The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Thursday, there were more confusing signals over taxes between President Bush and Congress. Britain warned Iraq it could face military action if it doesn't withdraw from Kuwait. Mexican writer Octavio Paz was awarded the Nobel Prize for literature. Jim.

MR. LEHRER: The latest in the budget and taxes free for all is our principal business on the Newshour tonight [FOCUS - TAXING TIMES]. We will go right to it with Representatives Leon Panetta, Vin Weber, Barbara Boxer, Bill Frenzel and Sen. Bill Armstrong. Then we launch a series of conversations [SERIES - FOR THE PEOPLE?] about what this budget crisis is saying about the Washington form of government with Columnist William Safire of the New York Times. NEWS SUMMARY

MR. LEHRER: It was another day of clarifications and new positions in the Washington budget crisis. Pres. Bush and various members of Congress talked again about where they stood on the issues of income and capital gains taxes. We'll have that story right after the News Summary. Robin.

MR. MacNeil: In other news today there were more Palestinian demonstrations in Jerusalem to protest Monday's killings by Israeli police. We have a report narrated by Richard Vaughn of Worldwide Television News.

MR. VAUGHN: After a two day general strike, Palestinians returned to the streets of Jerusalem to shout their anger over Monday's shootings. They chanted calls for the world to listen to them and warned that they would never be defeated. Despite the tragic violence this week in an area sacred to both Jews and Muslims, neither Palestinian demonstrators nor Israeli police were prepared to back down. Violence erupted as the path to Temple Mount, scene of Monday's shootings, was blocked by police. While other demonstrations in the city ended peacefully, the crowds here were dispersed among clouds of tear gas.

MR. MacNeil: Leaders of the PLO began a two day meeting in Tunis today. According to Egyptian news reports, they will urge Arab nations to withdraw from the U.S.-led multi-national force in the Gulf to protest the killings in Jerusalem.

MR. LEHRER: The British foreign secretary said today, Saddam Hussein must be given an ultimatum, get out of Kuwait soon or face a military attack. He spoke at a convention of the ruling Conservative Party.

DOUGLAS HURD, Foreign Secretary, Great Britain: There can be no compromise, no messing about, with these requirements. They are not a bargaining position. They are not negotiable. They have to be met in full. Day by day, we must build in the minds of the Iraqis, not the chance, not the possibility, not even the probability, the certainty that they have to leave Kuwait. If they will go peacefully, so much the better. If it needs force, so be it.

MR. LEHRER: U.S. Defense Sec. Cheney will go on a 10 day briefing mission next week to Britain, France, and the Soviet Union. The Pentagon announcement said he will confer with his defense counterparts in those countries about the Gulf situation. The U.S. Air Force grounded its planes in the Gulf for a day. The flying stand-down, as it is called, was in effect for a 24 hour period which ended this afternoon. The Pentagon said the time was used to conduct safety awareness meetings with pilots. There were four U.S. military air crashes in the Gulf this week killing 12 Americans. More Westerners were flown out of Iraq today. The U.S.-chartered flight landed in London this morning. There were about 320 people aboard the flight, mostly American women and children. At the State Department in Washington, Spokeswoman Margaret Tutwiler said the Iraqis had made their departure difficult.

MARGARET TUTWILER, State Department: Yesterday morning 10 buses departed Kuwait for a three hour ride to the Basara Airport that turned into a 10 hour ordeal. Instead of taking the direct route to Basara, the 10 buses were redirected by the Iraqis to the Regency Hotel in Kuwait City. Upon arrival, realizing that their destination had been changed, an unknown number of passengers preferred to return to their homes rather than risk what they believed might result in capture, detention or worse, be at the hands of the Iraqis. The remaining passengers were forced out of the buses and into hotel rooms which had been reserved in advance by the Iraqis. There they were interrogated and harassed by Iraqi security forces for three hours at this hotel.

MR. LEHRER: She said at least 12 people who wanted to leave on that flight were detained by the Iraqis.

MR. MacNeil: There was an attack aimed at U.S. servicemen in Bolivia last night. It happened in the capital, La Paz. Leftist guerrillas threw a bomb at the home of three U.S. Marines. The Marines were not hurt, but a Bolivian policeman was killed.

MR. LEHRER: Tropical Storm Marco hit the Florida Gulf Coast this morning. It brought with it 65 mile an hour winds and five inches of rain. It left almost 50,000 people without power and forced many schools to close. The storm began to dissipate this afternoon as it moved North. On Wall Street today, stocks fell for the third straight day. The Dow Jones Average closed down almost 43 points.

MR. MacNeil: There was news today of a setback to the Soviet space program. The Soviet News Agency Tass said an unmanned rocket exploded seconds after liftoff a week ago. No one was hurt. It was the Soviet Union's most advanced rocket for launching satellites into space and was being used to lure foreign customers. Further launches have now been put on hold.

MR. LEHRER: Octavio Paz won the 1990 Nobel Prize for literature. The Nobel Academy in Stockholm, Sweden, cited the 76 year old poet and essayist's political writings which anger both the left and right and his love poetry which they said was both sensuous and visual. Paz was attending an exhibit of Mexican art in New York City today when told of his award. FOCUS - TAXING TIMES

MR. MacNeil: Our principal focus in Washington tonight is on the confusion in Washington over the budget and taxes. It begins with a report from Congressional Correspondent Roger Mudd who takes us through what happened today.

