The MacNeil/Lehrer NewsHour

MS. WOODRUFF: Good evening. I'm Judy Woodruff.

MS. HUNTER-GAULT: And I'm Charlayne Hunter-Gault. We're both in Houston this week for this special edition of the MacNeil/Lehrer NewsHour.

MS. WOODRUFF: After the News Summary, we focus on President Bush and the economy. Paul Solman reports on Bush's record over the past four years, and we debate that and Bush's proposal for the future with a top Bush adviser and two economists. In the same vein, Kwame Holman looks at strong sentiment in the New Jersey delegation for tax cuts, and finally, Charlayne takes her "Can We All Get Along" question to Housing Secretary Jack Kemp.NEWS SUMMARY

MS. HUNTER-GAULT: Republicans opened a second day of their party convention here in Houston with fresh salvos at their Democratic rivals. Throughout today's session at the Astrodome Bill Clinton's record on crime, the economy, and the environment came under renewed partisan strafing, as did the Democratic Congress. Today's theme was also the reselling of the Bush domestic agenda. Texas Senator Phil Gramm said the President would need a good cavalry charge from the convention to persuade voters his plan was right for America. Gramm promised to take the lead in tonight's keynote speech and vowed to tear Bill Clinton's economic plan apart. Mr. Bush spent most of the day working on his acceptance speech set for Thursday evening. This afternoon, he took time out to speak with our own Jim Lehrer. He said, "If today's voters want change, it should start with the House of Representatives."

PRESIDENT BUSH: Congress has to change and, sure, I'm perfectly willing to change, but I've held out my hand to this Congress and the American people know it. And I've had it bitten off. And I'm not going to do that anymore. I'm going to put more pressure on them, maybe go back to a little like Lyndon used to work it.

MR. LEHRER: How would you put the pressure on?

PRESIDENT BUSH: Just expose individual members who talk duplicitously. I have not done that yet -- you know, take it to the American people. It's a different approach, but I've got to try something different because I want to move this country forward. And we've done it in world affairs. We've done it dramatically and people are going to understand that. Why was the President successful? He didn't have to go to this gridlocked Congress to get something done.

MS. HUNTER-GAULT: That interview can be seen in its entirety today on PBS as part of our joint convention coverage with NBC. Gov. Clinton was not on the campaign trail today, but he again took a few jabs at President Bush and the proceedings in Houston. He ridiculed the GOP's message as "the Columbus theory of politics. Give us a fourth term and we'll discover America." He also challenged Pat Buchanan's verbal attack last night on his wife, Hillary. The governor spoke to reporters in Little Rock.

GOV. CLINTON: Pat Buchanan in his life has never known as much as Hillary has.

SPOKESPERSON: You've got that right.

GOV. CLINTON: Just going from families and children and the very idea that he could be up there attacking her shows you how impoverished they are, their ideas, how out of touch they are, how irrelevant a lot of what they are doing is. But it's what they know to do, divide, use those issues, personally attack. That's what they did and that's what they know to do.

MS. WOODRUFF: In economic news, construction of new homes fell for a second month in a row. The Commerce Department said housing starts declined by 2.8 percent in July. Building was down in every region except the South, which posted a small gain. Wang Laboratories filed for bankruptcy protection today. The computer and electronics company said it will lay off more than a third of its 13,000 employees as part of the restructuring. Wang was a 1970s success story when it pioneered word processing equipment. It began to fall on hard times when it failed to compete with its rivals in the personal computer market.

MS. HUNTER-GAULT: Nearly 1,000 Serbian women and children were evacuated from the Bosnian capital of Sarajevo today. They left in a convoy of buses for Belgrade, the Serbian capital. The evacuation came as U.N. officials suspended the international airlift of relief supplies to Sarajevo because of a new threat to the flight. Paul Davies of Independent Television News reports from Sarajevo.

PAUL DAVIES: Sarajevo Airport and its humanitarian aide operation was shut down this afternoon after guns in the mountains threatened an RAF transporter, one of dozens of planes ferrying food and medicine into the city. This latest setback for the relief team came as Sarajevo's largest refugee hostel, a converted hotel, continued to burn after being hit by shells. Incredibly, even as the top floors of the hotel burned out of control, people were already moving back into its lower levels. Even a burning building provides some protection. Where else should we go? "Our homes are destroyed," the old lady cried. "This is all we have now. We must pray the flames don't reach us here." The majority of the refugees are women and children whose men folk have been killed. But then last night was just part of a continuing nightmare. Although the local Serbian leadership has denied responsibility for the attack, eyewitnesses say it was shells fired from Serbian positions that struck the hotel, causing panic and confusion. Outside the refugees became targets for snipers. As most people were scrambling to get the injured and the helpless away from danger, this woman tried to save her few possessions and some old family photographs as another shell hit the hotel. Today saw the biggest single evacuation of women and children from this war- battered city. Once again, there were hundreds of tearful good- byes, fathers knowing their children have a better chance of survival if they can reach the outside. The hands of father and son, separated by a conflict in which the helpless are regarded as legitimate targets.

MS. WOODRUFF: With us, Prime Minister John Major confirmed today that the allies will soon declare a no-fly zone in Southern Iraq. He said the U.S., Britain, and France would monitor an area below the 32nd Parallel to prevent Iraqi air attacks on Shiite Muslims in the region. Major accused Iraq of waging a systematic genocide campaign against the Shiite population. He said after the zone is declared, any Iraqi aircraft flying in it would be shot down. In the United States, officials detailed plans today for a massive relief effort to Somalia starting on Thursday. Over the next two months, 145,000 tons of food will be airlifted to that East African nation. Relief officials estimate that 1.5 million people could starve within weeks if food is not delivered immediately.

