The MacNeil/Lehrer NewsHour

INTRO

JIM LEHRER: Good evening. In the headlines today the Treasury Department's far-reaching plan to revamp the tax system got unveiled. Italian police foiled a plot to car-bomb the U.S. Embassy in Rome, and an assassin shot and killed a British diplomat in India. Robin?

ROBERT MacNEIL: This is what's on our NewsHour tonight. First we summarize the news of the day. Then a major focus segment on the Treasury's tax proposals. We explore attitudes in Congress, state government and the business community. Then a second focus segment for a debate: should we keep the 55-mile-an-hour speed limit? News Summary

LEHRER: The Reagan administration went after the federal tax system today, offering a plan that would change it for just about everybody. There would be a reduction in tax rates across the board with off-setting eliminations or tightenings of deductions and a doubling of the personal exemption to $2,000, among many, many other things. The plan is the work of a Treasury Department task force. President Reagan, in a written statement, said it would create a simpler and fairer tax system. Also this afternoon the President talked to reporters about it after a White House ceremony.

Pres. RONALD REAGAN: We are studying it right now. No decisions have been made. There are options in there, and as we expected, so we are making the information available, as you know, making it available publicly, and we have the decisions to make.

REPORTER: Think you're going to have a hard time getting it through Congress?

Pres. REAGAN: We never have a hard time getting things through Congress.

LEHRER: Today's public unveiling of the plan itself was done by Treasury Secretary Donald Regan. He laid out the proposal's impact this way.

DONALD REGAN, Treasury Secretary: At the outset let me underscore that our proposals will result in the same amount of revenue as the current tax system, but with lower rates imposed on a broader base. It is not -- and I repeat that -- it is not a tax increase in disguise. We believe that our proposals are fair and that they treat everyone alike. They are fair in that they will help the poor, the disadvantaged and the middle class. They are fair in that they tell all Americans, rich and poor alike, that by their efforts -- be it hard work, creativity or innovation, that they can make more money and keep most of it. And the same holds true for businesses and industries that are successful without the benefit of special tax breaks. I believe tax simplification and reform is an idea whose time has come.

LEHRER: We will sort through the details of the tax proposal and get a variety of reactions to them in our major focus segment later in the program. And before leaving the subject of economics, there was another prime rate reduction today. A big New York bank and several others elsewhere dropped theirs to 11 1/4%.

Robin?

MacNEIL: A former employee of the Central Intelligence Agency was arrested in New York today on charges of spying for Czechoslovakia. William Webster, director of the FBI, identified the man as Karl Koercher, 25 years old, a naturalized citizen who was born in Czechoslovakia. Webster said Kurtcher was trained by the Czech intelligence service, directed to infiltrate any U.S. intelligence agency. He got a job with the CIA and worked there from 1973 to '75 with security clearance and access to classified information on national security.

Overseas police in Rome said they had foiled a plot by suspected Islamic terrorists to blow up the American Embassy with a truck bomb. Seven Lebanese were arrested on Saturday with a detailed map showing embassay weak points. Police said they apparently planned to attack the embassay with a truckful of dynamite, the same method used three times in Beirut. Police Chief Marcello Monarca said he believed the suspects were members of the Islamic Jihad or Holy War, the shadowy group that has claimed responsibility in the Beirut bombings. The Rome embassay, a 17th century building on the Via Veneto, is tightly secured with cement blocks in the driveways. An embassay spokesman said they were not aware of the plot.

In Bombay, India, a senior British diplomat was shot and killed as he drove to work. Witnesses said two gunmen in track suits shot Deputy High Commissioner Percy Norris as his car slowed down for a traffic circle. In London a group calling itself the Revolutionary Organization of Socialist Muslims claimed responsibility.

In Lebanon today Israeli jets bombed and strafed Palestinian guerrilla bases in the Bekaa Valley. The Lebanese said five guerrillas and two civilians were killed. It was the first such Israeli raid since September, the 16th this year. It came two days after two rockets were fired into northern Israel from across the Lebanese border. They caused no casualties.

Jim?

LEHRER: Back in this country the 55-mile-an-hour speed limit got a resounding vote of confidence today. It came from a scientific panel at the National Academy of Sciences, which said the 10-year experience with 55 shows savings in gas, money and lives.

ALAN ALTSHULER, National Research Council: Fifty-five continues to save two-to four thousand lives per year, a slightly greater number of severe injuries per year, and between 35- and 62,000 lesser injuries per year. In addition to safety benefits, the speed reductions attributable to 55 continue to save about 167,000 barrels of oil each day, which translates into an import cost reduction of about $2 billion a year. These benefits do not come free. The most significant cost of 55 is borne in the form of additional time on the road. The average American motorist spends seven additional hours per year in his or her car as a result of 55.

LEHRER: Not everyone agrees with all of today's findings, and we'll hear the argument about them in a focus segment later. Treasury's Taxes: Making it Simple

MacNEIL: In our first focus segment tonight we look closely at the Treasury Department's proposals to overhaul the present income tax system. The plan calls for sharp reductions in both personal and corporate income tax levels, but the eliminationof major tax deductions. If implemented the administration estimates that 78% of taxpayers will have their income tax payments fall or hold steady. The plan has been called a modified flat tax because its main feature establishes three basic tax rates. Single people earning less than $2,800 would pay no taxes. Those earning between $2,800 and $19,300 would pay a 15% rate. Individuals making between $19,300 and $38,100 would pay a 25% rate, and those earning above $38,100 would pay a maximum of 35% in federal taxes. Couples filing joint returns and earning less than $3,800 would pay no taxes. Those earning between $3,800 and $31,800 would pay a 15% rate. Couples making between $31,800 and $63,800 would pay a maximum of 25% in taxes, and those earning more than $63,800 would pay at a 35% rate. The Treasury Departments plan also recommends massive changes in deductions which individuals can claim. For example, deductions for state and local income taxes would be eliminated, as would those for other state and local taxes. Individuals also could not write off business-related entertainment expenses. Some deductions would only be curtailed, including those for medical expenses, capital gains and charitable contributions. One of the most popular deductions on mortgage interest payments would be retained, but only for the principal residents.

