The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. I'm Jim Lehrer in Washington.

MS. FARNSWORTH: And I'm Elizabeth Farnsworth in New York. After our summary of the news this Tuesday, we focus on a powerful earthquake that rocked Japan yesterday. Then many views of the middle class tax cut from Business Correspondent Paul Solman, some citizens of Colorado, and two potential tax cutters, Republican Representative Bill Archer and President Clinton's economic adviser, Laura Tyson. NEWS SUMMARY

MS. FARNSWORTH: Fire and rescue teams in Japan are still struggling with the aftermath of the country's worst earthquake in half a century. The early morning quake was centered close to the port city of Kobe, but there was also extensive damage in nearby Osaka, Japan's second largest city. At this hour, at least 1800 people are confirmed dead, but nearly 1,000 are still missing. Six thousand others have been injured, and as many as seventy thousand were made homeless. Most of the deaths and devastation occurred in Kobe, where thousands of buildings collapsed. Ruptured gas lines set off scores of fires throughout the city. Many commuter trains were derailed, and several highways were destroyed. Hundreds of aftershocks have been felt. We'll have more on this story after the News Summary. Jim.

MS. FARNSWORTH: President Clinton ordered a team of U.S. officials to Japan. They include people from the Federal Emergency Management Agency and the Department of Transportation. Those agencies led the response to last year's Los Angeles area earthquake. That quake struck exactly one year ago, and President Clinton visited Los Angeles today to assess the progress in rebuilding. He spoke on the campus of California State University at Northridge, which sustained severe quake damage.

PRESIDENT CLINTON: Who would have thought a year ago that the highways and bridges could be rebuilt and reinforced in just a fraction of the time the experts had predicted and the time the law allowed until we changed the way things were? [applause] My simple belief is that in this time we know that the government cannot really solve problems for people, but I think we know that the government cannot walk away either. The role of government in this age is to be a partner, to help give people the tools they need to solve their own problems, to fulfill their own dreams, to make their own future, and I am determined to see that the rest of your government works as well as the disaster team did in the California earthquake. That is a good standard for all of us to meet. [applause]

MR. LEHRER: A scheduled presidential tour of the campus was cancelled when the Secret Service discovered three suspicious pipes in a science building. Officials said they resembled pipe bombs. The bomb squad was called in, but no explosive materials were found. A Secret Service spokesman said they turned out to be just old pipes.

MS. FARNSWORTH: In economic news today, the Federal Reserve reported industrial production jumped 1 percent last month, the sharpest one-month rise in two years. For the year, output was up 5.8 percent. The Chrysler Corporation had its best year ever in 1994. The No. 3 automaker said it earned $1.2 billion in the fourth quarter and more than $3.7 billion for the entire year.

MR. LEHRER: A cease-fire has reportedly been declared in Chechnya, effective tomorrow evening. Despite the announcement, there was no halt to the fighting that has raged in the capital city since New Year's. We have more in this report from Paul Davies of Independent Television News.

PAUL DAVIES, ITN: No talk of a cease-fire here as Chechen fighters risked their lives, forcing the city during yet another Russian bombardment. While political leaders in Moscow are offering a truce, their military commanders appear determined to end the conflict by wiping out Chechen resistance. For almost an hour today, we were pinned down with a group of Chechen fighters as shells fell around the Minuska Square area of the city. Even as we waited for the bombardment to stop, the fighters dismissed suggestions of a cease-fire, saying Yeltsin was not to be trusted. In the cellars and wrecked houses, survival is the priority. In a new move, the Russian army has blown up a key bridge on the road leading south from Grozny to neighboring Degastan. It was the Chechens' main supply route and a road to safety should the city fall. On roads in Northern Chechnya, columns of Russian armor have been seen heading for the capital. The message to the Chechens still seems to be lay down your weapons or be crushed.

MR. LEHRER: Sec. of State Christopher briefly discussed Chechnya with Russia's foreign minister,Kozyrev, today in Geneva. Christopher appealed for an end to the fighting.

MS. FARNSWORTH: Bosnia's Muslim-led government today demanded that 450 U.N. peacekeepers withdraw from the Northeast part of that country. It called for the pullout after the U.N. failed to reopen the Tusla Airport. Government officials were also angered that the U.N. allowed a Serb liaison officer at the airport. Elsewhere, scattered fighting was reported in the Northwest part of Bosnia. Defense Sec. William Perry today declared Haiti a safe and secure country. Perry said the country was stable enough for U.N. troops to replace the U.S.-led multinational force there now. The U.N. is scheduled to begin taking over the Haiti operation on March 31st. The multinational force was deployed in October to help restore President Jean-Bertrand Aristide to power.

MR. LEHRER: Former Secretary of Education Lamar Alexander took a first step today toward running for President in 1996. He submitted papers to the Federal Election Commission officially declaring the formation of a campaign committee. He's a Republican who served two terms as governor of Tennessee and was Education Secretary in the Bush administration. And that's it for the News Summary tonight. Now it's on to the Japan earthquake and the middle class tax cut. FOCUS - TAX CUTTERS?

MR. LEHRER: First, the middle class tax cut, what is it, who wants and needs it, and why? It's been embraced by both the Republican Contract With America and President Clinton's middle class bill of rights. The official trip toward enacting it began today before the House Ways & Means Committee. Our coverage begins with excerpts from that hearing.

