The MacNeil/Lehrer NewsHour

Intro ROBERT MacNEIL: Good evening. Leading the news this Tuesday, Lt. Col. Oliver North got a $14,000 home security system, but tried to cover it up when the Iran arms scandal broke. The United States foreign debt more than doubled in 1986. The House passed a tax raising budget President Reagan says he'll veto. The Supreme Court upheld the law tying federal highway funds to a drinking age of 21. We'll have details in our news summary in a moment. Judy Woodruff is in Washington tonight. Judy? JUDY WOODRUFF: After the news summary, we have three main focuses on the NewsHour, starting with an extended excerpt from today's Iran contra hearings. And an update from two committee members, Republican Richard Cheney, and Democrat, Jack Brooks. Then we get filled in on the political maneuvering behind today's budget vote on Capitol Hill. And finally, Paul Solman with a unique explanation of the two worlds behind the inflation statistics released today.News Summary WOODRUFF: The Congressional Iran contra Committees heard today how former White House aide Oliver North went to great lengths last fall to conceal the fact that a security system had been built in his home which he had never paid for. Former CIA employee, Glenn Robinette testified that months after retired Air Force General Richard Secord paid him $14,000 to install the system, and just a matter of days after the scandal broke, North called Robinette with a surprising request.

GLENN ROBINETTE, private security consultant: He said, ''By the way, you never sent me a bill. '' or '' You never billed me for that security installation in my residence. How about -- you'd better send me a bill. '' or ''Please send me a bill. '' PAUL BARBADORO, Senate Deputy Counsel: Did it surprise you that Col. North was asking you for the first time nearly six months after the system was installed to send you a bill -- to send him a bill, excuse me. Mr. ROBINETTE: I think so. Yes. Mr. BARBADORO: Did it also surprise you in view of the fact that General Secord had already paid for this system? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: The real reason that you sent those bills to Col. North was to protect him, wasn't it? Mr. ROBINETTE: I believe so. Yes, sir. And -- Mr. BARBADORO: You were trying to provide him with a cover story, weren't you? Mr. ROBINETTE: I was trying to help Col. North. I think my action was one in which -- the action was one of heart rather than head. WOODRUFF: Later today the committees heard from former Defense Department official Noel Koch. He said Col. North had told him in late 1985 that President Reagan was ''driving him nuts about getting the American hostages in Lebanon released. '' Robin? MacNEIL: The U. S. foreign debt more than doubled last year, as foreign investors poured money into the United States. The American position as the world's leading debtor nation thus deepened from $111. 9 billion in 1985 to $263. 6 billion in 1986, an increase of 135%. Some economists said the new influx of foreign debt could influence U. S. interest rates. In other economic news, the retail inflation rate appeared to slow down slightly in May, the consumer price index rising only . 3% after several higher months. On Capitol Hill, the House of Representatives today passed the Democratic budget alternative that challenges President Reagan on higher taxes and defense spending. By a narrow vote of 215 to 201 the House approved a trillion dollar budget the President says he will veto because it offers a defense increase only if he accepts new taxes. The Senate is expected to vote tomorrow. WOODRUFF: Saudi Arabia has agreed to do more to help the United States implement its Persian Gulf policy. The U. S. is planning to put its own flag on 11 Kuwaiti tankers and provide Kuwait with military escorts within a few weeks. A senior U. S. official told the Associated Press the Saudis have agreed to search for Iranian mines off the coast of Kuwait. And they have made designated hospitals available in case of U. S. casualties. At the White House today, Senate Minority Leader Bob Dole raised questions about where the increasing U. S. role will lead.

Sen. ROBERT DOLE, Senate Minority Leader: I think the President's right. I think his policy's right. I don't think there's any question about our presence in the Gulf. But I think there are a lot of legitimate questions about the threat, about the risks, about if there are no risks to any of our ships, is there an increased risk of terrorism? Are we inviting terrorism? There are a lot of questions on the minds of the American people, and I don't think they've yet been resolved. And I think the President's trying, the Administration's trying. But there are still a number of questions. MacNEIL: In Geneva today, President Reagan's Arms Control Advisor announced a mid July meeting between Secretary of State Shultz and Soviet Foreign Minister Shevardnadze. Ambassador Edward Rowny told a news conference the Washington meeting is aimed at resolving obstacles to an arms control agreement. Another U. S. official told the Associated Press the meeting will also address the issues of human rights and a possible Reagan Gorbachev summit. WOODRUFF: In South Korea, President Chun Doo Hwan is preparing to meet with opposition leaders tomorrow to try to end two weeks of anti government demonstrations. The meeting was set up shortly after U. S. Assistant Secretary of State Gaston Sigur arrived for a visit with high ranking South Korean officials. The massive student demonstrations continued today, but without the violent confrontations with riot police. At Seoul's Yonsei University, 10,000 students from campuses around South Korea gathered to shout anti government and anti American slogans. Students blamed the Reagan Administration for supporting Chun's repressive regime. MacNEIL: The Supreme Court today upheld the law by which states may lose some federal highway funds if they don't raise their drinking age to 21. In a 7 to 2 vote, the court rejected a South Dakota challenge saying the 1984 law is a valid use of congressional spending to promote public safety by discouraging teenage drunk driving. Only four states, South Dakota, Colorado, Ohio and Wyoming, still permit people under 21 to drink. States that do not comply stand to lose 5% of highway funds due this fiscal year and 10% next year. WOODRUFF: The nation's doctors received guidelines today from the American Medical Association on how to handle AIDS patients. The report said that doctors may break the tradition of confidentiality with their patients to tell relatives and sex partners about the risks they face from an infected person. The AMA also recommended mandatory AIDS testing for certain groups -- such as immigrants, organ donors and prison inmates. But they stopped short of calling for nationwide testing. MacNEIL: There was a long awaited event at the National Zoo in Washington today. Ling Ling, the giant female panda, gave birth to a four ounce cub. Zoo officials said mother and baby are doing well, but they offered a cautious prognosis, because Ling Ling's two previous cubs did not survive. The birth was recorded by the zoo's closed circuit television. Ling Ling has shown appropriate behavior today by cuddling her tiny offspring and hiding it from the camera's view. WOODRUFF: That's our news summary. Still ahead the Iran contra hearings. Wrangling over the budget. And a tale of two economies. Iran-contra Hearings WOODRUFF: We go first tonight to today's testimony in the Iran contra hearing -- testimony that raised more questions about the actions of former White House aide Oliver North. North will apparently have a chance to answer those questions when he appears before the Congressional Committees next month. The conditions of his appearance were discussed by members today. And two of them will be joining us to talk about that. But before they do, our recap of the day begins with the testimony of former CIA employee Glenn Robinette, who raised eyebrows with his tale of how North tried to cover up the fact that a security system had been installed in his home without his having paid for it. [voice over] Sixty five year old Glenn Robinette has run his own security consulting business in Washington since retiring from the CIA in 1971. In 1986, he was hired by former General Richard Secord who has admitted to being a key player in the sale of arms to both the Iranians and the contras. Robinette describes his work for Secord as investigative research. Robinette says in April 1986, he had a $14,000 security system installed in Lt. Col. Oliver North's Virginia home at Secord's direction. Under questions today from Deputy Chief Senate Counsel Paul Barbadoro, Robinette describes the conversation with Secord.

