The MacNeil/Lehrer NewsHour

INTRO

JIM LEHRER: Good evening. In the headlines this Thursday, President Reagan said the House trade bill was kamikaze legislation. New figures show a bright economic future ahead. A New York attorney was named to investigate Michael Deaver. And the U.S. lodged a fomal protest over Berlin passport restriction. We will have the details in our news summary in a moment. Robin?

ROBERT MacNEIL: After the news summary, we focus on two heated battles between Washington and the states: policing the 55 mile an hour speed limit and choosing nuclear waste dump sites. We have two debates. Then Judy Woodruff has a special report documenting the lobbying efforts of one special interest to modify tax reform. And we update the administration decision to abandon the SALT II treaty with today's critical reaction. News Summary

LEHRER: President Reagan took another swing at the House trade bill today. He said the democratic attempt to reshape the nation's trade laws would do much harm to American industries and jobs. He said it in a Washington speech to the National Association of Manufacturers.

Pres. RONALD REAGAN: This bill is so potentially destructive that even many of those who voted for it did so in the expectation it would be vetoed, and so never become law. Well, if it comes to that, I assure them they'll get their wish. The Democratic leadership may think this is clever politics in an election year, but the American people see this for what it is: kamikaze legislation that would take their jobs down in flames. This reactionary legislation would force American consumers to pay billions in higher prices, throw millions of Americans out of work, and strangle our economy as foreign markets slam shut in retaliation. This anti-trade bill isn't protectionism; it's destructionism.

LEHRER: In addition, Mr. Reagan told the NAN members a framework of an agreement had been reached with Japan to open Japanese markets to U.S.-made computer chips and to prevent Japanese chip makers from selling their products at unreasonably low prices here.

Also, it appeared today the U.S. economy may be in for some healthy growth. The government's major forecasting numbers turned up a 1.5% increase in April. It's called the Index of Leading Economic Indicators, and the Commerce Department said the 1.5 jump was the highest in nearly three years. Robin?

MacNEIL: Canadian Prime Minister Brian Mulroney expressed alarm today over what he called mounting protectionism in the United States. Mulroney told reporters there is nothing to justify the 35% tariff imposed by the U.S. on imported Canadian red cedar shingles and wall coverings. Canadians newspapers have made the tariff row a test of how well Mulroney's pro-Reagan government can defend Canadian interests in Washington. At the State Department, spokesman Charles Redman answered Mulroney.

CHARLES REDMAN, State Department: Since 1978 U.S. production and employment in the shakes and shingles industry has fallen by over 50%. The U.S. industry, consisting of small producers and small communities, could have been decimated without relief. That's the basis on which the U.S. International Trade Commission made its finding. The President then made his decision to impose such tariffs.

MacNEIL: The foreign ministers of the North Atlantic Treaty Organization met in Halifax, Nova Scotia today, and several of them urged Secretary of State Shultz to drop the U.S. threat to abandon the SALT II arms control treaty. We have a report from Terry Milewski of the CBC.

TERRY MILEWSKI [voice-over]: George Shultz is telling the allies that the U.S. may break out of the SALT II arms control treaty. The allies are nervous about that. The British Foreign Secretary, Sir Geoffrey Howe, says he understands the Americans are frustrated with Soviet violations, but he says he would much regret it if the U.S. did the same. That's a common line among the allies -- Joe Clark, for example.

JOE CLARK, foreign minister, Canada: The Soviet record of compliance has raised so many questions that the United States itself now no longer feels compelled to abide by the SALT II agreement. That is a profoundly disturbing development. And one we hoped would have been avoided.

MILEWSKI [voice-over]: For his part, Prime Minister Mulroney, who met the foreign ministers for breakfast this morning, bluntly predicted that NATO would not support the American view that the treaty is dead.

BRIAN MULRONEY, prime minister, Canada: That position would not be endorsed by NATO, certainly not by the government of Canada.

MILEWSKI: The SALT II treaty is by no means the only issue here. It's merely the latest symptom of a general concern within the alliance that Mikhail Gorbachev has seized the initiative on arms control. Several delegations here, including the Canadians and the British, are pushing for a more comprehensive and a more popular Western response.

LEHRER: President Reagan's decision to let the U.S. go over the limits of the SALT II arms control treaty drew fire today in Washington. The administration said the U.S. will exceed treaty limitations on bombers with cruise missiles and that Soviet treaty violations justified that action. Three former top arms control officials disagreed at a morning news conference. Former Defense Secretary Robert McNamara was one of the three. He said Soviet violations are not worth scrapping SALT II.

ROBERT McNAMARA, former Secretary of Defense: The action we are taking to respond to those violations is totally inappropriate. It will lead to a change or will lead to a perceived change in the military balance. It's true that the SALT limits are high, but at present they're the only limits we have. And without them, we will face a totally unconstrained arms race.

MacNEIL: In Berlin U.S. ambassador Richard Burt made a formal protest to the Soviet Union in the latest Berlin crisis. The East Germans have demanded that diplomats show passports at checkpoints in the divided city. Ambassador Burt said the allies have never recognized any measures by East Germany to hamper movement among the sectors of the city. Britain and France joined in the protest. Under agreements made with Moscow after World War II, the three Western allies enjoy special status in Berlin.

LEHRER: The death toll from the Chernobyl nuclear reactor accident was raised again today. Dr. Robert Gale, the American bone marrow specialist, said in Moscow 23 people have now died. Eleven of the victims had bone marrow transplant operations before they died. A Soviet radiologist also said today another 80 Chernobyl victims remained in extremely dangerous condition.