SEN. ROD GRAMS, [R] Minnesota: We promised tax relief. Now we have got to deliver, and we've got to do it for what Garth Brooks calls "the hard hat, six-pack, achin' back, flag wavin', fun lovin' crowd." Mr. Chairman, in 1993, when Congressman Hutchinson and I introduced the $500 per child tax credit in our Families First legislation, we did so in a tax environment that was not exactly middle class friendly. Consider the facts. Most middle class American families pay more in federal taxes than they spend for food, clothing, transportation, insurance, and recreation combined.

REP. SAM GIBBONS, [D] Florida: I don't know of a member of Congress who won't advocate a tax cut for somebody. I never in my 34 years here ever found a member of Congress that wouldn't -- that would say no to a tax cut, but let me ask you, Sen. Grams, you said that your tax cut goes to the six-pack, fun-lovin' crowd. Is it more important to give the six-pack, fun-lovin' crowd a tax cut than to continue reducing the federal deficit by $25 billion a year?

SEN. ROD GRAMS: In the same respect, you said you haven't seen a member of Congress who wouldn't want to give a tax cut, we haven't found too many members of Congress who haven't advocated tax increases over the past four decades. When we're talking about the hard hat, six pack, achin' back, flag wavin', fun-lovin' crowd, we're talking about average Americans, family people out there who over these last four decades have seen their tax burden go up. Now, to say that we can't have tax relief would be to buy into the assumption that we're not already paying too much in taxes. I believe American families are over-taxed and do need relief. And we can do that, and at the same time, we can't ignore the problem of having spending cuts to go along with this. We can't give tax cuts without looking at the spending side as well.

REP. LEWIS PAYNE, JR., [D] Virginia: My comments, I suppose, and my question really goes back to what Congressman Gibbons was asking about earlier, and that has to do with this whole notion of responsibility and fiscal responsibility, which is something that this committee is charged with and something that we certainly take a great deal of pride in. And as we have learned in terms of the balanced budget amendment, which we'll be voting on next week, in order for us to successfully find our way to a balanced budget by the year 2002, we know that we'll have to find $1.2 billion in terms of reductions in costs between now and the year 2002, and that's a very substantial number, and it's a very substantial undertaking to be able to do that. We are now proposing in the contract that we, as one of the first things we do, add to that $1.2 billion through the various tax cuts. I too support the middle income tax cuts, but I'm really concerned about how it is that we maintain our fiscal responsibility, because I think that's very, very important as well.

MR. LEHRER: Who is the target audience for those and other Washington voices? Well, Business Correspondent Paul Solman looks at who makes up the middle class in America.

MR. SOLMAN: Central Square, Cambridge, Massachusetts. Income here in Zip Code 02139 pretty well mirrors income in America as a whole. And how do people here identify themselves?

UNIDENTIFIED MAN ON STREET: Middle class.

SECOND UNIDENTIFIED MAN ON STREET: Middle.

UNIDENTIFIED WOMAN ON STREET: Middle.

SECOND UNIDENTIFIED WOMAN ON STREET: Middle.

MR. SOLMAN: Middle class?

THIRD UNIDENTIFIED MAN ON STREET: Yes.

MR. SOLMAN: Okay. Thank you.

THIRD UNIDENTIFIED MAN ON STREET: I'm not poor, and I'm not rich.

MR. SOLMAN: Chestnut Hill, Massachusetts, Zip Code 02167. At the local Bloomingdale's, we asked the same question, got pretty much the same answer.

WOMAN ON STREET: Middle class, I suppose.

YOUNGER WOMAN ON STREET: Middle class, I guess.

OTHER WOMAN ON STREET: Upper middle class.

UNIDENTIFIED WOMAN ON STREET: Middle.

MR. SOLMAN: Defiantly middle.

UNIDENTIFIED WOMAN ON STREET: Defiantly middle.

MR. SOLMAN: Now, let's remember, almost 15 percent of Americans live below the official poverty line. They're sometimes called lower or working class.

MR. SOLMAN: So you're not middle class?

WOMAN: No. I drive up a beat up old Chevy, so I'm working class.

MR. SOLMAN: But this woman was the only person we found who didn't call herself middle class. And that's not just a fluke of our small sample, or even choice of location, according to Peter Francese, founding editor of American Demographics Magazine.

PETER FRANCESE, President, American Demographics, Inc.: Random sample surveys taken over long periods of time, 95 percent of Americans say, "I'm middle class." Almost no one admits to being upper class or not middle class. People, Americans want to be middle class.

MR. SOLMAN: Now, we keep hearing the term "middle class" in connection with a tax cut, middle class tax cut, as if an especially hard-hit group of Americans, especially deserving of relief was somehow being targeted, but who really is in the middle class? For that, we came to MIT and its economic historian, Peter Temin. Our first question was really basic. What originally was the concept of class?

PETER TEMIN, Economist: The notion of class comes out of a European study where the upper class was the aristocracy, you were born into it, and you did not work, the lower class were the people who worked, and in old pre-industrial Europe, that meant you were a farmer. Then as the economies developed and there were urban activities, tradesmen, professionals, they didn't fit into this two-class setting. They became the middle class or more modernly the bourgeoisie.

MR. SOLMAN: So what does it mean to talk about middle class in America?

PETER TEMIN: The concept of class in America is an oxymoron. We have no landed aristocracy. We have no peasantry to be divided as they were in Europe. In a sense, everybody's middle class, because everybody works, and everybody is engaged in urban activity.

