The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. I'm Robert MacNeil in New York.

MR. LEHRER: And I'm Jim Lehrer in Washington. After our summary of the news this Monday, the Bush plan to cut taxes as seen by financier Felix Rohatyn and economists Beryl Sprinkel, James Miller and Jamie Galbraith, and an update on the effort to feed the starving people of Somalia. NEWS SUMMARY

MR. MacNeil: Hurricane Andrew tore across Southern Florida today with winds as high as 168 miles an hour. It left behind eight dead in Florida and four in the Bahamas. President Bush declared a federal disaster area and flew to Florida this evening. The storm, which still has sustained winds of 140 miles an hour, is now centered in the Gulf of Mexico, Southwest of Naples, Florida. It was expected to remain over the Gulf for the next few days, possibly heading for another land fall somewhere between Alabama and Texas, possibly near New Orleans. Evacuations have begun in that area. The worst of the storm hit Florida just South of Miami at about 5 o'clock this morning. Damage was heavy, with the wind causing a 12-foot storm surge. At least 400,000 people lost electrical service and officials said that some of it will not be restored for weeks. White House Spokesman Marlin Fitzwater said initial damage estimates are between 6 and 8 billion dollars. Jim.

MR. LEHRER: In the Presidential campaign today, President Bush proposed a $2 billion a year plan to retrain workers who are unemployed or whose jobs are in jeopardy. The proposal would grant $3,000 vouchers for trade schools or community colleges. Mr. Bush announced it this morning at a vocational training center in Union, New Jersey.

PRESIDENT BUSH: And this entire proposal -- and yes, it's going to cost money -- but it will be funded under the budget caps and I will project these in more detail as we move into the next budget cycle. My opponent is different. He sees job training as a tax raiser, and he wants to tax workers to pay for their own training and tax small businesses -- the one that's the worst -- taxing small businesses around the country -- 1.5 percent -- so let me say this to my opponent. There is no point in training people for jobs if your plan is going to be in the process of destroying jobs.

MR. LEHRER: The Clinton campaign issued a statement saying the President's proposal was similar to Clinton's own job plan, and it criticized Mr. Bush for refusing to explain how he would pay for it. Bill Clinton was in Little Rock today, where he met with Paul Tsongas. Tsongas gave his endorsement to Clinton's economic strategy. He also blasted Mr. Bush's deficit reduction plan announced last Thursday at the Republican National Convention in Houston.

PAUL TSONGAS: When I watched that speech Thursday night with the outrageous proposals of across-the-board tax cuts even to the wealthy, the trillion dollars of numbers that don't add up. It goes beyond economics. It goes to mind set. You remember, in 1962, there was a very famous book and became a movie, "Dr. Strangelove, How I Learned to Stop Worrying and Love the Bomb." Well, George Bush has learned how to stop worrying about the deficit and to love it.

MR. LEHRER: Vice President Quayle today accused Gov. Clinton of being weak on crime. He said Clinton did not have a clear cut position on capital punishment. He said the Democratic nominee had suggested nominating New York Gov. Mario Cuomo to the Supreme Court. Cuomo opposes the death penalty, while Clinton has allowed four executions during his term as governor of Arkansas. Quayle said, "He always wants to have it both ways." Clinton's communications director said the comment was silly. He said Clinton was the only person in the race who has carried out the death penalty.

MR. MacNeil: The U.S. dollar continued its plunge against foreign currencies. After setting an all time low against the German mark on Friday, it fell further today, sinking to just over 1.4 marks in New York trading. The dollar also fell to nearly 2 to 1 against the British pound. The dollar's dive pushed stock and bond prices down on Wall Street. The Dow Jones Industrial Average closed with a loss of nearly 26 points in active trading. Losing shares outnumbered gainers by a 4 to 1 margin.

MR. LEHRER: A new round of Mideast peace talks opened in Washington today. It was the first since Israel's hard-line government was voted out of office. Syria's representatives said Syria would still demand the return of the Golan Heights which Israel captured in the 1967 Six Day War. She welcomed an Israeli proposal to trade land for peace. After today's meeting, all sides afforded a new and improved atmosphere. Earlier in the day, the Israeli government cancelled the deportation of 11 Palestinians. An Israeli official in Washington said it was done as a sign of their willingness to reach out to the other side.