MS. HUNTER-GAULT: That's it for the News Summary. Just ahead, the President's economic game plan, a delegation of tax cutters, and Jack Kemp on "Can We All Get Along?" FOCUS - MONEY MATTERS

MS. WOODRUFF: First tonight, we turn to what might be the make or break issue for the Republican Party in November, the American economy. Tonight's speeches at the Houston convention will highlight the president's domestic policies, and here tonight on the News Hour we focus specifically on Mr. Bush and the economy, what he's done so far and what he would like to do. First this backgrounder from business correspondent Paul Solman of public television station WGBH boston.

MR. SOLMAN: During July's Democratic Convention in New York, we were taken on a tour by a top Clinton aide to sketch the Democrats' economic program; now it's Houston and equal time for the Republicans. Our guide last week as they prepped the Astrodome for prime time, Bush advisor Clayton Yeutter, he says the president has a plan to rebuild the economy but first there's a record to defend.

MR. SOLMAN: Four years ago a promise of millions of new jobs and no new taxes, What's gone wrong if you will?

CLAYTON YEUTTER, Domestic Policy Adviser: Well we've had a recession brought about by a lot of thing which are in no way attributed to George Bush and has been exasperated by I suppose by a lot of pain and suffering particularly in real estate. And then of course with the reverberations of that into the savings and loan industry and the banking industry. That was followed by a credit crunch which may have had as much to do with continuing that recession for a longer period then we thought it was going to occur than any other one thing.

MR. SOLMAN: Didn't the president put himself in box when four years ago at the predecessor site of this one, he said "read my lips no new taxes" then actually has to raise some taxes and looks like he's speaking with forked tongue and still finds himself in a huge hole in regard to the deficit and the rest?

MR. YEUTTER: Well in retrospect, he should not have breached that pledge and he has said that, but the fact is he thought he did that in good faith, expecting a quid pro quo from the democratic leadership in the congress. The quid pro quo in terms of spending disciplines never materialized, so don't hold the president to fully account him for this, recognize that a lot of the turmoil that resulted in the aftermath there of resulted because the inadequacies of the congress, and carrying forward with their end of this bargain.

MR. SOLMAN: As we chatted the Republicans were quite literally building their platform, blaming congress for the past, talking tax cuts for the future. Meanwhile Yeutter had evidence for his case in the hearing now. This is the ship channel, pretty slow today in the hellacious Houston heat, but as the world's sixth busiest port, Houston is a good background for pointing out that under Bush U.S exports have boomed to four hundred billion dollars a year, Making us once again the world's top exporter. Globalizing the U.S economy is a major push of the Bush administration.

MR. YEUTTER: What the president has been focusing at is a North America free trade agreement to open up the Mexican market which has huge export potential in the future and then in addition he's had a very aggressive bilateral negotiating stance with a good number of country's around the world including the Japanese, all of which has begun to pay off. People don't realize what a great improvement we've had in the international side of our economy over the last few years, in fact that's been the big bright spot and it's what has kept the recession from being deeper and broader then would of otherwise of been the case.

MR. SOLMAN: But a lot of people will say, free trade oh sure, then you have stuff like the chinese working in prisons and selling their goods at incredibly low cost, or you have Mexico polluting the atmosphere and exploiting their workers and then the goods come in here cheaper and displace American jobs.

MR. YEUTTER: We don't want to compete with low cost labor and we don't have to because there are a lot of things we can produce in this country with the labor that's reimbursed at much much higher rates and do very well as an economy.

MR. SOLMAN: But a lot of people there watching who are going to say great it sounds fine, but we can't afford to lose these lower paying jobs, that will mean a community near here that was relying on those kind of jobs will have nothing to do.

MR. YEUTTER: Well in a capitalistic society there are always going to be adjustments, but the fact is we have to look at the trade offs, if we lose one hundred thousand low paying jobs and gain two hundred thousand high paying jobs, that's a pretty good deal, and that's really what's going to happen.

MR. SOLMAN: In a recession of course any jobs seem hard to come by, the Republicans defense is first it's temporary and second it's congresses fault for spending to much, thus raising the deficit and discouraging the long term investment that brings better jobs. Budget Director Richard Darman gives the party's prescription, tax breaks to stimulate new business.

RICHARD DARMAN, Budget Director: We need stronger incentives including tax incentives to encourage more investment into job creating equipment plant, intellectual capital, human capital, ideas that are going to make america more productive and more competitive, capital gains is one such incentive.

MR. SOLMAN: How does it work?

MR. DARMAN: It tells someone who's got a bright idea that if you're willing to put together some capital or able to with others, and to helpand defend that idea and it pays off in a substantial way. You or those who invested in your idea are going to get a very much larger return than if you had just stayed in a salary job. So it encourages people to take risks they might not otherwise take, but the program does not rest exclusively on capital gains, of course not. This is a summary chart of the president's agenda for economic growth, and as you can see there are twelve major categories of initiatives.

MR. SOLMAN: Doing economic stories like this one we often feel the need to boil things down to a few often a trio of essentials, that can really frustrate a policy maker.

MR. DARMAN: And what we're forced to do is to simplify and say to the world artificially there are only really three things that count. Now that is necessarily a gross over simplification, we could pretend that's the way reality is but it isn't. The reality is you need to do at least twelve things and probably many many more than twelve things to deal with such an enormous complex system society problem.

MR. SOLMAN: And each of those things has under it a bunch of bullets and each bullet is an hour documentary in itself, if you were to take it seriously.

