The NewsHour with Jim Lehrer

RAY SUAREZ: Good evening. I'm Ray Suarez. Jim Lehrer has the day off to prepare for tonight's presidential debate in St. Louis. On the NewsHour tonight, will the latest Middle East agreement actually stop the cycle of violence? Margaret Warner explores how two key players see it. Paul Solman explains how the Bush and Gore tax plans might affect your family; Mark Shields and Paul Gigot preview tonight's presidential debate; and Elizabeth Farnsworth talks to economist Hernando Desoto about the mystery of capital. It all follows our summary of the news this Tuesday.

NEWS SUMMARY

RAY SUAREZ: Israeli Prime Minister Barak and Palestinian leader Arafat agreed to a cease- fire today. President Clinton announced the agreement at an emergency summit in Egypt. We have a report from Robert Moore of Independent Television News.

ROBERT MOORE, ITN: There were no handshakes or embraces, and President Clinton carefully stood between Ehud Barak and Yasser Arafat. The truce involves both sides calling for an end to the violence and a fact-finding commission being launched into the cause of the unrest. No one is suggesting the violence is over or the path ahead easy.

PRESIDENT CLINTON: We have made important commitments here today against the backdrop of tragedy and crisis. We should have no illusions about the difficulties ahead. If we are going to rebuild confidence and trust, we must all do our part, avoiding recrimination and moving forward. I'm counting on each of us to do everything we possibly can in the critical period ahead.

ROBERT MOORE: Yasser Arafat was smiling at the end of the summit. But a few hours later, he was back in the Gaza Strip. The Palestinian president acknowledges the crisis is not over. Everything depends, he says, on how events develop on the ground. Ehud Barak returned to Israel this afternoon with similar fears, warning it would take 48 hours of peace before he ordered his forces to pull back from Palestinian cities.

EHUD BARAK, Prime Minister, Israel: We will do our best to live up to the spirit of these statements, namely to try very seriously to put an end to this violence in cooperation with the Palestinians.

ROBERT MOORE: In further unrest on this the 20th straight day of violence, three more Palestinians died. The burning question now is whether the truce will make any difference on the ground over the next few days.

RAY SUAREZ: In all, at least 105 people have died since the fighting began. The bodies of six more sailors were retrieved today from the USS Cole in Aden, Yemen. In all, 17 died in last week's explosion, but six of the bodies are still missing. Also today, Yemeni security officials said investigators found bomb-making equipment in a house near the port. They said two men spent several days there before the apparent suicide attack on the Cole. Missouri's Democratic Governor, Mel Carnahan, was killed last night in a plane crash, along with his son and a political advisor. Their Cessna 335 went down in rain and fog South of St. Louis. Carnahan was 66. He was running for the US Senate against Republican incumbent John Ashcroft. Under state law, his name remains on the ballot. And if he wins the most votes, the acting Governor would appoint someone to fill the seat through 2002. The race had been a key in the Democrats' efforts to win back the Senate. There will be a moment of silence for Governor Carnahan at the outset of tonight's presidential debate in St. Louis. Today, both Vice President Gore and Governor Bush spoke about his death.

VICE PRESIDENT AL GORE: Mel was a fantastic individual, a great public servant, with a compelling vision for the future of this state and our country. It is a tremendous loss, and our hearts grieve with the people of this state, with his family especially, and again with the Sitric family, and it's a personal loss.

GOV. GEORGE W. BUSH: The people of this state knew him to be a good public servant. I've heard some comments that Governor Carnahan said about how he admired Adlai Stevenson and Stevenson called upon the best in public service. This is a man who lived his life in that spirit, you know, public service, and he's going to be missed. And it's a sad time.