MR. MacNeil: The warring sides in Bosnia stepped up their battle over territory in the capital today. The surge in fighting was an apparent attempt by rival forces to consolidate gains before a resumption with peace talks on Wednesday. Paul Davies of Independent Television News reports from Sarajevo.

MR. DAVIES: By night, the warring tribes of Bosnia continued their lethal struggle for what's left of Sarajevo, but morning would once again see the United Nations in the firing line. Sarajevo Airport, center of the U.N. relief operation, under mortar attack. The main terminal building took a direct hit. British, French, and Canadian soldiers serving with the U.N. are based at the airport. No one was seriously hurt. The attack on the airport comes on the third day of fierce fighting as Muslim forces launch a desperate counterattack to try to break the Serbian siege of the city. The battle for Sarajevo is now being fought street by street and house by house. This is Aleja, a suburb close to the airport in the West of the city. Aleja has always been a Serbian stronghold, but now these fighters, a mixture of local Serb militia, and regular army soldiers, find themselves in the path of the Muslim counter offensive. The Bosnian Muslim soldiers are just a few hundred yards away across this piece of wasteland. In the middle of the murderous fire fights, Aleja's civilian population could only watch as their homes are destroyed and wonder by neighbor has turned on neighbor after years of peaceful coexistence. Yesterday, Bosnia's Muslim president claimed that Aleja had fallen to his troops. In reality, the Serbs were still holding out in a desperate struggle for every inch of territory and every building.

MR. MacNeil: United Nations officials in Bosnia said today they were turned away from the Serbian-run detention camp. The head of the team said his people were harassed when they tried to get access to the camp yesterday. He accused the Serbs running it of trying to cover up the conditions inside.

MR. LEHRER: There was finally some good news from Somalia today. The distribution of international food aid expanded. U.S. cargo planes began landing Friday in a Kenyan border town. The food was then carried into Somalia by truck. The United States has promised 160,000 tons of food as part of a massive international airlift to ease hunger in the African famine region. Many drought ravaged areas have had no supplies for month. We'll have more on this story later in the program. And that's it for the News Summary tonight. Now it's on to the Bush tax cut plan and to the Somalia update. FOCUS - TAXING ISSUE

MR. MacNeil: We turn first tonight to the ongoing partisan skirmish over partisan taxes. Taxes have become the key issue on both candidates' campaign trails since President Bush unveiled his fiscal plans to the Republican Convention in Houston last week. In his acceptance speech last Thursday night, President Bush blamed the Democrats for forcing him to break his "no new taxes" pledge. He then offered three proposals on taxes. The first was a tax checkoff that helped reduce the budget deficit.

PRESIDENT BUSH: After all these years Congress has become pretty creative at finding ways to waste your money. So we need to be just as creative at finding ways to stop them. And I have a brand new idea. Taxpayers should be given the right to check a box on their tax returns so that up to 10 percent of their payments can go for one purpose alone, to reduce thenational debt. But we also need to make sure -- we need to make sure that Congress doesn't just turn around and borrow more money to spend more money. And so I will require that for every tax dollar set aside to cut the debt, the ceilings on spending will be cut by an equal amount.

MR. MacNeil: The administration claims the checkoff plan could reduce the debt by as much as 51 1/2 billion dollars. President Bush also proposed a cap on mandatory spending programs, except for Social Security. The proposed reductions in programs like Medicare and Medicaid, farm price supports, and veterans benefits would, according to the Bush campaign, amount to almost $300 billion over the next five years. The President's second tax proposal called for an across-the-board tax cut.

PRESIDENT BUSH: When the new Congress convenes next January, I'll propose to further reduce taxes across-the-board, provided we pay for these cuts with specific spending reductions that I consider appropriate so that we do not increase the deficit.

MR. MacNeil: President Bush did not say where he would find the spending reductions to offset the tax reductions. The President's final tax proposal dealt with capital gains.

PRESIDENT BUSH: I will also continue to fight to increase the personal exemption and to create jobs by winning a cut in capital gains taxes. That -- that will especially help small businesses.

MR. MacNeil: President Bush is expected to hammer at the tax and spending issues continually over the next two months. This weekend, he took his message to voters in middle America.

PRESIDENT BUSH: Illinois farmers and workers feel that the government takes too much and gives too little, and so when next year Congress comes back in, I pledge a dramatic, new effort to slash federal spending, and then get these taxes down.