MR. DARMAN: If one was going to be fair each bullet would merit an at least an hour and actually could be an interesting hour.

MR. SOLMAN: Well perhaps fortunately we don't have time to test Darman's assertion tonight, actually we need to get back to Houston and catch up with Clayton Yeutter, this time at an inner city housing project. One Republican plans associated with Jack Kemp is to promote tenant ownership of projects like this.

MR. SOLMAN: This man is with a friend of the president, of President Bush and his idea, their idea is to have families like yours own these --

LITTLE BOY: Yes, yes!

MR. YEUTTER: There we've got an advocate. There we've got an advocate.

MR. SOLMAN: Why were you jumping up and down?

LITTLE BOY: Because you said families like our mother's going to be owning these apartments, so we want our mothers to own them.

MR. SOLMAN: Would your families take care of the apartments better if they owned them, would you feel better if you owned the apartments yourself?

CHILDREN: Yes.

MR. SOLMAN: Why?

SMALL BOY: Because you wouldn't have to move out.

MR. SOLMAN: Because what, because you wouldn't have to move out.

SMALL BOY: And you could move out when you wanted to.

MR. SOLMAN: What were you going to say?

LITTLE GIRL: And you could paint them and make them look better.

MR. SOLMAN: The kids here may expect more from home ownership than it's likely to deliver but their enthusiasm seems to speak for itself. On the other hand it's just perhaps a start on the country's greatest economic problem.

MR. SOLMAN: So what ultimately do you do to revive an area like this?

MR. YEUTTER: Well first of all you've got to have security in an area like this and then clearly that has to be handled in an aggressive way in lots of areas like this, but the most important thing you do is create jobs. You have to have the business investment in an area like this that will give these folks meaningful jobs so they can generate some income. The way we would like to see that done is through enterprise zones, the government doesn't do everything as it does in welfare programs, but provides a helping hand that will bring businesses in here that will create jobs.

MR. SOLMAN: But there have been studies that suggest that enterprize zones aren't the be all and end all, they simply draw jobs from other parts of the city or another part of the country.

MR. YEUTTER: More likely you may pull part of them from somewhere else and part of them are newly created, but I think that's a good trade off, what is the alternative, the alternative is to do nothing in areas like this. It seems to me that unacceptable in a democratic society like ours.

MR. SOLMAN: We continued on through the project, the older residents ignored us, but for the younger ones the camera was a magnet. And for everyone here the living conditions here were, well uninviting. You the Bush administration has had four years in office, before that Reagan for eight. The situation in places like this has gotten worse, and worse, and worse. Why shouldn't I hold you and the Republicans responsible for the deterioration of areas in the inner cites like this?

MR. YEUTTER: Because we ought to hold the nation responsible, this is a challenge that's been around for at least half a century, and we as a nation haven't handled it well. How do you handle it, it seems to me that there are just a couple of major pieces to this one is enterprise zone legislation that we've talked about earlier in order to create jobs for people living in areas like this, the second part is education, we've got to provide apprenticeships and vocational education, and education that carry kids on to college, that will pull this kids out of this kind of situation. And that requires legislation.

MR. SOLMAN: In fact the president proposed some legislation of this sort in his State of the Union Speech seven months ago, little of it has made it through congress and into law. But that seemed to beg two questions, one how can the country afford new programs given budget deficits that have ballooned under the republicans and finally if Bush can't sway a democratic congress, why not elect a democrat with some similar economic ideas who might be able to?

MR. DARMAN: There are two basic problems with that if I could suggest, one I think we're going to have a radically different congress we're going to have one hundred and fifty new members in the house and an opportunity for significant change because the public wants change and the house will respond, secondly I think there are substantial differences, major differences between the president and Governor Clinton. And if we had Governor Clinton in the white house, I believe you'd see a sharp move to the left. When they understand what that choice means, then the president is going to get a fair second look and that coupled with a brand new congress is going to make people choose president bush, as it would hope.

MR. SOLMAN: That does sound like its a lesser of two evils when you put it that way.

MR. DARMAN: It is both a lesser of two evils for some people will look at it that way, and more positively the best way to get America moving forward into the next century, competitive, strong, safe, secure under responsible leadership.

MS. WOODRUFF: For more on George Bush we have three voices, Michael Boskin is the chairman of the presidents council of economic advisors, Benjamin Freedman is a professor of economics at Harvard University

MS. WOODRUFF: Joining us now to talk about the Bush economic plan are Michael Boskin, President Bush's Economic Advisor. And Benjamin Friedman he joins us from WGBH in Boston and Lawrence Kudlow is Chief Economist at Bears Stearns, a New York investment firm. He was an economist in the Reagan Administrations Office of Management and Budget. He joins us tonight from Salt Lake City. Larry Kudlow do you agree with Richard Darman that the Bush plan is the best way to get the United States moving in the next four years and beyond?

MR. KUDLOW: At present I don't agree. In fact one is very hard pressed to discover which plan Darman is talking about. I think basically in the last four years President Bush has been pre- occupied with international affairs and probably rightly so with all the change, the decline of communism, the end of the Berlin Wall, Noriega and so forth. He essentially turned the economy over to Mr. Darman and Mr. Brady and their record is just littered with failure after failure. Virtually no economic growth, no job creation, very little increase in living standards. And I really think at this crucial juncture for Bush the best thing that Darman could do and the best thing that Brady could do would be to resign their positions and to let Jim Baker taking over as Chief of Staff completely restart economic policy and show the American people a clear future agenda vision of strong economic growth, job opportunities, capital formation and so on in the second term. It needs to be a broad based plan, across the board tax cuts linked to Government spending control. health care cost control. privatization and asset sales. And it should also include the enterprise zones, home ownership, welfare and so forth. But at the key point the most important issue here is a new start on the economy for President Bush. It's a mid course correction with a new staff, much greater emphasis on incentives, on economic growth with a four percent growth target. These are the kinds of things he has to do. With plenty of specifics and details not cliches. The American public wants a change.