MR. SOLMAN: Economist Frank Levy studies America's income distribution. He doesn't even try to define the middle class.

FRANK LEVY, Economist: It's very hard to define middle class. What you can do is define middle income, who's in the middle of the income distribution. You put percentage of families here, if we draw a picture, what you have is a bell curve with a very long upper tail.

MR. SOLMAN: So this is income. This is the more money you make, and that's the percent of families in the population?

FRANK LEVY: That's right. And you say, where is the middle 50 percent of this income? It lies roughly between 30,000 and about 70,000 dollars. And if you go much higher than that, what you're saying is there are only about 15 or 18 percent of families with incomes above seventy, seventy-five thousand dollars.

MR. SOLMAN: So not middle class but middle income and that's it?

FRANK LEVY: Right. That's it. That's the middle 50 percent of the income distribution.

MR. SOLMAN: The citizens of Central Square Cambridge, it turns out, are squarely middle income. Peter Francese looked it up for us in his data bank.

MR. SOLMAN: So demographically, this is a middle income neighborhood?

PETER FRANCESE: Definitely. The income is about forty, forty-five thousand dollars a year for the average household. The average house probably sells for about a hundred and ninety-five, two hundred thousand dollars, and the average apartment probably rents for five or six hundred dollars a month, decidedly middle income.

MR. SOLMAN: You have a somewhat broader definition of middle income than say Frank Levy does.

PETER FRANCESE: Yes. I believe that middle income is between twenty-five thousand dollars a year per household going up to a hundred and five thousand dollars a year, and there are all kinds of people in that range.

MR. SOLMAN: A hundred and five thousand. That sounds like a lot of money.

PETER FRANCESE: Well, but in Boston, it's not a lot of money. In New York, that's not a lot of money. I think that it depends on where you live, and also I think it depends on what your expenses are. If you've got several kids, some going to college, it's not very much money.

MR. SOLMAN: But even if you stretch the middle income definition to $105,000, that doesn't get you to ritzy zip codes like 02167, though even here people call themselves middle class.

PETER FRANCESE: This area is known as Chestnut Hill. According to the Postal Service, this is the Boston College zip code, the average household income about $120,000 a year, the average home value about $1/2 million.

MR. SOLMAN: $120,000. It probably is higher than that, because there are college students around here, right?

PETER FRANCESE: That's right. And so it's certainly higher than that, and this area can by no means be considered to be middle income. This is not a middle income neighborhood.

MR. SOLMAN: And yet, according to a number of the proposals for a middle class tax cut, people in neighborhoods like this would benefit.

PETER FRANCESE: Absolutely, because even though they're not middle income, they think of themselves as middle class. At best, they would say, we're upper middle class. So perhaps they feel they're entitled to some tax relief.

MR. SOLMAN: Whether such people are entitled is a matter of debate. Opponents argue that these people not only make more, but they're also the only people to have experienced real income gains in the past 20 years, and the higher the income bracket, the greater have been the gains, so the top 20 percent of families, starting at $65,000 or so have done okay in recent years. The top 10 percent, starting around $80,000 a year, have done better; the top 5 percent, $105,000 and above, really well; the top 1 percent, somewhere around $150,000 and up, best of all. On the other hand, even economist Frank Levy agrees that some of these folks have an argument that they're remained middle income in lifestyle.

FRANK LEVY: If you look over the last 20 years, the group of families with incomes above fifty or above seventy-five thousand dollars has grown a lot. Some of that has to do with increased salaries at the very upper end of the scale, but a lot of it also has to do with the switch-over to two-earner couples, which pushes families up above that fifty, sixty thousand dollar line.

MR. SOLMAN: And even though they've got extra money, those two- income families feel as stretched as ever due to extra expenses for child care, house cleaning, eating out a lot. Still, once you're past $105,000 a year, you're past any reasonable definition of middle income. So back to our graph one last time. Is the typical Chestnut Hill family in here at around $120,000 a year eligible for any of the so-called middle class tax cuts? Well, it wouldn't seem to be under House Minority Leader Richard Gephardt's tax credit plan, since it applies only to those under $75,000 a year, nor would it get President Clinton's tax credits, which also end at $75,000 a year. But the President's education deduction would cover families all the way to $120,000, and Newt Gingrich's contract would include most of Chestnut Hill, as it applies up to $200,000 a year. Finally, Sen. Phil Gramm's increased exemptions, since they have no cap at all, would include literally everyone, in the belief, perhaps, that a middle class tax cut needs to include all those who define themselves as middle class in America, no matter if they're middle income or not.

MR. LEHRER: Now, the middle class tax cut through the eyes of some potential beneficiaries. Again, we turn to Colorado as a sounding board for the first 100 days of the new Congress. Tom Bearden reports.

MR. BEARDEN: First of all, I'd like to thank all of you for joining us here this evening. I'd like to take a moment to introduce you to our audience. First, Ann Alley-Walker, who is an elementary school vice principal; in the back is Manuel Martinez, who is a lawyer and a chairman of the Hispanic Chamber of Congress; Chris Goodwin works at the Housing Maintenance Warehouse at the University of Colorado; Fleta Nockels is a recently retired high school teacher in Douglas County, Colorado. Andy Bane is the director of the non-profit organization, the Center for the New West. And Linda Houston is the operations manager of an insurance company in Denver. Ms. Allie Walker, I'd like to start with you first. When Washington talks about a middle class tax cut, do you feel they're talking about you?