REP. BILL ARCHER, [R] Texas: He is willing to equalize the level, the rate, at 31 percent, which is not an increase in taxes, not an increase in rates, but is a leveling out of the rate so that the highest income people in this country pay what others are paying below them in exchange for a 15 percent capital gains rate. By leveling this out, this will mean that those over $240,000 roughly of adjusted gross income will have a marginal rate increase of 3 percent, but those who are currently today below that inside the bubble will get a rate reduction from 33 percent to 31 percent. So it is, in effect, a leveling out of the rate structure.

MR. MUDD: Less than an hour after Archer spoke, the White House changed direction again. In a written statement about whether he was willing to trade his beloved cut in the capital gains tax for an increase in the income tax, the White House quoted Mr. Bush as saying, "I do not believe such a compromise is now possible. Indeed, I'm quite concerned that pursuing it in the current context may not only fail; it may legitimize something farther to the left that we cannot accept. In any case, I will not tolerate 'bursting the bubble' by raising rates to 33 percent. I believe that would mean far more than just 'taxing the rich'. It would start us back on the path toward higher income tax rates for everyone. I cannot accept that." At almost the same time, Budget Director Richard Darman told the Senate Government Affairs Committee the administration was continuing to resist the push to raise income taxes.

RICHARD DARMAN, Budget Director: He would not sign a bill that increased tax rates to 33 percent, as has been suggested by some, would not sign.

MR. PRYOR: Even with those over $200,000?

MR. DARMAN: I think not. Not because we're not prepared to tax the rich. We are fully prepared to tax the rich and have made several proposals to do so. The problem with raising rates, in our judgment, or at least raising them to 33, is that we do not believe it will end up being just for the rich. If you legitimize moving back towards a higher rate system, we believe it will ultimately result in raising the rates in the middle and so on.

MR. MUDD: Later this afternoon President Bush reiterated the earlier written statement issued by the White House, in effect, going on television to quote himself.

PRES. BUSH: I've spelled out the broad definition of what we need and I've said that on this one question that there's certain flexibility, but I'm not going to vary from the terms that I've just spelled out. If they can get that done, I think it's a waste of time because I just don't think it can get through both Houses of Congress, and that's what's required, both Houses of Congress.

REPORTER: Why don't --

PRES. BUSH: I'm not going to deny House members an opportunity to do something that they think is, they think can be done. That's not my role.

MR. MUDD: And finally late this afternoon House Ways & Means Committee Chairman Dan Rostenkowski unveiled the latest democratic plan. It calls for raising the top income tax rate from 28 to 33 percent. Apparently it does not include a cut in the capital gains tax.

REP. DAN ROSTENKOWSKI, [D] Illinois: We raised the top income tax to 33 percent for the richest segment of our population. It's a very small group, less than 1 percent of us, and that rate is still less than half what it was when I become chairman. We're realists so we realize that we have to work in the vineyard of Middle America, and I think that what we've tried to do is frame a package that will be attractive and that has some value in the tax system to both the middle class and poor.

MR. MUDD: The new Democratic plan also would raise the tax on a gallon of gasoline only 3 cents.

MR. MacNeil: For more on today's budget events we turn to Democrats and Republicans in Congress. Democrat Leon Panetta is Chairman of the House Budget Committee. Congresswomen Barbara Boxer is another California Democrat on the Budget Committee. For the Republican perspective Senator William Armstrong from Colorado is a Member of the Senate Finance and Budget Committees. Congressman Vin Weber sits on the House Appropriations Committee. And Minnesota Republican Bill Frenzel is the ranking Republican on the House Budget Committee and he was present today at both sessions when the President met with Republican Congressman. Starting with you Congressman Frenzel with all this talk there has been over the last couple of days over confusion in the White House position. Is the White House position the President's position now clear to you and yo your fellow Republicans and will you give us your understanding of it?

REP. FRENZEL: My understanding is that it is now clear. The President has indicated that he negotiated as hard as he could for capital gains tax, could not get one on what he thought were good terms. And so he suggests that we are not going to do very well trying to get it other ways. But he says if we are going after it we should know what his bottom line is and that is the 31 percent maximum rate and the 15 percent capital gains rate. I think that is quite clear to all of us.

MR. MacNeil: And what do you think of that?

REP. FRENZEL: I think that the President did negotiate as hard as he could and couldn't make it and I don't think that it is going to occur. On the other hand I think that House Republicans have a very strong affection for capital gains and will probably include it in their alternate package that they will run up against Mr. Rosetenkowski's Plan.

MR. MacNeil: Well we will come back to the President's plan in just a moment. Congressman Weber as a Congressman who voted against the original budget deal what do you think about the President's new position?

REP. WEBER: Well I think that the President has given us a great deal of flexibility and I think that he is basically saying Congress has to show what they can produce. Many of us who opposed the original plan are anxious to work out some kind of a deal. We have a little different assessment of the state of the economy. If I can use a prop for just a moment. This cover of Newsweek shows what my big concern is and that is that real estate prices are falling across the country. Middle class home owners are seeing the value of their primary asset decline, the economy is weakening. We do not think piling a bunch of new taxes on the economy makes any sense whether they are Republican taxes or Democrat taxes. And we think that if you don't do capital gains then you have to do something else to get this economy moving.

MR. MacNeil: Well that does mean that Republicans like you, suppose the Congress came up with a package that met the President's bottom line and raise the top rate of tax to only 31 percent that Republicans like you would vote for that?

REP. WEBER: Bill Archer described a proposal that I personally would vote for because it really is not a tax increase and if you listen carefully to his brilliant explanation of that very complicated thing that we call the bubble he explains why it is not a tax increase. But I want to make clear. Most Republicans do not think that tax increases make any sense in a weak economy.

