The MacNeil/Lehrer NewsHour

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

MR. MAC NEIL: And I'm Robert MacNeil in New York. After tonight's News Summary, the flap over Sen. Jesse Helm's attacks on President Clinton as commander in chief, Elizabeth Brackett reports on school reform in Chicago, and Paul Solman discusses the pros and cons of cutting the capital gains tax. NEWS SUMMARY

MR. LEHRER: There were two more sets of words today from Sen. Jesse Helms about President Clinton. First, in a Raleigh, North Carolina, News and Observer interview, he said Mr. Clinton was unpopular with the U.S. military, particularly at bases in North Carolina. He said, "Mr. Clinton better watch out if he comes down here. He'd better have a bodyguard." Then this afternoon, the North Carolina Republican issued a written statement saying, "I made a mistake which I shall not repeat." He said the President would be welcome in North Carolina. At a White House news conference this afternoon Mr. Clinton was asked for his reaction.

PRESIDENT CLINTON: I think the remarks were unwise and inappropriate. The President oversees the foreign policy of the United States, and the Republicans will decide in whom they will repose their trust and confidence. That's a decision for them to make, not for me.

MR. LEHRER: All of this today followed Helms' weekend remark that President Clinton was not up to being commander in chief. We'll have more on this story after the News Summary. Robin.

MR. MAC NEIL: Bosnia's Serb Leader Radovan Karadzic today threatened to retaliate against the United Nations and NATO for yesterday's air strike against a Serb-held air base in Croatia. This video of the strike was released today by NATO. The attack destroyed the base's anti-aircraft defenses and its runway. Two people were killed and four wounded. The base had been used three times in recent weeks to launch attacks against Bihac, a U.N.- designated safe area in Bosnia. Meanwhile, a UN spokesperson called the situation around Bihac critical. Serbian troops have closed in on the area. Heavy fighting was reported throughout the country. A U.S. State Department spokesperson said the U.S. and its allies were discussing the possibility of more air strikes if the Serbs did not stop their advance.

MR. LEHRER: The stock market fell sharply today. The Dow Jones Industrial Average closed down more than 91 points. Most of the losses came in the last half hour of trading. Labor Sec. Robert Reich said today corporate tax breaks should be reformed. He said they amounted to corporate welfare and cost the Treasury nearly $111 billion over five years. He said the money could be used for worker retraining and education programs. He spoke in Washington.

ROBERT REICH, Secretary of Labor: Since we're committed, we are committed to moving the disadvantaged from welfare to work, why not target corporate welfare as well and use the savings to help all Americans get better work? Ending corporate welfare as we know it is a worthy goal, made all the worthier if it frees funds for investments in workers.

MR. LEHRER: President Clinton pledged another $200 million in aid for Ukraine today. The promise came during a meeting between Mr. Clinton and Ukraine's president at the White House. It makes Ukraine the fourth largest recipient of U.S. aid.

MR. MAC NEIL: A Washington, D.C. police officer was killed in a shooting at police headquarters today. The gunman was taken into police custody. Early reports said he was a former D.C. homicide detective. An FBI agent was seriously wounded in the incident. Four other people were also injured. That's our News Summary tonight. Now it's on to the Jesse Helms flap, Chicago school reform, and the capital gains tax. FOCUS - UNDER ATTACK

MR. LEHRER: We go first tonight to the words of Chairman Jesse, Sen. Jesse Helms, Republican of North Carolina. He has triggered several political firestorms since the Republicans won control of the Senate in the November 8th elections. That victory meant Helms will become chairman of the powerful Senate Foreign Relations Committee in January. Betty Ann Bowser picks up the story from there.

BETTY ANN BOWSER: The first salvo from Sen. Helms came just a week after the election. In aletter to President Clinton, the Senator urged a postponement of the Congressional vote on GATT, the General Agreement on Tariffs & Trade, the 123-nation world trade accord, scheduled for a vote next week in a special session of Congress. The letter said in part, "If you will agree to this, Mr. President, I can assure that it will have an exceedingly positive effect on my making certain that the administration's positions on all foreign policy matters during the 104th Congress will be considered fully and fairly." But the White House refused to postpone the vote. Then this past weekend, the Senator questioned President Clinton's ability to handle the position of commander in chief of the armed forces.

FRED BARNES, The New Republic: [CNN's Evans & Novak] President Clinton has now been commander in chief for nearly two years. Do you think he's up to the job now?

SEN. JESSE HELMS, [R] Foreign Relations Committee: [Evans & Novak] Well, you know, you know, you ask an honest question. I'll give you an honest answer. No, I do not, and neither do the people in the armed forces.

FRED BARNES: Who in the military does not think that President Clinton is adequate as commander in chief?

SEN. JESSE HELMS: Well, for openers, just about every military man who writes to me. We've got a pile of military installations in North Carolina.

FRED BARNES: Are these active duty officers?

SEN. JESSE HELMS: Yes, sir.

FRED BARNES: General grade officers?

SEN. JESSE HELMS: Yes, sir.

FRED BARNES: Can you tell us who they are?

SEN. JESSE HELMS: No. I wouldn't get them in --

FRED BARNES: In the Joint Chiefs of Staff perhaps?

SEN. JESSE HELMS: No comment.

MS. BOWSER: Yesterday Sen. Helms told the Raleigh News and Observer that the President is so unpopular on military bases in North Carolina that he "better have a bodyguard if he visits the state," adding "Mr. Clinton better watch out if he comes down here." Today, two Republican leaders-to-be in the House and the Senate had this reaction.

SEN. ROBERT DOLE, Minority Leader: Well, I don't know precisely what Sen. Helms said, but, in my view, the President's welcome to come to any state. That's the way it should be. That's the way it is, and that's the way it will be. REP. NEWT GINGRICH, House Republican Leader: All I'll say is that the President of the United States is welcome in Georgia, we would love to have him come and visit. We think the people would frankly be glad to engage in a dialogue with him. And I would hope that he would feel that all Americans want to respect and honor the presidency and that they want to welcome their President in their neighborhood and in their community anytime he wishes to come and visit.