In Paris today, the stepdaughter of Soviet dissident Andrei Sakharov repeated Sakharov's offer to stop his public activities if he can move back to Moscow. Sakharov made the offer in a letter to Soviet leader Mikhail Gorbachev. He was exiled to the Soviet city of Gorky after he protested the invasion of Afghanistan. Sakharov's wife, Yelenna Bonner, was in London today, where she met with British Prime Minister Margaret Thatcher. Mrs. Bonner is returning to the Soviet Union after receiving medical treatment in the United States.

MacNEIL: A New York lawyer and former federal prosecutor was appointed today to be independent counsel to investigate conflict of interest allegations against former White House aide Michael Deaver. The prosecutor, named by a federal court in Washington, is Whitney North Seymour, Jr., a Republican former state Senator and former U.S. attorney in New York City. Deaver says he broke no laws, and denies that he traded on his friendship with President and Mrs. Reagan as a lobbyist for other countries. The court directed Seymour to determine whether Deaver's lobbying for Canada or Puerto Rico or any related matters show grounds for prosecution.

LEHRER: Also on the law enforcement front today, the trial of a former national security agency employee for selling critical communications secrets to the Soviet Union turned to the legality of the man's confession. Defense lawyers for Ronald Pelton challenged why FBI agents talked to Pelton for several hours without informing him of his right to remain silent or to have an attorney present. The Baltimore trial also continued to cause a stir between U.S. intelligence agencies and the press. A White House spokesman joined with the CIA and the NSA in warning reporters covering the trial not to disclose information that goes beyond what the government releases. CIA director William Casey has raised the possibility of criminal prosecution against news organizations which reveal sensitive information about U.S. communications intelligence. It was that kind of intelligence Pelton sold the Soviet Union.

Also, the FBI agent charged in connection with the case against Teamster president Jackie Presser was arraigned in Washington today. Special agent Robert Freidrick, head of the Organized Crime Task Force in Cleveland. He is charged with making false statements to the Justice Department in an attempt to scuttle the Presser investigation. A large group of his fellow FBI agents came to Washington today to show their support for Freidrick.They formed a long receiving line at the courthouse to shake his hand and wish him luck. The organizer of the trip said it was done as a personal show of support for Friedrich's 13 years of exemplary work as an FBI agent.

MacNEIL: There has been another suspicious death involving over-the-counter medicine. Police in Austin, Texas, said traces of cyanide were found in a bottle of Anacin-3 that belonged to a University of Texas senior who died May 21. The capsules were found in the dead youth's medicine cabinet. Police said they consider the death to be a homicide, but the investigation was continuing, and suicide had not been ruled out. The Anacin-3 had been purchased at a Walgreen's drugstore in Austin, and the Walgreens ordered all Anacin-3 off their shelves in their stores nationwide.

That is the news summary. Coming up, Washington vs. the states on the 55 mile speed limit and nuclear waste sites. Lobbying the tax reform writers in Congress. And an update on the SALT II treaty. Not in Our State

LEHRER: Our lead story tonight is actually two stories. One is about speed limits, the other about dumping nuclear waste. What they have in common are decisions made in Washington that have incited outrage and anger out there in the states. The nuclear waste story is first. Robin?

MacNEIL: The federal government had news for the states on a touchy subject: nuclear waste. But it was good news for some states, and bad news for others. The Department of Energy officially announced that the country's first nuclear waste disposal site would be in one of three Western states: Washington, Nevada or Texas. But the government also said it was dropping plans to build a second nuclear dump site in the eastern half of the country. The news sent a sigh of relief through the states that were let off the hook, but for the states that were selected as finalists, the battle is just beginning. We join it now with the governor of Nevada, Richard Bryan, whose state has sued to stop the plan. He joins us tonight from Reno. And on the other side, Ben Rusche of the Department of Energy. He oversees the nuclear waste program as head of the Office of Civilian Radiactive Waste Management. Mr. Rusche, what do you think of the very negative reaction this decision has stirred up in the Western states?

BEN RUSCHE, Energy Department: Well, I suspect that the states almost certainly have to react in this manner as a first reaction. On the other hand, I hope that the states will realize it is for the good of the country that we are trying to find a suitable site for disposal of the waste, and that we'll be able to work together after the reality dawns on folks.

MacNEIL: The people in Nevada have lodged a five point lawsuit against your department, accusing you of operating illegally -- not within your own guidelines -- that you didn't make any money available for the state to study the feasibility of the plan there, that no DOE study was done before this decision narrowing the choice to Nevada as one of the three. What do you -- how do you answer them?

Mr. RUSCHE: Well, we would say that on the contrary, we have conducted extensive studies for a number of years. In fact, we have added almost a year and a half to the program for the participation of the states and others to be involved in such effort, and we have, indeed, provided funds -- in fact, have had a recent decision by the Ninth Circuit Court of Appeals in which we have attempted to comply and provide funding for the states to participate.

MacNEIL: Why did you eliminate those Eastern states that had been tentatively selected as possible sites for a second dump?

Mr. RUSCHE: The secretary and I had evaluated the issue over the last several months, and in a couple of hearings recently I indicated that when we'd solved very firm progress on the first repository and we had some indication that the Congress was going to react favorably to monitored retrievable storage, that we thought it was time to take a look at the second siting activity. It's much too early, we now realize, because of the rate at which fuel is being generated and because of the fact that we would have to spend money 10, 15 years in advance of the time when it's needed. Therefore, we decided to put that program, at least the site-specific activity, in abeyance for some several years.

MacNEIL: So it is not totally foreclosed.

Mr. RUSCHE: Indeed it is not. In fact, we will continue technical work -- the research work with our partners in the international community -- and if and when the need becomes evident, we will be prepared to restart that program. The only thing is that the states that have previously been involved in the East will be just like all the rest of the states. We will start from scratch, in effect.

MacNEIL: So when an aide to the governor of Mississippi said he'd come closer to believing they were really off the hook if the President, the Secretary of Energy and everybody else in Washington sent them a letter assuring them it was closed once and for all, you can't assure him it's closed once and for all. Is that right?