RAY SUAREZ: The Vice President and the Governor also plan to make brief remarks honoring Carnahan at the debate. Tonight's face-off is the last of three between the two major presidential candidates. Negotiators reached a tentative agreement today in the Los Angeles transit strike. It has crippled the country's second-largest bus and rail system for 32 days. The Transit Union and the LA Transportation Authority worked through the night on overtime and part-time hiring, among other issues. The Reverend Jesse Jackson acted as mediator. The New York Mets are headed to the World Series for the first time since 1986. They beat the St. Louis Cardinals last night to win the national league pennant, four games to one. The American League playoffs resume tonight, with the New York Yankees leading the Seattle Mariners three games to two. The last subway series in New York was in 1956, when the Yankees beat the Brooklyn dodgers. That's it for the News Summary tonight. Now it's on to the timeout in the Middle East, the candidates' tax plans, a debate preview, and the mystery of capital.

FOCUS - STOPPING THE VIOLENCE?

RAY SUAREZ: The agreement President Clinton brokered between Israeli Prime Minister Ehud Barak and Palestinian Leader Yasser Arafat calls for three things. Both sides have agreed to make public statements demanding an end to the violence, and take other steps to eliminate points of friction. The United States will set up a committee to investigate the events of the past several weeks. And the United States will consult with both sides on how to move forward in the peace process. Our coverage begins with this report on the reaction to the agreement by Gaby Rado of Independent Television News.

GABY RADO: This is what the Israeli side is demanding an end to within 48 hours, the kind of stone-throwing and burning barricades seen on the Gaza Strip today just around the time President Clinton read out the terms of the latest accord. There's little doubt such protests are orchestrated, but not necessarily by Yasser Arafat himself. On the other side, this is what the Palestinians want to seen withdrawn from the outskirts of their towns, heavy Israeli weapons deployed in positions outside Ramallah on the West Bank since the recent crisis flared up. Just after news from the summit came through the local military commander gave his reaction.

COL. CAL HIRSH: There were many agreements that was achieved. We were doing our best in order to fulfill them and to applicate them. We, as Israeli defense forces, has done all our duties and all the application that we signed for, but the Palestinian side never did the same.

GABY RADO: Yesterday's fatalities, both Palestinians, were buried today. Nobody knows if they're to be the last funerals in the current cycle of violence.

ZIAD ABU: ZAYAD: It's true that people are very angry, and the situation is very difficult. And there is a strong position against Sharm el-Sheikh and signing an agreement in Sharm el-Sheikh. But if this agreement will be translated positively on the ground and the people have a positive outcome of the meeting in Sharm el-sheikh, I believe that this will help much to calm the situation.

GABY RADO: But those are far more menacing postscripts to the summit from the leader of the Islamic resistance group Hamas.

SHEIKH YASIN: (speaking through interpreter) We will continue our resistance to the occupation and the uprising will continue. All options are open to our people.

GABY RADO: On the streets, many also dismissed the summit.

MAN ON STREET: (speaking through interpreter) It is not a good result. I feel all the bloodshed of our Palestinian brothers has been in vain. We want the uprising to go on.

MAN ON STREET: (speaking through interpreter) We are asking God, the Arab, and especially the Palestinian negotiators to stop playing this game, which is bringing more bloodshed to our country.

GABY RADO: Late this afternoon, a troubling incident after three members of the Israeli security forces were hit by bullets on the outskirts of Jerusalem. Two tanks were deployed, and an evacuation was ordered of the adjacent Arab neighborhood.

RAY SUAREZ: More now on today's agreement, and to Margaret Warner, who conducted this discussion a short time ago.

MARGARET WARNER: Joining us from Jerusalem are two key advisers to Prime Minister Barak and to Palestinian leader Arafat. Dan Meridor, chairman of the Foreign Affairs and defense committee in the Israeli Knesset, and a member of the Center Party that's part of Prime Minister Barak's governing coalition; and Faisal Al Husseini, a member of the Palestine liberation organization executive committee and the senior Palestinian official responsible for Jerusalem.

MARGARET WARNER: Gentlemen, this agreement was announced about midday today, and the fighting continued throughout the day. Mr. Husseini, when is it going to stop?