The Treasury plan also sets a single corporate tax rate of 33%, down from the current maximum rate of 46%. But the plan curtails two major business deductions, including the investment tax credit used to offset investments in new plant and equipment and write-offs on the depreciation of new investments. Treasury Secretary Donald Regan discussed his proposals at a news conference.

Sec. REGAN: The first mandate that the President gave us was to simplify the tax system. We've done this by our changes to offer more taxpayers the opportunity to use the simpler forms. And even if Form 1040 itself is used, taxpayers will find it simpler and more comprehensible. About 20% of the lines will be removed, and 14 of the accompanying schedules, which will also be greatly simplified, will be eliminated altogether. Our other mandates were to develop a tax system that was fairer and more economically efficient. We do this by eliminating many of the deductions, special credits and loopholes that relatively few taxpayers have used, so that all Americans can benefit from substantially lower rates. We sought to see to it that all families with a given income should pay approximately the same amount of taxes. For businesses we're recommending a reduction in the corporate rate to 33% from the current 46%. We've also recommending a number of other changes in the corporate tax system to see that one industry is not favored over another industry, yet keeping incentives so that business will be able to contribute to the economy in the fullest possible measure. Our plan will substantially curtail tax shelters, and we think that our recommendations will go a long way to assure the average American that the other person is being taxed on the same basis as he or she is.

This thing was written on a word processor. It can be changed. You all know that. It's Treasury's tax proposal. It is not the administration's tax proposal. We have to start somewhere. This is the start of tax simplification. It's our ideas. If there are better ideas, or if some of the proposals that we have really will hurt one group or another and damage them severely, other than in a profit pocketbook, we want to hear about it. We want to work with these groups. We want to work with the Congress. We want to work with others in the administration who haven't seen this either, in order to come up with a final proposal that will go to the Congress as the administration's tax proposal.

LEHRER: And speaking of Congress, it's now reaction time and we go first to the Congress, which must eventually go along if anything's to come of it all. Our reactors are two key members of the Senate Finance Committee who will be involved in deciding that question. They are Senator William Armstrong, Republican of Colorado, and Senator Lloyd Bentsen, Democrat of Texas. Senator Bentsen is with us from Houston.

Senator Bentsen, what do you think of it in general terms?

Sen. LLOYD BENTSEN: What I've seen thus far -- I've seen some very attractive features. There's no question but what we have to simplify the tax system. The last tax bill passed through the Congress added another 1,300 pages. And so what you're seeing now is legislation that even experienced tax lawyers and accountants have a difficult time in fathoming. So I think we ought to simplify it, try to make it fairer, and from that standpoint it ought to get a very good reception. But there are many other areas in it that we really don't know how they will finally affect our economy. You got a number of things that have been put in there as economic objectives for our country -- trying to get major investments in new machinery and equipment so that we can modernize and be more competitive in the world.

LEHRER: You mean as the tax code exists now?

Sen. BENTSEN: That's correct. And when they talked about indexing the situation on depreciation, taking into consideration inflation and all of that, that could be exceedingly complex. They're also talking about, as I understand it, indexing interest as to whether you're getting a true interest rate or not. And if you do that, that can be exceedingly complex.

LEHRER: All right, let me get some general comments here from Senator Armstrong and then we'll sort out some of the specifies. What do you think about it, Senator Armstrong, generally?

Sen. WILLIAM ARMSTRONG: I think the Treasury is really doing a service by surfacing this proposal because people all over the country just think that the tax code is rotten, that it's full of loopholes, that it's being manipulated for the benefit of people who can afford to hire a battalion of lawyers.

LEHRER: They think that. Are they right?

Sen. ARMSTRONG: In general, yes, I think they are. And the worst of it, in my opinion, is that we've created not deliberately, but over time we've created a situation in which the finest creative talent in this country is devoted not to producing a better mousetrap but to finding some way to evade taxes legally. That is, to finding some kind of cattle deal or a movie deal or an oil deal or an accelerated depreciation kind of deal, and we're diverting our best brains into that kind of activity instead of what is really productive activity in an economic sense.

LEHRER: Will the Treasury proposal eliminate that?

Sen. ARMSTRONG: Well, I think the Treasury proposal is just what Secretary Regan described it as, as sort of a point of departure. It goes together with the plan which Jack Kemp and Bob Kasten have suggested and that Bill Bradley and Rich Gephardt have put forward, and others. And there's going to be some more proposals on the table, too. But I think it's a useful kind of effort because it helps sort of define the parameters of the debate. There is one thing that concerns me, though, and it's this notion that somehow as we reform taxes we're going to raise the general level of taxes. If that happens, if everybody who's hanging around town waiting for a vehicle to raise taxes and somehow get the budget deficit under control insists on that, it'll scuttle any chance of tax reform in my opinion. That's a separate issue, and in fact the dream of a tax increase may well forestall the kind of spending cuts that are needed to balance the budget. So we ought to treat this as tax reform, not as some kind of a hidden tax increase.

LEHRER: Do you agree with that, Senator Bentsen, that these things can be separated?

Sen. BENTSEN: Well, I certainly think they can be separated, and I think they should. I think if you do tax reform as a means of raising taxes you'll have a very difficult time bringing it to a successful conclusion. Let me make the point that I have noticed so far, is that the President in no way has accepted this yet and there is no way that you're going to pass a major tax reform through the United States Congress unless the President says, "This is my piece of legislation. I endorse it. I am all out for it." The Congress, with 535 members, just cannot lead. It will not be easy to pass a major tax bill that brings about this kind of a reform.