GLENN ROBINETTE: He mentioned that Col. North had been experiencing some threats at his house against him -- the family. And that if I was interested -- if I thought I could do it, he would like me to go see Mrs. North and make plans to put -- implement a security system at the residence. PAUL BARBADORO, Deputy Chief Senate Counsel: Did he describe the kind of threats that Col. North complained about? Mr. ROBINETTE: I think he touched on them at that time, but subsequently there was more detail from Col. North. Mr. BARBADORO: What were you told about the threats that Col. North was facing? Mr. ROBINETTE: There were instances of someone driving along the road paralleling their house -- Col. North's home -- and shining lights at late hour when Col. North was not there, which frightened the wife and the children. There was an instance of sugar or sand in the gas tank, punctured tires, threats by telephone from unknown sources. And I believe on several instances there were boxes, bags containing unknown objects found in the mailbox that was external to their property, but situated on a public road adjoining the property. WOODRUFF: Robinette told how General Secord escorted him to the Old Executive Office Building where he finally met with Col. North.

Mr. ROBINETTE: I told him that I had some basic ideas how to protect the family, that I was extremely conscious that this was a family, this was a home, and not a SAC base, and I would try to implement procedures that would not seriously affect the lifestyle. Mr. BARBADORO: And what was Col. North's reaction? Mr. ROBINETTE: I would say very enthusiastic, very pleasant. He was extremely cordial. It was a very short meeting. Mr. BARBADORO: Did you have any discussion with Col. North at this meeting about who was going to pay for this system? Mr. ROBINETTE: No, sir. Not at that time. Mr. BARBADORO: Did you meet with Col. North again -- five days later on the 10th of May? Mr. ROBINETTE: Yes, I did, sir. At this time, I described in more specific detail as to what I thought would be a useful system to protect the family and the children from any threats. I believe at this time was the first time -- or in more specific detail when Col. North mentioned his concern of terrorism. I summarized by telling him -- after describing a system -- I summarized it by telling him the estimated cost in my opinion was (unintelligible). Mr. BARBADORO: And what was that estimated cost? Mr. ROBINETTE: Somewhere around $8,000 to $8,500. Mr. BARBADORO: What was his reaction when you told him about the cost ofthe system? Mr. ROBINETTE: He concurred and said, ''Please try to keep it along those lines. Remember I'm a poor lieutenant colonel. '' WOODRUFF: Robinette said he contracted out for the installation of the security system at North's home and was reimbursed by General Secord.

Mr. BARBADORO: You said so far that you paid Vaytech and Automatic Door approximately $13,900 to install the security system. Correct? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: And you in turn received a total of $16,000 in reimbursement from Richard Secord. Is that right? Mr. ROBINETTE: Yes. Mr. BARBADORO: A $7,000 payment in May and a $9,000 payment in August. Is that right? Mr. ROBINETTE: Yes. Mr. BARBADORO: And is it fair to say that during this entire period of time you never went to Col. North to seek reimbursement for this system, and Col. North never offered to pay you for this system. Is that right? Mr. ROBINETTE: That's correct, sir. Mr. BARBADORO: The only person you went to is General Secord, and he paid you for the system. Is that right? Mr. ROBINETTE: Yes, sir. WOODRUFF: Robinette didn't hear from Col. North again until North called him in early December of last year -- shortly after Attorney General Meese's news conference in which North's involvement in the Iran contra affair was publicly revealed.