MS. WOODRUFF: Let me just clarify something. You keep talking about Director Darman and Treasury Secretary Brady. We've got sitting here the Chairman of the President's Council of Economic Advisors. Are you excluding Mr. Boskin from the blame that you are laying here?

MR. KUDLOW: Well Mr. Boskin is, of course, a part of that team. so I am afraid that he will have to share some of the blame or credit depending on ones point of view. But my impression is that he has not been in the drivers seat in recent years and indeed some of his proposals which I might have agreed with have not been accepted. There has been a bottle neck and economic policy bottle neck in the West wing and I think that bottle neck has to be broken and I think they have to restart and if they do then President Bush can give people a strong reason to vote for him in the second term. But if we continue with the same non plan and with the same people running then I think the President is in a heap of trouble.

MS. WOODRUFF: Mr. Boskin you hear with Larry Kudlow is laying out. No job growth, you need investment, you need tax cuts and so on and so on. How do you respond?

MR. BOSKIN: Well first of all let me make two points Judy. The economy clearly has not done as well as any body least of all the President would have liked. Many things contributed to that. The Worldwide slow down. Unemployment in Europe is 10 percent. The Gulf war and the oil shock were the largest contributors to the recession. The credit crunch and a variety of other things. The President has laid out a short term economic stimulus program and a long term agenda which includes many of the things that Mr. Kudlow is referring too. Spending control with binding caps on spending, getting the deficit down, tax incentives for investment for entrepreneurial activity, to stimulate new home ownership a variety of others. Substantial increases in the expansion of trades so our exports as you pointed out at the top of the show which are a major contributor to the economies growth, a reevaluation of regulation and litigation to get those albatrosses around our neck that aren't necessary. They aren't meeting our purposes. So the President does have a good agenda. You are going to hear more about Thursday night. There are some new things and so on. So I think that Mr. Kudlow ought to take a careful look at the program. Perhaps we haven't done as good a job and I will take my share of the responsibility for that in getting out to the American public but the program is there, it is aggressive, it is strong, it is the right way to go. There will be additional elements to it which will strengthen it and improve it. We think we have the opportunity to take the case. Let me say something Judy. You have one set of people, you have one Party, you have a President running for election who wants to control government spending, wants to get the deficit down. Wants to lower taxes, wants to stimulate investment and create jobs. You have the other candidate who wants to raise spending, raise taxes and by every ones estimate it would increase the budget deficit.

MS. WOODRUFF: But we want to talk about the Bush Plan. We did talk about the Clinton Plan a few weeks ago. We will be talking about both in the weeks to come.

MR. BOSKIN: I would like an opportunity to talk to you about the Clinton Plan.

MS. WOODRUFF: What Mr. Kudlow is talking about you heard him say there has been an economic policy bottleneck, the President turned economic policy making over to people he believes don't have the right formula. And he is saying those people ought to be cleaned out and again he talked about no increase in living standards, no job growth under the kinds of proposals that they were pushing.

MR. KUDLOW: Can I just interject here. I mean, look if this was a bold aggressive plan for four years then the economy would be expanding at three or four percent a year. The employment rate would be falling. Job creation would be rising. I mean we can talk about all these things but my judgement is each step of the way the Brady Darman economic team made the wrong turn in the road. In 1989 there was a problem with the savings and loans but their approach was so punitive and so over zealously regulated which then dove tailed and destroyed the high yield bond market, spilled over to the commercial bankers credit crunch. Right now today credit is still not freely available.

MS. WOODRUFF: Let me just stop you right there. How do you respond to the savings and loan situation?

MR. BOSKIN: First of all the savings and loan situation I am sure Dr. Kudlow and Dr. Friedman would agree was primarily created in the 1970s when high inflation interest rates wiped out their value of the assets that savings and loans primarily long term fixed rate mortgages. It was somewhat worsened in the 80s through a variety of things that occurred. Then Vice President Bush had a creative way to deal with with risk based deposit insurance that Congress didn't adapt. The point I want to get across is that the President has been pushing this growth agenda. Had the Congress enacted it we would have had that four percent growth that Kudlow was talking about and indeed we have a target of at least four percent growth. We think that the economy can do better than that without stimulating any concerns of inflation accelerating.

MS. WOODRUFF: Ben Friedman let me bring you in to that. Is that a legitimate reason that the President can give for not having turned out a better performance on the economy. The fact that the Congress has not enacted his proposals.

MR. FRIEDMAN: I don't think so Judy. I think the President's proposals this year were all just short term bandaids. They were aiming at what he called jump starting the economy. This economy doesn't need a jump start. It needs an engine overhaul and it needs a front end alignment. We have very fundamental problems. We need to start investing. The Hallmark of the Bush years and behind that hallmark of the Reagan years to is that we have systematically underinvested in just about all of the makings of a strong economy. Regardless of whether we look at factories and equipment, research and development, infrastructure, roads, highways bridges education. We are starving our economy. We need to move ahead. Why is that so many Americans don't have jobs. Well in part it is because we haven't built any factories for them to work in. Why is it that Americans who do have jobs are losing ground compared to inflation. Again it is because we are not doing the investing that would make our workers productive and enable them to earn a decent standard of living. I agree with Larry Kudlow that something much more fundamental is needed than just a few bandaids here and a few patchworks there. Yes George Bush has lots of little proposals here. little proposals there but as some one said in the newspaper lately it is very much like what Theodore Roosevelt said about Taft he means well feebly. George Bush isn't behind any of these proposals. These are all just line items in Dick Darman's chart.