FAISAL AL HUSSEINI: Actually, it is a real problem, because the order of the Palestinian people was... it was not a certain order. It is not an army that will give the order, stop, and then they will stop immediately. It is a procedure that those people must see that there is something changed on the ground, which will help us bringing stability. And we hope that the Israelis will understand that and will not go into actions, which can destroy the whole matter.

MARGARET WARNER: So, what are you looking for specifically, or what do you think they are looking for specifically on the ground?

FAISAL AL HUSSEINI: I believe, at first, some would insist that Israelis totally must stop it; they must withdraw to the areas that they were before this clashes, this from one side; from the other point, that the language that they are talking to us. The problem here is that we are listening carefully to the Israeli side. The Israeli side is listening carefully to us. And if we will continue the statements like, "Yasser Arafat is not a partner for peace," that, "we will not stop until the Palestinians will do, one, two, three, four," and this will bring reaction from the Palestinian side, and this will create a real problem. So what we are in need is, first off, to see that the Israelis are withdrawing from the sensitive areas, and this will help us. I can't say that it will bring immediately the calmness, but it will help us to go ahead and bring a real stability.

MARGARET WARNER: So Mr. Meridor, what do you think it's going to take to stop the violence?

DAN MERIDOR: It's a crucial time, the coming 48 hours, and a strategic decision is to be made. Are we going for violence or for peace? If we want to stop violence, three things should happen, as we can see it: One, simply stop violence. And, I believe, that we were led to believe that Mr. Arafat is in charge, and if he says, "stop violence," they will listen to him. Unfortunately we heard on the ground from people, Fatah people, other people saying, "we will continue." I hope he is able to restore calm by saying, "stop violence." He has undertaken to do so. Second, stop incitement. The Palestinian television and radio are under his control. And until recently, they spoke very, very tough language, speaking like, "killing the Jews will never stop," and things of this sort. And the third thing is to call back to prison all the people of the extreme Islamic organizations, Hamas, Islamic Jihad, who threaten to try to carry out explosive, difficult terrorist attacks on Israel. If these three things are done in the coming hours, then, I believe, we can restore calm and reassess what happened and try to be on the track again.

MARGARET WARNER: But Mr. Meridor, you seem to both be saying that each side's waiting for the other side to make the first move. How can you ever get off the dime if each one is taking that attitude?

DAN MERIDOR: No, I did not say this. I did not say this. There was an agreement reached at Sharm el-Sheikh, and it was quite specific. And the two leaders had to issue orders, and Mr. Barak, about two hours ago, issued a statement. He ordered Israeli forces to do whatever is necessary under the agreement. We wait for Mr. Arafat to do the same. Then, subsequently, we went to see the firing and the violence stopping, and we will do our part. And I understand orders were given already on our side. I hope they were given on the other side, because what is at stake here is very high-risk if we don't stop it now.

MARGARET WARNER: So Mr. Husseini, has Mr. Arafat given similar orders?

FAISAL AL HUSSEINI: I believe, yes, that Arafat did, that we must calm the situation and stop any kind of attacks. But, you know, the people, when they are hearing the Israelissaying that they want to bring nonviolence, but they are seeing in their eyes and hearing their helicopters over some cities, rockets are bombing refugee camps, as it happened today, this is what I hear. I hope that is not, but this is the information that I have. To threaten the city of Bejela that will be bombed and asking 16 houses to be evacuated from their people because it will be bombed. Maybe they will not bomb, but this in itself, this language can bring difficult results. About those three points that Mr. Meridor was talking, I would like to say that for the people of Hamas and Jihad who have been released, and they were released in the moment that the public centers were threatened to be bombed by the Israelis. And most of them, they came back by their own desire to the Palestinians and submitted themselves to the Palestinians. Those who are not, they will be under... we are searching for them. But, for the second one, the incitement, actually, that very man who was calling for such incitement and which can understanding from this that using violence and maybe even killing others, this man is already in the prison. He caused a big problem for us in Gaza, but he is in the prison. And so we are making our efforts from this point of view. But what we are asking also the Israelis to stop killing these stories about, we have no partner for peace; Yasser Arafat is not a partner for peace, or he is the leader of the enemies of peace. This will not help.