MR. MacNeil: Senator Armstrong as anti tax increase Senator, yourself, what do you think of the White Houses latest position?

SEN. ARMSTRONG: Well I think that the President has gone out of his way to be flexible, accommodating and forth coming with the Congress and basically the Democratic Leadership in the Congress has basically given him the back of their hand. All year long the President has been encouraged, in fact the Democrats, have demanded that he put taxes on the table. He reluctantly did so. Then they dragged him and his associates kicking and screaming in to a deal and sort of began to criticize him almost ridicule him for agreeing to the tax increases. I think that it is time for the President and frankly for my colleagues in the Congress to realize that this deal has run out of gas. That we ought to be realistic and as Mr. Weber says this is no time in a weak economy with the American economy sliding toward a recession to raise taxes. Not just income taxes but in all the various packages we have around here we are raising the gas tax, tax on various consumer goods, luxury goods, income. It really just doesn't make sense. It defies past experience that we ought to do this at this time. One columnist put it well. He said the idea of warding off a recession with a tax increase makes about as much sense as blood in the water for shark repellant.

MR. MacNeil: Congressman Panetta yesterday there was a lot of confusion on Capitol Hill and some Committees were paralyzed because they said they did not know what he was standing for. Now is his position clear to you?

REP. PANETTA: I have listened to Bill's explanation of the President's position. Bill Archer had an explanation of the President's position. Bob Packwood had an explanation of the President's position. Senator Armstrong has an explanation on what the President's position is. Very frankly I don't think they all meet. That is part of our problem. We have been dealing with a lot of different positions here. If you just listen to the Republicans tonight the problem is that non of them agree as to whether or not taxes ought to be a part of this package even though the President has said yes as part of deficit reduction we have to make taxes part of that. We have been dealing with the President on that basis but very time we deal with him. Every time we try to negotiate an agreement very frankly the Republicans wind up basically disagreeing with each other as to what they agree to and what they don't agree to. At some point they have to get their act together before we can get a package together.

MR. MacNeil: Well whether they have their act together is the President's position clear to you now because of those statements today?

REP. PANETTA: It is not sure because I don't know whether the President is saying that at this point it is up to the Congress or whether he is defining guidelines. If he is saying that it is up to Congress then we can proceed with our reconciliation bill which is the implementation of the budget resolution and hopefully by the time that we arrive to conference we will have a better indication from the White house as to what they will or will not accept as part of a final package. Up to this point I have to tell you that in the last 48 hours I am not sure what their position is.

MR. MacNeil: Congresswomen Boxer do you understand the White House position now as a Democrat?

REP. BOXER: Well I have tried to read the President's lips and then his hips and I still don't come up with anything very coherent. I think that the important thing that I thought we all agreed on is that the best thing that we can do for this economy is to attack the deficit and do it in a bi partisan fashion and do it very clearly. Now we all know that if we did it just by raising taxes that would be terrible. That would be too heavy a hit on the economy to stand. If we did it all by cutting spending that would be terrible. So I think and I thought there was agreement from the President and the President's men who were at the Summit that we would all sit down together and come up with a plan. Now there is complete disarray, complete confusion. You know what I find fascinating the Republicans on this show all voted for Gramm/Rudman. It is Gramm/Rudman that is saying we must do something about these deficits and yet they are ready to run away from any revenues which means they are going to kill the economy with spending cuts and we will really tumble into a deep depression.

MR. MacNeil: Back to you Congressman Frenzel. As somebody who was there at the White House today is Mr. Panetta right? Is that what the President is saying it is up to Congress now?

REP. FRENZEL: That is what he said on your show when you played the tape. He said that he didn't think that we were going to get it but if Congress wanted to go ahead he was not going to hold them back. He says as far as I am concerned I have negotiated an agreement which I support.

MR. MacNeil: But he said something else. He said that to push this plan would just legitimize something farther to the left that we can accept. Now that means he is afraid the Democrats are going top push for a top rate of 33 percent. Is that not right?

REP. FRENZEL: That is correct and it is anticipated that there will be that move made in the House this week or next.

MR. MacNeil: Now, Congressman Panetta, that is, in fact, what Mr. Rostenkowski, the Chairman of the House Ways & Means Committee, did propose today, right? So the President's fears in that direction are correct?

REP. PANETTA: No. There's no question that what you're looking at next week will be alternatives that'll be offered by the Democrats and by the Republicans. And obviously the issue that has been the deal breaker from the beginning has been the issue of what happens with capital gains and what happens with regards to the wealthy contributing in terms of deficit reduction. We have argued for a long time that if we're going to have taxes that impact on the middle class and on the poor, that certainly the wealthy ought to carry their share of the burden. And then that --

MR. MacNeil: Could I --

REP. PANETTA: That obviously is going to be the issue that ultimately the House of Representatives and the Senate is going to have to confront.

MR. MacNeil: I think we're going to have to come back to this, so can I ask you as the Chairman of the Budget Committee to explain simply the bubble and the 31 and 33 percent; could you just explain that in words of one syllable.

REP. LEON PANETTA, [D] California: I'll try. In tax reform, the agreement was to basically come down to three rates and the wealthy or the highest income groups are supposed to pay at a 28 percent rate. Unfortunately, there is what's called a bubble, a group that lies somewhere between 85,000 to 150,000 in income that pay at a higher rate at 33 percent, and so the argument is that why is there this group in the middle that's paying 33 percent, while people above 185,000, 200,000 are paying at 28 percent, a less rate. So if you break the bubble, you basically extend the 33 percent rate out so that it covers all of the wealthy.