ANN ALLEY-WALKER, School Administrator: In some ways I do. I consider myself as part of the middle class. I just want to see how it's going to affect me, affect my life. Is it going to change anything for me? And I don't see where it really would.

MR. BEARDEN: Andy Bane, what do you think about the idea?

ANDY BANE, Center for the New West: Well, I'm in favor of a middle class tax cut because it would -- I'd prefer to have more control over my money than to have the government control that money, and to the degree that I can have more choices and more control over my own life, I think it's a good idea.

MR. BEARDEN: Ms. Nockels, what do you think about this?

FLETA NOCKELS, Retired Teacher: It bothers me to think about tax cuts while we have a large debt, and I think it's like getting a raise and not paying off the credit card, but going and getting another credit card and getting it started.

MR. BEARDEN: Ms. Houston, what do you think of this idea? Do you feel like they're seeking your support by targeting you for a tax cut?

LINDA HOUSTON, Business Person: Yes, I believe they are seeking my support, however, I don't believe that a tax cut is the way to go. I, I really feel that if I have the $500 or whatever minor amount that they're going to make, I would just spend it, and I'd rather see that that go to a program that would be much more worthwhile. I do think, though, that we need options about where we could put that money. I think it would be nice if we could say, yes, we'd like to allocate that money to a certain place, i.e., education or, you know, to help reform the welfare. I mean, I just think we need to come up with some creative ways to spend money and some creative financing, because the balanced budget is very important.

MR. BEARDEN: How much money? Let me throw this out to anybody. How much money do you think a tax cut, should it come, can you realistically expect to actually take home in your paycheck?

ANN ALLEY-WALKER: I looked at a total figure of about $500 per year. And when you think about that over a 12-month period, that's not going to change my quality of life at all. What would happen to the welfare system? What would happen to the people that don't have jobs if, if this money is taken away, you know, that we get, I get to take it home on my paycheck, all the rest of us here, what happens to those programs? I say cure some of the problems in the welfare system so we're not here squabbling over $500 in the tax cut.

ANDY BANE: Well, let me give a little different perspective. $500 to me, I've got a 14-month-old boy, $500 to me would have paid for infant formula for a year for him, or I could have chosen to give some of that money or all of it to a local charity, like a homeless shelter, which I could think of several in the Denver area who would do a better job, I think, helping the homeless than necessarily the government would. And those are the kind of choices that I'd like to have.

ANN ALLEY-WALKER: What about your child for day care, what about money back for day care as opposed to a tax cut? You know, I just recently stopped having to pay for day care, but when I did, I only got to write off a very small amount. Why not something like that, as opposed to just saying, okay, you're going to get $500 more on your check?

ANDY BANE: Well, I mean, that assumes that, that I day care my child, which we don't, and which would be another reason that the tax cut would help me, my wife and I. And she was a professional who had a career. She was a partner in a small company here in Denver, and we chose to sell off our share of the company so she could stay home and raise our son. So for me, it wouldn't, it wouldn't apply to day care, but it sure would help the family budget.

MANUEL MARTINEZ, Lawyer: I think what the taxpayer really wants to see and know and believe is that the money that we're paying in taxes now is, is being used wisely, that we're getting the most bounce for the buck, and I think it's the, it's the perception of the taxpayer that that wasn't happening that caused the change in Congress to take place as drastically as it did. For years, the American citizen has been, or the American taxpayer has been hearing that, that this is the group or this is the person that's going to Washington, D.C., and make a difference, and they get there, and things stagnate. If Congress does nothing more than provide a tax cut, that's not going to be that significant for all of us, I think they will react as angrily as they did this last election.

MR. BEARDEN: So this is more than just symbolic? This is a message that the voters want to send to Washington to tell them to get out of their lives?

MANUEL MARTINEZ: In my opinion, absolutely. I agree with, with Mr. Bane in that I think the taxpayer is tired of the government being involved in so much of our lives. We'd like to see less involvement. We'd like to see -- I agree with the concept of less government as opposed to more government. I just want to make sure that the, the less government that we see is in areas where it needs to be and doesn't, doesn't go into those areas where, where it affects those who can least defend themselves.

ANDY BANE: I think that one of the lessons of the 1980's was that tax rate cuts increased government revenues. What didn't change is government spending. They kept on increasing their spending, and so I would agree with those among us who say that we do need to put a lid on spending and control spending, but let's also recognize by reducing taxes, people have more of an incentive to act in the economy, and they'll expand tax revenues just as they did in the 1980's, and the rich will end up paying a higher share of total tax revenues, as they did in the 1980's.

CHRIS GOODWIN, Maintenance Worker: I don't think that happened at all. I think during the 80's, I think the rich ended up paying less. The rich came through the 80's in better shape than they've ever been.

ANDY BANE: That's simply not true.

CHRIS GOODWIN: And working people and the poor are worse off than they've ever been. I think working people need a tax cut, need to be paying less in taxes to the federal government, but I also think we need to balance that with increased taxes on the rich and on corporations, like this capital gains tax. Why should somebody's capital gains be taxed at a lower rate than my paycheck? I don't think that's fair at all.