MR. MacNeil: On Friday, Gov. Clinton had this reaction to the Bush budget proposals.

GOV. CLINTON: Last night, we heard that same candidate, desperate for re-election, promise another short-term capital gains cut for the wealthy, the fool's goal of an across-the-board tax cut in the face of a $400 billion deficit, and a balanced budget amendment with no serious specific proposals to balance the budget. These promises too are false and they too will betray us if they follow them.

MR. MacNeil: We asked three economists and a businessman to evaluate the Bush tax proposals. None of them is working for the Bush or Clinton campaigns. Felix Rohatyn is a partner at the New York investment bank Lazare Frere & Company. He was a special adviser to the governor of New York during the '70s fiscal crisis and is the chairman of New York's Municipal Assistance Corporation. Jamie Galbraith is a professor at the LBJ School of Public Affairs at the University of Texas at Austin, where he joins us tonight. He served as executive director of the U.S. Congress's Joint Economic Committee in the early '80s. James Miller is chairman of the board of Citizens for a Sound Economy, a non- profit research group in Washington that advocates tax restraint. He was budget director during the second Reagan term. Beryl Sprinkel was the chairman of the Council of Economic Advisers and undersecretary of the Treasury under the Reagan administration. He's currently an economic consultant in Chicago, where he joins us tonight. Gentlemen, let me ask you each in general terms what you think of the Bush proposals, and then I'll come to the specifics, starting with you, James Miller.

MR. MILLER: Well, I think it was a good idea, cutting taxes. I would cut taxes regardless of thespending reductions, but I think putting a premium on spending reductions is a good idea. I think the President should be commended for doing that. Cutting capital gains would help stimulate the economy and some other tidying up of the tax code would be helpful, but basically we need to get tax rates down overall. If you cut taxes across-the-board, interestingly, I think it provides an incentive for everybody to get aboard, and you might get some tax changes by having that in addition to just cutting capital gains.

MR. MacNeil: I'll come back to the specific proposals in a moment, but Felix Rohatyn, what do you think in general of the President's ideas?

MR. ROHATYN: Well, I think more important than what I think is what you see that the world's financial markets think, namely that the dollar has collapsed over the last few days. In fact, it started getting very weak again when Sec. Baker began outlining the proposal for new tax cuts. But the securities markets are very weak. I think it's total fantasy. I mean, we have a $4 trillion national debt. We have a $400 billion deficit. We have a collapsing currency. It may help exports a little bit, but increases the price of imports. And the notion that this country can function with this kind of fantasy economics is just mind boggling.

MR. MacNeil: Beryl Sprinkel from Chicago.

MR. SPRINKEL: I was pleased with the basic thrust of the proposals. I'd like to have more detail. He suggests, for example, to cut back on some of the pressures that have been slowing growth over the past four years, that including instead of raising taxes, cutting taxes, cutting taxes. It also included reducing government spending instead of increasing government spending, as has been the pattern in recent times. He also extended the moratorium on regulations. And they have been a major deterrent on growth over the past four years. So, therefore, I'm pleased with the thrust of the program.

MR. MacNeil: Not fantasy, in your view?

MR. SPRINKEL: I don't think it's fantasy. I think it makes sense if you want to encourage the private sector, you create incentives, you cut tax rates, you cut government spending, so you can get the size of taxes in the future down and you reduce regulations which raise costs and make the economy less competitive.

MR. MacNeil: Jamie Galbraith in Austin.

MR. GALBRAITH: I think it's very like what happened in the campaign in 1980, and in the early years of the Reagan administration, where you had proposals to cut taxes across-the- board, alongside very large tax reductions for the wealthy, and spending cuts which were very poorly spelled out and never really enacted. And here we have -- it's really a stretch to call this an economic plan. It is a set of disjointed proposals, the details of which we do not know and I think we're very unlikely ever to find them out, because I don't think the President has them up his sleeve at this point, nor would he tell the American people what they are if he did have them spelled out.

MR. MacNeil: Let's go to the specific proposals. James Miller, why is an across-the-board tax cut the right medicine for this economy in the shape it's in now?