MR. MacNeil: So now the argument is going to be where you level out this bubble, whether you level it out at a top rate of 31 percent if there's an increase or at 33 percent, is that -- that's the number --

REP. PANETTA: That's correct. What Mr. Archer is suggesting today in his proposal is that instead of going at 33 percent and extending that out to the wealthiest, you basically go back to a 31 percent rate and then extend that out.

MR. MacNeil: And Congressman Weber, what is the view of Republicans like you in the House on the top rate of 31 or 33? You said a moment ago you could go along with 31.

REP. WEBER: Well, first of all, it should be apparent to anybody that looked at the diagram you just had on that you can just as easily level the bubble by reducing the 33 percent rate to 28 percent for everybody. We think that's plenty for people to pay in federal income taxes, however, Bill Archer today put forward a compromise which has the effect of reducing that rate for most middle income taxpayers and increasing it only for the very, very rich. I personally would live with that and many Republicans would not. The point that I want to emphasize and which I disagree with my Democrat colleagues today is there is a misrepresentation of the President 's position on taxes. This President never said he thought taxes had to be part of the mix. He said that he didn't think he could get any agreement with the Democrats in Congress unless he agreed with their proposals to raise taxes. I'll tell you if the Democrat leadership were to tell us on this program tonight that they want to work on a bipartisan agreement that just reduces spending, Republicans, including the President, will jump at it.

MR. MacNeil: Congresswoman Boxer, are you going to give them that assurance?

REP. BOXER: Well, let me tell you, I look forward to seeing the Republican proposal that Mr. Weber and his friends will put forward, and let's see just what it is, because I hope that we will have an opportunity to vote on the Democratic proposal that Mr. Rostenkowski has come up with and the one Mr. Weber talks about and let's see how he can defend the kind of cuts you would have to perpetrate on people, the elderly, the people who really deserve to have government at their side. Let's take a look at it and see the kind of pain it brings. And another point that's important is the Archer proposal -- and I'm not surprised my good friend is supporting it here -- would mean $10,000 in one year to those people earning over $200,000 and $1 to those people earning $10,000. So it's absolutely outrageous.

MR. MacNeil: Spell that out, Congresswoman. How would it mean that?

REP. BOXER: Because if you take the capital gains decreased to 15 percent and you level the other rate to 31 percent -- and I just got this from the Ways & Means Committee, they did a progressivity chart on it -- it would be a boon to those over 200,000. They would get $10,000. And those earning $10,000 would either get a dollar or lose a dollar. It's about in that range.

MR. MacNeil: What's your comment on that, Sen. Armstrong?

SEN. WILLIAM ARMSTRONG, [R] Colorado: Well, you know all of this discussion sounds good here in Washington, if all you do is hang around committee rooms inside the capital and inside the beltway, but out in the real world, people I talked to, none of them thinks this makes sense, none of it. People at home who just work for a living and are trying to make ends meet and raise their families think what we ought to do is cut spending a little, make some progress towards reducing the deficit, but they do not think we ought to raise any of these taxes, they're baffled by the discussion of the bubble, but they understand clearly the idea of raising gasoline taxes, cigarette taxes, beer taxes, taxes on automobiles, the taxes on heating oil and all of these things, and what they suspect is that in this complicated discussion of the bubble, it's an excuse to raise the personal rates. And I think Mr. Bush nailed that down very well today, that what this is the prelude to is further pressure to raise the taxes higher and higher. And I say to those who are so eager to correct the bubble or amend the bubble or destroy the bubble, why did you vote to create it in the first place?

MR. MacNeil: Congressman Panetta, is this just an excuse to raise all the rates?

REP. PANETTA: Look, the fundamental problem here -- and I'm actually surprised to hear Sen. Armstrong kind of downplay the deficit -- a $300 billion deficit that we're facing next year -- and record deficits into the future -- the primary challenge facing the country and the President acknowledges this, and Sen. Armstrong used to acknowledge this, is the deficit. Unless we confront the deficit, unless we bring it down, unless we're able to control it, this economy is going to go in the can. We all know that. That's the fundamental challenge. And to face that size deficit, you've got to have a combination of spending reductions and revenues. The President has acknowledged it, the leadership has acknowledged it. I think it's time that the members begin to acknowledge it as well.

MR. MacNeil: Let me ask you this, Congressman Panetta, and then go round the others, your colleagues. If there was a, if things were paralyzed yesterday because the White House position was not clear, can it all move forward now to meet the next deadline of October 19th, can you in confidence as Democrats come forward with proposals that you think can possibly command a majority in the House?

REP. PANETTA: I think we can. I think the President has basically said it's in the Congress's hands. We're moving forward. We have 12 committees that are in the process of reporting savings pursuant to the budget resolution that we adopted. The same thing is happening on the Senate side with 10 committees. Those committees are going to report hopefully by Friday or Monday at the latest. We'll have that bill on the floor by Wednesday, and my hope is that when we've got that bill passed in conference, we'll have some guidance from the White House as to what ought to be in the final package.

MR. MacNeil: Congressman Frenzel, are you as confident as Mr. Panetta?