Mr. RUSCHE: I can not, in that the act of Congress is for us to find a suitable site that's safe and environmentally acceptable, and we have focused the attention on the three states in the West, but we must continue our search until we find a site.

MacNEIL: Let's go to Governor Bryan in Reno. Governor, why do you say the DOE has acted -- the Department of Energy -- has acted illegally in this matter in question?

Gov. RICHARD BRYAN (D) Nevada: Well, there are several reasons. We believe that they have complied -- failed to comply with both the spirit and the letter of the law in that we have consistently had to fight them in court to get funding to conduct the independent scientific studies. We believe that they have narrowed the selection process in violation of the law. And we also believe that it violates only the spirit of what the Congress contemplated, in terms of the second tier states to be designated. But I think it's important for us to emphasize that our objections are on two major fronts. First, we feel it is unfair for Nevada to be designated, because for more than 20 years we've had a low level nuclear waste dump in our state, and we have conducted the atmospheric testing program for the Atomic Energy Commission prior to the Department of Energy's formation.

MacNEIL: You think that Nevada's getting more than its fair share of nuclear -- of the nuclear efforts of this country, do you?

Gov. BRYAN: Yes, that is the position. We don't have any nuclear reactors in Nevada. And most of the materials that are being contemplated for storage are the spent fuel rods of those nuclear reactors. We also believe that procedurally the process has been flawed. And there is, I think it's fair to say, a monumental credibility gap between the Department of Energy statements and their actions. So Nevadans are up in arms.

MacNEIL: What do you feel, being up in arms, what do you feel about the Eastern states being eliminated?

Gov. BRYAN: Well, that smacks of politics. Unfortunately, this process, I think, has been highly politicized from the start. Former Secretary of Energy Hodel, before Secretary of Energy Herrington was appointed, made statements several years back that part of the decision making process would hinge upon the state's objection or the vociferous objection to its location in that particular state.That obviously suggests to us that a basis other than scientific feasibility will be the criteria. And we've seen the follow up with the reluctance to make funds available, and, frankly, representatives from the Department of Energy come out to Nevada and assure Nevada committees certain things will occur, and they've returned to Washington and, literally before the ink was dry on the paper, they've done a literal 180 in terms of their positions. So there's a great deal of distrust in Nevada with the Department of Energy.

MacNEIL: Why didn't -- it's no secret that the Eastern states banded together and fought like demons politically against this.Why didn't your state fight as hard politically as the Eastern states did?

Gov. BRYAN: I'd have to say that that's been a great source of frustration and irritation for me.Congressman Reid fought aggressively. But the rest of Nevada's Congressional delegation took a --

MacNEIL: Refresh my memory. Congressman Reid is a Democrat?

Gov. BRYAN: That is correct.

MacNEIL: Like you are.

Gov. BRYAN: That is correct. And we have taken a position for the past three years that we've opposed it. We've urged the rest of our delegation to join with us. They've refused to. They've taken a wait and see attitude. Even now at the eleventh hour they've joined in the lawsuit, but we really don't have a clear statement from them that they are opposed to Nevada's being cited as a high level nuclear waste dump. I think Nevada pays the price as a result of that.

MacNEIL: I see. Mr. Rusche, is it true you didn't hear from Nevada Republicans expressing strong --

Mr. RUSCHE: On the contrary, I've spent a fair amount of time working with members of Congress, and I have spent a large amount with the Republican members of the delegation, as well as with the Democratic member. I would say that the governor's statement that there's doubt about where the other members of the delegation stand is just not consistent with the messages that have been given to me. They've made it very clear to me that they object to Nevada being the site of the repository. They have made statements of recognition of the national need. But we've attempted to work together with all of these folks to solve this national problem. As a matter of fact, we're about to move some fuel out of Nevada right now with the insistence of the governor and the insistence of the delegation to try to be responsive to their concerns. And we appreciate that. But I can tell you I do not see the politics that the governor sees sitting where I sit.

MacNEIL: Governor?

Gov. BRYAN: Well I must say that Mr. Rusche has heard what no other Nevadan has heard, and that is the position of the Republican delegation saying that they are opposed to the location of the dump site in Nevada. No Nevadan has heard that statement, to my knowledge.

MacNEIL: But you have heard it, Mr. Rusche?

Mr. RUSCHE: I indeed have.

MacNEIL: Okay.

Gov. BRYAN: I'm delighted to hear that. I'm most pleased.

MacNEIL: Government, put it this way: doesn't it make more sense for the government to place nuclear waste in a part of the country that is much more sparsely populated than in the Northeast, where it's very heavily populated?

Gov. BRYAN: Well, if one accepts that premise, there are a number of places other than Nevada. For example, Washington and Texas -- the two alternate sites that are being discussed in this first tier. There certainly is ample space, in my judgement, in those states. Our argument is one of fairness. We've done our fair share in the national interest, both in terms of defense, scientific research and technology. It seems only fair that the burdens of the nuclear age, and Chernobyl certainly brings those forcibly to our view, that those ought to be shared and spared one state from accepting it all. Now it appears that one state, and we suspect that it's Nevada, is going to get all of the high level nuclear waste dumped for the entire nation, as a result of the decision to postpone indefinitely the second tier siting process.

MacNEIL: Is there -- is that it, Mr. Rusche? Is the plan really -- has it been all along to put it in Nevada and you've just been going through the motions of talking about these other states?

Mr. RUSCHE: I can assure you that's not the case. Today happens to be my second anniversary in this job, and I can tell you from the very beginning that this administration and this government is of the view that we must find a place that is technically and environmentally acceptable, whether it be in Nevada or where. And we will, indeed, base the decision on those technical issues.