MR. BOSKIN: First of all that is not a fair characterization. I want to get one thing straight. If Mr. Friedman would look at table 2 in national income accounts he will see real investment in plant and equipment in the United States has been historically high in the last ten years not low. He is correct that we need to invest more.

MR. FRIEDMAN: It has been low since 1981.

MR. BOSKIN: You are incorrect real investment has been higher.

MR. FRIEDMAN: It has been declining ever since 1981.

MR. BOSKIN: You are incorrect. Secondly we have proposals for this. We just passed the largest surface transportation bill in the nations history that is going to expand highways and roads. The Transportation Department is trying to funnel the money out to states as rapidly as possibly. The States can't even absorb it all. I can go on and on. The thing that I object to is Mr. Friedman making a comment of whether the President is behind these things the President is aggressively behind these things. He has been aggressively behind from day one. He has a complex set of things that he is doing. Many things that he is doing. And many of these have been languishing on Capitol Hill. he has been fighting for them. Some of them have gotten through but the overwhelming bulk have been stopped by Congress. You will hear him on Thursday night. You will hear people between now and Thursday night and you will hear from then on pressing hard on these proposals and we will get these proposals through either in this Congress or the next and they are bold they are going to basically restructure the Federal Government.

MS. WOODRUFF: Mr. Friedman.

MR. FRIEDMAN: From where Mr. Boskin sits this probably looks as if it has George Bush's attention everyday. But I think larry Kudlow said it just right. George Bush throughout three years of his Administration has been focused on foreign affairs. That may be a good thing that may be a bad thing for the country but it just isn't right to say that the President has been in there with his sleeves rolled up devoting his attention and his energy to getting a domestic program through that would mean anything for the economy. He just hasn't. I also think that it is wrong to keep pointing a finger at the Congress, the Congress the Congress for overspending. After all it was George Bush this year who submitted his own budget proposal that called for a 399 billion dollar deficit. That wasn't the Congress thing that was George Bush.

MS. WOODRUFF: How do you respond.

MR. BOSKIN: Well let me respond very simply. The President can not appropriate a dime. Congress appropriates, Congress spends. The President can propose and the President can veto. The President indeed has vetoed 31 times successfully.

MS. WOODRUFF: But the President also proposed a budget with an over 300 billion dollar deficit in it.

MR. BOSKIN: And he has a way of getting that down every economist,the Congressional Budget Office. OMB etc all believe that the deficit will be coming down in the next couple of years but we need to do even more. We need to get the growth rate up and do even more to control the growth of spending. Larry Kudlow I think had a good way of summarizing it. We need freezes and caps on spending. So we make sure that we get spending under control and get the growth rate up to get the deficit under control.

MS. WOODRUFF: Larry Kudlow.

MR. KUDLOW: Most of all we have to reinvigorate through a stronger growth oriented tax program. I mean look cap gains reduction is terrific. No one is a stronger supported than I am but it has never been a stand alone policy. If we want to have better business investment spending in addition to freeing up capital through a lower cap gains tax we should have a permanent, a permanent increase in depreciation allowances. Not a one year investment tax allowance which is foo foo economics but a permanent one to help short term and long run growth. The we should go back and revisit some of the income taxes. The 15 percent tax bracket have been hurt again and again by hikes in payroll tax rates. So let's give them a better work effort, better labor return and take the 15 percent rate down to 10 or 12 percent rate and let's send the right signal to upper income people. Why should we punish success. And reverse the 1990 tax hike which was legislated in the middle of the recession. Let's take that down from 31 to 28 percent and then link this to a clear program of spending freezes.

MS. WOODRUFF: Mr. Kudlow has been advising Secretary Kemp and others, Congressman Weber who were urging the President last week to include some specific tax cut language this week in his acceptance speech. The press is now hearing that this is not going to happen.

MR. BOSKIN: I don't want to preempt the President we will wait for Thursday night and the President will be able to make his speech and we will all look forward to it. I will say that the President has a clear goal of trying to get down. Taxes are at historically levels. We want to get them down. We need to get spending down simultaneously and get the deficit under control. The one part of Mr. Kudlow's point that I strongly agree with is that we need to restore tax incentives. He mentioned several of them. There are others. Especially for small business. A huge problem with our economy right now has been the slow pace of new business starts and difficult times small business are having expanding and that is the source of most of most of the job and we need to get better incentives for small business and not the kind of punitive increases in payroll taxes that are in the Clinton package.

MS. WOODRUFF: But should the President be specific now at this point in the campaign about the tax cut?

MR. BOSKIN: You will hear the President on Thursday night. He will lay out what he is going to say. I am not going to preempt it at this time.

MR. KUDLOW: He has got to be much more specific at this stage of the game than might normally be true for a convention speech because the voters are in revolt against higher taxes and too much spending and George Bush who has it in his bones, in my judgement, he can do this, with a strong new plan. He has to come forward with scope, detail, leadership and most of all gusto and energy and enthusiasm to persuade folks.

MS. WOODRUFF: But do you believe that he is going to do that?

MR. KUDLOW: I honestly don't know. I am not in the middle of the Administration. The growth wing of the Republican Party lead by Jack Kemp, Bob Castin and Malcomb Wallop and Vin Weber and others have proposed a multi pronged growth package. The centerpiece is tax cuts but also Government freezes and asset sales and so forth to cover the deficit but most of all to show economic growth in the next four years. And I think that George Bush could take that plan if he has got a new staff and run with it and show the American people there is a reason to re-elect him. We are going to have to leave it there gentlemen. Thank you all three for being with us. Charlayne.