MR. MILLER: I just think marginal rates are too high overall and I think the point I made -- I think giving everybody a stake in the action will make it more likely that Congress will, in fact, go forward. I want to follow up on something Beryl was saying. I think importantly we need to see this tax package in a context of other things, regulatory relief and spending restraint, and something in the monetary side. I think right now we have a situation where the capital requirements and for the financial institutions are so severe that it's restraining economic activity and restraining the growth of credit. And we need to change that. But I think overall it's a good thrust, and cutting across-the-board, cutting tax rates for individuals across-the-board, makes a lot of sense. It's more than simple populism. I think it's a way of getting Congress to move off the dime.

MR. MacNeil: Why would it be bad medicine for the economy, Felix Rohatyn, in your view?

MR. ROHATYN: Because this country is already grossly under invested both in the public sector and in the private sector, and creating a bigger deficit by cutting taxes without telling anybody where this money is coming from is simply creating another impediment to investment at this point. This country should understand that there is no choice that says we can either tax you or we won't tax you. The choice is between some taxes and some investment, some taxes and medical health care, some taxes and Social Security, some taxes or defense. And that has to be spelled out. Now, if the President wants to spell out how he's going to cut spending by the equivalent of the taxes he proposes to cut and the people vote and think that that's a good idea, fine. But just to have people imagine that they have this free lunch, we have that now for 12 years. We have had an increase in the national debt of about $3 trillion by this theory, and over the last four years, very little growth in the economy, if any. The result is as you cut taxes at the federal level because ultimately we do have to maintain services at the local level, local taxes increase, and people haven't paid any attention to that, in that every time there's been a tax cut while we had deficits in Washington, here in the city we've increased property taxes, we've increased sales taxes, and we've cut back services. Now, people have to understand that that's the choice we're given and it is a terrible choice.

MR. MacNeil: Beryl Sprinkel, why is it a good idea to cut tax rates across-the-board, particularly -- I just wanted to add one thing -- particularly for many working Americans for whom the biggest part of the tax bite is their payroll tax to finance Social Security?

MR. SPRINKEL: Well, when you cut taxes across-the-board, there are both economic and political advantages from my point of view. It means that you get to keep more of your income, whether it's from savings, or whether it's from investment, or whether it's from working, and, therefore, it expands activity. And across-the-board means that politically it's likely to be somewhat easier than if you cut it for the poor only or the rich only or the middle class only. So I think for both political and economic reasons, it makes sense. Now, remember, the President also proposed cutting the capital gains tax, which will be a major stimulant --

MR. MacNeil: I'm going to come back to that in a moment. And, Jamie Galbraith, what do you think of this across-the-board tax cut proposal?

MR. GALBRAITH: Well, let's explore what happened last time we went down this road. We cut personal income taxes very sharply across-the-board in 1981 through '83. We did get some economic growth in those years, but at the price of enormous budget deficits and gigantic deficits in our trade. And at the end of that, we also in those years starved the public investment project that the President now thinks we should cut again in order to pay for additional tax reduction. And at the end of theperiod that we went through under the Reagan administration and the stewardship of my two colleagues on this panel, they discovered that they simply couldn't do it any longer. Now we had the longest recession in the history of the United States, which began in 1990, so that we are now being told that we can go back and replay this history and that somehow the results will come out better. And I think this is a case where we really have a very clear example of what will happen if we start down that path. And I don't think that it would be wise to do so.

MR. MacNeil: James Miller, is it just replaying the history?

MR. MILLER: If we look at the data, the data show that during the period we were cutting taxes, during the period of the 1980s, we had the longest peacetime expansion in our history. It seems to me that what it tells you is that this kind of policy -- and we've cut tax rates on through the 1986 tax reform as well - - this is a period where we've had great expansion. We did have an increase in the deficit though during the '87 to fiscal '87/'89 period while I was there, we did have the deficit going down, but the major reason was that spending outran the increase in revenues. Tax revenues rose dramatically during the 1980s but spending rose even more. It's the capital spending that is so essential here. Do we need to have some investments in infrastructure in this country? Yes. Some public investments? Yes. But the question is not the amount of money we're spending, but how we target that money. Let's get away from some of the pork proposals, pork spending that we have in so much of the infrastructure and direct that spending to the right places.

MR. MacNeil: Well, Mr. Galbraith --

MR. GALBRAITH: Could I come to that?

MR. MacNeil: Yes. Go back to that, because, in effect, Mr. Miller is saying it would have worked if spending had been capped and then revenue would have been in line with expenditures.