Mr. ROBINETTE: It came somewhat as surprise, considering that he was in the middle of quite a few problems at that time. But he seemed very friendly, asked me how I was doing, and I probably mentioned something about his family, which I liked very much -- his children. He said, ''By the way, you never sent me a bill. '' or '' You never billed me for that security installation in my residence. How about -- you'd better send me a bill. '' or ''Please send me a bill. '' Mr. BARBADORO: Did it surprise you that Col. North was asking you for the first time nearly six months after the system was installed to send you a bill -- to send him a bill, excuse me. Mr. ROBINETTE: I think so. Yes. Mr. BARBADORO: Did it also surprise you in view of the fact that General Secord had already paid for this system? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: After receiving this telephone conversation, did you prepare a bill? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: I want to ask you a few questions about that bill. First, let's start with the date. Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: The date of that bill is July 2, 1986. Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: You prepared this bill in December, didn't you? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: And that date is false, isn't it? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: The bill is for $8,000 for the security system. That's not what the system cost, is it? Mr. ROBINETTE: No, sir. Mr. BARBADORO: And that amount is false as well as the date is false. Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: Mr. Robinette, is it fair to say that you intended this bill to look like a first notice? Mr. ROBINETTE: Yes, sir. This was the date that the equipment was -- when the system was finished. This date reflects that, yes, sir. Mr. BARBADORO: And at the same time you prepared this first notice, you also prepared the second notice, didn't you? Mr. ROBINETTE: Yes, sir, I did. Mr. BARBADORO: That second notice is basically a copy of the first notice with a note you added at the bottom, isn't it? Mr. ROBINETTE: Yes, sir, it is. Mr. BARBADORO: And the date of the note you added on the bottom, September 22, 1986, is also false, isn't it? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: And the statement in the note at the bottom, which is to the effect you hadn't had time to send out a notice earlier because you had been busy, is also false, isn't it? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: Let's be clear about something, Mr. Robinette. When you sent these bills to Col. North, you never expected him to pay you for this system, did you? Mr. ROBINETTE: I had been paid. No, I didn't expect it of him. Mr. BARBADORO: General Secord had paid you in full for the system, right? Mr. ROBINETTE: Yes, I just commented, I had been paid for it. Mr. BARBADORO: The real reason that you sent those bills to Col. North was to protect him, wasn't it? Mr. ROBINETTE: I believe so. Yes, sir. And -- Mr. BARBADORO: You were trying to provide him with a cover story, weren't you? Mr. ROBINETTE: I was trying to help Col. North. I think my action was one in which -- the action was one of heart rather than head. And I think you make a mistake if you lead with your heart instead of your head -- which I did. Mr. BARBADORO: What you were doing, though, is to provide him with a cover story that made it look like Col. North was supposed to pay for the system, not General Secord, is that right? Mr. ROBINETTE: Yes. He was in the middle of major problems. He'd been fired, and I had some affectionate feelings for the family, and I was trying to assist him for what it was worth. Mr. BARBADORO: Within a few days after sending the bills to Col. North, You got something back from him, didn't you? Mr. ROBINETTE: Yes, sir. I would say within a week. Mr. BARBADORO: And what you got back were two letters that appeared to correspond to the two bills you had sent, correct? Mr. ROBINETTE: That's correct, sir. Mr. BARBADORO: Is it fair to say, Mr. Robinette, that this letter suggests that you and Col. North discussed two options as to how Col. North might pay for this security system? Mr. ROBINETTE: I think it's fair to say that, sir. Mr. BARBADORO: And the letter is dated 18 May, and what he's trying to do is to suggest that back in May you and Col. North had discussed payment options. Correct? Mr. ROBINETTE: Yes, sir. Mr. BARBADORO: The first option that the letter discusses is that you will loan Col. North the security equipment until he retires from the Marine Corps and that in exchange Col. North will make his home available for commercial endorsement of the security system. Did you ever discuss this payment option with Col. North? Mr. ROBINETTE: Not to my recollection, sir. Mr. BARBADORO: The second payment option discussed is that you would allow Col. North to pay off the system in 24 equal monthly increments. Did you ever discuss this payment option with Col. North? Mr. ROBINETTE: Not to my recollection, sir. Mr. BARBADORO: Let me turn to the second letter, Exhibit 9B. Is it fair to characterize this letter as suggesting -- attempting to suggest that you and Col. North had agreed on what I had earlier described as the first option for payment -- that is that you and Col. North had agreed that Col. North could endorse the security system when he retired from the Marine Corps instead of paying you. Is that what this letter suggests? Mr. ROBINETTE: I believe so, sir. Mr. BARBADORO: Did you and Col. North ever agree on such a payment plan? Mr. ROBINETTE: No, sir. Mr. BARBADORO: This whole proposal, these two options and the suggestion that there was an agreement is made up, isn't it? Mr. ROBINETTE: It's not to my -- I've never heard of it, sir. Mr. BARBADORO: Well, you were one of the parties to these supposed agreement, correct? Mr. ROBINETTE: No, sir. Mr. BARBADORO: And there was never any agreement between you and Col. North as to either of these options, correct? Mr. ROBINETTE: No, sir. WOODRUFF: Several committee members pressed Robinette on why he failed to tell North that the security system had already been paid for.