MARGARET WARNER: Mr. Meridor, the beginning of the agreement also calls for both leaders to publicly declare, "it's time for an end to the violence." Has Prime Minister Barak done that, and has chairman Arafat done that?

DAN MERIDOR: Well, Prime Minister Barak has done that two hours ago. It was published on Israeli TV. I just saw it about two hours ago. Unfortunately, we heard at noon the statement by President Clinton, noon our time, and four hours later, a man was critically wounded, and two other people were wounded in Jerusalem, being shot at from a neighboring Arab/Palestinian village under their authority. We did not react because we want to keep calm. But this, of course, cannot go on. I think that what is needed now is really a test of leadership. You know, Mr. Arafat spoke of the peace of the brave. Where courage is needed is not to tell people to fight or tell children to fight. Courage is needed against your own people, not to follow the street, not to follow the extremists, but to stand up to your people, take political, personal risk and say, "this is the way I need it." Mr. Barak, for what he has done, fought courageously, lost the majority in parliament because he went that far for peace. I think Mr. Arafat is now put to the test -- maybe one of the most important tests in his political life and the Palestinian political life. Stop the violence now. We were so close to an agreement at Camp David. I spent about two weeks there incarcerated with 12 Americans and 12 Palestinians and 12 of our people. And it was such a shame and a pity that instead of going on negotiating, he turned the table on us and went to the streets. It's time to stop it and try to restore calm and try to reach agreements. It's needed in the area.

MARGARET WARNER: Mr. Husseini, has Chairman Arafat said anything publicly about ending the violent demonstration, and if not, why not?

FAISAL AL HUSSEINI: I believe that he's already given this order, and he asked his security forces to take care about this matter. But about courage steps and position, Yasser Arafat took the most important courage steps and because he was telling his people things that his people were not ready to accept it, Yasser Arafat, the last several years he was forced to go sometimes in clashes with other fractions of the PLO. And he lost the support of a lot of Palestinians, but he went on and he continued because he believes in the peace of courage, and it is so. And I believe that he is continuing doing such. But the problem here is that people are forgetting what Yasser Arafat accepted when we accepted the 242 Resolution. It means that we told our people, "forget about 78% of the land that you believe that it is your land and 50% of the land that has been given to you by the UN." So it was not a simple matter to do. It was a real difficult job, but Yasser Arafat is doing it, and he is going on doing it, accepting also agreement against all this propaganda and media war against him. It was also a courageous step, coming back here and being under autonomy and not as the head of a state. It was also a very difficult matter. So we'd like just to remind that these steps have been taken by the Palestinian leadership.

MARGARET WARNER: Mr. Meridor, you heard earlier Mr. Husseini say essentially, Arafat can't just turn off this violence. How confident are you that Mr. Arafat can bring an end to the violence, that all the factions in the Palestinian movement will actually obey him if he gives this order or now that he has, if Mr. Al Husseini is correct?

DAN MERIDOR: I have to admit that our assumption was, and we were led to believe that he is the leader. If there is anyone there who can give orders and who may be obeyed, it is Mr. Arafat. If it appears that he has no control over the street, then the question to us is: Why do we negotiate with him? When we have an agreement, if he cannot implement it, he's not the negotiator, not the partner. I don't elect the people to lead the Palestinian partner. They chose Mr. Arafat. I think he can do it. It may be difficult. It's not easy. It's not easy in Israel, as well. It's hard. But this is the issue. And I really think that this is the test for him, because along the history that both of us sitting here know on our own experience, so many opportunities were missed, and if I may say so, by the Palestinian side, all the offers that were made, all the compromises were rejected. Now there was one, there is one on the table. I don't like all of it. I don't dislike all of it. But it's for the basis of negotiation. It was rejected. Let's not miss this opportunity again. And we made this very clear. We will have to either negotiate or react to violence. We will not have both. And if Mr. Arafat thinks that the support of Saddam Hussein from Iraq, and the Iranian support in Arabia today, and Hezbollah and others is the right way, I think he will bring tragedy again and not peace and not future. So it is very important that he does everything he can, if he wants to, and I hope he wants to. Stop the violence in every form, stop incitement, restore order, and then we will reassess the situation together and see how we can proceed.