LEHRER: Now, why is that, Senator Bentsen? What's so difficult about simplifying the tax system?

Sen. BENTSEN: Because you have every interest group that will look at it from a self-interest standpoint in many cases and will be up there developing a support for that particular point of view. So that's why it takes, in developing the consensus, takes strong leadership on the part of a president. And he can't say, "Well, you know, I want to send this over and I'm not sure whether I like it or not, but you fellows work on it and then I'll decide whether to sign it." He has to exercise strong leadership and push that kind of legislation.

LEHRER: Do you agree, Senator Armstrong?

Sen. ARMSTRONG: Yes, and I have no doubt that when the President gets a tax package put together that there'll be plenty of leadership behind it. The President, whether I agree with the final version or not, you can't fault Mr. Reagan for failing to push his package --

LEHRER: Well, why wasn't he doing that today, do you think?

Sen. ARMSTRONG: Well, I don't think he's signed off on it. I take at face value what Don Regan said, that this is something which the Treasury has developed at his request and I assume it'll be refined and modified. But in due course the President, I think, will have a tax plan and a tax reform, and should have.

LEHRER: Let me ask each of you, if you don't mind, to play reporter for me for a moment. What would you -- how would you measure the reaction among your fellow Republicans to this, Senator Armstrong?

Sen. ARMSTRONG: I think there'll be a lot of interest in it --

LEHRER: Yeah, but interest, is that the same thing as support?

Sen. ARMSTRONG: Well, most of us have only seen the details of it today, and so I think there'll be few senators that'll be ready to stand up and say, "Yes, I'm ready to sign off on this 100%." But I do think that most of my colleagues on both sides of the aisle sense this need for a true reform; that is, simplification, something that makes the tax code a lot: simpler, and rate reduction. If we can get that, there are many of us who will be able to swallow individual bits and pieces of it that might not be to our liking in order to achieve that end result.

LEHRER: How do you read the Democrats, Senator Bentsen?

Sen. BENTSEN: Well, I think that there's no question but what the Democrats want to see reform and tax simplification, and what we ought to be looking to is what's in the general interest of our country, rather than the special interests that might be opposing it on one particular facet or the other. But before you get a total acceptance, I would agree with Bill, we're going to have to work on this, and there'll be some of those things in that piece of legislation that we probably won't understand the full ramifications of it until we have hearings and better understanding.

LEHRER: Some of your colleagues, your Democratic collegues, today, Senator Bentsen -- Congressman Rostenkowski, chairman of the House Ways and Means Committee, and others -- suggested that the priorities are out of whack, that the President, number one should be a plan to reduce the deficit and then reform the tax system. Do you agree with that or disagree?

Sen. BENTSEN: Oh, I think that you're going to have to do both of them, and I don't see any reason why we can't proceed in trying to cut some expenditures and getting this deficit down and at the same time reform the tax system. There's no reason why we can't do both.

LEHRER: Do you agree, Senator Armstrong?

Sen. ARMSTRONG: I think we must do both, but personally I think the answer to the budget problem is well defined and a reasonably quick solution is in prospect. Passing a major task reform is a tax that'll take at best several months, maybe a year, and the budget crisis is too imminent and can't wait for that kind of time.

LEHRER: Gentlemen, thank you and don't go away. Robin?

MacNEIL: Now we turn to two men whose interests would be greatly affected if these proposals became law -- state government and the business community. With us are Republican Governor Richard Snelling of Vermont, former chairman of the National Governors Association; and Richard Rahn, chief economist for the U.S. Chambers of Commerce.

Governor, to you first of all. How do you react to a plan which proposes eliminating the state income tax deduction?

Gov. RICHARD SNELLING: Well, of course I have to have some concern about that. One of the goals of tax reform is clearly equity as well as simplification, and if the general movement of government is going to be to ask states and local governments to pick up larger shares of the social burden, we have to recognize that some states are far more able to do that than others. Now, if the states which have the highest taxes because they have the highest burdens in proportion to their resources have to, in effect, lose the income tax deduction for the people in their states who pay those taxes, that means that citizens in the already-burdened states are going to be disproportionately more burdened as a result of the simplification.

MacNEIL: If it passed, would it actually make it harder for a state like Vermont to raise revenue through sales taxes or other state taxes and state income taxes because your citizens could not deduct that from their federal taxes? What would that do to the politics of it at the state level?

Gov. SNELLING: Well, clearly it'll make it more difficult to transfer burdens and responsibilities and authority to the state and local level, particularly for those states which are fighting hard to catch up with the rest of the nation in terms of average income, in terms of jobs and economic opportunities. One of the arguments that can be made for any given local tax is that the burden of it is at least partially sheltered for income tax payers because it's deduction on the federal level. I don't think any one subject should cause us to turn away from the general concept of considering tax simplification, but I sure hope that they'll look very closely at the conflicting goals. On the one hand the President has said over and over again he wants to see state and local governments pick up larger responsibilities and burdens and if, on the other hand, as a part of tax simplification you load extra burdens on the states in proportion to their willingness to pick up the burdens, I think that's a very serious problem.

MacNEIL: Do you still have a finger on the pulse of your fellow governors across the country collectively?

Gov. SNELLING: To a degree.

MacNEIL: What do you think their reaction will be?

Gov. SNELLING: Well, in every formal vote that has been taken so far by governors and in every discussion that I've heard so far, there's been a very strong reluctance to lose the deductibility of state and local taxes, and it goes beyond the mere equity of it. There is some serious question on whether or not states as entities making up the federal system are entitled to that kind of treatment.

MacNEIL: On a constitutional basis.

Gov. SNELLING: On a constitutional basis.

MacNEIL: Mr. Rahn in Washington, what is your first reading of how the business community is going to react to the proposed changes?