Rep. ED JENKINS, (D) Georgia: The only reason you didn't discuss money obviously -- discuss the fact that you had been paid -- which is hard for a lot of people, including myself, to understand, is that you knew that Col. North knew that you had already been paid. Isn't that correct? Mr. ROBINETTE: I can't say that is true, sir. I don't know that Col. North knew that. Rep. JENKINS: What is your opinion? Mr. ROBINETTE: I have no idea, sir. I only know that I had been paid, and that I responded to Col. North's request. Sen. WARREN RUDMAN, (R) New Hampshire: And the fact is that at the time all these events happened with the exchange of letters, you knew this was essentially establishing what most people would refer to -- and I'm sure you know the meaning of the words -- it was a sham transaction -- your invoices, his letters, the whole thing was just a great story that was cooked, isn't that correct? Mr. ROBINETTE: Yes, sir. Sen. RUDMAN: What would you have done if you had received a check for $8,000, Mr. Robinette, from Col. North? Mr. ROBINETTE: I would have given it to General Secord. Sen. RUDMAN: You would have given it to General Secord? Mr. ROBINETTE: Yes, sir. Sen. RUDMAN: Would you have been surprised that you had received a check for $8,000 from Col. North? Mr. ROBINETTE: Yes, sir. Sen. RUDMAN: So would I. Thank you. WOODRUFF: Republican Congressman Henry Hyde, who has been one of North's staunchest defenders, said today that North's attempt to conceal how he got the security system was, in Hyde's words, ''sleazy. '' This afternoon, the committees heard from one current and one former Defense Department official, primarily about their role in facilitating the shipment of U. S. arm to Iran. [voice over] Fifty three year old Henry Gaffney is the man the military turns to to coordinate the official sales of U. S. weapons overseas. Gaffney's title at the Pentagon where he's worked since 1962, is Director of Plans for the Defense Security Assistance Agency. Noel Koch was the principal Assistant Deputy Secretary of Defense for Security Affairs. He was also the Pentagon's point man on fighting terrorism. Koch left the government last July to go into private business. Senate Counsel John Saxon asked Koch about a conversation he had with Col. North in late 1985.

NOEL KOCH, former Defense Dept. official: I recall that it followed a meeting that we had which related to the hostages, but not to this arrangement that we're discussing here today. And that he was very tired and we just had an exchange after the meeting. And he said, apropos of the hostages, ''This thing is really heating, and he's driving me nuts about it. And he wants them out by Christmas. '' And I said, ''Can we do it?'' And he said, ''I hope so. '' JOHN SAXON, Senate Staff Counsel: So this is Col. North saying that the President indicated that the hostage issue was driving him nuts -- Col. North said the President was driving him nuts and that the President wanted the hostages back by Christmas. Mr. KOCH: That's correct. WOODRUFF: Koch told how Col. North directed him to negotiate a price for TOW missiles with the Israelis. That accomplished, Koch informed Defense Secretary Weinberger that the TOWs would soon be on their way to Iran.

Mr. KOCH: He was generally agitated over this, and as I've indicated previously, this was something that all the players involved in this thing thought was a very fo lish undertaking. And so we sort of ran back through all the things that made it foolish, none of which was a question of legality -- but rather the politics of this thing, the problems that would be created when our allies found out that we had done it, the impact of this on our terrorism posture, the effect it would have on the probability of taking of future hostages and so forth. And then I said to him -- and I did not say it in a very serious way -- it may not sound in the context as an opportunity for levity -- but I said, ''Do we have a legal problem with this? Is somebody going to go to jail?'' And his response was in the affirmative. But I didn't take that seriously. Mr. SAXON: Is there a reason why you did not take that comment seriously?

Mr. KOCH: Well, I hadn't intended it seriously when I asked the question. We had the shared background of Watergate to bounce some of these perceptions off of, and so there was that -- but chiefly, I assumed that if there was any prospect of it being illegal that he would have stopped it. When he became Secretary, he put his hand on a Bible and swore to uphold the laws of the land, and I thought that was an ironclad guarantee. So since he didn't leave, I assumed it was legal. Mr. SAXON: Is it your sense, Mr. Koch, that since Secretary Weinberger was not willing to resign over this initiative, then he must not have felt so strongly about the legality of it.

Mr. KOCH: I think he felt the question of legality was tenable. WOODRUFF: For his part, Gaffney said right from the start he didn't believe the sale would be legal, because it violated certain conditions under which such a transfer could be approved.

HENRY GAFFNEY, Defense Security/Assistance Agency: Basically, there are three conditions. One, of course, is that the country for which the transfers are intended should also be eligible for sales. Second, that, as I said, the written assurance should be obtained from that country. And third, if the sale is worth over $14 million of major defense equipment, it also requires a notification to Congress, where that notification must sit for 30 days before the Presidential Agreement can be given. JOE SABA, House Staff Counsel: Dr. Gaffney and Mr. Koch, do either of you know of any congressional notification sent by the President or any of his authorized designees to the Congress, stating that the President would permit Israel to transfer arms to Iran that year? Dr. GAFFNEY: Not to my knowledge. Nothing recorded in our agency. Mr. KOCH: No. Mr. SABA: And Dr. Gaffney and Mr. Koch, do either of you know of any written consent granted by the President or the Secretary of State or any authorized designee to Israel permitting the transfer of those weapons? Mr. KOCH: No. Dr. GAFFNEY: No. Mr. SABA: And do either of you know -- has the Ayatollah Khomeini or any of his authorized designees provided to us in advance of that transfer a writing stating that the Ayatollah will consent to inform the President of the United States in advance upon further transfer or use of those weapons? Dr. GAFFNEY: I've seen no such document. Mr. KOCH: I think you'd have to ask the Ayatollah. WOODRUFF: Apart from his role in the arms sale, it was revealed that Koch, a long time friend of General Secord, had established and controlled a legal defense fund for Secord. But Koch resigned from his position as a trustee for the fund last week when he discovered three recent deposits totalling half a million dollars transferred from a secret bank account in Switzerland, the same bank from which Secord and his partner Albert Hakim ran their covert operations.