MARGARET WARNER: Mr. Husseini, we're almost out of time, but could you respond to that?

FAISAL AL HUSSEINI: Yes. I would like to say that, of course, it is unfair to compare the rockets and tanks with stones and maybe someone who is shooting here and there. It is unfair to compare this with that. But in the same time, I would like to say also to the Israeli side, we are going to have a peace process. If you would like to do that, you mustn't also call those enemies of that peace who tried to stop this peace process before, and because this will put the Palestinians in the same side. I mean, someone who is calling for a unified emergency government, and he would like to unify his internal front, it means that he is going to the external front. And this will push the Palestinians to put Yasser Arafat under pressure to unify his internal front. And that will lead to escalation. So, I hope that we will hear from the Israelis and not to go on threatening us with a unified emergency government, because the reaction will not help neither us nor them.

MARGARET WARNER: All right. Well, gentlemen, thank you both very much.

RAY SUAREZ: Still to come on the NewsHour tonight, the Bush and Gore tax plans, a debate preview, and a conversation with economist Hernando Desoto.

FOCUS - COMPETING TAX PLANS

RAY SUAREZ: Now, our economics man, Paul Solman of WGBH-Boston, does his taxes.

VICE PRESIDENT AL GORE: Almost 30% of his proposed tax cut goes only to Americans that make more than $1 million per year.

GOV. GEORGE W. BUSH: This is a man whose plan excludes 50 million Americans.

VICE PRESIDENT AL GORE: Not so.

GOV. GEORGE W. BUSH: He said in his speech he wants to make sure the right people get tax relief. That's not the role of a President to decide right and wrong.

PAUL SOLMAN: Now, in this campaign, it turns out both candidates are essentially right in their critiques of each other's tax plans. Vice President Gore's targeted cuts would reach far fewer people than Governor Bush's; the Governor's cuts would overwhelmingly benefit the well- off. University of Michigan Business School Professor Jim Hines, one of the country's foremost tax economists, explains.

JAMES R. HINES, JR.: By and large, lower-income people receive better deals under the Gore plan because the plan is really targeted toward lower-income people who meet specific criteria. Bush does a lot more tax cutting than Gore, and what Governor Bush's plan does is it gives really an across-the-board cut in taxes that people pay, so the top 1% is going to get about 30% of the benefits because that's what they're paying right now.

PAUL SOLMAN: And you can extend that to the richest 10%, who right now pay roughly two thirds of all income taxes, would get about two thirds of the benefits under Bush. But that should come as no surprise. Republicans since the Reagan era have argued not only that the rich pay more taxes, but that they invest. Thus, their tax benefits will supposedly be invested in the economy.

GOV. GEORGE W. BUSH: So my plan reduces the number of brackets from five to four to make the code more simple. It drops the top rate from 39.6% to 33%. And let me tell you why that's important. I believe that one of the reasons why our economy is as strong as it is today is because of the tax cuts by President Ronald Reagan in the '80s; by reducing taxes.

PAUL SOLMAN: Bush would also cut the tax rates in every other bracket, so that the current range of 15%-39.6% would drop to a bottom of 10%, a top of 33%. In addition, he'd double the current child tax credit to $1,000, and allow certain deductions even if you don't itemize. The total tab: More than $1.5 trillion over the next ten years. As for the charge against Gore, that his targeted tax cuts will affect far fewer people, well, targeted means they're not for everyone, and in his case, certainly not for those at the top. Americans as a whole, Gore insists, will be better off if the projected budget surplus is used to pay down the national debt instead of cutting taxes.