RICHARD RAHN: Well, there's a lot of the changes that we really appreciate and think are desirable -- the lowering of the individual marginal tax rates -- but we are concerned about the increased burden on business investment in this plan. For instance, the investment tax credit would be removed, the accelerated capital cost recovery would be removed. What this will do will make business capital investment more expensive, and if you have more expensive business capital investment, you will have less plant expansion, fewer new workers hired and slower economic growth. And we think the proper criteria to measure this by is how rapid it will -- or how much it will increase real economic growth. And we are concerned that this proposal may indeed inadvertently reduce the rate of real economic growth.

MacNEIL: Because it puts more money in the pockets of Americans as individuals at the expense of business? Is that it?

Mr. RAHN: Well, takes it out of the savings and investment stream, and it increases your cost of investment. And our real goal of economic policy ought to be to have very rapid economic growth, because with rapid economic growth we increase the real incomes of our citizens and reduce poverty.

MacNEIL: A lot of critics of the previous -- mostly Democratic critics -- of the previous tax bill suggested that business got too big a break in 1981 and that some corrective is needed in terms of depreciation allowance and investment tax credit.

Mr. RAHN: Well, I look at that as ridiculous. The goal of the '81 bill was to provide rapid economic growth. This country had been in the economic doldrums. Over the last two years we've had a very rapid rate of capital investment, a high rate of productivity growth, and as a result we've put many Americans back to work with higher real incomes. In fact, we have the highest growth rate of any of the major industrialized countries. That was the goal of the plan. It worked exceedingly well in 1981, and we're saying now, don't change it, it worked.

MacNEIL: Would you expect that American business, using its powerful lobbying weight, would campaign actively against the two proposals we've just been discussing?

Mr. RAHN: Oh, I think we're going to be able to negotiate with the Treasury and the White House to get some changes in it. Secretary Regan has been very forthcoming and a number of us have met with him over the last few days, and he has said to us if we can demonstrate ways this impedes economic growth they'd be willing to listen to our arguments and perhaps change it, and I think that much of this can be negotiated out well before it gets to the Congress.

MacNEIL: Do you have the same kind of confidence that you governors can negotiate out some of these things?

Gov. SNELLING: No, I don't have that kind of confidence, and I have to tell you that I think there's another problem that hasn't really been approached, and that's the question of priorities. Clearly addressing a very, very massive overhaul in the tax system is a very cumbersome task. It's going to take a lot of the time and the energy of the Congress. Many of the governors feel, I feel, and I think a lot of businessmen in America feel that the number-one priority for the next Congress absolutely has to be getting control of the deficit. Now, a massive tax overhaul, with all the emotions that that will bring forth, all the special interests that it will trigger -- which it is designed to be neutral, which it is designed not to do anything about the deficit problem, while on the other burner plans are being made for a $100-billion cut in domestic spending, a draconian cut absolutely under any circumstances, would seem to mean that the plan is to offer one-sided approach to the deficit. It will all be on the spending side and nothing on the revenue side. I would hope that we'd be in a position for some balance in order that neither of the mesures would have to be so severe, and that can't happen, if the Congress is totally occupied with tax reform rather than with the question of the adequacy of overall revenue.

MacNEIL: Mr. Rahn, what do you think the business community's attitude to that be Senator Armstrong raised the same question of priorities.

Mr. RAHN: Well, again we look at the only solution to the deficit problem of, first of all, reducing the growth rate of federal government spending along with rapid economic growth. If we could maintain a growth rate of about 5 1/2% per year for the next four years, even at the current services level of federal government spending, we would balance the budget. I do not see any way that we're going to get the kind of massive reductions in spending that we need. We're in favor of reduced spending. And those people who advocate tax increases I think are ignoring economic history. There has never been a case in this country or any other industrialized country where a massive tax increase did anything but slow economic growth.

MacNEIL: So, in other words, you're not worried about going ahead with this tax reform thing while the other thing is on the other burner?

Mr. RAHN: Well, I agree with Senator Armstrong that we need to do both.

MacNEIL: Okay. Jim?

LEHRER: Listening to all of these reactions along with the rest of us has been the number-two man in the Treasury Department, Deputy Secretary of the Treasury Tim McNamar. Mr. Secretary, what's your comment on this latest go-round about the priorities that the governor mentioned between let's cut the deficit first before we worry about tax reform?

Sec. R. T. McNAMAR: Well, I think what we have here is a two-track effort, and we've made that very clear today. What we want is on one track a negotiation with the Congress to begin immediately on our proposal that will result in a proposal that the President will embrace and announce in the State of the Union address, and we will submit a bill then in January immediately after that. On a separate track, and I think Senator Bentsen and Senator Armstrong, Mr. Rahn all said this. On a separate track we will be pursuing a deficit reduction effort that will be focused on reducing federal spending.

LEHRER: And both going to be done at the same time?

Sec. McNAMAR: Oh, I think there's no question both can be done at the same time.

LEHRER: And you disagree with the governor's concern that one will overshadow the other and destroy the other?

Sec. McNAMAR: No, I share the governor's concern that they have to be managed properly, but I think it's quite doable because there is a consensus. There was an election in the country. I think the American people made it very clear they do not want a tax increase and they do want a reduction in the growth rate of federal spending.

LEHRER: All right, let's go to the tax reform proposal. Mr. Rahn says that this could hur capital -- make capital investment more expensive.

Sec. McNAMAR: Well, it depends on what kind of capital investment you're talking about. It's clear it will be a more economically neutral tax system in terms of investment, and that means that people will make their decisions based on the economic rate of return for an investment, not from the tax benefits. At the present time, under the ACRS system --

LEHRER: What's ACRS?

Sec. McNAMAR: That's the accelerated cost recovery system that went into place in 1981.

LEHRER: All right.

Sec. McNAMAR: With the investment tax credit and a 5% rate of inflation. If you invest in new equipment, in fact the government is subsidizing that. There's a negative 4% carry on that. What we will do is we will make all American industries, the high-tech industries, the service industries, the banking industries, be on the same basis so that there is a neutrality, and we think that's what will stimulate economic growth.