REP. BILL FRENZEL, [R] Minnesota: Well, I'm not confident, but I will say that it is possible to do it if all hands operate in good faith. If however, we have a bill such as Mr. Rostenkowski has suggested with an increase in the top tax rate, the President has pledged to veto it and that is a certain recipe for veto and sequester. Now if we can rise above that sort of Democrat philosophy, I believe that we'll be able to come to a satisfactory conclusion.

MR. MacNeil: Let's go back to Mr. Panetta for a moment. Am I clear that Mr. Rostenkowski, the Ways & Means Committee, is going to offer more than one bill, one bill that deals with everything except tax rate increases, and then there would be another bill that would provide for tax rate increases, is that still the case or is that wrong?

REP. PANETTA: Well, what you're looking at now is an approach whereby the committee yesterday reported out one package that is fairly clean, doesn't exclude any extenders, tax extenders, doesn't include a lot of growth initiatives that were in the summit agreement. It's a pretty clean package that just aims at deficit reduction.

MR. MacNeil: The growth initiatives is the tax deductions for investment in stock of very small growth companies.

REP. PANETTA: That's correct and that was part of the summit agreement and that's now out of it. So you're basically looking at a recommendation yesterday from the Ways & Means Committee that will come to the budget committee that is basically a clean approach to deficit reduction. What he will do then next week is to offer a Democratic alternative to that tax package and we assume that there will be a Republican alternative as well, and it's at that point that the House can express itself as to which one of these packages they support.

MR. MacNeil: Do you see it that way, Mr. Frenzel, there will be a Republican alternative?

REP. FRENZEL: Most likely there will be.

MR. MacNeil: And how does it all look now to you, Congressman Weber? As an opponent of the original package, do you think that you're going to be able to vote for something by the 19th the way it sounds?

REP. WEBER: Well, I hope so. I think that from my standpoint most of us as Republicans have irreconcilable differences with the package that was negotiated with the Democratic leadership. I do not think the Democrats are going to come up with anything I that support. I think Leon Panetta made a telling comment. He said with delight that they had cleaned out the only growth components that were even in their own package. So we now have nothing in this package that is designed to get the economy growing again. And it looks to me as if the Democrats are going to take the tax gun, aim it at the rich and hit the middle class right between the eyes. So I hope we have an alternative from the Republican side that I can support.

MR. MacNeil: Because you, like Newt Gingrich, won't support -- that is something he has been singing all along, that there have to be growth incentives in this thing, as he sees it -- you won't support anything that doesn't have that?

REP. WEBER: If this economy -- if the unemployment rate increases by 1 percent, you wipe out all the deficit savings in this package. So you have to begin by saying, what keeps this economy from falling into recession, what keeps the values of people's homes from falling? If you don't do something about that, you're not going to save any money on the deficit, you're not going to reduce spending.

MR. MacNeil: How confident are you, Congresswoman Boxer, having heard all this, that there's going to be something that can be passed by the House before the current spending authority expires again on the 19th?

REP. BOXER: I'm completely confident, because I think as the Republicans got into more and more disarray with the President showing his lips and his hips, the Democrats have really pulled together. We didn't agree with the summit, most of us, and therefore, we feel an obligation to govern. I think what you've seen from Dan Rostenkowski is right now two alternatives. The second one, a Democratic alternative, you're beginning to hear bits and pieces of. But I think what is clear to the American people goes well beyond the beltway and I think that Sen. Armstrong talked about it. What the people in America now understand -- and I'm excited about it -- is that there is a difference between the two parties, that the middle class under Reagan and Bush have gotten the crumbs, and that the very wealthy, those over 200,000 and 400,000, have not only gotten a very big cake, but it has icing on it and whipped cream on it and berries on it and even chocolate sauce -- and what they're beginning to realize is it's not fair at all.

MR. MacNeil: But no broccoli.

REP. BOXER: But no broccoli. And the time is now to really look at this in terms of fairness. Who is going to help us get out of all this mess? And I think what you're going to see from the Democratic alternative is yes, a tax on those millionaires. And you know what? It's time.

MR. MacNeil: Sen. Armstrong, is that what the public understands from this, the difference between the two parties?

SEN. ARMSTRONG: No, not exactly, but I could agree with Rep. Boxer on one thing. The public does understand that there is deep down underneath all the details a fundamental difference. Most Republicans, some differences of opinion and shadings of opinion, most Republicans think the way to curb the deficit is primarily through spending restraint. Most Republicans think taxes are plenty high enough and that inevitably, the vast bulk of taxes, whatever we want to explain it to be, the taxes end up falling on working men and women. Of course there's a few rich people and there's some poor people that don't pay any taxes, but most of the tax load is borne by those of us in the middle, and when you raise everything, all the consumption taxes, the gasoline tax, the income tax, inevitably the vast majority of that will be paid by average Americans.

MR. MacNeil: Congressman Panetta, with all the flip flops or apparent flip flops at the White House that have been so much derided in the last couple of days, is this all going to result rather cleverly in the White House loading you Democrats with the label of the "tax raisers" when the whole thing is finished, that it was a Democratic tax increase?

REP. PANETTA: Well, from the very beginning it was clear that there would be no taxes and Democrats would support no taxes as part of the deficit reduction package unless the President was part of this effort, and ultimately, that is the case, because whatever we do with regards to the revenue side is ultimately going to have to be signed by the President. So the President is going to have to be very much a part of this. So there isn't going to be a game of blame letting here as to which party is for or against taxes, for or against spending cuts. Ultimately, this has to result in a bipartisan effort. The President cannot be a bystander in this whole process. Ultimately, he's got to be a player.