MR. GALBRAITH: Let's suppose that we did what the President says and set aside up to 10 percent of the income tax receipts for deficit reduction.

MR. MacNeil: I'm going to --

MR. GALBRAITH: 10 percent of 500 billion, you've got 50 billion there.

MR. MacNeil: Let's just stick to the across-the-board tax cut for the moment, if you don't mind.

MR. GALBRAITH: Okay.

MR. MacNeil: Because I'd like to ask you specific things in a moment.

MR. GALBRAITH: We can't really talk about how big the spending cuts have to be to offset those tax reductions, because the President did not say how big a tax reduction he would propose. If it were on the same order of magnitude as that earlier proposal, he would have to find $50 billion to take out of the hide of spending. And he's already said that he doesn't want to cut defense any more than he has already agreed to for national security reasons. And I suppose that he is not changing that position now that it's convenient to do so for this budget reason. So we're looking at trying to get $50 billion out of the discretionary domestic part of the budget, unless, of course, we're talking about Social Security cuts. And I didn't hear much about that in the President's speech.

MR. MacNeil: Mr. Miller, what do you say --

MR. GALBRAITH: You've got to make these numbers match. And it's extremely difficult to do so. And the last time it was tried, it was the Republicans in Congress who wouldn't back the Republican administration up on this, so he would have a terrible political problem in making this program stick and it wouldn't just come from the Democrats.

MR. MacNeil: Mr. Sprinkel, let's get you to come in on this because both of your critics, critics of the Bush plan, have raised the same thing, that Mr. Bush is not coming clean on what he would cut in order to lower expenditure to meet the lower revenue from tax cuts. Can you have a realistic proposal if you don't say what you would cut?

MR. SPRINKEL: As I said initially, I assume we will get more details, that just as he is proposing tax cuts across-the-board, I would also expect that he will also have spending cuts across- the-board, with the exception of Social Security. Let me add, Robin, that I think the experiment did work. We created over 19 million new jobs in the private sector. All income groups gained as a result of the poverty rate declined, the inflation rate went way down, therefore, I think it's a mistake to argue that the policies proposed earlier to encourage savings, investment and work failed. They succeeded.

MR. MacNeil: They succeeded, Mr. Rohatyn?

MR. ROHATYN: I think they succeeded for a while because of the illusion created by borrowing money from the rest of the world. It's very easy to grow when you grow on other people's money. The end result is that we have to fight wars on other people's money. But if you'll -- you know, this is like reading a Kafka novel, where you don't quite know who's mad, whether you're mad or whether the people writing the novel are. We have a $400 billion deficit today. If we're to bring this deficit down to zero, say over the next five years, we would either have to find expenditure cuts or increased revenues in the amount of about a trillion dollars, say between 800 billion and a trillion dollars.

MR. MacNeil: That's 200 billion a year.

MR. ROHATYN: So now on top of that, you want to cut taxes in order to cut expenditures even more than that amount, which first of all, I don't believe you can do it. The state of California tried this kind of an exercise. It was called Proposition 13. When the economy started weakening, the state of California is today paying their public employees in script, because they're running ten to fifteen billion dollar annual deficits. The most responsible thing President Bush -- who's a man I much admire did -- in terms of the economy of this country was to go along with the budgetary package of last year where he had to increase some taxes in order to get some expenditure cuts. I remember at the time reading that he felt this was a very responsible thing to do. It was very painful. Now, instead of saying look, we had to do this, we may have to do it again. We may have to raise taxes to build bridges or to build schools or to bring technologies into the schools or to build new airports, which we haven't built in 20 years. I mean, this country is a mess physically, and the mess that it's in physically and the deficits that state and local governments are running, as well as the federal government, is increasing social tensions all the time. And the notion that we're going to create a bigger hole by cutting taxes at this point, whether it's across-the-board tax cuts, whether it's capital gains tax cuts, or whether this is a checkoff plan, is just -- is, to my mind, is fantasy.

MR. MacNeil: Mr. Miller, how do you respond to that, that the most responsible thing the President did was to raise taxes two years ago?

MR. MILLER: Well, I think George Bush got taken with that budget deal and he said as much down in Houston last week. The way you get -- it seems to me -- I differ with Beryl Sprinkel perhaps on this issue of whether the President should identify the specific reductions that he would suggest.

MR. MacNeil: You think he should?