MacNEIL: Let me ask you another question. You said a moment ago that the Eastern states, which have been eliminated for the time being, couldn't count on it being an irrevocable decision. As the Department of Energy in the future assess the need, it might find it necessary. Does that mean that if governors like Mr. Bryan and the governors of Washington and Texas whip their people up into a real storm and the political heat gets enough, that the Department of Energy could go back to the East and start looking again?

Mr. RUSCHE: I'd like to think that the political heat would not have that effect. Congress provided in the law the place where politics takes place. That's at th time the President makes a final decision. Congress reserved that political choice to itself. In the meantime, for this work for the next five years or so and looking for a second repository if it's ever necessary, it's a technical venture.

MacNEIL: So do you, Governor, do you see that as a call to you to be patient until the President makes a final choice and then start politicking?

Gov. BRYAN: Not at all. I think that the only hope that Nevada has of being spared this is if we can get our Congressional delegation -- and what Mr. Rusche tells me is assuring; that they are at least with us now; they have not been in the past three years, I can tell you that -- and if we all work together out here in Nevada, I think we can impress upon the President and the nation that in the interest of fairness, these kinds of decisions can not be left to a single state -- that they must be shared, and that the burdens of nuclear energy, in which Nevada does not participate in its benefits, ought to be shared not only throughout the West, but around the country. And I would hope that Mr. Rusche and those under his direction and the Department of Energy would pursue that approach.

MacNEIL: Well, gentlemen, thank you both for joining us -- Governor Bryan in Reno and Mr. Rusche in Washington.

Mr. RUSCHE: Thank you.

Gov. BRYAN: Thank you. Lobbying for a Loophole

LEHRER: When the Senate comes back from its Memorial Day recess next week, its first and major work will be on tax reform. But while they've been gone, many a lobbyist has had it as their first and major work, and Judy Woodruff reports on that. Judy?

JUDY WOODRUFF: Many of the nay-sayers had to eat their words a few weeks ago when the Senate's tax writing committee came up with a far-reaching plan to overhaul the current tax code. With its call for dramatic cuts in tax rates for both individuals and corporations, it has attracted a broad coalition of support. But to pay for the lower rates, it gets rid of a lot of tax breaks. And that has one industry in particular really worried.

1st Man: We could be looking at a number of foreclosures on investment properties as a result of the tax law changes, and could throw a large part of our whole real estate financial network into chaos.

2nd Man: And it will hurt a lot of both small, medium and large investors.

3rd Man: And I think that real estate, by itself, took too much of a hit.

WOODRUFF [voice-over]: When the 20 senators on the Senate Finance Committee unexpectedly agreed earlier this month on a radical plan to overhaul the tax system, eliminating hundreds of loopholes in the current code, many would-be critics said they were pleasantly surprised, but not the real estate industry.

WAYNE THEVENOT, National Realty Committee: When the bill finally emerged from the committee, they were a bit shocked and stunned by it.

WOODRUFF [voice-over]: Wayne Thevenot heads up the Washington office of a group of some of the nation's largest real estate developers.

Mr. THEVENOT: I think the virulence which the anti-real estate provisions came down caught everybody a bit off guard. We did not expect that reason would be tossed out the window and political expedience would be the -- the total motivating factor behind this.

WOODRUFF [voice-over]: Within days the organizations representing all aspects of the real estate industry were mobilized. Conventions already planned in Washington turned into critical strategy sessions, drawing real estate people from all over the country who might not have otherwise shown up. What had sent them into a state of near panic? Primarily these provisions in the Senate Finance Committee bill: that investors in so-called real estate syndicates or partnerships can no longer claim the mostly paper losses generated from such deals against their tax bill; that this new rule applies retroactively to investments already made; that the number of years over which a property owner is permitted to depreciate the value of his property or subtract its cost from his taxes will be substantially increased; and that the top tax rate on so-called capital gains -- properties sold for a profit -- would be raised from 20% to 27%. It was enough to energize thousands of people who make their living from real estate, like the members of the National Association of Home Builders.

JIM FISCHER, National Association of Home Builders: You are here for one purpose. The main purpose is to visit your congressman and your senator. It's very important that you do this. Because you make a difference. What we are asking them to do is to be fair and equitable with us. Because we feel like that there's some provisions that are very fair and some that aren't.

WOODRUFF [voice-over]: The home builders weren't the only ones heading for Capitol Hill. A couple of days earlier, thousands of members of the National Association of Realtors boarded several dozen buses at their hotel with plans to meet with as many of their Congressional representatives as would make time of them.

GARY HERMAN, Los Angeles: My clients invested for good economic reasons, not for tax shelter. And they need the -- they're putting their money at a lot of risk. They have no -- when they buy a property, in many cases, they have no tenants, and they're taking a risk. And we feel that they should be compensated for this risk.

ED CRAMER, San Diego: I handle properties for widows, retired military widows, and schoolteachers and so forth. And some of those people spent many years acquiring two or three small pieces of property. And now, unless they can take a hammer and go out and do the actual management of the property, they won't be able to deduct the cost of maybe a new roof or plumbing repairs and so forth. It's absolutely unconscionable to single out this particular industry and say, "unless you personally manage it."

WOODRUFF [voice-over]: South Carolina realtors converged on the office of Congressman Carroll Campbell.

MILTON SHOCKLEY, Greenville, South Carolina: You've been a strong advocate for us, you know, in the real estate industry, and we really appreciate it and thank you for all your stands on past legislation. We can understand the attitude of wanting to get to the limited partnerships and the fat cats that maybe our industry has enjoyed in the past in terms of being able to get tax write-offs, paper losses and not actual losses. But now that we see that the actual losses are in danger -- have you had a chance to look at any of that, or to develop and concepts that might could help us or --

Rep. CARROLL CAMPBELL (R) South Carolina: Well, the passive losses of a tax shelter are gone. So I mean, if you have any idea of trying to save most of that, it's gone.