VICE PRESIDENT AL GORE: And that's why-- let me make it clear-- I will not go along with any plan to take the entire surplus and squander it on a big tax cut for the very wealthy at the expense of the middle class, when we need to use it to keep our prosperity and progress going.

PAUL SOLMAN: Gore's targeted plan features plenty of targets designed mainly for middle and lower-income Americans: New tax credits for child care, medical expenses, elder care, energy efficiency, expansion of the earned-income tax credit, a $10,000 deduction for college tuition. Total cost over the next decade: A third of Bush's; about $500 billion. During the campaign, of course, neither candidate has quite acknowledged the accuracy of his opponent's critique. Instead, both have claimed their plan is the one for that catch- all category of voters, the so- called middle class.

VICE PRESIDENT AL GORE: Here's a married couple with one child, earning $60,000. Under my plan, that would end up being about $1,000 additional tax cut. Under my opponent's plan, it would be about $600.

GOV. GEORGE W. BUSH: If a couple gets $2,655 of tax relief under my vision, under my opponent's vision they receive $392.

PAUL SOLMAN: Such examples, however, have been picked with great care to avoid proving the other side's charges. So we tried out the tax plans on a more random sample. The non-partisan National Opinion Research Center helped identify a few families in Michigan where our tax expert was, starting at this all-American subdivision in Canton, home to the Kowalski's, a solidly middle class family and in my 30 years of journalistic experience certainly the best prepared for Halloween.

RANDY KOWALSKI: One, two, three. Go.

PAUL SOLMAN: A lively crew, the this family is seven strong, though 12-year-old Kyle was away playing baseball and is represented here only by his photo. Dad randy is a manager at UPS. Mom Leann takes care of the kids full-time.

PAUL SOLMAN: Adjusted income for the last year - adjusted gross?

RANDY KOWALSKI: Last year it was just over $69,000. Most of that is wages earned. Very little of it is interest income. Between dividends and interest, I think it amounted to just over $2,400.

JAMES R. HINES, JR.: The Kowalskis currently pay roughly $3,600 a year in income taxes. Under the Gore plan, their tax bill would not change at all. Under the Bush plan, they would pay only $512.

PAUL SOLMAN: The keys to the benefits under Bush, the $500 additional child credit for in this case five children. A $2,500 tax rebate right there. And, says Jim Hines....

JAMES. R. HINES, JR.: Lower rates. With lower rates in the brackets, you pay less tax.

PAUL SOLMAN: Now, if and when these kids go to college, the Gore plan, with its tuition tax break, suddenly looks better, as it would if things were different in other ways.

JAMES. R. HINES, JR.: If they had after-school expenses for children up to age 16; if they had greater health expenses than they do; if they were supporting an elderly person, paying for more than half of their expenses, they would get a better benefit under the Gore plan.

PAUL SOLMAN: But at the moment, our financial snapshot of the Kowalskis brings one point into focus. This is a family the Bush tax cuts do reach, the Gore cuts do not. It's just the reverse for Nicole Anderson, a 24-year-old single mother of three: Shyla, six; Fernandez, four; and Nadanna, six months. Anderson is an assembly line worker. 1999 income: $18,440.

NICOLE ANDERSON: The hourly pay is $8.45. I start at 5:00 in the morning, ten hours a day, Monday through Thursday, mandatory, and most Fridays, too but Fridays eight hours.

PAUL SOLMAN: So you're working 48 hours many weeks, 40 hours at least, raising three children on your own. Are you a very tired person?

NICOLE ANDERSON: Yes. Very. Very tired. I walk around like this a lot. My uniform is like my outfit.