MR. MILLER: I do not necessarily -- no, I don't think he necessarily should. What you need is a social compact to reduce spending or to keep it under control. Let's talk about --

MR. MacNeil: Why shouldn't he make them specific? You heard what Mr. Galbraith just said when it was tried before, it was Republican members of Congress who refused some of the cuts.

MR. MILLER: That simply isn't true. Republicans have been in favor of all of these spending cuts, the list of 44 or whatever. It's just that we couldn't get enough Republicans, plus the Democrats, to vote for it. But the point is that what you need to do is to establish some sort of mark to keep spending under control and let's understand what we're talking about. We're not talking about reducing spending. We're talking about slowing the growth of spending. That's what happened in a way with the Gramm-Rudman- Hollings Act in 1987 that kept the '87 budget within some semblance of spending order. In fact, real spending that is adjusted for inflation actually fell that year. That's the reason the deficit came down. That's the way to bring deficits down is to work on the spending side. The tax side doesn't do it.

MR. MacNeil: You just heard Mr. Rohatyn say that in order to bring the deficit down to zero say in five years, you'd need to reduce it by 200 billion a year, and on top of that finance the tax cuts that the President is now proposing. Where would that expenditure, where would they come from?

MR. MILLER: Pardon me, $400 billion deficit, actually it's a $325 billion deficit, but over a period of five years is not $200 billion a year. It's less than $100 billion a year.

MR. MacNeil: Is that right, $100 billion a year? I don't follow the arithmetic.

MR. ROHATYN: If it's 325 and you bring it down to zero over five years, it'll be six, seven hundred billion instead of almost a trillion.

MR. MacNeil: You said a trillion, which is where I got --

MR. ROHATYN: I said a trillion. So it's 750 billion because I think Mr. Miller is taking away the S&L bailout cost which is still cost, whichever way you want to identify them, it's still a supposed 750 billion, and you add two, three, four, five hundred billion over that same period coming from these tax cuts, where is this money coming from, who's going to get cut? Is it going to be Medicare? Is it going to be Social Security? Is it going to be defense? It's not going to be interest on the national debt. Where is this money coming from?

MR. MacNeil: Mr. Miller.

MR. MILLER: Well, Beryl Sprinkel can give you great verse on this issue. Most of the computations I think Mr. Rohatyn and others have been on static models, that is to assume that if you reduce taxes you have no effect on the economic output. And that's simply not the case. We learn as economists, demand slopes down, which supply slopes upward. Incentives do matter. If you cut taxes, and especially capital gains and some of the other taxes on capital, you provide incentives for economic expansion and the reduction in the revenue coming to the federal government will be much less than what's based on a static model.

MR. MacNeil: Let's bring Mr. Galbraith back in on the capital gains tax cut.

MR. GALBRAITH: Yeah. We've heard that one before. The capital gains tax cut.

MR. MacNeil: Yeah.

MR. GALBRAITH: Well, I would argue that that is, first of all, on the one hand, really a favor for the wealthiest Americans, and that even a good application of economics in this case would tell you that it has very little to do with savings and investment. It has a lot to do with reducing the taxes that have to be paid when someone who has a lot of gains wants to cash them in and spend them on some consumption good, perhaps a new house or a luxury boat, or something of that nature.

MR. MacNeil: What about the argument that it goes into investment and it creates jobs? Why is that argument not true?

MR. GALBRAITH: Well, there are studies on that. There are studies on that. There are studies in the middle 1980s which show that about half of the gains that were realized in stock transactions were, in fact, consumed, so that as simply evidenced with the proposition that we continually hear that this would be some great benefit to investment is extremely weak and when you go back and look at the experience in the late 1970s you just don't find the effects or reductions in capital gains taxes that are claimed for them, so this again is not a proposal which should be taken seriously as a proposal for either economic growth or incentives to save and invest.

MR. MacNeil: Mr. Sprinkel, not to be taken seriously, the capital gains proposal?

MR. SPRINKEL: I think it's extremely important to get capital gains down. One of the compromises we had to make in '86 to get a substantial across-the-board cut in taxes was that we raised the capital gains tax. That over time had the effect of reducing the number of new businesses and also the number of new jobs.

MR. MacNeil: But you've just heard Mr. Galbraith say that the studies that have been done show that half of it goes into consumption.