LINDA HOUSTON: I think we need to begin to start saying, how can we make more we and less me, and I just think we do that by finding programs where maybe it's tax deductions, maybe, you know, you would like to support a welfare family, maybe you get fifteen, twenty people who say, yes, I will support a welfare family, and because of that, you get a $2,000 deduction on your taxes every year. I would buy that in a minute, because I know that that money is going to go right into my neighborhood and right into my city. Federally, what I'd like to see is children who -- and especially young adults -- who are putting themselves through college, why not if they can prove that they're going to school a hundred percent of the time, they're a full-time student, then nothing is taken out of their paycheck. It all is theirs to put toward their education.

MR. BEARDEN: You want to target deductions? In other words --

LINDA HOUSTON: Yes

MR. BEARDEN: -- instead of you taking the money and spending it yourself, you want to make it provide incentives for people to spend in what you would consider a socially desirable way.

LINDA HOUSTON: Absolutely.

MR. BEARDEN: What do you think about that idea from a philosophical standpoint? You expressed some reservations about it before.

ANDY BANE: I would just as soon get the federal government out of the education business and out of the crime business and out of some of the other businesses that it's in.

MR. BEARDEN: You looked like you wanted to jump in.

CHRIS GOODWIN: I think we need federal programs that aid education at the local level, but I don't think the tax system is the way to do it. I think that's one of the reasons that the tax system is so complicated, it's how many volumes of rules and regulations that only lawyers can understand. I think that's one of the reasons that people don't think the tax system is fair. I think we need to get rid of all the deductions and all of the little parts in the tax code. And if we need federal aid to education, let's create a program that, that aids education.

MANUEL MARTINEZ: I'm a lawyer, and I don't understand the tax code.

FLETA NOCKELS: Most of the people I've talked to about what's wrong with your life as a middle class person, or what would you like to see, what would make it good again are looking back to the days of the 60's and 70's, when a household raising a family could buy a house and mother could stay home. I mean, it was tuna fish and hamburger, but it was possible. And today it took you an extra sum of money in order to allow your wife to stay home with the child, and for so many people that's not possible at all anymore, and people are saying, if we could have it -- if we could have our buying power back, if what we made really did buy things the way they used to, if we could afford child care, if -- as it is, if you have two children and spend $200 a week and have something between $6 and $12 an hour job, you're just not going to make it. And I am not at all sure that a tax cut of even $1,000 is going to make that kind of a difference to people's lives.

MR. BEARDEN: We're going to have to leave it there. Thank you all very much for joining us here tonight.

MR. LEHRER: Finally, to two key players in the Washington debate over the middle class. Laura Tyson chairs President Clinton's Council of Economic Advisers. Bill Archer, Republican of Texas, is the new chairman of the House Ways & Means Committee. Congressman, how would you characterize the differences between your middle class tax cut approach and the administration's?

REP. ARCHER: Well, there are a number of technical differences but the thrust is roughly the same. And I think that's the important thing, is that both the President and the Republican majority in the Congress believe that there's a reason to have some relief, particularly for families and to help their rearing of children. Our, our tax plan is not just a $500 per child credit. It also includes tax deductions for adoption, which are extremely important, so that children can have good homes to grow up in, and it phases out the marriage penalty, which is an economic barrier to people getting married. So it's far beyond just the per child tax credit.

MR. LEHRER: Ms. Tyson, do you agree that it's only technical differences between what the President wants to do and what the Republicans in the House want to do?

MS. TYSON: I think there actually are some differences that go beyond technical differences. First of all, if you look at the distribution of the benefits, we've estimated that about 87 percent of the benefits we would be offering go to families of $100,000 income of less, whereas, for the Republican plan, about 50 percent of the benefits goes to families over $100,000. And one of the things I was interested to note in the discussion was this view that somehow middle income, whatever it is, is not income over $100,000. That's one difference. Half of their benefits are going to families that one might not consider middle income. Second is that --

MR. LEHRER: Is that a big difference to you?

MS. TYSON: I think that is a big difference, because I think you have to get at the motivation of why we're offering a middle income tax cut at all. The point is that over the past 15 years only the top 20 percent of the family income distribution has benefited from the economy's expansion. In fact, the top 20 percent of the family income distribution has gotten 98 percent of the average family income benefits, so we say what can we do for the hard working, two earner, middle income families that have really not shared in the economy's expansion? And, incidentally, one of the reasons that compelled us to do this this year is we've had a very good economic expansion in '93 and '94, and even with that expansion, many, many American families are staying behind.

MR. LEHRER: Congressman Archer, yeah, how would you characterize --

REP. ARCHER: It's some more misinformation that Laura is presenting to the people. It's like a broken record listening to this. Family incomes actually went up in the 80's. There's empirical proof of that all along the way, and for her to once again dig out this 15 years family incomes went down in all classes, in all of the five major areas of income distribution, family incomes went up in the 80's. So I wish we'd stop just going back and re-earthing that, and talk about the future. What we need to do is talk about putting money in people's hands and letting them spend it, themselves, rather than trying to dictate everything out of Washington.

MR. LEHRER: So, Congressman, you're less concerned about where you draw the line between what's a middle income and what's not a middle income, and getting more money, just cutting the taxes for more people, is that right?