PAUL SOLMAN: Most of Anderson's daycare expenses here at focus hope in Detroit-- some $300 a week-- are paid by the state of Michigan, but her share, $1,300 a year, is still a stretch for an income that's right on the poverty line. Gore would help Anderson pay for child care, as well as expand the earned income tax credit, a program designed to help offset Social Security taxes for the working poor which, last year, provided her with a $2,500 check from the government.

JAMES. R. HINES, JR.: So they will get this additional $500 in the earned income tax credit. In addition, under the Gore plan, there's a refundable dependent care expense credit. And they'll get in essence half of their dependent care expenses back in the form of a credit.

PAUL SOLMAN: And that will be actually in the form of a check?

JAMES. R. HINES, JR.: Exactly. $663. So you add it together and they get about $1,200.

PAUL SOLMAN: But wouldn't she get Bush's extra $500 a child? Well, no, for reasons you'll learn in a just a bit. Now, only 10% of the population makes less than Nicole Anderson; only 10% or so makes more than the Williamses. They're at the 90th income percentile, the starting line, you might say, for the go-go economy. That's 13-year-old Sean at the wheel. Besides Sean there's Joe, 8, Erin, 15, and their parents Nancy, a stay-at-home mom, and pat, an auto industry executive.

PAT WILLIAMS: Our adjusted gross income was $113,000. It was about $8,000 or $9,000 interest income, the balance was base wages.

PAUL SOLMAN: The Williamses fit into none of the Gore tax break categories. But they say they're not counting on the Bush tax cuts either.

PAT WILLIAMS: At this point in the game, it's all rhetoric. It doesn't mean a whole lot until one of them hits office.

NANCY WILLIAMS: There's a long way to go before we see any difference in his paycheck. It's not going to happen January 1.

PAUL SOLMAN: If a tax plan were enacted, however, the Williams, like most upper income Americans, would do better under Bush. Their brackets would be lower. In addition, the Williams would cash in on the extra $500 per child tax credit.

JAMES. R. HINES, JR.: So their tax bill goes from roughly $17.500 to roughly $14,000.

PAUL SOLMAN: Now they have a daughter during the next presidential administration will be going to college.

JAMES. R. HINES, JR.: Under the Gore plan only, there will be a tuition deduction of $10,000. And since the family is in roughly a 30% tax bracket, they'll save $3,000.

PAUL SOLMAN: Now, as these numbers flash by, a word of caution before you try this at home on your own return, remember, Jim Hines is a highly paid professional who makes it look easy. Although we did get glimpse of the effort behind the expertise -- as when Hines needed to consult the write-up of the Gore plan, or when he had to phone a friend about whether Nicole Anderson, our single mother, would get the extra $500 child tax credits under the Bush plan.

JAMES. R. HINES, JR.: I have a friend at Harvard... I feel like I'm on "who wants to be a millionaire."

PAUL SOLMAN: It took two calls to confirm that since she gets an earned income tax credit, Anderson wouldn't get more money back under Bush.

JAMES. R. HINES, JR.: Does that amount affect the EIT phase out?

PAUL SOLMAN: Okay. So what havewe learned in both plans depend on the particulars, Gore's more so because it's targeted. Bush's with bigger cuts, benefits more people. But remember Gore's argument, Bush's plan benefits the wealthy the most. So we ended with taxpayers whose income is $1 million a year, the benchmark Gore keeps talking about. Jim Hines crunched his last set of numbers.

JAMES. R. HINES, JR.: Under Gore, the millionaire pays about $350,000 in taxes, and under Bush, the millionaire would pay roughly $300,000 in taxes.

PAUL SOLMAN: So the person with $1 million in income basically would benefit by about $50,000 because the top rate goes down from the high 30s to the low 30'S.

JAMES. R. HINES, JR.: Exactly.

PAUL SOLMAN: And that's the whole story.

JAMES. R. HINES, JR.: That's all there is to it.