MR. MacNeil: Speaking of the President labeled a bystander, Sen. Armstrong, there's been a lot of criticism in the last day or so of the President and of the Congress too outside in newspaper land and outside the beltway.

SEN. ARMSTRONG: There ought to be.

MR. MacNeil: What do you think of what all this says about the process? How do you feel about it as a Senator?

SEN. ARMSTRONG: Well, clearly, the process is not working. But yo know, it's all during those months from May until just a few days ago when a handful of people were meeting in secret out at Andrews Air Force Base and other locations, that's when the process was not working. In the last few days when all this has begun to come out into the open when it's being openly discussed and debated on the floor of the House and Senate, I think the process is again starting to work. What this country needs is not secrecy and consensus and deals where nobody's got their fingerprints on it. What we need is a good old fashioned showdown over basic political issues, openly debated, as hard and as fairly as we can, and let the people decide. My conclusion is that the people don't want higher taxes but what they really want is restraint in government spending. If I'm wrong about that, then let the people decide, but they can't decide if it's all settled by a handful leaders all meeting in secret, behind closed doors deliberately trying to confuse as to who is responsible for what in the final package.

MR. MacNeil: Congressman Frenzel, does this whole episode of the last week or so say that the process is not working?

REP. FRENZEL: No. I think the process is working, but it works very poorly, and I would agree that carrying on negotiations for five months with at least one side, the Congressional Democrats, not ever intending to come to a conclusion is a really bad way to run the government. Now we have run down to the very end of our legislative session with most of the world thinking that Congress is a bunch of blithering idiots and probably being correct. And I think Congress has about a week to show whether it's really got any starch or not, whether it can work with the President, whether it can pull its disparate arms and legs together in a single unity and make something work. If it can't, then the system has flunked and the Congressmen should be replaced.

MR. MacNeil: Congressman Panetta, do you agree with that?

REP. PANETTA: Again, I think the issue --

MR. MacNeil: Do you think you're a bunch of blithering idiots?

REP. PANETTA: Well, Bill has always had that view of the Congress, but the fact is that in the end, it's up to us to try to guide the country through it. After all, the President has basically thrown the ball to us to assert that kind of leadership. I think we did that over the weekend in passing a budget resolution. And very frankly, that budget resolution was passed on the House side with Republicans in total disarray not even showing up for the conference. In addition to that, we were able ultimately to try to work with the Senate Republicans, so we passed a budget resolution. We're now in the process of implementing that budget resolution. The President has basically said, he stood aside, said, it's your game to win or lose. We're in it to win. We're going to do the right job for the American people. And I think ultimately what the people want is for this process to work and for us to exercise that kind of leadership.

MR. MacNeil: Congressman Weber, as one of those who blocked the agreement, the first deal, the one that was negotiated in private, what do you think about all the criticisms of the process and whether it's working well or working at all?

REP. VIN WEBER, [R] Minnesota: I think that the summit process was a mistake from the start. We have a normal Congressional process, it ain't perfect, but it's managed to serve us well for a long time. I think both the Democratic and Republican leadership of the House and Senate and the President, to be candid, made a mistake in going to summit way last spring when they did. I think they should have allowed the normal processes of Congress to work in the full light of day, so the American people could have seen the differences between Vin Weber and Barbara Boxer which are not personal, just philosophical. But that's the way things are supposed to work. You ought to go to summit only at the end of the process when everything else has failed to try to rescue the country from a problem. You shouldn't go there at the beginning of the process. And I think that's what happened.

MR. MacNeil: Congresswoman, how do you feel about the way the public looks at the Congress and the process?

REP. BARBARA BOXER, [D] California: Well, let me talk about the way I feel about the process and then about how I think we look. First of all, I have served on the Budget Committee for six years, under the able leadership first of Bill Gray and my current Chairman, Leon Panetta, who I think you can tell does an excellent job. And I think Mr. Frenzel has done an excellent job. And I trust that process. I agree with Vin and I agree with Sen. Armstrong. We are there. We have our views; we have our passions; we have our feelings; we have our values. And I think we can fight it out and I think frankly that's what this next week is going to be about. And yes, it is true that sometimes we don't look very pretty and we look like we're in chaos and we argue with each other, but you know the stakes are high. We are really debating now one of the most serious problems that's faced this country economically ever, and we have to not just look at the next year but we're looking at a five year package. So if it takes us a little time, if we argue, if we don't look so good, I think there are reasons and I think it's going to be clear that the parties do differ, that the Democrats feel it's time the very wealthy pay their fair share, that the budget not be balanced on the backs of the elderly. And that is the fight we're going to wage and I look forward to it. And I think we will look better when all is said and done.

MR. MacNeil: Well, Congresswoman and gentlemen, thank you all very much for joining us. SERIES - FOR THE PEOPLE

MR. LEHRER: Now we launch a series of special conversations about what this budget crisis says about the federal government of the United States and how it works. Our first is with New York Times columnist William Safire. Bill Safire, welcome.

MR. SAFIRE: Thank you.

MR. LEHRER: Is this what the founding fathers had in mind, what we just heard on this program, what we have just seen happen today and these last several weeks?

WILLIAM SAFIRE, New York Times: Absolutely. It's a knock down, drag out philosophical fight and the Republicans are more in what you might call disarray than the Democrats, but that's part of the fun. I think we have built in the separation of power and we have built in a good conflict, a good scrap. And now it's come away from the shadows -- good point made here before that this really shouldn't have been done in the back room -- it's better done with all the blood letting right on the floor of the House. And then we have an election day coming up and the two different parties present their points of view. The Republicans in this case were kind of ushered into talking taxes and when Republicans talk taxes versus Democrats, Democrats will win every time, saying tax the rich. Sure. But if the Republicans talk don't tax anybody, then they have an advantage.

