINTMENT]

MR. HOCHBERG: State leaders will chart business successes and failures through 1992. If the results look good, they'll try to convince the federal government that unemployed people nationwide should have the same unique chance to carve out a new future. SERIES - FOR THE PEOPLE?

MR. MacNeil: Finally tonight another in our series of conversations on what ails the American government. Our guest is William F. Buckley, Jr., who has been called both the founder of modern American conservatism and its patron saint. He is now editor at large of the National Review, the magazine he started, and host of the program Firing Line, now on CNN. Mr. Buckley is also a novelist, sailor, musician, and author of a new book entitled "Gratitude, Reflections on What We Owe to Our Country". Mr. Buckley, thank you for joining us.

MR. BUCKLEY: Nice to be here.

MR. MacNeil: The budget agreement, should Americans be applauding tonight and saying, hey, the system really works after all, or saying the system is in trouble despite that agreement?

WILLIAM F. BUCKLEY, JR., National Review: Well, I think manifestly the system is in trouble when you get George Bush looking at you, you say any one of us could have written a better bill, vote for it, you say, well, can he be serious, if any one of us could have written a bill, why vote for it, it's just a boom, boom, who can do better, than oughtn't we to ask for an improvement. What I dislike mostly about this particular bill is philosophical more than economic. It presupposes that any time you want to you can take away something from somebody simply because that person has reached a high level of productivity. I think that Hyac was right and in a sense Bill was right in suggesting that the progressive feature of the income tax is the most dangerous element in democracy. It's too easy to become rhetorical about, too easy to punish success, and if you punish success not only are you deserting the whole idea of equal treatment under the law, but you are encouraging disincentives and severe economic consequence.

MR. MacNeil: And yet this is being wildly applauded, as progressivity always has been by the other side philosophically as fairness, as a welcome return to fairness.

MR. BUCKLEY: The identical people who are associated with this bill show so much enthusiasm for the bill they so anxiously want to be a part of the repealing. Panetta voted for the '86 Act, Kennedy voted for it, Foley voted for it. All those people voted for it and Rostenkowski voted for it; he was its patron saint. Now all of a sudden they're saying, well, the most terrible thing happened back in 1986. Well, they were the architects of that Act. It's too easy to say that fairness implies taxing you more than me or visa versa. I say we ought to be taxed the same and if you do better than I do, you are paying more taxes anyway, because you're paying a percentage of your income. To say to somebody because you drive your taxi 70 hours we're going to nick you at a higher rate than a man who drives his taxi cab 40 hours a week is philosophic mayhem.

MR. MacNeil: Let's not argue the tax bill all over again, we've had endless programs on it, but come back to the system, Mr. Buckley. What is wrong with the system, in your view?

MR. BUCKLEY: What's wrong with the system, it seems to me, is that we've lost the idea of the Commonweal. John Stuart Mill, who wanted everybody to have the vote, and said of course, I wouldn't give it to anybody who voted only for his own interest, and yet, everywhere we go nowadays we are accosted by politicians who want to define particular interests and say we'll give you that. The idea of democracy is to vote for what will help the whole republic, and this is fast disappearing from sight I think because we don't have enough unifying experiences, which is why in this book that you've mentioned I come out in favor of national service. The notion that you can go through life in America without any act of gratitude for what you've inherited strikes me as both wrong and highly damaging. If we ask ourselves at age 17 or 18 how come I'm enjoying a bit of constitutional liberties, somebody fought to give them to me, I can't repay in kind because I'm not here as a social architect, but I can do something. That something may be helping old ladies or helping old men or helping children learn how to read, helping security of school, helping to preserve the books of the Library of Congress, but that would be a kind of unifying experience on the basis of which you stop thinking exclusively of yourself.

MR. MacNeil: But you want that idea to be voluntary. If there is -- what would be the incentive to do it -- if there is voluntary national service, why wouldn't privileged kids, young people with good educations, with great prospects before them, simply leave that to other people, as they leave military service now and go on doing their own thing?

MR. BUCKLEY: Honor. What is your incentive to look after your mother? That might strike you as an embarrassing question, but it seems to me that the pressures that one feels to look after one's mother can graduate or revolutionize into a feeling of looking after your community. Ninety million American people right now spend over two hours per week in philanthropic work so the impulse is there. The first people in my judgment who would suffer from neglect, who would become ostentatiously second class citizens would be the bright, rich people, because they couldn't bear the ignominy of doing that. So I should think that they would be very quickly on that band wagon in which ideally we'd have them, a great majority of American youth five or six years from now.