LEHRER: Is Mr. Rahn right when he says that he's confident that he can sit down with you and the others at Treasury and strike a deal on this?

Sec. McNAMAR: Well, I don't think it's a question of striking a deal. We've put together what we think is a very comprehensive proposal. It's 260 pages in the first volume, two more volumes yet to come. Obviously Mr. Rahn hasn't had a chance to read them, and I suspect he will all night. We have a starting place that I think that Senator Dole, Senator Bentsen, Senator Long, a number of other people have said is a good starting place. It has many of the best features of Bradley-Gephardt and Kemp-Kasten. We think that if anyone's got a better idea we'll listen to it, and we'd like to hear them.

LEHRER: What about the governor's concern that the states that are going to get hurt the worst under this change in no longer being able to deduct state and local taxes are the poorest states of all?

Sec. McNAMAR: Well, I don't think that's really correct. If you think about it, 74% of the American people do not itemize their deductions. That means it makes no difference whether they live in a high-tax state like New York or a low-tax state like Texas or New Hampshire. Now, Vermont happens to be in about the middle, I think, at around 25% or the 25-state level. Now, those people who itemize their deductions, which is about 36% under the current tax law, and we estimate that'll fall to about 25% under our prosposal --

LEHRER: Why? Because it'll just be simpler, do you think?

Sec. McNAMAR: It'll be simpler. With lower rates it won't make so much difference to the people whether they could take that deduction or not.

LEHRER: Sure.

Sec. McNAMAR: And so I think that some of the resistance that the governor is concerned about will be ameliorated by that.

LEHRER: All right, let's go to what the two senators said, that this thing may be the greatest thing in the world, but it isn't going anywhere unless President Reagan really gets behind it and works for, it supports it, etc. Is he going to do that?

Sec. McNAMAR: Well, I think he will do that when he's had a chance to listen to the Congress. That's what he's asked to do today, was to listen to the Congress. He's asked to listen to the business community, and he's asked to listen to the American people. I mean, this is not something that is going to be decided by a few special interests in Washington. The American people have their tax system at stake in this, and what we have proposed is a simplified, fairer tax system where, in effect, the government is going to prepare your taxes for you, send it to you, and if you agree with it, you sign it and send it back. That's hassle-free, and we think that about two-thirds of the American people who today have their taxes withheld and don't move and don't change jobs are going to like that. Now, that's what the American people want. The question is, are the special interests who want one little niche or one little favor or another going to prevail over the will of the American people?

LEHRER: What's your guess?

Sec. McNAMAR: Well, my guess is that if there's a better proposal than the one we have we'll adopt it. But we've put ours out. The first volume is 260 pages. We gave it to the President yesterday, so he hasn't read it, I'm quite sure. He has some other priorities as well. We will be working with the Congress in a bipartisan way between now and the State of the Union adress to try to come up with a bill that, as I said, we can submit in January, and we'd like to see this done by the time they go home in August.

LEHRER: Thank you. Robin?

MacNEIL: Senator Bentsen, does that qualify as the kind of presidential leadership you felt would be necessary in this?

Sen. BENTSEN: Well, I think that he is going to have to be out front and say, "This is my bill and I'm going to push it," Otherwise I don't think it gets accomplished. I might say also that insofar as our being able to go on two tracks, we can do that. Out of the 16 committees in the Senate, only one of them will be involved in this task on reforming the tax code, and I therefore think that the Appropriations Committee and the Budget Committee can handle the other part of it. And we can proceed on both fronts, and we should do that.

MacNEIL: Does that satisfy you, Governor Snelling?

Gov. SNELLING: No, because the problem is --

MacNEIL: Tell Senator Bentsen why it doesn't.

Gov. SNELLING: Well, my concern is that the assumption is that it's going to be duck soup to cut $100 billion out of the budget so that we don't have to think about revenues. And I haven't heard really anybody in the United States Congress who would agree with the proposition that the proposal which is floating around in Washington for that kind of a budget cut is going to happen. Now, if it turns out that because of all the things that are locked in, because of all the safety nets, because of all the uncontrollables, that you can't get that kind of money out of the budget, then somebody's going to discover that you eitherworry about the deficit into next year or the year thereafter or that you look at revenues.

MacNEIL: The tax reform becomes revenue-raising, you mean?

Gov. SNELLING: Well, or blocks it. Another fear would be that if everybody agrees that we won't allow tax reform to have any feature of revenue enhancement in it -- know, if that's the ground rule -- and then they discover that as a practical matter you cannot with equity to the American people cut the budget by $100 billion, then we're absolutely blocked out of any action in the 99th Congress, and I think that if we don't deal with the deficit and make a really generous start on that problem in the next session of the Congress, that we're going to face some very serious times in this country.

MacNEIL: Senator Armstrong, what's your reaction to that?

Sen. ARMSTRONG: Well, certainly the problems are great, but there are available ideas that would eneble us to make a substantial dent in the budget deficit. For example, a one-year budget freeze would produce nearly $100 billion a year in savings by the end of the decade. I think that's the kind of an idea whose time has come. And the interesting thing is that it's not a Republican idea or a Democratic idea; it's both. Some of the leaders of both of our parties are talking in terms of a one-year freeze. It's not conservative, it's not liberal. In fact in the Senate, we got about 35 senators even just a few days before a national election to vote for that. Well now, the election's over, and with luck I think that sort of an idea of an across-the-board freeze for a very brief time holds the promise of the kind of action that will get our budget under control.

MacNEIL: Governor?

Gov. SNELLING: We can't keep changing our time reference. He said if we do it for one year that by the end of the decade that we'll save $100 billion. But we'll probably accumulate an additional deficit of a trillion dollars before the end of the decade. And a billion dollars of savings, $100 billion of savings against a trillion dollars of additional deficit is simply not an adequate response to a serious problem.