WOODRUFF [voice-over]: Campbell agreed with his constituents that so-called passive investment tax shelters ought to be considered differently from actual losses. The losses from passive shelters are used to reduce a tax bill. Actual losses reflect real cost to the owner of a property. But Campbell says his colleagues in Congress may not distinguish between the two.

Rep. CAMPBELL: That's where we're going to have a problem -- trying to get that point across that there's a major difference between the two. Because what you have is a tendency by people to oversimplify. They come in and they say, "Okay, everything's a shelter. And every shelter's bad. Let's get rid of it." And that's where we're going to have a hard time trying to explain that.

WOODRUFF [voice-over]: But with overall rates coming down, Campbell was less sympathetic toward his visitors' concern that the top tax rate on capital gains might be raised.

Rep. CAMPBELL: It's, in my opinion, and I'm very much a proponent of lower capital gains for an investment, it is not as traumatic as some people would like to make it out to be at this stage of the game, I don't think.Not if we can get those rates down that low.

WOODRUFF [voice-over]: But many of the realtors felt they had heard what they wanted to hear by the end of a meeting-packed day on Capitol Hill.

Mr. CRAMER: It's absolutely a disaster in the opinion of these four different congressmen that I talked to today. They were appalled that this could be applied.

WOODRUFF [voice-over]: A few days later, when the home builders came to Washington to lobby their members of Congress, they found some sympathetic ears as well -- particularly those of California Democrat Alan Cranston.

BOB BANNISTER, National Association of Home Builders: We see that real estate and housing is being treated differently than oil and gas, macadamia nut farmers, and other things. So if you'd, you know, look at that application, we think that that's very important.

Sen. ALAN CRANSTON, (D) California: Well, I'll do my best to see that the industry's treated fairly. There's no reason for it to be treated otherwise.

Mr. BANNISTER: We're not saying that we don't want to take -- you know, we won't take our fair share. You mentioned earlier that we've taken dramatic cuts in housing subsidy programs over a number -- the past four or five years. And as a result, the tax quota is grabbing at national housing policy. If you take away those incentives, we won't have low to moderate income building, which you've been a strong advocate for, and we appreciate that.

WOODRUFF [voice-over]: Even so, Cranston stressed the need for other provisions that would reverse the current trend toward over-building of commercial developments.

Sen. CRANSTON: That really has become ridiculous where, in Houston and Denver and other places, there have been millions of square feet built that are unoccupied, and plainly that depreciation schedule that encouraged that to happen has to be revised and should be revised, and I'm certainly going to join in the effort to see to it that it is revised. But where housing is concerned and where investments made in good faith are concerned in the past, I'm going to be doing my very best to be a part of it.

WOODRUFF [voice-over]: The California builders were impressed with Cranston. They told their national officials that, back at a session to discuss how the Congressional contacts had gone.

HARRY CROWELL, Upland, Georgia: He spoke for about 15 or 20 minutes and surprised the heck out of me. He was so up to date, and he spoke the way we had been talking among ourselves, and he sounds like he has a good vote for us.

WOODRUFF [voice-over]: The builders traded assessments of each congressman's willingness to support changes in the tax plan.

Mr. CROWELL: If the investor is not making money, if they have no way to write off their losses, there are going to be a lot of foreclosures. If there is a rash of foreclosures and a lot of lenders in the Federal Insurance Guarantee Corporations are going to be stuck with a lot of failed savings and loans and banks because of it, you may -- we may see a change. It could be a very big thing. I don't think any of the congressmen that are writing this bill are aware of this fact. I really don't. Because it was brought up to each one that we were in, and when Hal Bullox brought it up, you should have seen Mitsui's face drop. He had no inkling that this was a part of the problem.

WOODRUFF [voice-over]: But at another session, the home builders found that even among the members of Congress who know the industry will be hurt, there is a strong desire to make the tax changes. Iowa Republican Senator Charles Grassley said, for example, that he and others on the Senate Finance Committee took the fact that rents would go up into consideration when they voted on the bill.

Sen. CHARLES GRASSLEY (R) Iowa: We concluded that on residential rents that they'll go up 15% or maybe even a little bit more. As in any big-stakes game, there are some winners and losers among the groups that play the game of tax reform. And there's not an interest group in town, it seems to me, that isn't involved in the whole issue of tax reform. Now, for the home builders industry generally, I think it's too early to tell if anyone is going to lose their shirts, and some are, I would presume. But I don't know.

WOODRUFF [voice-over]: In fact, the feelings of many members of the Senate were reflected by Democrat George Mitchell of Maine when he was asked about charges that the real estate industry was unfairly singled out by the finance committee bill.

Sen. GEORGE MITCHELL (D) Maine: That, of course, reflects the reality that under the existing tax code they get more preferences than anybody. So if you say you're going to eliminate preferences in deductions, those who possess them are the most likely to be hurt.

WOODRUFF [voice-over]: Wayne Thevenot, of the National Realty Committee, disputes that.

Mr. THEVENOT: Unfortunately, it is a belief that's held very strongly by some people, and I think it's fed by the over-building that's afoot in the society at the moment in the commercial real estate field.

WOODRUFF [voice-over]: But Mitchell says what bothers him and others the most is that too many wealthy Americans are using the real estate provisions of the tax code to avoid taxes altogether.

Sen. MITCHELL: In the last year for which we have information, well over 30,000 Americans -- individuals -- filed tax returns reporting incomes in excess of a quarter of a million dollars a year. And over 10% of them -- that's about 3,100 -- filed tax returns reporting incomes of over $1 million a year, and paid virtually no taxes. Now, that's really wrong. How do they do it? They do it by investing in these so-called syndicated projects in which paper losses are created and are used to offset other income. And persons with very high incomes then avoid paying any taxes whatsoever.