MR. SPRINKEL: I have seen studies that also show that capital gains has a major impact on new business start-ups because it's the hope of making some money over the longer-term that encourages them to expand, produce, hire people, create jobs. Most of those 19 million new jobs plus that were created in the '80s were in small and middle size businesses and they have -- they are affected by the capital gains tax in a major way. Furthermore, there --

MR. GALBRAITH: Are you saying, Beryl, that the reason why we went from 19 million new jobs in your time to a million new jobs in the four years of the Bush administration is that the Republican administration --

MR. SPRINKEL: No.

MR. GALBRAITH: -- foolishly agreed to reverse themselves on the capital gains cuts? Isn't that a bit of a stretch?

MR. SPRINKEL: I didn't say that, Jim. I didn't say that at all. As I previously said, tax increases, government spending increases, and more regulation over the past four years also contributed to the slowdown. We're talking about how do we get that machine going and if we're going to make it go, we've got to create incentives. We don't do it with bigger government spending and higher taxes. All over the world countries are backing up from larger governments because they know it doesn't work. And here we find some of the political candidates saying we need more government, we need higher taxes, and that's the way to bring growth and jobs in America.

MR. MacNeil: Mr. Rohatyn.

MR. ROHATYN: If I could just say one thing, we don't need more government but we need more public investment and we need better education and we need better schools and we need better bridges. We need lots of things which we haven't gotten. Now, I'm not an economist, but I live in the world of business, of business leaders, and I live in the world of state and local governments. And there isn't anybody that I have talked to who doesn't think that what this country needs is more investment,and even if we have to raise some taxes to pay for it, that that's going to have to be the price we pay, and that we have to reduce the deficit. Now, I haven't seen anybody tell me how these expenditures are going to be cut, how we're going to reduce Medicare, how we're going to reduce Medicaid if we're going to borrow another $1/2 trillion dollars which has already half-bankrupted this country. So here we are spending all this time talking about tax cuts which probably will never happen and shouldn't, instead of talking what should be done about this country's fiscal affairs and its social structure, and the answer to the question isn't necessarily here, but it's given to you by the financial markets every day now.

MR. MacNeil: I was going to pick up on that. Let me just go round in our remaining time. Mr. Miller, are you concerned about the fall in the dollar and do you see it related to the policies we've been talking about?

MR. MILLER: Well, we have very low interest rates right now and I think that's probably the major reason that the dollar has fallen. I don't think over the longer-term that it's something to be worried about. I think, if I could just make two additional points, one is it's very important to keep in mind that the President has called for this kind of checkoff, and isn't it kind of interesting that people will be able to vote on their IRS returns and tell what they think about spending, and the second thing is the things that he proposed down there all had the caveat that he wouldn't reduce those taxes unless spending would reduce a similar amount.

MR. MacNeil: Mr. Galbraith, on the dollar, the fall of the dollar, is that a matter of concern, and what's causing it?

MR. GALBRAITH: I think the dollar's coming down because interest rates here are low and interest rates in Germany are high. And that's not necessarily a bad thing. But the market's falling is another matter. It's partly related to the dollar. It's also partly related to a fear that with taxes, if taxes do come down, then interest rates are going to go back up in the future, and that will be very bad for stocks, bonds, and growth in this country. So I think we do have a signal from the markets which is reflecting displeasure with the Bush program.

MR. MacNeil: Mr. Sprinkel, does the falling dollar raise the prospect that the Federal Reserve not only may not be able to lower interest rates further but may even have to raise them?

MR. SPRINKEL: I think that would be a serious mistake. The falling dollar not only reflects --

MR. MacNeil: Is it a possibility?

MR. SPRINKEL: It's always possible, but I know most of those board members and I can't believe that they would force the economy into a deep recession just because the dollar is declining. What we need to do is to promote growth that low interest rates in the U.S. reflect the fact that we've got the inflation rate way down, but, remember, the other half of the story, and maybe 2/3 of the story is what's happening, especially in Western Europe. Now, where Germany is finding it necessary to substantially tighten monetary policy, the cost of helping Eastern Germany is much greater than anticipated, the money supply's growing too rapidly, and their interest rates keep going up. This slows down economic activity not only in Germany, but all across Western Europe. That's a temporary phenomenon and we should not let that determine our basic monetary policy, Robin, in my opinion.

MR. MacNeil: Well, gentlemen all, thank you very much for joining us. Jim.