REP. ARCHER: Well, one of your experts stated it very well when he said that class is an oxymoron in the United States. Laura and the kind of approach that she takes acts as if people are locked into one area, whereas, they are moving back and forth regularly in the U.S. That's the secret and the beauty of the U.S.; we don't have classes. We have people who want to share in the dream of opportunity, and also to be able to take care of their families, and, and we know that it's going up dramatically in the rearing of children. I didn't want to get into the technical aspects of things, but their per child credit is only $300, and it needs to be a minimum of $500. And they cut it off at age 12, as if it doesn't cost more to take care of children when they're in high school. And I, I would submit that any families out there that are listening that have children know that the costs go up when they're in high school, not down. So there are some differences, but I'd rather not focus on that, because we would hope that we could work with the administration to construct this in such a way that it makes sense, and also to be sure that we pay for it by spending cuts.

MR. LEHRER: Well, Congressman, first to you and then to Ms. Tyson. Forget the technical things then. Basically, what do you think the point should be of this? In other words, is it a political point, is it an economic point, or, or what? Why do you want to cut the tax rates of so many people?

REP. ARCHER: Well, we believe that the costs have gone up incrementally on the rearing of children, and those people have been left behind, and it is true over the last many years. In fact, beginning in the 80's, they were the hardest hit in being unable to really keep up with the cost of rearing children, and that's true, regardless of the income category that you're in. We think we've got to push to create a better environment for the rearing of children, whether it be on the economic side or whether it be on the side of family values. And the economics has a lot to do with the choices that people make as they rear their children.

MR. LEHRER: What is the underlying point to your, to the President's proposal? Is it a social point, to give people more options, to help people raise their children and have a better quality of life?

MS. TYSON: Well, I think it's a couple of things, but I do want to start out just by saying that in order to understand the President's motivation, you have to understand statistics. Now, Congressman Archer disagrees with what I said. I am going to have those numbers in the economic report of the President. They come from the Census Bureau. They are fact-checked. The truth is that the bottom 80 percent of the income distribution has not seen -- the bottom 60 percent have seen no gains -- the next 20 percent has seen a little gain. It's all been concentrated in the top 20. Now, does that mean it's bad that the top 20 is doing well? Certainly not. That's wonderful, and the Congressman is absolutely right, we have a fluid society, and people aspire to and should aspire to continue to do as well as they can. The point is that the average American family, working harder, has not seen any real gain in their income, actually not just back to '78 but back to '73, 20 years of stagnation. Now, what can -- what can we do about that? We can give people some tax relief. That's the first motivation. It's not a class thing. It's to look where people have shared in the expansion and where they haven't.

MR. LEHRER: And what are they supposed to do as a result of that?

MS. TYSON: But there's a second thing. There's a second thing which is different here besides the income group.

MR. LEHRER: All right.

MS. TYSON: And that is we really have spent a fair amount of time thinking about how to target the tax relief in such a way that we hit families at important parts of their decision-making process. Families with children are often younger families, and younger families don't have the same earning capabilities as older families do. And, furthermore, income declines have been most concentrated in younger earners in the working, in the work force. So that helps the child care -- the child-rearing group. We've also put a very big emphasis in our tax proposal on education and training, because one of the things economists have decided is that this 20-year stagnation in income for the average American family has been primarily the result of changes in technology and international competition, which have made it harder and harder for those with just a high school education to get ahead. High school earning of men have declined by 17 percent. We've got to get people to move into post secondary training and education, and at least half, if not more, of the tax relief that we are offering will encourage people to use more in the way of training and education for themselves and for their children. So it's targeted at a particular activity. Finally, let me just say our tax relief package is very specific, and it is financed with very specific spending cuts. So one of the things a number of observers said in the discussion was they wanted this associated with spending cuts and with other changes and reforms in government. I think we ought to look at these middle income tax proposals of ours and look at what we're doing to finance them. We're reforming major government agencies, we're scaling back, we're making the government more efficient, and we've laid it all out. And Republicans have yet to lay out how they're going to pay for their package, which is much more expensive than ours.

MR. LEHRER: Congressman Archer, is it possible to look at cuts by themselves, without looking at all these other things?

REP. ARCHER: No. We have to look at spending cuts, and we have made a commitment with the American people. We will keep our Contract With America. We will cut spending first, and we will offset any revenue losses from tax cuts with legitimate spending cuts. The President's plan has not been fleshed out on the spending cuts situation either. But we've got to get away from this idea of economic class warfare that gets thrown into this discussion over and over again by the Democrats. America is not divided into classes. We've got to talk about pulling together, giving opportunity for people by working harder to move up the income scale. And that's what we're talking about. And I'm really sad that they continue to go back trying to divide America. That's not what it's all about. We need people with savings, wherever the savings can be found, to create jobs so that Americans have the opportunity to move ahead with their dream and to improve their real earnings. That's what it's all about, and that's what we're determined to make happen in this country.

MR. LEHRER: Do you -- are you suggesting that the President's plan would, in fact, encourage class warfare and divide the people?

REP. ARCHER: No. They seem to always present their plans on that basis. We're not going to get into a bidding war with the President. We welcome his cooperation on appropriate cuts that will help children to have their expenses defrayed, and hopefully, we can work together and to come out something that both sides can approve in that regard.

MR. LEHRER: Is that possible, do you think, Ms. Tyson?