WOODRUFF [voice-over]: Thevenot's response:

Mr. THEVENOT: That is true. Absolutely true. And they have also made investments in a lot of other things -- research and development, oil and gas.

WOODRUFF [voice-over]: One of the firms Thevenot represents is the Trammell Crow Company, the country's largest developer. Its head, Don Williams, acknowledges that some projects have been put together primarily for their tax benefits. But he told producer Carol Blakeslee they are in the minority.

J. MacDONALD WILLIAMS, Trammell Crow Company: Many of those deals, interestingly enough, right now are in foreclosure or being defaulted on. They have failed. And therefore, the people who put them together are failing. So the concept of a tax-oriented business is already failing in the marketplace. And we did not need this new tax law to change those market realities and to have an entire industry broad-brushed because of the abuses of a few. Seems to me there's a misunderstanding and mischaracterization of our industry.

WOODRUFF [voice-over]: Nevertheless, the industry's most sympathetic supporters, like Colorado Republican Senator Bill Armstrong, say the prospects for changing the tax bill on the Senate floor are not good.

Sen. BILL ARMSTRONG (R) Colorado: First, because any amendment must be revenue-neutral. In other words, if we offer an amendment which is going to restore a tax benefit and cost money thereby, we've got to be prepared to show where we're going to pick that money up. And at the moment I don't know where to do that. I do not think that at the moment the viewpoint that I hold on this matter is very popular. There's a handful of senators who understand it very well, but most of my colleagues simply are not tuned in to this concern. Most of my colleagues are not businessmen, you understand. Most of them do not have an instinctive understanding of what this kind of a tax change does to the real estate values that underly these investments.

WOODRUFF [voice-over]: Senator Mitchell, however, insists he does understand the remifications, and says the real estate interests had better be prepared for a change.

Sen. MITCHELL: I don't believe the present system can be defended. I don't think it ought to be retained. And they will fail if they make that effort. Rather, I think what they ought to do is try to figure out narrowly and as carefully as possible what adverse affects will occur, and how can an effective transition to a new system be made in a way that will minimize the adverse effects.

WOODRUFF: There are two additional hurdles the industry faces: that Senate Republican Leader Robert Dole has said he will oppose any effort to amend the tax bill on the Senate floor; and that next week's debate will be the first ever carried on national television. Persuading senators to vote for special interests like real estate, even for a good cause, is expected to be harder than ever under the glare of the TV lights. SALT II

MacNEIL: Now an update on a running story this week. On Tuesday the Reagan administration announced that the U.S. would scrap two submarines and would remain in compliance with missile limits established under the 1979 Strategic Arms Treaty with the Soviet Union. The announcement was interpreted as a decision to stick with the SALT II treaty, at least temporarily. And the initial response on Capitol Hill and elsewhere was mostly favorable. But on Wednesday administration officials, including Defense Secretary Weinberger and Arms Control Advisor Paul Nitze on this program emphasized that the administration no longer felt bound by the unratified treaty. Today a group of former officials held a news conference and warned that the decision could lead to a Soviet arms build up which the United States would have trouble matching. Here are some excerpts from that news conference.

PAUL WARNKE, SALT II negotiator: I think that there are too many people in the Reagan administration who get confused about what the purpose of arms control is. They don't recognize that the sole purpose is to improve our nationel security. And that's the test that has to be applied in determining whether or not to enter into an arms control agreement and whether to continue to abide by its terms. I think that the decision of two days ago is a gratuitous exercise in callously floating the provisions of a treaty, while it would clearly be to the advantage of the United States to continue to adhere to that treaty. The objective in both SALT and START has been to reduce the number of Soviet MIRVed, land-based ICBNs. At the present point, as I say, they're up to the SALT limit. They are now deploying the SS-24, which is a land-based ICBM with ten warheads each. If the SALT limits continued, they would have to take out of service existing SS-17s, 18s and 19s to accomodate the SS-24s. As it is, they get a free ride. They can add the 24s to their force. So what we are facing now is Soviet actions that in a relatively short period of time and with no massive expense that will add probably at least twice as many ICBM warheads as they have at the present time.

Mr. McNAMARA: Without SALT, those limits will be swept aside. And the entire structure of offensive arms limitation, which has been laid down over a period of 15 to 20 years by four presidents -- presidents Johnson, Nixon, Ford and Carter -- will be destroyed. Now why did those four presidents negotiate these arms control agreements? For exactly the reason Paul pointed to -- they believed it was in our national interest to do so. They didn't negotiate them because they trusted the Russians. They didn't negotiate them because they were trying to in some fashion be sweet to the Russians. They negotiated them because they believed they were in our interest, and every single one of them was supported by the joint chiefs of staff for exactly that reason.

Mr. WARNKE: It seems to me that it's a totally unambiguous statement. I was startled at the headline in the Washington Post that Reagan is going to continue to comply with SALT. I mean, it's time we take this guy at his word. He usually means it. And what he says is that "I have determined that in the future we're not going to base our decisions on the standards of SALT. We're going to do it, instead on the basis of the threat that we face." So what he has said is we are no longer constrained by SALT. Now certainly he can do it. It's not illegal. There is no existing, legally binding treaty. But I guess it was Talleyrand who said, "It's worse than a sin; it's a mistake."

Mr. McNAMARA: The problem is, what do the Soviets think? They're reading us as moving toward superiority -- technical superiority, offensive superiority, defensive superiority, and a first strike capability, period.

Mr. WARNKE: It doesn't seem to me that telling them that arms control is dead is going to encourage them to be forthcoming in arms control. It just -- it just doesn't add up. The President says he wants the Soviets to reverse their massive strategic build up. As we implement our strategic modernization program. Again, I just don't think that they're going to buy that. They're not going to feel that we can go ahead withour strategic modernization program but they can't.