MR. MacNeil: Your idea, although it has its own variations, isn't original.

MR. BUCKLEY: Of course.

MR. MacNeil: Various people, Senator Nunn has recently and others have proposed it in the Congress, and it hasn't gone anywhere. It has no political steam behind it at all. Why do you think very few people are interested in it?

MR. BUCKLEY: I think in part we are suffering from the fallout of what we are suffering from. That is to say to the extent that we are encouraged not to think of the community, we tend not to do so, but I think the fires are very definitely there. The Americans are by nature idealistic people. 78 percent of the American people believe in national service, but if you add a 5 percent surcharge to taxes, that reduces it to 44 percent. So it may be skin deep, still these thousand points of light actually exist and 23 million people donate more than five hours of their work per week. So what we need is to mobilize the idea. I think it would kill it to make it compulsory because that idealistic element in it which gives it a special fascination tends to envision an aristocracy to which everyone is invited. I see America as a place that would have then first and second class citizens. First class citizens are people who do something for their country, express their gratitude for their country. Second class citizens are people who don't. And I think an array of inducements is properly used to launch such an experiment.

MR. MacNeil: Doesn't it make you uncomfortable to be sounding like John Kennedy?

MR. BUCKLEY: Well, not to the extent that John Kennedy is correct. You remember that a year after he made that famous statement, he was everywhere marked for having come up with all kinds of things the country can do for you. If you can remember anything other than the Peace Corps that he came up with, the other way around, I invite you to recall it.

MR. MacNeil: Let's come back -- since we don't have that much time -- that's come back to your notion that the Commonweal, the sense of the Commonweal has been lost, which I assume you mean the common good. How was it lost? Who killed it?

MR. BUCKLEY: What killed it is special interest politicians, people who appeal to you to vote for that which is instantly visible to you as attractive. In the case of tobacco farmers, North Carolina, tobacco subsidies, in the case of many big businessmen protectionism, in the case of labor unions, protection against the Sherman Act. All down the line you see people asking you as a voter to think in terms of your narrow self- interest. This was unthinkable a hundred years ago.

MR. MacNeil: How do you undo that when so many people have a stake in keeping it as it is?

MR. BUCKLEY: I think you do that by deserting the superstition that the more people who vote the better off you are. Voting is a civic sacrament, and just as it's obscene, in fact, it's profane to go to a Christian church and receive the sacraments, without preconditioning yourself and thinking about your sinfulness, I think it's wrong to go to the poll simply casually without thinking about the issues. We've got a real problem here. According to Sen. Bradley, 1/3 of the people who are freshmen in colleges in Texas don't know the name of the country South of the border. Well, if they don't that, they really oughtn't to vote. So I think people say don't vote unless you've thought about the issues and think about them all.

MR. MacNeil: Many people as you know, it's popularly supposed that one of the things that's greatly wrong with the system is that far too few people are voting and that many people who have but don't recognize a stake in this system are staying out of it, and that that is responsible.

MR. BUCKLEY: Why do you want dumb votes? If people don't vote, it means either they're satisfied with the way things are, they don't care -- or they're too ignorant. And I'm much more afraid of the people who go to the polls because they want to push a candidate who promises tokeep the Brooklyn Navy Yard open, for instance. Bobbie Kennedy went down there with a speech which included, what's more, we've got to follow the recommendations of this commission, close the Brooklyn -- when he came to that, he simply didn't read it because of the special interest factor. Now the only way in which you can get a general reform is by pointing to conspicuous offenders and say, just, don't do that, this is a mockery of democracy, the notion that you should ask simply for special interest voting rather than ask directly that you consider the nation as a whole and move in that direction.

MR. MacNeil: Well, Mr. Buckley, thank you very much for joining us.

MR. BUCKLEY: You're very welcome, any time. RECAP

MR. LEHRER: Again the major stories of this Monday, the United Nations Security Council approved a resolution holding Iraq responsible for war damages in the Gulf, President Bush repeated his willingness to use military force against Iraq, while Soviet President Gorbachev said in France a military solution to the Gulf crisis was unacceptable. Good night, Robin.

MR. MacNeil: Good night, Jim. We'll be back tomorrow night with a look at the only abortion argument the Supreme Court will hear this year. I'm Robert MacNeil. Good night.