Sen. SAM NUNN, (D) Georgia: Well, tell us in your own words why you resigned. What did you think -- what gave you pause on this? What made you uneasy about it? Mr. KOCH: I was concerned with the appearance of impropriety. And the appearance to my mind was that anonymous money was conflictive money. Anonymous money had a taint about it by definition. If it were for the -- some benevolent association for the rehabilitation of wayward politicians, and it was anonymous money, you could understand somebody was trying to be kind and put some money in there. But for General Secord, you'd have to assume that there was -- numbers of that magnitude from that particular source -- from a Swiss bank -- had a peculiar odor to it. Sen. NUNN: Did you listen carefully to General Secord's testimony when he came before this committee? Mr. KOCH: Off and on I did. Sen. NUNN: Did you hear him deny that he had any interest in profit as far as the sales to Iran? Mr. KOCH: Yes, sir. Sen. NUNN: Did you ever discuss that with him? Mr. KOCH: No, sir. Sen. NUNN: Does this large sum of money have -- give you any pause on that testimony? Mr. KOCH: No, sir. Sen. NUNN: You still believe it? Mr. KOCH: I believe him. Sen. NUNN: You believe it was all -- the so called enterprise was all nonprofit? Mr. KOCH: I believe that what he says he intended to do with the money -- which was to convert it for the use of the contras -- that he's telling the truth. Sen. NUNN: So you believe this is just an act of benevolence here? Somebody has just laid $500,000 on the (unintelligible). Mr. KOCH: Clearly, I didn't -- whether it's an act of benevolence is besides the point. The question is whether that benevolent soul did it the right way. It seems to me he could have dropped by the house with a brown paper bag and $500,000 in it, and he would have been a hell of a lot better than sending it through a Swiss bank without a name attached to it. WOODRUFF: For more on today's testimony and how likely it is that Oliver North will testify, we'll go to two members of the House Select Committee -- Congressman Richard Cheney of Wyoming is a senior Republican. Joining him is Congressman Jack Brooks, Democrat of Texas. They're with us tonight from a studio on Capitol Hill. Congressman Brooks, how tarnished is Col. North from today's testimony? Rep. JACK BROOKS, (D) Texas: Well, his image wasn't improved too much. When they pointed out very clearly that they'd spent some $14,000 to give him a good security system around his homestead out there, that didn't seem to help his image much. WOODRUFF: Did you learn very much from what was said today, Congressman Brooks? Very much new? Rep. BROOKS: Well, two interesting things were the factual detail on the $14,000 for his residence, and then we heard today -- as you noticed -- that Mr. Secord, General Secord's defense fund, had been aided substantially by transfer of some half million dollars from a Swiss bank. And that creates some interest. He has said, you remember, Judy, that he didn't have any interest in that money and it wasn't his -- million and a half. But somehow or another a half million goes into his defense fund. WOODRUFF: Congressman Cheney, what do you think was significant today? Rep. RICHARD CHENEY, (R) Wyoming: Well, obviously the testimony concerning Col. North was not helpful from his standpoint. On the other hand, I think it's important that all of us try to reserve judgment until we've had an opportunity to have him testify, to have him answer those charges. It is true -- I know from my own firsthand knowledge -- that there were threats to the colonel's life. During the time that he was at the NSC he was -- at least on one occasion that I'm familiar with -- required to take special precautions in order to protect his family. And I'm not unsympathetic to the problem that they were trying to deal with. Although it would appear, based on the testimony we received today, that they clearly did not deal with it in a proper fashion. WOODRUFF: Well, speaking of giving him an opportunity to testify, Congressman Cheney, you've been in on the sessions with -- at least the one yesterday with his attorney, where you were discussing the conditions under which Col. North is or isn't going to come testify. What's the status of those negotiations right now? Rep. CHENEY: They're ongoing -- I guess would be the best way to describe it, Judy. The fact is that I think we have to be careful about the phrases and terms we use. The committee feels very strongly -- and I think this is true of members on both sides of the aisle, both the House and Senate committees -- that the Congress cannot be put in a position of negotiating with witness on terms and conditions under which he will testify. Now, we clearly have the power to compel testimony from any American citizen. That's our responsibility under the Constitution. And statutes that are applicable. So we can't be in a position where we sign some kind of an agreement where we'll do certain things and he'll do certain things. On the other hand, we have tried to be reasonable men, we've tried to conduct ourselves in a responsible fashion. And we have with other witnesses taken into account their special needs and requirements. Now, we've tried to be reasonable in this case as well. But at the bottom line is we expect Col. North to testify. If he doesn't testify, he'll face contempt proceedings. WOODRUFF: But you are talking about giving him conditions, terms, whatever you want to call them, that other witnesses have not asked for, nor received. Isn't that right? Rep. CHENEY: Well, that's true. Other witnesses have not made exactly the same requests. They've