MacNEIL: Now to the recent spate of spy scandals. Are they connected to a massive Soviet bloc effort to acquire U.S. technology? To protect that technology, the U.S. government is enlisting private industry into its own counter-espionage stride, but there are questions about the effectiveness of that campaign. Jeffrey Kaye of KCET, Los Angeles, looks at stepped-up efforts to guard technology in Southern California, which, according to those who say they know, is a focal point for spies.

JEFFREY KAYE [voice-over]: At major ports around the country, customs inspectors seek out technology being shipped illegally to the Soviet bloc. At defense plants FBI agents sound the battle cry against espionage.

FRED MILLER, DCA: I ask you to do one thing when you leave here. Go out and find me just one spy. One little spy, and you'll make my day very happy.

KAYE [voice-over]: At aerospace firms, security experts pass on tips gleaned from spy movies.

JOSEPH MELLITT, Hughes Aircraft: This is part three from our Man from Moscow series. It's the concluding episode.

KAYE [voice-over]: All this is part of an ambitious program aimed at stopping spies and preventing communist countries from acquiring U.S. technology. In a recently declassified study, the Department of Defense estimated that each year the Soviet bloc's military machine obtains over 5,000 U.S. technological innovations. Officials say the struggle to keep U.S. technology out of communist hands requires constant vigilence.

Security Guard: Good morning, may I see your badge please, sir?

KAYE [voice-over]: Southern California-based Hughes Aircraft Company is one of the most enthusiastic participants in a program to step up safeguards on classified technology. Hughes top secret projects include work on the Strategic Defense Initiative -- Star Wars. Like other major defense contractors, the company has an elaborate security system of badges, access points, and background checks on prospective employees. But these efforts do not guarantee total security.

Mr. MILLER: William Holden Bell. Somebody very close and near and dear to a lot of you. How many of you knew him here? Or ever met him? Or will admit to it?

KAYE [voice-over]: Bell, an engineer with Hughes, was convicted in 1984 of selling classified information to a representative of the Polish government. All of Hughes' security precautions then did nothing to stop Bell. Moreover, nothing Hughes has in place now would prevent another Bell from doing the same thing today. Joseph Mellitt is a top Hughes security official.

[on camera] Could Bell operate today?

Mr. MELLITT: He could, yes.

KAYE: Undetected?

Mr. MELLITT: Undetected.

KAYE: Despite everything they're doing.

Mr. MELLITT: Despite everything they're doing, yes. And I think the reason is because of the fact that the individual who is -- assuming that the individual is recruited -- can beat the system, because it's a human system. It's not an infallible system.

KAYE [voice-over]: Millett's job is to insure that Hughes workers are trustworthy and cautious. He once ran the FBI's counterintelligence training unit. Now he works for Hughes, warning employees that Soviet bloc agents are after them. He uses posters, reruns of old spy movies, and lectures by guest experts, including FBI agent Fred Miller. Miller helps run a program known as DCA -- Develop Counterintelligence Awareness.

Mr. MILLER: And why do they do it? Next slide. Pays in one word. They do it for money. The intelligence officer's not going to walk up and say I'm Ivan and I want to have you commit espionage. You know, he's going to walk up and he's going to be very friendly to you.

KAYE [voice-over]: Miller warns Hughes employees to beware of any open discussion that might expose their vulnerabilities.

Mr. MILLER: My personal problems, financial problems, job dissatisfaction, problems in the company, where a company is going, people that might be laid off, to be very careful to what you say and what you do. Such "innocuous comments" to individuals about your personality or personality problems other people have can come back and be used against you. You are the target; you must develop counterintelligence awareness.

KAYE [voice-over]: The FBI says it has conducted counterintelligence programs in 9,000 companies in five years. The programs encourage employees to keep watch over their coworkers and to report all contacts with Soviet bloc nationals, no matter how casual.

Mr. MELLITT: We have not had any specific reports coming back from any of our employees in recent, or let's say in the last eight or nine or ten months that they have in fact been approached by foreign hostile elements.

KAYE [voice-over]: At the Rand Corporation -- a think-tank in Santa Monica, California -- researcher Arthur Alexander says counterintelligence campaigns like those at Hughes have yet to prove themselves.

ARTHUR ALEXANDER, Rand Corporation: That's hard to say. I haven't seen any that were effective. The cases that seem to -- where people are caught are caught from classical means, and I don't know of any where they've been caught through industrial security procedures.

KAYE [voice-over]: Alexander says he can't tell if the U.S. is witnessing an increase in espionage or an increase in spy-related publicity.

Mr. ALEXANDER: We've seen a number of cases quite recently of an increased number of people coming to trial, being detected. It's not clear to me whether in fact that's because the Russians have more spies here, whether we're catching more of them, or whether we're just publicizing more of them. We've caught them in the past and haven't publicized it for security purposes.

KAYE [voice-over]: Spying accounts for only a small part of the Soviet bloc's acquisition of technology. According to the Pentagon, well over 90% of the material gathered by Eastern European countries is nonclassified -- even commercially available. It is the job of the U.S. customs service to stop the illegal flow of nonclassified technology. Inspectors with the custom service's Operation Exodus monitor outgoing cargo. Here at the port of Long Beach, California, the day begins with a visit to a shipping office to see what's on the export list.

Customs Official: Guided missile repair parts?

KAYE: You saw something in the bill of lading that said guided missile, and you didn't think anything of it this morning.

Customs Official: Because it had a Department of State license on there, and it was also authenticated.

KAYE [voice-over]: The main concern of Operation Exodus is not what commodities are leaving the country, but where they're going. Most of the technology that the program seeks to protect can be bought and sold freely within the U.S. Some items can be had at the local computer store.

FRED JOY, U.S. Customs Service: Basically we're looking for computer systems, machinery, or other systems that will build computers.