MR. LEHRER: Still to come on the NewsHour tonight, the relief effort for starving Somalians. UPDATE - AGONY'S CRADLE

MR. LEHRER: Finally tonight an update from Somalia, the African Nation which lose a one third of its six billion people to starvation and war. Outside countries are trying to provide food but much of it is not reaching the starving people. Steve Smith of Independent Television News report from the Somali Capital and Port City of Mogadishu.

MR. SMITH: Mogadishu Port is the most important destination for Somalia's food aid. But it is also at the center of black market trafficking. We filmed aboard a French cargo ship unloading two and one half thousand tons donated by the French Government. Here Somalia porters and guards are hired by aid agencies but also hell themselves to supplies at the rate of a one hundred tons a day. They don't want witnesses. When we were spotted gunmen fired over our heads. Filmed from elsewhere on the ship these were the scenes that they didn't want us to see. Bags of food smuggled in to containers and warehouses on the key side. Later this man in black slips away with a box of cooking oil. On this occasion other workers chase him and the box is eventually returned.A boy seen at the back of the truck has more success. This goes on amid squabbling between clans or families accompanied by gun fire. Relief officials admit the situation is out of control. Trucks leaving the Port are frequently held up at gun point and robbed. One truck from this convoy was picked clean at this junction a within a mile of the harbor. The destination of the looted supplies is Bakery Market in Mogadishu. Here the starving beg for scraps. Aid made possible by donations in the West ends available only to those with money. This merchant admitted selling stolen food. [MERCHANT]

MR. SMITH: The grain piled up either side of the street is bought by traders at the equivalent of ten dollars a sack. The task of keeping food aid out of the black market has fallen to the UNited Nations. Fifty cease fire observers have began showing the flag in the shattered center of Mogadishu. Keeping watch between rival clan groups they are protected at all times hired gun men and so called technical vehicles. As they talk to locals at the checkpoint sacks of looted food are wheeled past. Aid workers with long service in Mogadishu are unimpressed with the UN's performance so far.

AID WORKER: I think they failed really and it shouldn't be that we are this far down the road and it takes media pictures blasting in New York of people dying to get the UN involved and to see the size of operation we are talking about now.

UN OBSERVER: I am not here to enforce any kind of law order and security in the town. My mandate clearly says to monitor the cease fire along the armistice line. And to that extent I do the job.

MR. SMITH: The UN soldiers will arrive in a country with no regular police force. Elderly traffic officers no longer paid for their points duty are the only representatives of authority most people see. The volatile atmosphere is fueled by cat a powerful stimulant to which most men here seem addicted. An angry crowd gathers confusion after a burst of gun fire. They want us to go away. We just witnessed a fatal shooting incident here in the markets of Mogadishu. A man was shot dead in the middle of the day in front of crowded stalls a few yards away from where we were filming. Amid the continuing violence the clan grouping in Mogadishu have agreed to the deployment of the UN Troops with varying degrees of enthusiasm. The United Somalia Congress in the South of the Capitol claims security can only return if the Country is flooded with food by a so far indifferent West.

SPOKESMAN: If food is enough no looting will happen. We believe the food is not enough. So the young man with a gun his family is starving at home. So in the morning he gets up there is no job, no school to go, there is no farming in the Country. Everything is collapsing. The only thing he has is the gun so he has to look for food.

MR. SMITH: In Northern Mogadishu the gun men of a rival leader have been put in to uniform and others disarmed. Ali Maddi briefly President before the civil war sees security as the precursor of political rebuilding. But Somalia's political leaders can not always influence the gun men as six months of looting since the cease fire suggests. This technical gun men told us Mogadishu did not the UN. The United Somalia Congress has enough force to take care of the situation he said. In this city where the hired guards at the Port are also the looters who is to say the gun men now paid to protect the UN won't become their enemy. RECAP

MR. MacNeil: Again the main stories of this Monday. Hurricane Andrew ripped through South Florida killing at least eight people and causing property damage that could top 8 billion dollars. The storm is now over the Gulf of Mexico about 470 miles Southeast of New Orleans. Hurricane warnings are in effect from Alabama to Texas. The dollar continued its nose dive today hitting an all time low against the German Mark and nearly a two to one exchange against the British Pound. Good night Jim.

MR. LEHRER: Good night Robin. We'll see you tomorrow night. I am Jim Lehrer thank you and good night.