Sen. ARMSTRONG: Well, Governor, the savings occurs not only the first year but the second year and every year in a cumulative way. In other words, ithd be a $36-billion -- the one-year savings now, if we just froze for one year, would save $36 billion the first year and a greater amount in each succeeding year. In other words, a one-year freeze has a multi-year effect.

MacNEIL: Gentlemen, I think we're going to be talking about the deficit a great deal in the future. Can we come back for the remainder of this discussion to the tax proposal? Mr. Rahn, how did you react to Secretary McNamar's assurance that capital investment is going to be neutral? It will put all industries on the same basis, it will encourage growth, not discourage it.

Mr. RAHN: Well, he's right that I haven't read the whole document since I only got it mid-afternoon. But I did read enough to show -- it clearly demonstrates that the burden on the business community will increase rather substantially. And if you increase the tax on the business community you are going to have less investment, lower productivity growth, lower employment. And I think we need to correct that. There's things in here also that increase the complexity. Going back to this class-life system, you're going to have to forecast technological change. We got away from that in 1981. In fact, Secretary McNamar was one of those people who argued for the simpler system. Now he wants to go back to a more complex system.

MacNEIL: Mr. Secretary?

Sec. McNAMAR: Well, in fact what we're arguing for is a system that will have lower rates for people who run businesses. Both the corporate rate -- and remember the individual rate. Of the 97 million tax returns filed in this country, about 12 or 13 million of those are businesses operated as sole partnerships or farm returns that come in. Those'll have lower rates. On the corporate side, not only do we take the corporate rate from 46 to 33 percent, but also we've given a 50% dividend exclusion, deduction, which is going to make the overall, I think, investment for both corporations and individuals much more attractive, and we've made it neutral between industries. Our tax system, quite frankly, has been biased too long in terms of, if you will, the smokestack industries. Now, I agree with Mr. Rahn. In 1981 we did put in ACRS, and that was because those industries has suffered most from the ravages of double-digit inflation, and I was a supporter of that provision at the time. What we're proposing would not go into effect until 1989, by the time it's fully implemented, and by the time it goes into effect they will have had 10 years, and that really will be plenty.

MacNEIL: Sorry to interrupt. Let me just come back in the remaining time on the state question. Governor, the secretary said 74% of American people don't itemize their deductions, the number who do will decrease with this, they won't feel the pain, you're exagerating the problem.

Gov. SNELLING: No. I think it's still a serious problem for the simple reason that as you try to bring industry into a state which needs it, and as you try to bear the burdens of updating infrastructure and so forth in those states which really are not enjoying the privileges and circumstances of the average, that the burden falls, if you have a fair tax system, on the wealthiest people. And so clearly the highest rate in the state which has a very high rate -- Vermont's tax rate, income tax rate, is about 26% of the federal levy, whatever that federal levy is. Obviously there would have to be some adjustments in this case. But that certainly means that the very element that you want to strengthen in your state will be bearing a heavier burden as a result of this.

MacNEIL: We have to leave it there. Secretary McNamar, Senator Armstrong and Mr. Rahn in Washington, thank you. Senator Bentsen, in Houston, thank you; and Governor Snelling in New York, thank you.

LEHRER: We turn our focus now to artificial heart patient William Schroeder. He spoke for the first time since Sunday's operation and asked for a can of beer. His doctors say his new heart is working beautifully. Correspondent Kwame Holman in Louisville picks up today's story. Schroeder Update

Dr. WILLIAM DeVRIES, artificial heart surgeon: This morning we removed him from the respirator and he was doing very, very will from that, I asked him as soon as the tube came out of him, we let him have some ice chips and I asked him, "How are you doing?" He told me, he said, "Is the heart working all right?" And I said, "Yes, it is." And he said -- and I said, "Can I get you anything? Can I do anything for you?" He said, "I'd like a can of beer." So he's feeling good and looking good, and everything is functioning right on schedule.

KWAME HOLMAN [voice-over]: With his patient breathing without a respirator for the first time since Sunday's implant operation, Dr. William DeVries said the Schroeder should reach another milestone later this week when doctors will attempt to use, for the first time a 12-pound portable system in place of the current large air compressor that powers Schroeder's plastic and metal heart.

Dr. DeVRIES: Thursday, Friday and Satruday we will go ahead and switch him several times from the portable drive system -- from the regular drive system to the portable drive system. We will be interested in measuring whether or not the portable drive system had any effect on the actual -- on the actual pumping of the machine.

HOLMAN [voice-over]: This afternoon William Schroeder was reported speaking normally to his family, moving in bed and feeling stronger than he has at any time since well before the implant operation.

Dr. ALLAN LANSING, director Humana Heart Institute: He has said, yes, he can feel the heart. It feels very forceful. There is no pain. It was reported to me by the nurses that each of the members of his family put his or her hand on the chest and could feel the force of the heart beating. There is a faint sound, if you listen closely, from the heart or the valves closing within the chest. It is not enough to be annoying, but I suspect that in him it'll be much more evident than it is to you or I.

HOLMAN [voice-over]: So it was with good news that chief surgeon DeVries made his first appearance before reporters since the operation, and he reflected on the past and future of artificial heart implants.

Dr. DeVRIES: The question really with Dr. Clark's case was, one, would it work, would it hurt the patient, could the patient survive with the artificial heart? Those questions were all answered with Dr. Clark's case. This case, for example, we're able to answer other questions. Can we increase the quality of life? What can we expect from the heart? Do we really have to do a patient that is in extremis -- that is, within minutes of death? And we can have the heart -- may have a little better chance, a little better test of the heart. So we're looking forward to getting on with it.

LEHRER: Doctors say Mr. Schroeder may be able to walk sometime this weekend and may be home by Christmas. Robin? 55 MPH: Lives v. Dollars?