MR. LEHRER: What do you say to the various editorial writers around the country who have been coming down heavy on these people we've just heard talk to Robin? Every one of them, whether they're liberal Democrats or conservative Republicans, they've all been catching it. Your fellow columnist, Bill Raspberry of the Washington Post said, "I had the sad feeling of watching America coming apart at the seams." And he was talking specifically about watching the Congress of the United States function in these last several days on C-Span. Your fellow columnist at the New York Times, Anna Quinlan, said, "The average debate in Congress bears a remarkable resemblance to a kindergarten classroom when the teacher has been called away."

MR. SAFIRE: Well, when Congress is fighting it out and the President is changing his mind, it's a great day for pundits. We can come in and say you fellows don't know how to run the world, we know how to run the world, and here is wisdom. So that's why we're kind of excited now. These are good days for us.

MR. LEHRER: What about, play pundit then on the President.

MR. SAFIRE: All right.

MR. LEHRER: The last 48 hours, we just heard it again, what is his position, and not necessarily the substance of it, but how do you feel about a President doing this? Did he make a serious error in saying, yes, I'm this, or whatever happened these last 48 hours?

MR. SAFIRE: Yes, he made a blunder, no doubt about it, but not just a tactical blunder. I think in moving off his known tax pledge, that was a big, big blunder, because there is a difference of opinion, philosophical difference of opinion, between lefties and righties in this country. The lefties, and that's not a derogatory category, want to increase government services and pay for it with taxes. The righties want to decrease services and decrease taxes. Now this is a legitimate position for both sides. Unfortunately the President from his point of view wandered off his side and found himself trying to make a deal in the middle and make that deal much too soon. And so now we'll go into an election and the Republicans will be saying not this kind of taxes, that kind of taxes. And when they're talking taxes, which, who gets what tax on whom, the Republicans are at a disadvantage. When they're talking cut spending and also cut taxes, the Republicans are at an advantage. So that's where I think the great blunder took place by the President.

MR. LEHRER: You move it and the members of Congress just talked about this also with Robin, this idea that this has defined what Republicans stand for, and what Democrats stand for, and you've defined it the same way. And yet, the very conservative Republicans in the House are the ones who shot down the deal. And then it was the moderate Republicans who came back and did another thing. I mean, aren't things kind of confused there as well?

MR. SAFIRE: The Republicans are in deep division or schism, whatever you want to call it, no doubt about that. I think now the Republicans are having second thoughts and recognizing that they've got to get not only together but together on the Republican side, which is don't start down that road of heavy taxing again. That led us to disaster before. We did get that great tax reform back in '86, remember, and we reduced the tax rates and we cut out the loopholes. Well, now you see it coming back. They talk about jack up the rates and put in that capital gains loophole and there will be more loopholes and there'll be more increases in rates and we'll be off to the wrong races again. So that's what Republicans have to come to grips with.

MR. LEHRER: In a general way, whether it's Republicans or Democrats now, another one of your pundits, George Will, has talked about the fact that these folks up here, here meaning Washington, think in terms of deals rather than, let's make a deal on that, and they got caught up in all of that, do you agree with that?

MR. SAFIRE: Well, ultimately you've got to make a deal. I mean, ultimately you have to make a decision and the people have voted in Republicans in the White House and the Democrats controlling Congress. So you have that, it's not paralysis, it's not deadlock, you just have a built-in fight and somebody's going to have towin that fight. And I think what will have to happen is within a month, the American people will have to speak at the polls, and if the case is presented, as I think you saw a little bit tonight with Sen. Armstrong and Vin Weber too, they're going to try to draw a difference and say, let's fight it out over this and let the people speak, whether they want more services and taxes or less services and less taxes or I should say fewer services and less taxes, all right, that's the battleground. And then you come back with a lame duck Congress and the people have made their decision and the President says, hey, the people spoke. That would be a good --

MR. LEHRER: But the people have also -- at least they've been telling reporters around the country and pollsters around the country that they see chaos in their government up here. You don't see it that way, but a lot of other people do. What are they missing?

MR. SAFIRE: What chaos? You have a certain discipline. The Gramm- Rudman discipline is self-imposed. The budget discipline is self- imposed. When people start talking chaos and wringing their hands and turning into henny pennies, stop for a minute. This is an exaggeration and we in the media will lap it up and we say, look at those guys, wasting our time, closing the Statue of Liberty, isn't that awful, and possibly furloughing federal employees one day a week. That is not the end of the world. You come back, you see the Statue of Liberty next month, and if a federal employee has to tighten his belt in the recession, that's what a lot of people will have to do. So it's not the end of the world. This is the political process and it's working fine.

MR. LEHRER: But politicians continue -- they're even below journalists on the popularity scale of the American people and they go down.

MR. SAFIRE: No, no.

MR. LEHRER: We're doing a little bit but they're below us, aren't they?

MR. SAFIRE: No. I think journalists still --

MR. LEHRER: Okay. But politicians are not, not highly regarded and everything that's come out in these last two or three weeks has really, really reflected that and there have been these votes on limiting terms. In Oklahoma, it's already been done.

MR. SAFIRE: Right.

MR. LEHRER: It's on the ballot in California and Colorado. What's going on then?