MS. BOWSER: This afternoon in a written statement released by his office, Sen. Helms said, "I made a mistake last evening which I shall not repeat. I did not expect to be taken literally. President Clinton will, of course, be welcomed by me and other citizens of North Carolina and other states anytime he chooses to visit." At a White House press conference this afternoon, President Clinton was asked about the Senator's comments.

PRESIDENT CLINTON: I think the remarks were unwise and inappropriate. The President oversees the foreign policy of the United States, and the Republicans will decide in whom they will repose their trust and confidence. That's a decision for them to make, not for me.

MR. LEHRER: Now four perspectives on all of this: Two Senators, Christopher Dodd, Democrat of Connecticut, and Malcolm Wallop, Republican of Wyoming are here; also, Frank Gaffney, the assistant defense secretary for international security in the Reagan administration, now director of the Center for Security Policy, a defense policy research institution, and retired Army Lt. Gen. William Odom, former director of the National Security Agency, now director of National Security Studies at the Hudson Institute. Sen. Dodd, the President called the remarks by Sen. Helms "unwise and inappropriate." Would you agree?

SEN. DODD: Totally. This is not just another citizen or even another Senator making the comments. This is the incoming chairman of the Senate Foreign Relations Committee. And when you assume power and authority, it's also critically important that you assume responsibility, and it seemed to me that Sen. Helms only admitted that he made a mistake in talking to the reporter, rather than apologizing and correcting the remarks. It isn't just to the President that these remarks were critical, it's to the men and women in uniform in this country. To suggest that this nation borders on being a banana republic where there is a threat to the President physically on any military installation in this country insults every single person in uniform, and I think he should apologize for those remarks.

MR. LEHRER: It was suggested late today by some critics that, that it also invited people to take a shot at the President. Would you go that far, that kind of talk, even from a United States Senator does that sort of thing?

SEN. DODD: Well, I think it's dangerous. There are people out there who can take language and words and act on them. It's even sadder in a sense when you consider what day of the year that these comments were made on. This is November 22nd, and I think every American over the age of thirty or thirty-five is painfully familiar with what day this is. And to have them occur on this day I think adds even an added element to this, which makes it inappropriate at the very least.

MR. LEHRER: Inappropriate at the very least, Sen. Wallop?

SEN. WALLOP: Well, I think that a mountain is being made out of not even a mole hill. First of all, there's no recording of those remarks. Second of all, the reporter, himself, has said that he did not take it any way to have been meant seriously or a genuine threat. Third of all, it is not unusual for people to get cross-wired with the presidency. Sen. Dodd's party had Congressman Gonzalez calling for the impeachment of President Reagan. President Carter went to the UN and talked to our allies, asking them to defeat the UN resolution on the Gulf War. I mean, it is not a bit unusual for there to be differences of opinion between Republicans and Democrats. What is unusual is that Jesse Helms was a -- is the demon of the right -- I mean, of the left.

MR. LEHRER: That's what you think this is all about?

SEN. WALLOP: I absolutely do. This is a mountain out of a mole hill.

MR. LEHRER: A mountain out of a -- Senator.

SEN. DODD: Well, you know, the campaign is over with here now. Now we're about the business of governing, it seems to me.

SEN. WALLOP: Those were days of governing --

SEN. DODD: Well, there's a vast --

SEN. WALLOP: -- I would say to my friend.

SEN. DODD: There's a vast difference between suggesting that you disagree with the President on a matter of foreign policy, which is totally appropriate, and I'm sure there are people in uniform who disagree with the President's policies, I'm not suggesting that's the case here. We now have had a litany over the last few days of comments being made by the incoming chairman of the Foreign Relations Committee whose words are listened to by people all around the globe, and when you undermine the credibility of the American President, whoever that is, to such an extent, then you raise the risks to our nation. I think your words have to be chosen carefully and thoughtfully, and to do otherwise I think was irresponsible.

MR. LEHRER: Sen. Wallop.

SEN. WALLOP: I mean the only reason that you're raising the risks to the presidency is because of the activities of the presidency. Look, we were asked to set aside any concerns we may have had about a President who avoided the draft. We were asked to set aside any concerns we may have had about a President who was unfaithful, admittedly. We were asked to set aside all kinds of beliefs about the President and because it was a campaign, and then we were asked to put those away when the President became the President. There are kinds of differences that are taking place. This just happens to be one of the real demons of left that is making these comments, and that's an effort to undermine his authority in his committee before he even takes it over.

MR. LEHRER: Gen. Odom, what's your view of the appropriateness of what Sen. Helms has said?

GEN. ODOM: Well, it clearly makes the command of the military force, senior military officers, more difficult. I do worry about making too much of this. I think the -- I think Gen. Shalikashvili was very wise to step forward and put to rest any shadow of a doubt about where the chief stood. The discussion we just heard here, I understand the politics of it. I can only say from the point of view of former serving officer that I would like to see those politics on issues that don't have to do with the loyalty and responsiveness of the army to the chain of command, or the armed forces in general to the chain of command. That is, I think, unfortunate, and I --

MR. LEHRER: What harm could it do?

GEN. ODOM: Well, I don't think it'll do any serious -- I don't see us in such a fragile situation that this will make all that much difference, therefore, I hope it does not become a central issue in a larger debate between the Democrats and Republicans on the competence of the presidency. I don't think this is an issue that we ought to rest that debate on. But it's just not a nice tone to have set. I don't think operationally it'll make any difference about anything, but the largest concerns, it seems to me, is the kind of discussions we're having here, if they get out of control and create doubts and concerns. I don't have any concerns about the serving military.

MR. LEHRER: Yeah. Do you, Mr. Gaffney?

MR. GAFFNEY: No. I don't have any doubts about the serving military's loyalty, and the banana republic is the farthest thing I believe in the world from what we have, have had, and will have on the part of the loyal subordination of military of this country to its civilian leadership. But, you know, Jim, it really reminds me of the old children's story about the emperor not having any clothes on, and everybody being horrified when somebody pointed it out. We shouldn't, because there are concerns or criticisms of the messenger ignore the message. And I think the message is absolutely on point. This President has a problem not only with the serving military but with just about everybody who recognizes that the United States needs to remain an engaged, formidable, credible, military power in the world. And it's that problem that I think Sen. Helms has usefully elevated to the point where we're talking about it here tonight after an election during which this was hardly ever raised as an issue.