MacNEIL: Next we focus on today's new report on the impact of the 55 mile-an-hour speed limit. Charlayne Hunter-Gault has more details. Charlayne?

CHARLAYNE HUNTER-GAULT: Robin, the National Academy's vote of confidence in the 55 mile-an-hour speed limit came in the face of dwindling public support, continuing efforts to change it and even denunciation in the Republican Party platform this summer. And while the 19-member committee was divided on whether some interstate and lightly traveled rural highways could be safely exempted from the law, its major thrust was that the 55 mile-per-hour limit is one of the most effective highway safety policies ever adopted. More specifically the committee said, at the lowered speed there are fewer accidents and an average of two to four thousand fewer highway deaths. There is also better gas mileage resulting in some $2 billion in gas savings. And fewer injuries, resulting in an estimated $65-million savings in medical bills. But the report went beyond these calculations, as we find out now from the chairman of the National Academy's Research Council committee. He is Alan Altshuler, dean of the graduate school of public administration of New York University.

Professor Altshuler, if this is one of the most effective policies ever adopted on highway safety, why was it that the committee was divided on exempting some interstate highways and rural highway systems from the law?

Prof. ALAN ALTSHULER: Well, I think we recognize that there is a cost of 55, and the cost is really the additional time that people spend in their cars. The average American motorist spends about seven hours per year additional in his car because it's at 55 by comparison with the speed limits that were in effect in 1973. Overall, we spend about one additional year in our cars for each additional year of life that is given to somebody who avoids being killed in an accident, and in addition there are the savings of injuries. On the best rural expressways -- lightly traveled, very high quality expressways -- the time cost is about four times as high per life saved. We simply did not agree among ourselves as to whether that was an appropriate price to be paid. Since you're comparing apples and oranges -- some time on the road, some pain and suffering avoided with respect to fatalities and serious injuries, we thought that the best thing we could do was to tell the public what we had found, and leave the evaluation of that to the Congress and the public debate.

HUNTER-GAULT: All right, if you do decide to do that, won't it -- if you eliminate some rural interstates -- I mean, if you eliminate it somewhere, won't it, given the fact that there's dwindling public support and, in some cases, ignoring the 55-mile limit, won't people ignore it even further?

Prof. ALTSHULER: Well, first of all, I'm not sure that there is dwindling public support. There is an organized campaign against 55, but the Gallup Poll and other national polling organizations have found consistently since 1974 that between three to one and four to one the American public supports 55. And there's very considerable variation by group in the population. For example, people over 65 support the 55 mile-per-hour speed limit by nine to one. Women support the 55 mile-per-hour speed limit by six to one. There are many people who prefer to drive slower and don't like people going 55 miles an hour, zipping past them as they drive 50 or 55. So the question of dwindling public support is one that we didn't find, in spite of the fact that we got many letters to that effect.

HUNTER-GAULT: All right, the report also said there's a major problem with the way the law is enforced and monitored. Could you explain that?

Prof. ALTSHULER: Well, right now 39 of the 50 states would be in non-compliance with 55 under the federal rules if they were not allowed to make some adjustments to the raw data. Congress requires that they keep at least 50% of their traffic on the roads posted at 55, going 55 or less. Only 11 states actually achieve that. The other states avoid losing highway aid by making various adjustments for speedometer error, for sampling error and so on. We find that these adjustments don't make any sense. There's no scientific validity for the most part to them. On the other hand, we find that there are some adjustments that would make sense. Right now, for example, the law penalizes a state equally for somebody going 56 miles an hour or 80 miles per hour. They're both in violation. We say a point system which weighted major violations much more severely than minor violations would make a lot of sense. Similarly, a point system which weighted violations on two-lane, undivided roads more heavily than violations on major expressways would make sense.

HUNTER-GAULT: All right, well, we'll come back. Thank you.

Mr. ALTSHULER: Thank you very much.

HUNTER-GAULT: Jim?

LEHRER: Another side of it now from James Baxter of Madison, Wisconsin, founder and head of a group called the Citizen's Coalition for Rational Traffic Laws. He came to Washington today specifically to object to the academy's report. And what do you think of the report overall?

JAMES BAXTER: Well, we disagree with a number of the assumptions on which the report is built. One of the primary objections we have is that, from its very beginning the premise of this report was is that the speed limit issue was one to be decided at the federal level rather than at the state level. It's our contention that the individual states are in a better position to administer speed limit laws than is the federal government. We feel the country is too diverse in terms of its transportation needs and its environment to suggest that one arbitrary, lowest-common-denominator speed limit is going to be appropriate for states such as New Jersey versus Nebraska.

LEHRER: Okay. All right, now what about the basic idea of whether the states do it on their own or they don't, do you object to 55 miles an hour? Do you disagree, first of all, with the findings of the savings that the dean just outlined?

Mr. BAXTER: Yes, we disagree with the findings to the extent that we feel that it overestimates the savings, both in lives and in terms of injuries --

LEHRER: In what way? Give me an example of how it overestimates savings in lives.

Mr. BAXTER: We feel that the academy did consider a number of other aspects that did impact the savings of lives. When the 55 mile-per-hour speed limit was first introduced, the proponents originally suggested that it was responsible for saving as many as 9,000 lives the first year. The next year they realized they didn't leave any space for some of the other safety measures and they reduced that estimate down to six or seven thousand lives. And it has been subsequently reduced every year since then down to about two to four thousand lives. We think that, one, they're underestimating the speed that people are actually traveling on the highways. They've already admitted that the compliance system is basically a sham because of the adjustments made to the figures. We also believe that the raw data which the compliance standards are applied can be just as easily manipulated as can the adjustment factors that are being put into it. And of course the incentive is the states do not want to lose financial aid from the federal government.

LEHRER: Well, is it your position that the 55 mile-an-hour speed limit does not save lives, that it is not a safety device?