made different requests. Albert Hakim made requests that led to us convening a meeting of a small group of the committee in Paris in order to be able to acquire certain documents. So we have made adjustments in our procedures. The bottom line though is we expect his testimony. We expect it in public session. We expect whatever documents he may have. And we expect that to happen, or we will have no choice but to initiate contempt proceedings. WOODRUFF: Congressman Brooks, should the committee be adjusting its procedures to accommodate Col. North and his attorney? Rep. BROOKS: I don't agree that we should. I think that the Constitution -- as my friend Dick Cheney says -- gives us the full authority to compel their testimony, or to pull them in contempt. I think that Congress and the committee should call him up. And if they want to give him immunity or not -- I think most of the committee did -- I did not -- then let him testify. I think he would. But I don't think that the committee should change our policies for the whole Congress by making special concessions for him that we did not make for 21 other witnesses, including Admiral Poindexter. Most of the witnesses -- virtually all of them -- have been deposed beforehand. We've talked with them, visited with them, and they came up. Nobody said how long they were going to testify. Nobody said we can't be called back. Nobody said that you can only depose me without a transcript, without being sworn in. We didn't have any of those problems with any of 21 other witnesses. And I don't think we should jeopardize congressional proceedings by having that problem with him. I would forget the early testimony on Col. North, call him before the committee, forget about all of these special procedures. Just trade the documents that we have for his. And call him up and let him testify, tell the truth like he said he wanted to do. WOODRUFF: Congressman Cheney, why can't the committee do that? Or to ask him to testify, and if he doesn't, then proceed with contempt charges? Rep. CHENEY: Well, frankly, Judy, one of the key sticking points has been the committee's desire to have him testify in executive session, or closed session, before he goes public. WOODRUFF: Why is that so important? Rep. CHENEY: Well, we've felt that during the course of the hearing that that was the most responsible way to proceed. That it's important not to put a witness on the stand when reputations and indeed even lives are at stake. And sometimes sensitive national security information is at stake -- without having some idea of how the testimony will go in advance. There have been cases where we've gotten testimony from one witness that was particularly critical and devastating, but there'd be another witness that had a different point of view, and we've been able to work so that both of those were presented in order to be fair and equitable. The thing that's different about Col. North, I think, for people to remember, is that he has the option -- any citizen does -- of not testifying. He can if he wants to accept the contempt citation. And then subsequent legal proceedings. And he might conceivably decide -- or his lawyers might conclude -- that they'd rather do that than have him come and put himself first on trial before the committee, and ultimately have to go into court as well. He clearly is the prime target -- if you will -- of the Independent Counsel, and therefore he could conceivably make another judgment. We'd like his testimony, but I think it's important, and that's why we've been willing to try to work something out. WOODRUFF: Congressman Brooks, are you saying that you'd rather not have his testimony at all than have it under these special circumstances? Rep. BROOKS: That is correct. I'd rather just have him for contempt rather than have special circumstances. I think it is not good for the congressional set up to do it that way. And I believe in good faith that the colonel would testify. And if he doesn't, I think the President has said he wanted to have the full truth before the people. He ought to call the colonel and tell him. WOODRUFF: But don't you lose a great deal in terms of getting the story out if you don't have Col. North? Rep. CHENEY: I think you're right, Judy. I think that many of us feel very strongly that we can't wrap up this investigation until we have North's testimony. He's such a central figure we want to get it done, we want to get it done this summer. And that means we need him, and we need his testimony now. And that of course has given him certain amount of leverage. WOODRUFF: All right. Let's take a vote. Do you think Col. North's going to testify. Congressman Cheney? Rep. CHENEY: I believe he will. WOODRUFF: Congressman Brooks? Rep. BROOKS: I believe that he will. I'm not too confident of that, but I think he will. WOODRUFF: But you think you may get outvoted on whether or not to give him these special conditions and so forth? Rep. BROOKS: No, I think he'll get the special conditions probably. WOODRUFF: Well, thank you both, Congressman Brooks, Congressman Cheney, for joining us. Robin? Budget Politics MacNEIL: We turn now to the federal budget. As we reported, the House today passed a trillion dollar budget that calls for $64 billion in tax increases over the next three years. The bill also provides for increase in defense spending to $296 billion next year, but only if the tax increases are approved. The budget is a compromise fashioned by senate and house Democrats after they rejected the one submitted by President Reagan. We'll examine the politics behind the budget bill in a moment. First, here's part of today's partisan debate.