MR. LEHRER: What about the additional point about -- to you first, Gen. Odom -- just the fact that the President -- that the Senator raised -- Sen. Wallop says it's all politics but that people are out to get Sen. Helms. Do you think the fact that Sen. Helms raised the issue of the President's safety at a military base raises this to another level? Is that out of the ordinary in terms of criticizing a President of the United States?

GEN. ODOM: Well, maybe my knowledge of American history isn't all that good, but I can't think of any, any precedent for it. It would be fairly disturbing to me if I were at Fort Bragg and in command of a unit down there.

MR. LEHRER: And somebody said this about your unit.

GEN. ODOM: Certainly. Certainly. It would encourage -- the thing that struck me in my younger days as a serving officer at the company level we didn't discuss politics, we didn't care who the President was. We just wanted to know what our mission was and how to carry it out. What I worry a little bit about in this circumstance is that the issue of who the President is and what his competence is, is made an issue with people of that level.

MR. LEHRER: Yeah.

GEN. ODOM: They have better business to do.

MR. GAFFNEY: You know, Bill served during President Carter's administration. He served during a period -- I think you were at the White House actually at the time -- that he had, I'm sure, an opportunity to see the impact on morale of the troops as they lived through a period when the military was being hollowed out. I believe that is what is happening again today as a result not only, frankly, of what this President has done but what the previous President has done, that has reduced the quality and the capability of our military by systematic, sustained, underinvestment in it, lacking of training.

GEN. ODOM: But that's another issue.

MR. GAFFNEY: But that's the issue that I think we can usefully talk about that Sen. Helms has helped elevate.

MR. LEHRER: But if I could ask you the same question I asked the General, to the point that the President's life would be in jeopardy going to an air base or an army base in North Carolina?

MR. GAFFNEY: I regarded that as hyperbole of the political stripe. I think it's unfortunate, but I think it's helpful that he raised the issue.

SEN. WALLOP: In fact, the reporter --

MR. LEHRER: Senator -- in all due respect -- Sen. Helms issued - - he said he said that. He doesn't say that he didn't say it.

SEN. WALLOP: He did. But the reporter, himself, has said that he was in no way taking it to mean as a threat, and he thought that it was hyperbole.

MR. LEHRER: No, I know. I know. But you suggested earlier, and I let it pass, that, that there was some question about whether or not Sen. Helms said the words. How they're being interpreted is another issue, obviously.

SEN. WALLOP: Well, I think there is still. I mean, Sen. Helms' letter says that he thinks -- well, he said words to that effect - - but he also said that it was a generally light-hearted conversation, and the reporter confirmed it.

MR. LEHRER: Exactly.

SEN. WALLOP: It was not as though it was made as a statement from the lofty throne of the committee. It was a generally casual conversation.

MR. LEHRER: Does that change it for you, Senator?

SEN. DODD: Well, again, if this were one example of it, then I'd say, well, God knows in politics I wouldn't want to have to be tried on whether or not I've ever engaged in hyperbole. And I'm sure Malcolm feels the same way. But when there is a pattern -- there's a pattern here that I think you've got to take into recognition as well. We had Sen. Helms say that he was not competent to lead the military. Now, you've had Bob Dole and Newt Gingrich and God knows how many others over the last several days who say that's not an issue here. In fact, Newt Gingrich said he thought the President was doing a rather good job in foreign policy over the last number of months. You also had statements about we ought to just stop funding the possibility of a peace agreement between Syria and Israel. And that's a very dangerous kind of statement to make, knowing how fragile that is. We've had statements we ought to invade Cuba. I just find that when you get a pattern of these kinds of remarks coming from people who've assumed a tremendous significant seat of responsibility, that then you get this kind of remark, and Jesse and I go -- we've gotten along well on many issues -- he said he made a mistake. I think he owes the words, "I apologize."

MR. LEHRER: What about Sen. Wallop's point? You seem to be confirming it in a way, that it's the messenger here as much as anything.

SEN. DODD: I don't think that's it.

MR. LEHRER: No?

SEN. DODD: I really don't. I mean, this notion that Jesse's under attack all the time, that's not the case, and we've worked together on things in the committee. I've served on the committee for 14 years with Sen. Helms. We've had our disagreements. We've also worked together on things. And I presume that'll be the case.

GEN. ODOM: Don't you think the statement he released was fairly close to an apology? I mean, its impact on me was that there was a fair amount of contrition there, and I think that's -- I welcome that.

SEN. DODD: Well, I welcome that as well, I just would like to see him go a bit further.

MR. LEHRER: Well, let's go to the broader point that Mr. Gaffney wants to talk about, which is that the emperor has no clothes, that the real problem here is that whether you like Sen. Helms and the way he said it or not, he spoke the truth, that the military has no faith in President Clinton.

SEN. DODD: Well, I would disagree with that. I think the reception the President's received all around the world at military installations recently has been a warm one. I think the fact that we've had a bottom up review, we're talking about at least a 3 percent increase in defense spending in the coming budget, despite all of the other problems we face economically, the fact that there has been I think the remarkably fine job done by our military in the Persian Gulf most recently, in Haiti, whether or not you agree with the policy or not, the military people are preforming well. There's a significant debate about whether or not we should have been in Haiti or not, or whether or not you go to the Persian Gulf or not, but I don't know of anyone that said that our military people have not performed their job well.

MR. GAFFNEY: I don't think that's the issue.

SEN. WALLOP: The Secretary of Defense has said that the military is not capable of performing a job well. I mean, he confirmed it, having denied earlier that there was a state of increasing unreadiness in the American military.

MR. LEHRER: What about, what about -- do you agree with Mr. Gaffney that, that Sen. Helms was speaking the truth even if he may have used hyperbole?

SEN. WALLOP: Yes, of course, I do. I mean, the fact of it is that, that we had the incident early on when the President visited the aircraft carrier which the commander of the carrier felt constrained to order people not to speak of the presidency at all. This is not a brand new event in the President's life, and it comes about from the way in which he undertook to begin his presidency.

MR. LEHRER: Does it matter what the military, what the rank and file think of the President?