MS. HUNTER-GAULT: Still ahead the New Jersey tax cutters and a race conversation with Jack Kemp. FOCUS - TAX CUTTERS

MS. HUNTER-GAULT: While others debate what be the best economic prescription for the country, one delegation at this convention believes it has already found the answer. Correspondent Kwame Holman reports.

MR. HOLMAN: Members of the New Jersey delegation gave an enthusiastic welcome to former President Ronald Reagan last night. They could identify with the man who spent much of his presidency campaigning to cut taxes and reduce government spending. But while Ronald Reagan never did succeed in balancing tax cuts with spending cuts, Republican legislators in New Jersey had, and in only six months. And if you think they're excited about it, listen to Treasury Sec. Nicholas Brady, New Jersey's delegate, himself.

TREASURY SEC. NICHOLAS BRADY: I think it's the most exciting thing that's going on in the United States. These guys have cut a billion dollars out of a bloated Democratic budget. That tells you where the money ought to come from, not from taxes going up like Bill Clinton wants to do, but cutting spending like George Bush wants. These guys did it.

MR. HOLMAN: These guys include Chuck Haytaian, speaker of the New Jersey State Assembly.

CHUCK HAYTAIAN, Speaker, New Jersey Assembly: We did it in New Jersey. We cut $1.1 billion from the governor's proposed budget, and we cut a sales tax $608 million. If we can do it in New Jersey, the United States of America can do it.

MR. HOLMAN: If New Jersey Republicans seem to be sporting a bit of a swagger at the convention, it may be because they pulled off the biggest victory in the Republican Party last November. In an election sweep, they seized control of the New Jersey state house in Trenton. Not only they did wrestle away the majority from Democrats, but they won in numbers large enough to make their majority veto proof, leaving Democratic Governor Jim Florio with something like lame duck authority. The Republican landslide happened because New Jerseyians staged a tax revolt. Many of the same voters who swept Florio into office three yearsago swept out his fellow Democratic legislators after they pushed through Florio's $2.8 billion tax increase, the largest in state history. Assemblyman Bob Franks, chairman of the Republican Party in New Jersey, helped engineer his party's takeover of the state government.

BOB FRANKS, Delegate: The people felt that they have not been adequately consulted. They felt that Jim Florio had his hand on the tax trigger, and he pulled that trigger prematurely, that he had not exhausted every opportunity to consolidate government agencies and streamline the government, reduce waste and inefficiency, conduct the audit that he promised the people of New Jersey. Instead, he did what he so often did as a member of Congress, which was to support the enactment of higher taxes. And faced with the prospect of a ballooning budget deficit, Jim Florio did increase taxes and the people rebelled.

MR. HOLMAN: The tax increases couldn't have come at a worse time. Three years ago, New Jersey, like the rest of the country, had just begun to slide into the recession. Manufacturing jobs had been disappearing steadily for years. The state's many refineries were suffering from lower oil prices. High-tech and white collar service industries that developed during the late '70s and early '80s were leveling off, and some of the state's most profitable corporations had begun downsizing their work forces. Thousands of jobs now have been eliminated. New Jersey's jobless rate stands at 9.8 percent, the highest of the nation's 11 industrial states.

BOB FRANKS: While the whole nation has suffered during this national recession, we suffered disproportionately, and we contend one of the reasons that we have suffered disproportionately is because Jim Florio chose to enact this enormous tax increase just as the economic recession was coming to New Jersey. And that's the last time that you should impose higher taxes on a stalling, faltering economy.

MR. HOLMAN: In June, New Jersey's Republican legislature fulfilled its campaign promise and reduced the state's sales tax.

HARRIET DERMAN, [R] Assemblywoman, Middlesex, Co.: The $2.8 billion tax package was the nail in the coffin of a moribund economy. This sales tax cut will resuscitate our economy and how, from ripple effect.

MR. HOLMAN: Part of that ripple effect has been a decrease in state revenues that led to the immediate layoff of 2400 state workers. It's too soon to confirm charges from Democrats, but New Jerseyians also will suffer significantly from a shortage of state services.

JOHN SCHEPISI, Delegate: I feel that if you give him a Republican Congress, I think George Bush in the next four years will show the American public that the Republicans will do for the country what the Republicans did for the state of New Jersey.

MR. HOLMAN: Delegate John Schepisi, chairman of the Bergen County Republican Party, says the nation can learn from the experience in New Jersey.

JOHN SCHEPISI: What the American public has to do between now and November is realize that if you put in a Bill Clinton as President of the United States, you're going to have the same thing we had in New Jersey last year when you had Jim Florio and a Democratic legislature. You had total spend, spend, tax, tax, and the people got a little bit wise and they realized that you had to put in a Republican legislature. So we're hopeful that the people will be as wise nationally as they were statewide.

MR. HOLMAN: Republicans aren't the only ones sending messages this week in Houston. Today, the Democratic Party began reminding Republicans that President Bush also increased taxes. But John Schepisi says he isn't too concerned about the fallout from that attack.

MR. HOLMAN: How badly did the "read my lips" and the breaking of that promise hurt the President's politically?

JOHN SCHEPISI: It hurt him so much, but I think he has brought it back. I think he has shown the people of the United States, yes, I made a mistake; I promised something that I could not deliver because you did not give me the tools to deliver. He could not keep that promise with a Democrat spendaholic Congress.

MR. HOLMAN: No specifics have been released on what the President will say about the economy when he gives his acceptance speech Thursday night, but former New Jersey Governor Tom Kean says he's already given the President a few ideas.