Mr. BAXTER: We believe that the 55 mile-an-hour speed limit did save lives on certain roads which had speed limits that were too high even back in 1973, and those roads may well have more traffic, higher congestion now, and maybe even 55 is too fast. Maybe it should be 50 or 45 on some of the roads. But our position is, is that we should be looking at the individual road design, at traffic volume and the state of maintenance of a road system to determine what the speed limits are. And in this case we feel that the speed limits on most of our rural interstate system should be higher than 55. We're not expressing what that actual amount should be. We think that individual states can make that decision better than any one single source can.

LEHRER: And the federal government should just stay out of it.

Mr. BAXTER: The federal government should stay out of it. They're investing millions and millions and millions of dollars in this compliance game with the state, the point system that's being suggested now as a substitute for the previous or the existing system, with the federal government and the state government investing man-hour upon man-hour to try and prove that the states are in compliance with a federal mandate.

LEHRER: Okay, I hear you. Charlayne?

HUNTER-GAULT: What about that, Professor Altshuler?

Prof. ALTSHULER: Well, Mr. Baxter speaks of us admitting things. I don't think we have to admit anything. We haven't been responsible for the policy. We were asked by the Congress to do an appraisal of the costs and benefits of 55, and the National Academy of Sciences and the National Academy of Engineering put together an expert panel to do that. We're simply reporting our findings.

HUNTER-GAULT: All right, well, he's disagreeing with the finding. He's saying, for example, that you've overestimated the savings and underestimated the amount of the speed that's going on on the highways.

Prof. ALTSHULER: Well, I don't think so. I think what he's indicating is that our estimates are actually lower than many of the estimates that have been made in the past, and he says, well, we've come down so that shows that we must be wrong. I think we have done the most careful, thorough, objective evaluation of the evidence. We have deflated some of the claims of the most enthusiastic people about 55; we've come up with somewhat lower estimates than they have. But that doesn't mean that our estimates are too high. Maybe our estimates are too low. And, indeed, if you had a strong proponent on the other side, that proponent might indicate that we were too low, and there are people who think we're too low; the National Highway Traffic Safety Administration, for example, has a higher estimate of the lives saved by 55. We didn't come to their estimate and we didn't come to Mr. Baxter's either.

HUNTER-GAULT: Mr. Baxter, do you feel any better about the professor's report now, at least that point?

Prof. ALTSHULER: I would agree with the professor that they did do a service in the sense that they did remove some of the previous misconceptions concerning the 55 mile-per-hour speed limit. One that was not mentioned was the ineffectiveness of stringent penalties and enforcement mechanisms. The report pointed out that that had very little to do with the reduction in fatalities, reduction in speeds. There did not seem to be any strong correlation between enforcement mechanisms and the way people are traveling on the highways.

HUNTER-GAULT: Professor?

Prof. ALTSHULER: Well, that's true, we did find that. One of the questions the Congress asked us was whether the laws of the states provided a substantial deterrent to violation of 55, and a finding which surprised us, and I imagine will surprise the Congress as well, is that there is no correlation between stiffness of the penalties provided in state laws and the degree to which people are speeding on the roads.

HUNTER-GAULT: Well, do you think this point system that you're advocating would improve that?

Prof. ALTSHULER: Well, our point system would not apply to motorists individually.The point system would apply to the relationship between the federal government and the states.

HUNTER-GAULT: Well, what about that point? Mr. Baxter makes the point that the states are really much more effective, would be much more effective at setting these limits and that the federal government shouldn't be in it at all?

Prof. ALTSHULER: Well, that is a political question that we were really not asked to address. I think it is a political question from Mr. Baxter's standpoint as well. I think it is the judgment of those who oppose 55 that they would do better in the state legislatures than they do in the Congress. There's some evidence that they may be right, at least in some states. We know that when Congress repealed the federal provision requiring motorcycle helmet laws, that many of the states did repeal motorcycle helmet laws at the behest of organized motorcyclists, and he might be more successful politically if that happened.We were not asked to address the question of whether it was better for him to be successful politically or not. We were rather asked how many lives would be lost, what would be the other consequences of an increase in speed limits.

HUNTER-GAULT: But what's your own opinion on whether the states might be more effective in saving lives if they were left to judge the individual needs of each state -- that there's a lot of diversity from state to state?

Prof. ALTSHULER: I haven't speculated about that. What we do know is that when Congress stepped in in 1974 the number of lives lost the following year was 9,000 less than it had been the previous year when it was entirely up to the states, and we attribute about half of the reduction -- about 4,500 lives saved -- to the congressional intervention. Now, whether giving it back to the states would somehow be just as safe now is something it's hard to speculate about, since we don't know what the states would do.

HUNTER-GAULT: Very briefly, what do you think is going to be the impact of your report?

Prof. ALTSHULER: I don't know. I think that there has been controversy in the Congress about what to do. That's why we were asked to carry out our study. I think it would be easiest for the Congress to address the question of the point system as opposed to the current adjustments, and I think that would be healthy. Whether they choose to look at the rural interstate question and whether they should relax 55 on those. I don't know.

HUNTER-GAULT: All right. Well, Mr. Altshuler, thank you for being with us, and thank you, Mr. Baxter, for being with us. It's probably something we'll come back to in the future.

Prof. ALTSHULER: Thank you.

HUNTER-GAULT: Jim?

LEHRER: Again, the major stories from the news of the day.Treasury Secretary Regan unveiled a plan to revamp the nation's tax system. It would lower the tax rates across the board, eliminate or modify many deductions and double the personal exemption to $2,000. The proposal is a result of a year-long study by a task force ordered by President Reagan to simplify the tax structure.

Also today Italian police arrested seven Lebanese men on charges they were members of an Islamic Holy War group about to drive a car bomb into the U.S. Embassy in Rome.

Good night, Robin.

MacNEIL: Good night, Jim. That's our NewsHour tonight. We'll be back tomorrow night. Thanks for watching. I'm Robert MacNeil. Good night.