SEN. WALLOP: No. In fact, it does not. And I think Gen. Odom and Mr. Gaffney both said that there is no question about the loyalty of the military that's been in leadership in this country, whether or not they like him, whether or not they respect him.

MR. GAFFNEY: It does matter in one sense, I think, and that is the American people are ultimately the source from which that military is drawn. It is their children; it is their fathers; it is their brothers, sisters, and so on as well, that are actually putting themselves in harm's way. And whether it's in relatively minor degrees of harm, as in Haiti today, or much more serious degrees of harm in the future, I believe the American people expect that their sons and so on are going to be equipped with the material with which to defend themselves and to do their job at minimum risk. And under this President, the military personnel, and I believe in their families are increasingly aware that the equipment they have is not ready, the equipment that they will be armed with in the future is not forthcoming. They are at greater risk, and this is going to create a very substantial problem, especially if someone around the world or someones around the world decide to take advantage of it.

MR. LEHRER: Gen. Odom.

GEN. ODOM: I think there is a force structure issue here. I'm not sure how much it concerns great increases in defenses, but we have a force structure that's very heavily --

MR. LEHRER: Explain in simple terms what force structure means.

GEN. ODOM: It's the kinds of forces we have, the number of divisions, the air force wings, and carriers, submarines, et cetera. And we have forces that are very well prepared to control the seas, but our problems are with tyrants in various parts of the land, and the forces have taken the biggest cuts. And I think there are in the poorer state of training and readiness are those ground and air support forces, and I think we do have basis for a genuine debate over national strategy, military postures to support these strategies. And that hasn't, I think, been articulated very well, and I think it will be a mistake if we simply argued on the basis that we should increase defense or not increase defense. The issue is where we increase it. I think Sec. Aspin once said that when you have no strategy, all of the defense budget is pork. When you have a strategy, 50 percent of it is pork. I would like to get it up to about 60 or 70 percent real effective force.

MR. LEHRER: Sen. Dodd, do you follow Mr. Gaffney's rationale there, I mean, his scenario that harm's way is really the bottom line and if people are put at risk, then automatically you're going to have either faith or no faith in the President because of what he does and what kind of force structure he has for the military?

SEN. DODD: I think it's a legitimate debate about -- in the issue of our force structures and their readiness, and clearly that's one that's ongoing and Sec. Perry pointed out the areas where there are deficiencies. I think he talked about stretching those resources with a delta force and so forth as a result of being in Haiti and the Persian Gulf. But that's quite a different matter than to suggest or imply that the President lacks the kind of confidence within our military ranks to be commander in chief and do the job. I see no evidence of that. Sen. Helms talked about some letters he received from some people, constituents, in North Carolina. I'm sure there are people within the ranks of the military who have different points of view on a matter of policies, but to jump from that position to suggest somehow that they lack confidence in this individual as commander in chief I think is to take a quantum leap that's not deserved.

MR. LEHRER: All right. Let's go back to Sen. Helms before we leave, beginning with you, Sen. Wallop, on the question of competence. Has Sen. Helms hurt his own credibility and his own confidence level in his ability to be chairman of the Senate Foreign Relations Committee?

SEN. WALLOP: I doubt it. I mean, my guess is that you will see a good deal of the press flap about Sen. Helms, ignoring 24 years' of service, because he is viewed by the left as a danger and a threat, and a good source --

MR. LEHRER: What about by the Republicans? I mean, do you think the Republican leadership of the Senate will now have some second thoughts about making this man chairman of the Senate Foreign Relations Committee?

SEN. WALLOP: No, he will have no trouble being chairman.

MR. LEHRER: What do you think?

SEN. WALLOP: Well, I don't know that to be the case, but I can just imagine, if you will, that if a Democrat had said, let me inject some politics here, had a Democrat suggested anything about this in a Bush administration, you would have had the phones ringing off the hook, the press releases being issued at the moment. This, I'm surprised, frankly --

MR. LEHRER: You're saying that if a Democratic Senator had said George Bush was --

SEN. DODD: Was not welcome because his life was in jeopardy someplace, then I think we would have been -- and properly so in my view -- excoriated. I just find it somewhat mystifying. If a Democratic Senator, I will tell you, were to say something like this, I would repudiate a Democratic Senator for saying it. I think politics has to be removed every now and then, and there's nothing wrong, it can be liberating, to say that one of your colleagues has made a mistake. He said as much as that. I don't want to dwell on this -- and move on -- but the idea that you're going to defend a statement, it is indefensible.

MR. LEHRER: Do you think he made a mistake, Sen. Wallop?

SEN. WALLOP: He said he made a mistake.

MR. LEHRER: Do you think he made a mistake?

SEN. WALLOP: Yeah. I think it's always a mistake to talk to the press when you -- [laughter] -- when you know -- but, you know, it was a mistake to trust people when you think you are in a casual conversation.

MR. LEHRER: But you don't think he made a mistake in saying it or believing it. You just think --

SEN. WALLOP: I don't think he believes it. He said he didn't believe it.

MR. LEHRER: I see.

SEN. WALLOP: It was a casual conversation and reported as that by the reporter.

MR. LEHRER: I see. Do you think he should apologize?

SEN. WALLOP: I think the statement that he made was, was perfectly adequate. I think it contains an apology.

MR. LEHRER: What do you think about his credibility as chairman of the Senate Foreign Relations Committee? Has he been hurt by this, General?

GEN. ODOM: Well, I don't feel I'm terribly competent to make a judgment on that. I would think from the statements of the leaders of the Senate and the House that we heard in the opening segment here that they have little doubt about the kind of public statements he's made.

MR. LEHRER: Okay. We have to leave it there. Thank you all four very much.

MR. MAC NEIL: Still ahead on the NewsHour, Chicago's plan to reform its schools and arguments for and against cutting the capital gains tax. FOCUS - COMMUNITY CONTROL

MR. MAC NEIL: Next tonight, school reform in Chicago. Elizabeth Brackett of public station WTTW reports on the pluses and minuses of a plan to de-centralize the city's ailing school system.

MS. BRACKETT: Five years ago, the John Spry Grade School was like most Chicago public schools, in trouble. It was so overcrowded classes were taught in hallways and closets. Reading and math scores were far below national norms. Gang violence was so bad that Adam Davis's mother got this advice when she thought about sending Adam to Spry.