MR. SAFIRE: Well, there is a legitimate criticism of the system, that the system is beginning to get frozen in on incumbents and that you stand a bigger chance of losing the Supreme Soviet as an incumbent than you doing the U.S. Congress. One of the reasons for that is the perks and the franking privilege and all the advantages that the incumbent gets against the challenger. That might be changed with the pressure of you've got to go home after six terms. I don't mind that a bit. I think it might be a good idea. But the revulsion at politician, the smart politician joins that, runs against Washington, runs against other politicians and says, I'm one of you, not one of them.

MR. LEHRER: And, in fact, the results and everything reflect that, that people can't stand Congress, but they love the person that represents their district.

MR. SAFIRE: Well, someone has to run saying services and taxes are tied together. And what was troubling about this package, why I'm glad it was shot down by the Congress when it finally came out in the open was the taxes were up front starting right away and the spending cuts were three, four, five years out. And this Congress can't commit the Congress for three, four, five years out to cut spending. That'll be for them to decide, so there's an element of self-delusion that was built into this package and I think that as soon as it was brought out in the open, then you saw Congressmen saying, no, I don't want this, and that was fine.

MR. LEHRER: You know quite a bit about history in addition to being a current day pundit. How would you rate the quality of the government we have right now?

MR. SAFIRE: It's ponderous. I wrote a book about the Lincoln administration.

MR. LEHRER: Called "Freedom".

MR. SAFIRE: And, you know, the attorney general had seven people working for him and it was a tight little group and they managed to do a lot. We've grown too big. We should be cutting back or at least reducing the rate of increase of government, federal government. And curiously enough, in the last 10 years we were able to do that. We reduced the rate of government from 23 to 20. That's not bad. If we can continue that, we might get to be as good as we used to be.

MR. LEHRER: Well, what about the -- I mean, mostly the people who are governing. I mean, is the level of honesty and courage and leadership, all of those kind of abstract terms that we all throw around, that you throw around, I throw around, that everybody throws around when they talk about this, where are we now and the quality of people that are doing it, whether they're from the left or the right or the writings of the left?

MR. SAFIRE: We're getting a wide variety of people. I had breakfast this morning with a new Senator, Connie Mack from Florida.

MR. LEHRER: Conservative Republican.

MR. SAFIRE: A straight shooter. I liked him. I had a chance to talk on the phone with somebody I won't mention who's not a straight shooter, who's a conniver, a short cutter, and he's trying to sell me a bill of goods on something, and I'll take a pop at him one of these days. We have all kinds. This also was a conservative Republican, by the way. So on both sides you have goodies and baddies. I thought you saw a good selection of our representatives on your program today. These were a classy bunch of people. And you saw the way they mixed it up. You saw the way Vin Weber put it very strongly the difference between the two parties to Rep. Boxer. She very skillfully and hats off to her let it go by, because she didn't want to get into a fight with him on his ground. That's the adept part of politics and it's nice to see professionals. And these people are going to work it out and the country is not going to come to a crashing halt.

MR. LEHRER: But our conversation has. Bill Safire, thank you very much.

MR. SAFIRE: Crashing halt.

MR. LEHRER: No, a halt. RECAP

MR. MacNeil: Again, Thursday's top stories, there were more conflicting signals on the budget from the White House, President Bush said he would support a rise in tax rates for the rich in exchange for a lower capital gains rate, but he said he didn't think such a deal would get through Congress. Britain's foreign secretary said military action should be taken against Iraq if it does not withdraw from Kuwait, and Mexican author Octavio Paz was awarded the Nobel Prize for literature. He was in New York when he found out he'd won the prize.

MR. PAZ: When this morning, very early in the morning, I had a telephone call with the news, and I was surprised, because I didn't expect the Prize. And two years ago and year ago or so, I was candidate, I knew that I was candidate and I was in some way waiting the news with some anxiety, some skepticism, but this time, no, I didn't have the slightest idea that I have the surprise, and it was duly surprise and duly pleasant, because surprises that you don't expect are much more pleasant than surprises you are expecting.

REPORTER: What does the prize mean to you and what do you try and achieve when you write?

MR. PAZ: Well, the prize means a great lot for a writer, I suppose. Nothing in the sense that it is a passport to immortality, the Nobel Prize is not forgotten, but it gives you a better possibility to have more better, better -- that's very important, for a writer needs a reader.

REPORTER: I'd like to ask you, sir, in your own words, what does it mean for your whole country? Obviously, your whole country is proud of the honor and in some sense I suppose you consider it to be the country's award as well as your own.

MR. PAZ: Yes.

REPORTER: I'd just like you to comment on that. Do you feel that that's true?

MR. PAZ: Yes. As I said before, a writer is not only individually but belongs to a group, to a society and to tradition, and in this sense, writers I think we are, we have two loyalties. First we belong to a special tribe of writers who are not necessarily of your own language -- American or French or any other writers. And on the other hand, because you speak the same language, you have the same culture, you have special bonds, that's the other thing, with your own country. In this sense, the prize is something collective.

REPORTER: Why did you choose to be a poet as opposed to a novelist or any kind of writer?

MR. PAZ: It is very different to be a poet. It is the hardest. A novelist, on the other hand, I think is not so bad, because they have best sellers, then poets with or without prizes, they survive.

MR. MacNeil: Good night, Jim.

MR. LEHRER: Good night, Robin. We'll see you tomorrow night with another conversation about the government in Washington and with analysis of the week's turbulent politics by Gergen & Shields. I'm Jim Lehrer. Thank you and good night.