TOM KEAN, Delegation Chairman: In a failed economy, a tax cut is helpful. It puts money back in people's pockets, and then spend, and help us get out of the recession. So with the indexing of capital gains, when you sell your small house or small business it doesn't, you don't get eaten up by inflation and have government tax those profits, there are a lot of things like that that I think the President could do and suggest would be dramatic and would be helpful really in moving this country out of the recession.

MR. HOLMAN: The specifics of the President's speech won't be released until just before he delivers it. Treasury Sec. Brady knows what's in the President's speech, but he's not saying.

TREASURY SEC. BRADY: Wait and see. Stay tuned. CONVERSATION - CAN WE ALL GET ALONG?

MS. HUNTER-GAULT: Next, we continue our series of conversations started in the wake of the Los Angeles riots. It's called "Can We All Get Along?" after the question raised by Rodney King as riots raged over the acquittal of four white policemen who beat him. Tonight, we talk with the Secretary of Housing & Urban Development, Jack Kemp. How wide do you think the racial divide in America is today?

JACK KEMP, Secretary, Housing & Urban Development: Well, it would be unrealistic to say there is not a division. Racism still exists. I am not hesitating because of any failure to understand that there is a problem, but putting it in a proper perspective, there's a tremendous increase in the black middle class. That's a benefit. There are a lot of new black businessmen and women. That's a benefit. There is a terrible problem of people of color without opportunity, without education, without a job, without a home. So I think the biggest division in the country is not between the races, per se. It is that we have two economies, the mainstream economy, which works, albeit anemically right now, but we have kind of an inner-city welfare economy and I find a lot of fault with the system. I don't blame or find fault with the values of poor people. I find fault and a lot of problems with the values of the welfare system which punish people for trying to get out. And so there is a division that I think is yet to be explained, albeit, it affects people of color more than not.

MS. HUNTER-GAULT: When I talked with President Carter recently, he talked about how in the -- the subtle racism in the political arena in which words like welfare and, you know -- is used in the way that widens the divide. Would you agree with that?

SEC. KEMP: I would agree on some -- on one basis. There is an attitude on some of the far right that say they have an attitude toward welfare people that would be demeaning, condescending, that I picked myself up by my boots and my straps, why can't they, and tough to pick yourself up by the boots and straps if you don't have any. And our system should be giving people training, some assets, and some seed corn, some property with which to get boots and straps and get up and out of poverty.

MS. HUNTER-GAULT: I think what feeds into the public perception - - at least what I think President Carter was talking about -- was how those terms he used, especially he says when you politicians build on that kind of talk to appeal to a white constituency. Then no matter what anybody else says, it gets into the air and into the perceptions of people. Do you --

SEC. KEMP: No, I don't agree with Jimmy Carter on that. I think welfare is so bad, it's so pervasive, it treats people so poorly that it has to be changed and you can't effectuate change absent a discussion of it, and you've got to listen to what people are saying. Now, again, there are those that say, throw everybody off welfare, and put 'em out in the snow in the wintertime. That's racist, in my view, and also Darwinian.

MS. HUNTER-GAULT: Do you think the --

SEC. KEMP: But if we don't discuss welfare and what's wrong with it, what do you do about the young Chicano woman, Sandra Rosado, who saved $4,000 to go to a four-year college and was fined her $4,000 for violating the welfare law. They say you can't own any assets or have a savings account and still have a mother on AFDC. Now, that needs to be discussed. I think that's wrong and so does Sandra Rosado, and any other low income woman. And if you don't discuss it, if it's considered racist to discuss it, then I think that we're going to diminish in our democracy the mechanism by which we effectuate change.

MS. HUNTER-GAULT: I'm not real sure that that's what he was talking about.

SEC. KEMP: No, I don't think he was either.

MS. HUNTER-GAULT: I think that he was talking about something that a lot of people have talked about, which is -- I mean, do you think that code words are used?

SEC. KEMP: Yeah, I admit they are.

MS. HUNTER-GAULT: And do -- how much do you think that adds to the racial divide?

SEC. KEMP: David Duke was using race when he talked about his idea for welfare reform. I think there definitely is that element on the far right. Lemon LaRouge on the far left are among people on the far left. Yeah, you get code words. Welfare is a code word, but I think we have to go beyond. You know, welfare needs to be discussed, and I don't want to drag this out further, because I think Jimmy Carter and I probably agree the welfare system, itself, needs to be changed.

MS. HUNTER-GAULT: Yes. That was just part of his point subsequently.

SEC. KEMP: Do people use code words? You bet. Is there racism? Yes. But is there discussion and should there be a discussion over what's wrong in a system where people are punished for trying to get out of welfare, when a woman who gets married finds that her rent in public housing jumps from 60 dollars a month to 600 dollars a month, should that be changed? You bet.

MS. HUNTER-GAULT: Newsweek Magazine said recently that you were the only white GOP figure with credibility on race. Why do you think there is this perception that Republicans, particularly Republican conservatives, somehow don't have the sensitivity to racial issues in this country, or do you think that's the case?