DIANNA DAVIS, Parent: That it was really a bad place and don't send my child there. The kids were being home run home in the middle of the day by the gang bangers. There was very little discipline. It just didn't sound like a place I wanted my child to go.

MS. BRACKETT: Today Adam Davis is doing well in the seventh grade at Spry.

DIANNA DAVIS: [meeting] Good evening, and welcome to the local school council meeting of John Spry School.

MS. BRACKETT: And Davis is president of the local school council. Spry is a predominantly Hispanic school, with 1300 students, that has been turned around by Chicago's school reform plan. The Chicago School Reform Act was passed by the legislature in 1989. The thrust of the new law was to de-centralize a failed bureaucracy and give local communities control over their schools. Principal Carlos Azcoitia says that has happened at Spry.

CARLOS AZCOITIA, Principal, John Spry Grade School: We're able to have more autonomy in terms of making sure that our decisions, we're able to carry them out. And I think once you bring different segments of the community and everybody cares about the school house and you want to talk about things that benefit the school and its surrounding, I think people begin to plan and implement, and they begin to see progress, and this is what has happened here.

MS. BRACKETT: There is no doubt that the community is involved in Spry. Two hundred and fifty parents turned out for this local school council meeting. It was called to watch students perform classic dances of Mexico, part of the new after-school program. The councils are critical to reform in Chicago. They are made up of six parents, two community representatives elected by voters in the school district, plus two teachers and the principal. The councils have the authority to hire and fire principals, approve the budget, and prepare a school improvement plan.

DIANNA DAVIS: It's empowered me not to overpower but to be an advocate for my children and other children, and that's important to me, to feel like it's okay to do that, because I used to feel very intimidated, and I don't anymore.

MS. BRACKETT: Five years after school reform, 40 percent of the elementary schools in Chicago have shown the kind of systemic improvements that have occurred at Spry. That's according to a three-year study just completed by a consortium of educational researchers. Another 20 percent, says the study, have shown some improvement. Consortium member Don Moore says those statistics are promising.

DON MOORE, Consortium for Chicago School Research: Our organization does research all over the United States about big city schools, and we can't find any other example of a school system that's made changes in the schools as documented by this research that are as extensive as the changes that have occurred in Chicago.

MS. BRACKETT: Even more significant, thechanges have taken place in inner city schools that must deal daily with the problems of poverty, gangs, and violence. In the neighborhood that surround Spry there's a high level of gang activity. Police sirens are as common as school bells, and police stopped near the school are an everyday occurrence. When Adam Davis walks home, he must cross several different gangs' turf.

SPOKESPERSON: Back there was the main Latin Kings territory. That's where they hang out, on that corner right there.

MS. BRACKETT: Making Spry a safe haven for students was one of the top priorities of reform at Spry.

ADAM DAVIS, Student: When we're at school, I feel really safe, 'cause I think 'cause we have enough security in the school, the principal, the principal makes sure that if there is gang bangers goin' to our school he, he wants them to come to school because he wants them to get a good education and stuff and try to change, but he wants, he wants us to be safe too, so he makes sure that no gang activity goes on in the school.

MS. BRACKETT: Halls are now clean and quiet at Spry. The walls are covered with murals painted by students, not gang graffiti.

ADAM DAVIS: I helped paint all of that on the wall, then the auditorium, I helped paint all the drawings on the wall.

MS. BRACKETT: Eighth-grader Serafin Chavez has been at Spry since the first grade. Before school reform, he didn't think he would make it from one grade to the next.

SERAFIN CHAVEZ, Student: I thought I was going to flunk, and then I passed.

MS. BRACKETT: And why did you pass? Did you start working harder? Were teachers different?

SERAFIN CHAVEZ: Yeah. I worked. Ms. Weitzel helped. She -- when I got into fights, she told me not to do it, and to do my work and everything, and I just listened to her, and that's how I passed.

MS. BRACKETT: Reform has brought major changes in teachers' attitudes as well. Chuck Buzek has been teaching at Spry for 25 years. School reform enabled him to finally equip his science lab and even more important, brought back his enthusiasm for teaching.

CHUCK BUZEK, Teacher: I mentioned that I'm going to be 50. According to the image of a teacher, I should be approaching burnout. But I feel personally the same kind of excitement I felt when I started teaching, like we can tackle anything, you know. Let 'em come on, and we can get 'em. And I'd have to say that that's largely a result of who is in the principal's office, school reform, and, again, this particular school.

MS. BRACKETT: Reform advocates acknowledge it is one thing to turn around a grammar school, a much harder project to turn around a high school. Studies on the impact of school reform on Chicago's high schools are not yet complete. Yet, there is agreement that in some high schools reform has made a difference. Before school reform, the Lucy Flower Vocational High School was consistently ranked as one of the worst, if not the worst, in the state. But now students at the 65-year-old school still cope with a dilapidated building, poor plumbing, bad wiring, and paint that's been peeling for years, but the curriculum inside this building has undergone a significant change, and students here are now more involved in the learning than they've ever been before. The 1,000 students at the all-black vocational high school don't just take math courses or writing courses. They own and operate six different business ventures. Seventeen year old Derrick Lott is the general manager of the Scholastic Shop or the school store. Last year, the school cleared $2500 selling snacks and school supplies.

DERRICK LOTT, Student: It gives hands-on training on how to run a business, how business is ran, and what you do in a business.

MS. BRACKETT: As in other schools where reform has worked, the school began to change when the local school council selected a new principal. Since the reform act, 80 percent of Chicago's schools have new principals. It took Principal Dorothy Williams and the local school council one year to design the business ventures which incorporate reading, writing, and math skills.

DOROTHY WILLIAMS, Principal, Lucy Flower High School: They are very significant, because they are the focal point for our curriculum. The ventures, the businesses that we have in house are linked to curriculum so that the students learn all aspects of the industry by actually running and operating and learning about starting businesses so that they become part of the curriculum.

MS. BRACKETT: With what Charlotte Smith has learned as manager of the school's Flowerpot Cafe, she hopes to open a restaurant with her mother someday. Home economics teacher Nancy Barrett says the Flowerpot Cafe has been a good training ground for Smith.