Rep. WILLIAM GRAY, (D) Pennsylvania: It's a budget that tells the President there's no free lunch. That we have to begin to pay as we go. Not just shift the burden to future generations. And it's a budget that tells our citizens at home and our allies abroad that we are prepared to act responsibly, even when the decisions are difficult. Rep. ROBERT MICHEL, Minority Leader: You promised us new ideas, new leadership in this 100th Congress, but what we have in your budget is the winner in the Walter Mondale 1984 Presidential Campaign Look Alike Contest. It fails on economic grounds, it fails as policy, and it fails as an expression of leadership. I say it just won't do, and we ought to reject this conference report today. Rep. DAN ROSTENKOWSKI (D) Illinois: We have given the President a free ride. It's time to stop. I'm as frustrated as anyone else with the posture the President and his supporters have taken with regard to the deficit. This President is the biggest deficit spender in our history. In the four years of the Carter presidency, the total deficit was $250 billion. It took Ronald Reagan only 2 years to increase the deficit by $300 billion. The President's anti tax rhetoric is no less astounding than his anti deficit speeches. Rep. WILLIAM THOMAS (R) California: If you want about $20 billion in new taxes, then it's simple. Vote yes. If you want to hit the middle class right between the tax eyes, after they got some minimum benefits last year in last year's tax bill, because that $20 billion's gonna come from new excise taxes, the most regressive kinds of taxes, if you want to hit the middle class right between the tax eyes, vote yes. Yep, here we go again. Tax and spend, and obfuscation. Mr. and Mrs. Tax Payer, welcome back to Democrat control. Rep. THOMAS FOLEY, Majority Leader: Now, I don't know whether the President's going to sign a tax bill or not. I don't know whether he's going to sign a reconciliation bill or not. I desperately hope that he will come together with us, and I would hope with you on the Republican side, to deal responsibly with the problems this country faces. Because we can and should get this deficit down. In the meantime, the Democrats have the responsibility to govern, we have a budget that's been produced necessarily on our side, because of the abdication of responsibility by our colleagues on the other side of the aisle, we have a duty to stand together now and accept the responsibility of passing this budget. MacNEIL: To help put this congressional wrangling in perspective, we have political scientist Norm Ornstein, resident fellow at the American Enterprise Institute in Washington, and a frequent contributor to this program on congressional matters. Norm, let's back up a little bit here. The Democrats have come up with this budget resolution. What are they trying to make Mr. Reagan do? NORMAN ORNSTEIN, American Enterprise Institute: Well, in one respect, Robin, what we have here is a variation on arms for hostages. What we have is the Democrats in Congress holding some arms hostage to try and get the President to go along with some tax increase, or revenue increase as they prefer to put it, to come to a resolution of the budget. They don't see the possibility of getting a budget out that comes anywhere close to meeting the Gramm Rudman targets (unintelligible). MacNEIL: If I may interrupt a moment. The President said that his budget did that. Mr. ORNSTEIN: What this budget does as far as the Democrats in Congress are concerned -- using his economic assumptions -- is do it as well. They believe that his budget includes some revenue increases as well, but is unrealistic on defense, isn't really realistic on the revenue side, because it's mostly asset sales, one time sales from their perspective, and doesn't provide enough in a number of domestic areas. From their perspective, you've got to have a much more substantial frontal attack on the tax side. And the only way to do this as they see it now is to suggest to him that if he wants a little bit more in defense, he's going to have to pay for it. MacNEIL: So really this isn't a real budget. This is a way to get him to negotiate, or to bargain. Is that --? Mr. ORNSTEIN: That's absolutely right, Robin. Remember that a congressional budget doesn't go to the President for signature or veto. This budget that the House passed and that the Senate is likely to pass probably tomorrow, is an internal congressional document. It is at this point something that orders congressional committees to do things, and will result within a few week in some appropriations bills -- thirteen separate spending bills that form that part of the budget. And presumably, with orders going out to the revenue committees -- the Ways and Means Committee and the House Finance Committee in the Senate -- in a tax bill that will bring in for the coming fiscal year $19 billion in revenues. Those things will go to the President. But that's weeks down the road. Now we're talking about a document that's designed as a negotiating tactic outside and for some internal discipline inside. MacNEIL: Now, why have the Republicans stayed out of this? I mean, this has really been Republicans Hands Off, hasn't it? Mr. ORNSTEIN: No question, it's been Republicans Hands Off. And this is a very different dynamic from what we saw in the first six years of the Reagan Administration. Because the Democrats run the Senate now. They won control of the Senate in 1986 -- the first time in the Reagan era that we have not had a Republican Senate, a piece of the Congress controlled by the Republicans. For six years those Republicans in the Senate with a public perception that they were in charge. tried to drag the President, kicking and screaming, to the table to negotiate on deficits. We have much the same set of priorities, frankly, that the Democrats have in their budget now. And it probably wouldn't be dramatically different if the Republicans still controlled the Senate. Having lost the majority and suffered that humiliation, they now have the luxury -- in a sense -- of being able to stand on the sidelines and say to the Democrats, ''You're in charge of Congress now. Don't count on us to provide any votes. '' Democrats in Congress brought up the President's budget. Most Republicans in the House and Senate voted against the President's budget. They didn't see it as realistic or popular. They now have voted against the congressional budget, done entirely by the Democrats. Probably they won't begin to get involved in this game until a few weeks further down the road. MacNEIL: Now Mr. Reagan himself has taken off on the issue suddenly and decided to go to the people to make a big issue of this. What is he trying to do? Mr. ORNSTEIN: Well, in some respects, frankly, while we see the differences in the fact this is a Democratic budget in the Congress and we have this twist of holding some defense -- $7 billion in defense budget authority -- hostage to getting the President to going along with the revenue increase. In other respects, it reminds one of the old Casey Stengel line -- deja vu all over again. It's the same sort of wrangling. The president is going out there as he did for at least five years, saying to the Congress -- before a Republican Senate and Democratic House and now a Democratic Congress -- ''Tax increases? Over my dead body. Send it up here. Make my day. '' -- as he's done for the last five years, he's going to the public and saying, ''We want budget reform, a balanced budget amendment to the Constitution, and a line item veto. He has upped the ante a little bit by making this a much more visible battle. In part, no doubt, Robin, because of some of these other issues. The fact that the President is back on his heels and on the defensive with the Iran contra investigation -- he's trying to get out on the offensive a little more on the budget. But it's not much different than what we've seen before. MacNEIL: In this year, does the kind of budget reform items he wants, the line item veto, and the balanced budget amendment -- is that politically any more potent than raising taxes this year? Mr. ORNSTEIN: No. And it doesn't have widespread support inside the Congress. But there's one other element here that we have to remember. We move on from this to thirteen appropriations bills and a tax bill. Also we have another one of these perennial votes coming up on the debt limit. We're bumping up against the debt limit early in July. And the debt limit vote -- we don't increase it, the government comes to a halt -- was the vehicle that was used to get the Gramm Rudman bill budget reform passed in 1985. Gramm is coming forward again. Many other congressional Democrats and Republicans, many supporters of the President are saying they're going to use that vehicle for major budget reform this time. The President's giving a major speech at the Jefferson Memorial on July 3, with probably something having to be done on the deficit by the end of the first week or early in the second week of July. Many things can happen there, and we may see some budget reform. But frankly, the chances of a constitutional amendment to balance the budget or line item veto are close to nil. MacNEIL: You have a very good crystal ball on these things. Looking down the months or weeks or months ahead, when does the crunch come, and what does the final result look like in your view? Mr. ORNSTEIN: The fiscal year for which this budget is being drawn begins October 1, that's fiscal 1988. In the past several years, what's happened is we have gotten right to the edge of the beginning of the fiscal year, or sometimes spilled over into the fiscal year -- I don't see much different this time. I see a possibility in August or into September as we approach the 11th hour of Congress and the President trying to get together to work out some kind of compromise. We will probably as in years past, Robin, end up with some sort of a compromise that will be much diluted in terms of what it does to deal with the deficit. But that probably includes some form of revenue increase -- not income taxes, but excise taxes and a few asset sales to increase the revenues. A combination of what the President's proposed and what's in the Congressional budget. More in defense than what Congress has wanted, but less than what the President wants. And not much different in the domestic arena. And they will all declare partial victory. And then we'll come back to it again next year. It'll be deja vu all over again next year. MacNEIL: We'll get you back again then. Thank you, Norm Ornstein. Upstairs Downstairs WOODRUFF: Finally tonight, we take an unusual look at today's inflation figures. As we reported earlier, the government reported a modest increase in the Consumer Price Index. But official statistics don't tell the whole story. As we see in this report by special business correspondent Paul Solman.