MS. TYSON: Well, I think there is some common ground here, I really do, and I don't think that we -- we certainly are not in any way trying to divide America. What I said before suggested that there are some real forces at work in terms of changes in technology and changes in global competition, which are acting to reduce the ability of the middle income, less well educated worker to get ahead, and we say in a tight budgetary situation, where we have a huge deficit reduction challenge which we face with the Congressman and the Congress, what can we afford? And we believe, well, actually we're going to be able when all is said and done to afford a lot less tax relief than is in the current Republican contract. And when you decide you could afford less, you want to target it. So we're trying to target it to those who have been hardest hit and target it towards things like education and training which we believe will ultimately keep the society together, rather than drive it apart.

MR. LEHRER: Congressman Archer, what do you say to the folks who are -- there are some of them in that group in Denver -- they're also -- the polls indicate this as well, that generally speaking, the population puts tax cut kind of in the middle of their priority. They've got a lot of other things that they want Congress and Washington to do before they cut their taxes. How do you respond to that kind of comment?

REP. ARCHER: We campaigned in the last election on the Contract With America, and we intend to push to a vote each of the proposals that's in that contract. And I understand that different people that you interview at different times are going to have different views. But this is out there. If we fail to do it, then we will be accused by the opposition party and by many Americans of not doing what we said. We're going to be very different than people who have come to Washington in recent years. We're going to do what we promised.

MR. LEHRER: What is your reading at the White House of what the public sentiment is about wanting their taxes cut? Is it -- the politics is such that everybody always wants their taxes cut, so you're always, as Sam Gibbons said, at your committee hearing today, in fact, Congressman Archer, that everybody always wants their taxes cut, is that the basis on which all of this is being proposed?

MS. TYSON: No, not at all. Look, I think Americans have expressed a real serious intention to get the deficit under control. I think that we felt that we had made a substantial progress on that in the last two years, but we continue to hold that as a major priority of the administration. And we believe it's a major priority of the Congress, and it reflects the American people. We believe --

MR. LEHRER: So it's going to happen, in other words?

MS. TYSON: We believe that there will be continued progress on the deficit. On the issue of tax relief, we believe that there is room in an expanding economy, with $700 billion of deficit reduction having been accomplished, to give some modest -- and it is, after all, a modest package of tax relief targeted to solve some real problems for middle America.

MR. LEHRER: All right. Thank you both very much.

REP. ARCHER: Thank you, Jim. FOCUS - KILLER QUAKE

MS. FARNSWORTH: Next tonight, the devastating earthquake in Japan. Officials are still searching for survivors in Kobe, the port city that suffered the most destruction. Caroline Kerr of Independent Television News is in Kobe and filed this report.

CAROLINE KERR, ITN: This was the moment the quake struck, a shockwave lasting one minute. Tremors swept through Southern Japan just before dawn, just before the rush hour. A little later, and the roads would have been crowded with commuters. A mile-long section of the Hanson Expressway linking Kobe to Osaka simply buckled and collapsed. One bus teetering on the brink, its driver and passengers inches from death. They were built to withstand quakes, but this one, 7.2 on the Richter Scale, proved too violent. Cars and lorries were crushed where they stood. Their drivers had little chance of survival. Others were tossed about like toys. The port area of Kobe, built on reclaimed land, was the hardest hit. Power, water, and gas supplies all cut, and there was worse to come. Fires, fueled by ruptured gas mains, making rescue work all the more hazardous. The infrastructure was all but destroyed, trails derailed as the tracks buckled. The rail system was modern, designed like everything else, they thought, to withstand quakes. They never expected this. In Kobe, the search for survivors was desperate and often in vain. This quake had been the latest and most devastating of a series of tremors, but major quakes were expected to strike Japan's Northern reaches, not here. Survivors were pulled by police and troops and passersby from the rubble. They had suffered terrifying injuries: crushed bones, lacerations, and shock. They counted themselves lucky to be alive. The main problem now is the fire advancing through the heart of the city, feeding on the old classical Japanese wooden buildings for which Kobe was famous and destroying everything in its path. The hospitals and medical centers are swamped with casualties. Rescue teams from all over the world are en route, but for now, they're being treated on stretchers, in corridors, even on mattresses laid on the floor. Maybe a million people are now homeless in the quake area. It could be weeks before they can return to their homes, or what's left of those homes. Even the most technologically advanced nation in the world has been unable to prepare for a natural disaster on this scale.

MS. FARNSWORTH: Now for a look at what caused all the damage in the earthquake. Frederick Krimgold is director of the Building Health & Safety Program at Virginia Polytechnic Institute. He has been doing research on earthquake hazard reduction around the world since the Mexico City earthquake of 1985, and has initiated building and research programs in Japan, China, and other countries. He joins us tonight from Portland, Oregon. Thank you for being with us, Dr. Krimgold. Those are very dramatic pictures. Are you surprised by the amount of destruction in this quake?

DR. KRIMGOLD: Well, I think that it's, it's quite a surprise to most of us to see the extent of damage in Japan, where we know that there's been a very serious effort over a long period of time to develop safe construction methods and, and to apply those to major construction. It's not entirely surprising to see the problem of fire following earthquake. This has been characteristic of Japanese cities historically. It's a problem well recognized by, by Japanese authorities. And I think it's, it's really important in this case to realize that this doesn't discredit or devalue those efforts in any way. If we look at the losses sustained so far, they're still considerably lower than they would have been had the mitigation effort not been made.

MS. FARNSWORTH: Looking at the highway, for example, that fell over on its side, what do you think, looking at that, what kind of conclusions can you draw?