MS. BRACKETT: And when it's operational, which it will be in about a month, it's a regular neighborhood cafe?

NANCY BARRETT, Teacher: It's a regular neighborhood cafe, right. It's all run by the students. I am the coach. They're the workers. They do it. They know what needs to be done. Students are managers as well. Charlotte, who you've met, can run this place with her eyes closed.

MS. BRACKETT: Professional cooking equipment for the cafe has been paid for by the Hilton Hotels and other outside groups, a big change for a system formerly closed to such efforts, but in a mirror of the ups and downs of school reform, much of the equipment can't be used because of the school's old wiring. Still, the resources that have poured into Flower have helped keep Smith in school.

MS. BRACKETT: What's happened to most of the friends or the people that you went to grade school with?

CHARLOTTE SMITH, Student: Most of my friends dropped out. They dropped out because of gangs. They thought they was better with the gangs. They dropped out because of drugs. They wanted to do drugs. They dropped out because of pregnancy. More of them -- some of them have two or more babies. And they just -- they never find no baby sitter, and they was just like forget school, because I'm not going to never make it anywhere with the kids, and then most of 'em is either dead or in jail.

MS. BRACKETT: Over half of the kids Smith started with her freshman year have dropped out. One of the goals of school reform was to decrease the dropout rate and raise the graduation rate. But at Lucy Flower, as in the rest of the city, the graduation rate was just a little over 50 percent for 1993. That's about a 5 percent increase since reform began. Just released reading and math scores for 1993 were more discouraging. The Reform Act called for every Chicago school to be at national norms by 1994. The standardized tests showed that about 75 percent of Chicago's students were still significantly below those norms. Barbara Sizemore, Dean of Education at DePaul University, says reform in Chicago cannot be called successful until test scores rise.

BARBARA SIZEMORE, DePaul University: Reform will not have worked until the student achievement measures show that children who graduate from high school can read, can write standard English, and are competent in mathematics.

MS. BRACKETT: Do you think standardized tests actually do measure whether or not students are learning?

BARBARA SIZEMORE: I'm not sure about that. But they're the only measure that we have, and the measures which have been designed to take the place of standardized tests are worse because they're more subjective.

MS. BRACKETT: Betsann Smith is a researcher with the Consortium for Chicago School Research. She says over the next three years, the Consortium will look beyond standardized tests and try to figure out just how much the students are really learning.

BETSANN SMITH, Consortium for Chicago School Research: Standardized tests measure a very particular kind of knowledge, content knowledge in certain areas, and there's all kinds of other knowledge and skills and dispositions that we want our kids to have, and we can't tell what they know and how much they're learning just by looking at those tests.

MS. BRACKETT: Reformers do admit that without major improvement in standardized test scores, it will be hard to convince the public that reform has been a success. But five years into school reform in Chicago, most observers say there has been some success, some failure, and a long way to go. FOCUS - CAPITAL IDEA?

MR. MAC NEIL: We turn now to an idea that has once again reared its head on Capitol Hill, cutting the tax on capital gains. Republicans campaigned for it in their Contract with America. Senate Republican Leader Bob Dole has even threatened to hold the administration's trade pact hostage to its passage. The tax is levied on unearned income. Profits earned from selling a piece of real estate, for example, or a stock certificate, or a Picasso. Right now, the maximum rate is 28 percent. The question is: Should it be lowered? Earlier this afternoon, business correspondent Paul Solman put that to Martin Feldstein, an economics professor at Harvard who was chairman of the Council of Economic Advisors under President Reagan, and to Robert Kuttner, columnist for BusinessWeek and the Washington Post and co-editor of the American Prospect.

MR. SOLMAN: Gentlemen, welcome. Let's talk about the issue. Professor Feldstein, start with you. If we could, let's start with the basics. What's a capital gain, and why do you want taxes cut on capital gains?

MARTIN FELDSTEIN, Harvard University: Well, the most obvious example of a capital gain is what happens when somebody buys a stock. It goes up in price, then they sell it. The difference between what they sell it for and what they paid for it is a capital gain.

MR. SOLMAN: So if I bought the stock for fifty, it goes up to a hundred, fifty is the capital gain?

MARTIN FELDSTEIN: That extra 50 that the price went up represents the capital gain, and under current law, you pay tax on that just the way you would on wages and salary or dividend income.

MR. SOLMAN: Any disagreement so far, Robert Kuttner?

ROBERT KUTTNER, The American Prospect: If I'm not correct, there's about a 30 percent exclusion under current law.

MARTIN FELDSTEIN: No, there's no exclusion under current law. The current law says you tax capital gains like ordinary income, except that there's a maximum tax rate of 28 percent.

ROBERT KUTTNER: Well, that's what I meant.

MR. SOLMAN: Let's just clarify. It means that if you have a higher income, then your capital gains is a better deal for you, because --

MARTIN FELDSTEIN: That's right.

MR. SOLMAN: And lower than the highest rate --

ROBERT KUTTNER: Capped at 28.

MR. SOLMAN: Capped at 28 percent, and of course, some of us could pay more than 28 percent in income, in which case this would be a tax break. That's your point. But backto what you would want to cut, the rate on capital gains.

MARTIN FELDSTEIN: The current capital gains tax really hurts the economy. It hurts the economy because I have the option of whether or not to sell a stock that's gone up in price.

MR. SOLMAN: That one that you bought for 50.

MARTIN FELDSTEIN: For 50.

MR. SOLMAN: You now have 100.

MARTIN FELDSTEIN: Have a 100. And I can decide do I sell it and put the money into some new opportunity where capital might help to create a new business, or do I hold onto it? Well, what that tax, that 28 percent tax does is to give me a strong incentive not to sell.

MR. SOLMAN: Because --

MARTIN FELDSTEIN: Because if I sell it, I have to give up 28 percent of my gain in taxes. If I hold onto it, all of the money stays at work for me. So people are locked into existing capital gains, and the money doesn't go to the investment where it could do the greatest good in terms of being productive for the economy.

MR. SOLMAN: So in other words, I might hold onto this stock even though I don't think the company really should have my money. That would mean that the market was less efficient, the new company wouldn't get the money, and therefore, it's a disincentive to get the money to the companies that you think need it?