SEC. KEMP: Some do; some don't. There is no, you know, monolithic conservative position, so I think that has to be dispelled. I have said many times that when I was back playing football and raising a family in the fifties and the sixties and making my way and getting my shot at the American dream, that it was, that I was living through the civil rights movement and didn't quite know it. I didn't have a big picture. I wasn't there with Rosa Parks in Montgomery, Alabama, in 1955, or with Dr. King in Atlanta, or John Lewis in Birmingham, or on the march in Selma. But -- and I don't think enough conservatives were. The Republican Party wasn't there. There were some, but there weren't enough. And I think it was a mistake for our party not to be there when black people and men and women of color needed the party of Lincoln to stand up in the 20th century as we stood for freedom and emancipation in the 19th century. Now, having said that, history I think has given us a second chance. And part of my message to Republican audiences as well as my message to black audiences is that the Republican Party of Lincoln has to be there for this second chapter of civil rights, which is empowerment and job opportunities and entrepreneurship and ownership of property and reforming the welfare system and giving people some boots and some straps with which to climb the American ladder of success.

MS. HUNTER-GAULT: You've been called the designated hitter on race in the Republican Party.

SEC. KEMP: The designated hitter assumes that somebody appointed me. No one appointed me to this.

MS. HUNTER-GAULT: But my question --

SEC. KEMP: I believe it from the bottom of my soul, because playing pro football, I couldn't live with myself were it not for the fact that I am a voice in my party for making the party open to blacks and Jews and equal color and low income people. I don't think -- Bill Bradley and I discussed this one time -- I don't think you can be a professional athlete and be a racist. Or at least you can't be a successful professional athlete and be a racist.

MS. HUNTER-GAULT: That was going to be my question. What was it - - however you got the designation -- that propelled you into this? Was it sports and what was it about sports?

SEC. KEMP: Well, I was a quarterback. I was a captain of every team I ever played for. I was president of the Football Players Union, roommates that were black, teammates that were black. In the sixties, some of my best friends' wives couldn't sit with my wife in a football stadium because they happened to be black. Their mother and daddy had to sit in a roped off end zone, reserved for colored people. It tore their heart out and it tore my heart out. And when you play football, you know. You win as a team and lose as a team. And to think that I could run, play, win, lose, cry, laugh, exalt and have tears together, but our families couldn't sit in the stadium together, we couldn't go to a movie together and sit in certain places of the South, to me was wrong. And now that I find myself at HUD with a chance to correct mistakes, I am going to be a voice for making this whole family of our one nation work better than it has to the best of my own ability. You cannot as an athlete or as a human being living in a multi-racial society where we say we believe in democracy, you just can't have a country where you take people and treat them on the basis of the color of your skin. Now we're a far cry from Dr. King's dream, but I think his work goes on, and when I got appointed to HUD, I realized that I had a small role and new chapter in the civil rights movement, and it went back to my friendships in pro football with Charlie and Ernie and Cookie and Dippy and Willie and all of the great players that I played with. And I'm their voice and I'm going to speak out. And from an idealistic standpoint,I think America could learn a lot from sports.

MS. HUNTER-GAULT: How do you do that though, with housing that's segregated, even with people of the same class?

SEC. KEMP: Build more housing.

MS. HUNTER-GAULT: For middle class people?

SEC. KEMP: Give people a chance to own. Create more jobs. Create more -- you've got to create more black entrepreneurs. You can't create employees without creating new employers. We don't do enough. I hope that enterprise zones will make a contribution to driving entrepreneurial capitalism into the minority community.

MS. HUNTER-GAULT: But how does that narrow the racial divide?

SEC. KEMP: Well, you know, when the pie is getting bigger, people don't feel threatened with your success, but if the pie is shrinking, your success may -- I don't know -- may make a male feel like here's a woman taking a man's job. I don't know. Everything - - every time economies shrink, people look at each other in -- with a jealous or covetous eye. But when a pie is getting bigger, when jobs are plentiful, when the tide is rising that lifts all boats, where the government is spending some time repairing the boats that can't float so they too can someday float, then people feel a little bit better. It's a positive sum game, a win/win situation.

MS. HUNTER-GAULT: Do you think we have the --

SEC. KEMP: The economy is, I'm saying, causing a lot of the problems, because it is not growing fast enough to provide the opportunity for people to get access to equality of opportunity.

MS. HUNTER-GAULT: But what about the political will, do you think we have the political will to bring about change on the racial front? And I have to ask you the Rodney King question.

SEC. KEMP: Yeah, ask me.

MS. HUNTER-GAULT: Can we all get along? Is there the political will, and can we all get along?

SEC. KEMP: We have to, No. 1. And No. 2, we can get along when our leaders reflect higher, more positive elements of our nation's past and future, and spend their efforts trying to create wealth and opportunities to create wealth, as opposed to redistributing wealth. Redistribution of wealth and quotas and programs that divide people by color or class tend to balkanize a country. And this country would be balkanized if that's our only approach. We've got to create more wealth. Education is wealth. Jobs give people access to wealth, opportunity to own a home. And where people have ownership and where they feel a part of the system, they not only protect their own property, they'll stand next to you and me and help us defend our property. That's the secret in my view, giving people a stake in the system.

MS. HUNTER-GAULT: Well, Jack Kemp, thank you.

SEC. KEMP: Charlayne, a pleasure.

MS. HUNTER-GAULT: Sec. Kemp will be one of the featured speakers tonight at the Republican Convention. RECAP

MS. WOODRUFF: Again, the stories of this Tuesday from the Republican Convention in Houston, President Bush told the NewsHour that voters who want change should turn out the Democrats in Congress. Republican delegates sharply attacked Bill Clinton's record in crime, the economy, and the environment. And Gov. Clinton counterattacked, saying the GOP was only now discovering domestic issues after 12 years in the White House. Good night, Charlayne.

MS. HUNTER-GAULT: Good night, Judy. That's our NewsHour for tonight. Stay tuned now for special PBS/NBC live coverage of the convention coming up at 8 PM Eastern Time on most of these public TV stations. I'm Charlayne Hunter-Gault. Good night.