DR. KRIMGOLD: Well, the first thought is that it brings to mind the collapse of the 880 Freeway in Oakland in the Loma Priata earthquake in 1989. And it is likely that there are some similarities in terms of the relationship of soil conditions to the shaking experience in the structure, and it may also be revealed eventually that this is a structure which doesn't represent necessarily the state of the art of our understanding at this point but was designed and constructed at an earlier time when this was the best we knew.

MS. FARNSWORTH: Excuse me for interrupting. I asked because we had read that after the big California earthquakes, Loma Priata and also Northridge, the Japanese had thought maybe they were a bit ahead of us and that their highways wouldn't fall, their buildings wouldn't fall.

DR. KRIMGOLD: Well, umm, I don't know that, that any responsible engineer would risk overstating confidence in dealing with earthquakes. Clearly, the Japanese have made a very serious effort, as I mentioned before. They have invested a tremendous amount of resources in, in developing and applying appropriate design standards. Their design is typically conservative by our standards, meaning that few chances are taken, buildings tend to be symmetrical, reinforcing is not stinted on, and I think that this may, this may introduce some humility in those quarters where less seemed to be apparent before.

MS. FARNSWORTH: You've said that there's a lot of research that still needs to be done, that there's so much that isn't known about earthquake safety, because you can only really research it after an earthquake, it's a hard thing to research in a lab. What did you learn from the Northridge earthquake? What are you likely to learn after this one? What are you trying to figure out that would make, make for less damage in the next big earthquakes?

DR. KRIMGOLD: Well, there were some very important issues which we were able to study following the Northridge earthquake. First of all, we were to see how successful our earlier conclusions had been when applied to new construction and to the retrofitting or strengthening of existing buildings. There was -- there was good news in the Northridge earthquake. We were able to see, for example, that school buildings designed according to the standards established to maintain through the Field Act performed very well. While there was some damage sustained, there was very little life threatening damage, and there was no collapse. This is a major accomplishment. On the other hand, we learned some very distressing things. For example, on examination after the earthquake, we found that steel structures which had been assumed to be among our safest means of construction had, in fact, suffered quite serious damage, and in many cases, welded butt joints had failed, and if the duration of the Northridge earthquake had been longer, we probably would have seen some catastrophic failure of steel structures. This is quite a serious finding. It means that we have to go back and re-examine what we've been doing for the past 30 years or more, and have to find reasonable economically feasible ways of, of covering that problem.

MS. FARNSWORTH: The -- the earthquake in Japan was in an area that has a lot of landfill, as I understand it. There's been quite a lot of building in the Kobe area, in this whole Kanzai area, as it's called, on landfill. Is that one of the reasons, do you think, there's been so much destruction there?

DR. KRIMGOLD: Well, it's clear that the local soil conditions have a great deal to do with the, the characteristics of ground shaking and the --

MS. FARNSWORTH: Explain that just quickly for us, would you, before you go on.

DR. KRIMGOLD: Yes. Typically, unconsolidated fill or soft soils or alluvial soils tend to amplify the shaking, i.e., to increase the transmission of energy through the soil into structures. And there is a particular condition in the area of Kobe apparently under the bay and continuing westward under the city, a geological condition which contributes to the amplification of the force of the earthquake. No doubt, we will find again that there is a correlation between the pattern of damage and this pattern of varying soil conditions.

MS. FARNSWORTH: And Dr. Krimgold, would you compare the Japan earthquake with the Northridge earthquake for us. Give us a sense of how the magnitude of the Kobe earthquake is compared with Northridge, which occurred, after all, just exactly, almost exactly a year to the day ago.

DR. KRIMGOLD: Well, the Kobe earthquake is different in several significant ways. One is that it was of greater magnitude. The -- as you know, in the magnitude scale, thedifferences between levels of magnitude are not linear but -- so the difference between a 6.9 or a 7.1 and a 7.2 is, is more than might appear to the lay person. Also, I think an important factor for the, the Kobe earthquake is that its epicenter was relatively shallow. That means that the -- I should say the hypocenter was shallow, meaning that the depth of focus was not far below the surface and this --

MS. FARNSWORTH: I'm sorry. What does depth of focus mean here? If it's not the epicenter, what do you mean --

DR. KRIMGOLD: The point of origin of the energy release of the earthquake and what that means is that the, the energy concentration experienced at the surface is considerably greater than for a deeper earthquake in which that energy is distributed over a wider area. Beyond that, I think a lot of the damage that we're seeing in, in Kobe seems to be related to fire, and certainly the dramatic shots of the wide area affected by fire is something characteristic of the building stock in many Japanese cities. The very dense settlement pattern with small wood frame structures and the -- that sort of tinder box condition combined with intense gas and electrical infrastructure and heating systems which are vulnerable to, to shaking, i.e., to increasing or providing a large number of ignition points for starting fire is, is a very serious problem which, fortunately, we don't share.

MS. FARNSWORTH: Dr. Krimgold, thank you for being with us. We have to go now. Thank you very much. RECAP

MR. LEHRER: Again, the other major stories of this Tuesday, the Federal Reserve reported industrial production jumped 1 percent last month. Output was up 5.8 percent for all of 1994. And a cease- fire has reportedly been declared in Chechnya, effective tomorrow evening, but despite the announcement, there was no halt to the fighting in the capital city. Good night, Elizabeth.

MS. FARNSWORTH: Good night, Jim. We'll see you tomorrow night. I'm Elizabeth Farnsworth. Thank you, and good night.