MARTIN FELDSTEIN: Exactly right.

MR. SOLMAN: And so, Robert Kuttner, what's the problem with that?

ROBERT KUTTNER: Well, this is, of course, an eerie replay of 1981. I mean, the argument was that so-called supply-side incentives would do wonderful things for savings and for investment. We've had a full field test of this theory, and it didn't work. Savings and investment did not go up in the 1980's. Savings actually went down because the result of all of these tax breaks was to increase the deficit and investment stayed about the same. So first of all, this simple model of people being motivated primarily by the tax angle on everything is not nearly as powerful as supply-siders think.

MR. SOLMAN: Now, if you would, just for a second, Prof. Feldstein, I just see you shaking your head here.

MARTIN FELDSTEIN: Well, I didn't understand what that was all about. It seems to me that I didn't say anything about more savings or more investment, and you don't have to believe that the only reason that people buy or sell stocks is taxes to think that taxes are a consideration. We do know -- the experience is overwhelming -- that when capital gains tax rates are high, people hold onto their stocks longer, and when they're low, people sell them. That's not an issue in dispute. The Congressional Joint Tax Committee, the Clinton Treasury staff, both take the position that a lower capital gains tax rate will free up a lot of capital gains.

MR. SOLMAN: So let's speak to that issue. Will I hold -- will I get rid of my $100 stock and put it in something more efficient if I get a cut in the capital gains tax on that stock?

ROBERT KUTTNER: Well, you might, but let me put that on "hold" for a moment. Prof. Feldstein may choose not to make the arguments that Gingrich and company and Dole are making, but a lot of the argument in favor of this is based on the premise that lowering the capital gains rate is going to increase savings and investment. That has been disproven. So can we agree on that?

MARTIN FELDSTEIN: Absolutely not, no. I think that it will -- I think it will contribute to more savings because it raises the reward for savings.

ROBERT KUTTNER: Yeah, but with respect --

MARTIN FELDSTEIN: And if it leads to more savings, then there are more funds to invest. But I don't think that's the primary reason for doing it.

ROBERT KUTTNER: But let's make that clear that you thought that in 1981, with respect, and it didn't work. Let's get that clear.

MARTIN FELDSTEIN: No, I didn't think that, and what happened in 1981 had very, very little to do with the capital gains tax cut.

MR. SOLMAN: But let's get some common ground here since we're far apart on everything at the moment. There is an argument Robert Kuttner is making that has been made by many people, and you, yourself, make a mild form of it, which says that if you get a capital gains tax cut that will be good for the economy overall partly because --

MARTIN FELDSTEIN: Absolutely.

MR. SOLMAN: -- it's going to be more efficient, I'm going to put my money in this more efficient place, and partly because it's going to stimulate me to save more and invest more, no?

MARTIN FELDSTEIN: Yes. But what I would say is this. Yes, it will lead to more savings. Yes, it will lead to more investment, but even if it didn't, even if it didn't do that at all, it would be a good thing to do, because it would mean that we are using our capital stock more efficiently. We're moving the money where it will get the best return. It'll go into new businesses and help to start new businesses.

MR. SOLMAN: So this is the moderate or mild --

MARTIN FELDSTEIN: You don't need to go back to arguments about whether and how much this is good for saving and how much this is good for investment to conclude that this is an easy choice. This is something we ought to do.

MR. SOLMAN: So this is a mild, moderate form of the argument for capital gains?

ROBERT KUTTNER: I would put it this way. There is the savings investment argument which I think -- and I think which most people think -- was pretty well refuted in the 80's. Then there's the lock-in argument. Now --

MR. SOLMAN: The lock-in argument is --

ROBERT KUTTNER: Dr. Feldstein. That is the stronger technically aspect of his argument, that it will make it easier to buy and sell stocks because he won't have to pay as big a capital gain.

MR. SOLMAN: You agree with that, in other words?

ROBERT KUTTNER: Well, I don't agree that it's such a great thing to do for two different reasons. One, a lot of smart people think that the problem with this economy is not that capital is not mobile enough. People think that capital is too promiscuous.

MR. SOLMAN: So you think that when I've got that 100 dollar stock, the problem in the economy is not that I'm not selling it, you think I'm moving money around too quickly anyway?

ROBERT KUTTNER: I think there is a -- let me make three related points. I think there is a lot of that going on in the economy, too much churning, not enough so-called relationship investing for the long-term. Secondly, there's the deficit argument. The same Joint Tax Committee which Prof. Feldstein cites says that by year five this is going to be a $25 billion a year revenue drain on the Treasury at a time when we're worried about the deficit and that the alleged efficiency gains are not going to make up the revenue loss.

MR. SOLMAN: Let's hold your third point for a second. Prof. Feldstein, there's going to be a net revenue loss after this?

MARTIN FELDSTEIN: I think there will be some net revenue loss, not as large as Bob said. I think if your viewers look at today's newspaper, they will see the Treasury story -- Treasury figures which said over the next five years combined there will be a cost of $44 billion, five years combined, so an average of a little more than $8 billion.

ROBERT KUTTNER: But itescalates in the out years, and then years out it's over 100.

MR. SOLMAN: But the -- there's no argument here that it will cost us money to enact a capital gain tax cut.

MARTIN FELDSTEIN: It will add income to the economy as a whole - -

MR. SOLMAN: Because I'll get the money, I'll get that $100 when I sell the stock.

MARTIN FELDSTEIN: And we will be investing our funds in a better way. We'll be having a more productive use of our funds. The Treasury doesn't get, fortunately, doesn't get all of the extra income that gets produced in the economy.

MR. SOLMAN: But it makes the deficit at least somewhat worse.

MARTIN FELDSTEIN: It makes the deficit a little bit worse, and that has to be made up. And there's no question about the fact that we're doing all of this in the context of a budget rule that says if you cut taxes on one thing, you have to make it up someplace else.

MR. SOLMAN: Okay. So your third point.

ROBERT KUTTNER: Well, let me just on the second point --

MR. SOLMAN: Okay.

ROBERT KUTTNER: This is such a generous proposal to the, to the 2 percent of the income distribution who have most of the capital gains that the effective tax rate is down around 10 percent, so that even if there's a lot more --

MR. SOLMAN: Let's keep the numbers because I think we'll lose everybody and certainly lose me if we do that.