KAYE [voice-over]: Fred Joy and other customs inspectors police outbound cargo. After looking over paperwork, they select containers for inspection. To them, the most suspicious shipments are prepaid ones billed to post office boxes. But other things also attract their attention. This crate is supposed to contain graph paper, but Inspector Joy suspects the box is too sturdy for the contents listed.

Mr. JOY: On numerous occasions we've received documents which will indicate that a certain commodity is being exported, and as a result of our spot checks, we'll open a container and find it's something entirely different -- an illegal export going out.

KAYE: But not here -- just looks like chart paper, huh?

Mr. JOY: I don't think this would be any threat to national security if we let this one go out.

KAYE [voice-over]: Here, just four customs inspectors conduct random checks of cargo destined for export.

[on camera] It is an uphill battle for Operation Exodus. More than half a million containers are shipped out of this port every year. By its own estimate, the customs service spot checks less than 1% of them.

[voice-over] A 1983 Congressional investigation concluded that Operation Exodus uncovers little smuggling.But customs officials in Southern California are proud their investigations have resulted in 33 indictments since the operation began here five years ago. One case officials point to as a triumph also raises questions.

EDWARD KING, convicted smuggler: It's probably going to cost two, three hundred bucks for parts and maybe five to six or seven hundred dollars to get an EPROM programmer.

KAYE [voice-over]: Computer engineer Edward King works on his consulting business out of his cramped apartment in Anaheim, California. King has just been released from two years in federal prison. He was convicted of smuggling computer manufacturing equipment.

Mr. KING: Oh, I exported coding polishing equipment to Bulgaria by way of Amsterdam.

KAYE [voice-over]: Acting on a tip, customs agents followed an international trail. It started with this producer of computer manufacturing equipment in South Los Angeles, which happened to be an innocent party in the transaction. The trail then led to Amsterdam, where the equipment was initially shipped. And then to Bulgaria, the final destination. When he was caught in 1983, King pleaded guilty.

Mr. KING: I knew I was breaking the law, yes. But I didn't think the government really cared about this level of technology. That was what I thought at the time.

KAYE [voice-over]: King still maintains the equipment he shipped the Bulgarians did not harm U.S. security. He says the hardware was virtually obsolete by U.S. standards -- a view supported by independent computer experts we consulted. But customs officials say U.S. national security was compromised.

[on camera] And did the United States suffer because of the shipment?

JOSEPH CHARLES, U.S. Customs Service: Yes, the U.S. did suffer.

KAYE: How do you know?

Mr. CHARLES: It gave to the Bulgarians the advantage of having this equipment.

Mr. KING: There was no high technology involved in it. The technology is anywhere from 20 to 100 years old. The basic patent for the coding process was given in 1962 to IBM, which means that at that time the patent had been expired for two years.

KAYE [voice-over]: The campaign to stem the salesof high technology to the Eastern bloc is a hit and miss affair. Some experts think customs is trying to control too much -- much more than its personnel can monitor.

Mr. ALEXANDER: I think we could perhaps fine tune the process to attempt to decide -- a very difficult problem -- to attempt to decide what are the critical technologies that we do not want to see the Russians get, and to put our efforts more focused into those particular things, rather than the tens of thousands of items on the lists today that are -- that it is illegal to ship out.

KAYE [voice-over]: The list of items the U.S. has banned from export to the Soviet bloc fills a book -- one that has more than doubled since 1980. Even as technology advances, outmoded items stay on the list. In addition, priorities change.

Mr. JOY: It's an ever-changing thing, as is the list of foreign countries which one day may be okay and another day have fallen out of favor with the U.S. -- most recently, the Libyan embargo.

KAYE: Does that mean that because of the focus now on Libya, you're letting things go that you wouldn't have let go that are going to Eastern bloc countries? There's only so much you can do, right?

Mr. JOY: There is only so much we can do. Like I said, it's a question of priorities.

Customs Agent: If we're aware of it, it doesn't get -- we don't let it go.

KAYE: But there's only so much you can spot check.

Mr. JOY: Well, who can say what's going out?

KAYE [voice-over]: But --

Mr. JOY: Basically I understand where you're coming -- I understand where you're coming from, okay? Yeah, sure, obviously, if we're checking -- today we're looking for Libya effects only, so we might be subject to maybe to let a couple other vessels slide, whereas before we might --

KAYE [voice-over]: The electronics industry believes that Operation Exodus hurts U.S. business by restricting sales of relatively innocuous technology. Researcher Arthur Alexander once put the following provocative question to Defense Department officials.

Mr. ALEXANDER: What would we do if the Russians came and said they wanted to buy thousand pound bombs?What should be our response to this? I would say we should sell them to them. They produce bombs themselves, they've been producing them for 50 years. There's no technology in there that they don't understand. There is nothing really that we are denying them by not selling them bombs, and we would be denying ourselves the trade involved.

KAYE: Alexander's notion is rhetorical. He does not suggest that the U.S. sell weapons to the Soviets. But his argument does raise serious policy questions. At a time when the U.S. trade deficit is a matter of national concern, restrictive export policies are coming under increasing scrutiny, even as the war on spies intensifies.

LEHRER: An editor's note: our planned segment on the 55 mile speed limit had to be scrubbed tonight for technical reasons. Our apologies to all concerned.

Again, the major stories of this Thursday. President Reagan called the House-passed trade bill kamikaze legislation that would seriously damage American industry and jobs. The Commerce Department's index of leading economic indicators showed a 1.5% jump in April -- the largest increase in nearly three years. And New York City lawyer Whitney North Seymour, Jr. was named special independent counsel to investigate conflict of interest charges against former White House aide Michael Deaver. Good night, Robin.

MacNEIL: Good night,Jim. That's our News Hour tonight. We'll be back tomorrow night. I'm Robert MacNeil. Good night.