PAUL SOLMAN: Good evening. I'm Paul Solman, and our story tonight as usual concerns money. Specifically, the Consumer Price Index -- the CPI. America's basic measure of inflation. The government uses the CPI to chart changes in the cost of living. But increasingly the Consumer Price Index, through no fault of its own, conceals more than it reveals about some of the most important price changes in America today. The monthly emphasis on the CPI suggests that we're living in a reasonably homogeneous, reasonably stable economic environment, one that shifts as a whole from month to month. The truth, however, is quite different. In reality, there are two very different economic worlds in America today. Two worlds with very different rates of inflation. Two worlds that are moving farther and farther apart. It is this crucial fact of modern economic life that the CPI tends to obscure. Tonight, we'll look at how inflation behaves differently in these two economic worlds, worlds known in our story as upstairs and downstairs. Downstairs, news on the inflation front appears at first glance to be pretty good. Prices on most everyday items have been holding steady for years. Take this saucepan -- made of steel and copper, both of which have been holding steady or actually going down in price on world markets for a decade. You can buy this same saucepan today for the price it cost ten years ago. In some places you can get it for less. Even scarce raw commodities, like oil and gas, have been going down in price -- at least until recently. So there's not much inflation on the energy front either. Manufactured goods. We all know what happened when Japan, Taiwan and the rest got into the act. Made in Singapore. The factories are springing up all over the world, making goods like these more efficiently and more cheaply than ever. Food? Well, here's an orange from Florida. A whole leg of lamb from Australia. Corn, maybe from Ohio. These food items have barely moved in price since the mid 1970s. Why? Well because the so called green revolution has made international agriculture far more productive than it ever was before. And while that may be bad news for the 3% of us who are farmers, it's very good news for the 97% of us who are consumers. And it's what's helped keep inflation down. Now, all these items constitute a major portion of what's called the Consumer Price Index. Food is about 15%. Manufactured goods another 20% or so. Energy, approximately 10%. There is, however, another piece of the pie -- a full 25% of it in fact -- where the news is not so good. And that's housing. Take this house in relatively prosperous Brookline, Massachusetts. Ten years ago the house went for $60,000. Five years after that, the price was up to $169,000. And five years after that, which is to say just a couple of months ago, a similar house down the block sold for $370,000. This price rise from $60,000 to something like $370,000 in a decade, represents an inflation rate of about 18% a year, compounded annually. But you don't see that steep rise in the overall CPI, which has sloped upward at a gradual 6. 5% per year during the same period. Housing inflation has been largely offset by low prices in food, manufactured goods and the rest. And so what the Consumer Price Index can't reveal is the fact that owning your own home has become a great economic divide. Between those that live downstairs and those that live upstairs. Meanwhile, in the upstairs economy, it isn't just housing that's experiencing runaway inflation. You may remember this Van Gogh painting which sold to a Japanese insurance company for an astonishing $40 million just a few months ago. This of course is a reproduction. Well, the Van Gogh is just an extreme example of a widespread trend. For instance, this drawing by James MacNeil Whistler, the noted Victorian artist and son. In 1961, this drawing was purchased from a New York gallery for $180. By 1984, the price had risen to approximately $8,000. So for 23 years, the annual inflation rate was running at just below 20%. In the past three years, however, the value of the drawing has shot up to an estimated $30,000. In other words, the annual inflation rate on this item has recently risen above 50% a year. Why this sudden run up on scarce, status goods like these? Well, there's a big change in how wealth is being distributed in this country. There used to be a huge American middle class that lived neither upstairs nor down. But increasingly, household incomes in this country are diverging. Some rising, others falling. It's not that there's such a huge population upstairs these days, but there are more people there than ever before. And the upper strata of the American economy commands more wealth than at any time in the past century. So. More people with more money chasing a finite number of goods. No wonder prices up here are raging. But there's just so much money you can spend. And so the wealthier than ever upstairs crowd has begun pouring its money into the stock market as well. As have the newly wealthy Japanese. As a result, it's not just the art market, or the real estate market, but the stock market, too, that's soaring. The point is that we live in an increasingly two tiered economy. The well to do have bid up prices in the upper tier. And the rest can only watch as some of the goods they crave, like housing, rise out of reach. But since many of the consumer staples have remained relatively cheap, the Consumer Price Index has remained relatively stable. It is after all only an average. And an average just can't convey some of the dramatic price differences that are taking place in America today. MacNEIL: Once again, the main points in the news. The Iran contra hearings resumed with former CIA official saying that Lt. Col. Oliver North received a home security system worth $14,000, then tried to cover the gift up when the Iran contra scandal broke. The House of Representatives passed a budget challenging President Reagan on a tax increase and defense spending. The Supreme Court upheld the law by which states lose some federal highway funds unless they raise the drinking age to 21. Good night, Judy. WOODRUFF: Good night, Robin. That's our NewsHour for tonight. We'll be back tomorrow night. I'm Judy Woodruff. Thank you and good night.