ROBERT KUTTNER: My point is even if there is a lot more buying and selling of stock, if there's more buying and selling of stock and you pay more tax because you're selling more stock at a lower rate that this proposal is so generous to the investor that this is not going to begin to make up the revenue lost. That's not me, that's the Joint Tax Committee.

MR. SOLMAN: We both -- you both agree that this is going to cost us something. I want to get to a couple of more points, so let me ask one more question here. The wealthy. You just raised this top bracket, you know. Is this a tax, is this a tax break for the wealthy?

ROBERT KUTTNER: Well, of course, it is, and at some point -- let's save a couple of minutes to talk about the politics of this because I think that's as interesting as the economics of it.

MR. SOLMAN: Okay.

ROBERT KUTTNER: But stock ownership, not the number of people who hold a small amount of stock, but the total holdings of stock relative to how much money people make is very, very highly concentrated. Something like 50 percent of all shares of stock, and 60 percent of all bonds are held by the top 1 percent of the income distribution. So this is a tax cut not just for the wealthy, it's preponderantly a tax cut for the very wealthy.

MR. SOLMAN: The very wealthy, is that right?

MARTIN FELDSTEIN: I think that's really just the wrong way to think about --

ROBERT KUTTNER: But is it statistically right?

MARTIN FELDSTEIN: -- the whole issue. Uh, the issue is not just what happens in the immediate present. Those people have the option of not selling those stocks. What they're being told to do now is just hold onto the stocks and not sell them. When you lower the capital gains, you will actually get more realizations from that group.

MR. SOLMAN: But you have acknowledged in the past that this is - - it is beneficial to the wealthier people in this society.

MARTIN FELDSTEIN: It is clearly beneficial to the wealthier people, but, again, you cannot just look at each tax change in isolation. This is going to be part of the whole package of tax changes. I think when the dust settles, we'll see that it's a package that benefits people in different parts of the income distribution. The critical thing is whether it does it in a way that helps the economy perform better. And I think in this case it does.

MR. SOLMAN: Now you're champing at the bit here, Robert Kuttner.

ROBERT KUTTNER: I am. Two quick points, Paul: One, it's not as if the failure to lower the capital gains rate below 28 percent has prevented a ton of buying and selling of stock. I mean, you see this every year. Transactions go up, the churning goes up. Secondly, what you create when you split the rate, and you have one rate for ordinary income and another rate for capital gains is you create a tax shelter industry. You create all kinds of artificial contrivances purely for tax purposes, and that is bad for the efficiency of economy. So he's got one kind of efficiency gain, which is offset by another kind of efficiency loss that's created by all of the artificial channeling of money to tax shelters that make no economic sense but for the tax shelter value, and we saw that in the 80's.

MR. SOLMAN: You get a very quick response to that. I want to do politics and then wrap.

MARTIN FELDSTEIN: Those got eliminated by the 1986 Tax Reform Act.

ROBERT KUTTNER: Not --

MARTIN FELDSTEIN: It closed, basically closed down the tax shelter opportunities, the so-called passive loss limitation rules eliminated the opportunity to use the, the tax shelters.

MR. SOLMAN: Okay. You've wanted to talk about politics. Just briefly, this is good for the Democrats, bad for the Democrats?

ROBERT KUTTNER: I think it's potentially very bad for the Republicans in two senses. If I were Bill Clinton, I would say to Robert Dole, Mr. Majority Leader, your party, Mr. Reagan and then Mr. Bush, sponsored the GATT negotiations. If you want to hold the GATT hostage for a capital gains tax --

MR. SOLMAN: Which is what's happening right now.

ROBERT KUTTNER: -- it's going to benefit -- that is correct -- it's going to primarily benefit the top 1 or 2 percent wealthiest people in this country and sabotage the GATT for a bad economic proposal for the rich, Mr. Dole, Mr. Gingrich, you go right ahead and do that.

MR. SOLMAN: Our own Mark Shields said today, this week in the paper, maybe it was today, a big Republican push to cut the capital gains tax rate could become the 1995 equivalent to what the gays in the military debacle was for President Clinton. Martin Feldstein.

MARTIN FELDSTEIN: Two things: The GATT is going to pass. That is going to be a non-issue a week from now. The second thing is that what Bob Kuttner has just been saying is exactly what Democratic critics said of the Contract with America for the last several months, that the American public wouldn't like it, that it was going to kill the Republican Party. That apparently did not happen in this election. The American public liked it. This was part of it. I think it's going to be a popular part of it.

ROBERT KUTTNER: I don't think that's a correct analogy because here we have a real piece of legislation that Dole can either allow to be passed, or he can strangle it, and I think Clinton should call his bluff.

MARTIN FELDSTEIN: The GATT's going to pass.

ROBERT KUTTNER: Yeah, the GATT.

MARTIN FELDSTEIN: The GATT's --

ROBERT KUTTNER: The GATT's not going to pass if Helms and Dole kill it.

MR. SOLMAN: We're definitely not discussing the GATT, but we do have one last question which is: With the precipitous drop in the stock market today down 2 1/2 percent, yesterday down about 1 percent, a lot of people out there are surely worried about that, so very quickly, does the capital gains tax cut have any implication on that -- for that?

ROBERT KUTTNER: Interest rates, Mr. Greenspan, have a much higher effect on that. Capital gains would offset it slightly but the culprit here is interest rates.

MARTIN FELDSTEIN: I agree with that.

ROBERT KUTTNER: Hey, we have an agreement.

MR. SOLMAN: And on that note, thank you both very much. RECAP

MR. LEHRER: Again, the major stories of this Tuesday, Sen. Jesse Helms, Republican of North Carolina, said President Clinton was unpopular with the military and would need a bodyguard if he visited North Carolina. Helms later said the comment was a mistake. And President Clinton said he would oppose a constitutional amendment legalizing school prayer. He said he would support allowing a moment of silence during which students could pray if they wanted to. Good night, Robin.

MR. MAC NEIL: Good night, Jim. That's the NewsHour for tonight. We'll see you again tomorrow night. I'm Robert MacNeil. Good night.