PAUL SOLMAN: To which we can only add, after wrestling with these numbers for weeks now ourselves, it's easy for him to say.

FOCUS - PRESIDENTIAL DEBATE

RAY SUAREZ: Now, a preview of tonight's third and final presidential debate from Shields and Gigot; that's syndicated columnist Mark Shields and "Wall Street Journal" columnist Paul Gigot. Well, going through reams of notes before I came in here tonight, I kept seeing the same phrases, Paul, "make or break," "high stakes," "the beginning of the end of the campaign." Roughly true?

PAUL GIGOT: Roughly, but I don't think in a race that's this close, the election is going to end tonight for either of them. We're going to have a three-week rough age tumble campaign in matter what happens tonight. But the stakes are high, and the pressure is particularly high I think on Vice President Gore to shake up the dynamic of the race, because it looks like Governor Bush has emerged as a slight lead, but a lead nonetheless. And things have been trending his way. And the debates have worked for him. In the "Wall Street Journal"/NBC Poll, about one in four voters say the debates have made them more likely to vote for Bush - only one in five for Gore. So Gore needs to do what the debates haven't done for him, which is to create some issue differences with Bush that he hasn't been able to do so far. Bush is very close on education, very close on Social Security, very close on gun control. And while he's making people more comfortable with him as a leader, which he wanted to do in the debates, Gore hasn't driven those differences on issues, and he has to do that tonight I think.

RAY SUAREZ: Mark, make or break?

MARK SHIELDS: I think it is important, Ray. I think it's important in this respect. Up until the debates, the campaign is parallel skiing. Each candidate is off skiing in a different part of country, a different part of state. And all of a sudden when they do debate, they collide. They come across each other. And Paul's right, the two debates have been good to George W. Bush. It turns out to be sort of the Brier Rabbit syndrome of this year 2000. The Bush campaign seemed to go to great lengths to avoid the debates, to try and change the format, or limit them or whatever, and if anything, the debates have served George Bush's candidacy very, very well. After tonight, never again will they be on the same stage, will people have a chance to size them up together. And I think it's especially crucial for Vice President Gore that after tonight, the next two day, the narrative of this campaign changes and that they're talking, George Bush is defending his position on issues that Paul described, particularly the patients' bill of rights, prescription drugs, and explaining his Texas record rather than Vice President Gore somehow explaining exaggerations.

RAY SUAREZ: Now, Mark, after the second debate, there was more in evidence of Gore campaign response strategy, like you saw for the Bush campaign -- people isolating statements that the opposition candidate made and trying to truth squad them. Too late, not coherent enough? How's it working?

MARK SHIELDS: Not too late. I think it was just eclipsed by events. The events in the Middle East, the Cole ship and the death of 17 Americans -- I mean, that just all of a sudden stopped the campaign coverage. I really think, Ray, that the Gore people came to it late, but they would have gotten, and I think the press felt a little need to compensate for the excessive scrutiny, some would say, and I would be among them, of Vice President Gore after the first debate in his exaggerations or embellishments that Governor Bush would have been held to a similar standard, and because we had the news, which seemed a lot more important than debates, and is, then he didn't get that same kind of scrutiny or that same kind of circulation.

RAY SUAREZ: Paul, the second debate was carried on in the midst of the meltdown of Yugoslavia -- this third one in the shadow of the Middle East and the attack on the Cle. How does that play into what goes on in St. Louis tonight?

PAUL GIGOT: I think it will likely, and Jim doesn't share his questions with us, Jim Lehrer, but I would suspect it's going to be a subject of debate. And I think it will be interesting to see whether Vice President Gore tries the make it an issue again. He didn't have a lot of success in the second debate diving any differences with Bush on that. And, in fact, only really gained traction during the end of the debate when he turned to the domestic agenda. Bush has been very, very skillful in, frankly, cozying up to the Clinton agenda on this to try to look like a statesman, to try to say I don't want to cause any trouble. We all speak with one voice. But it has the effect of muting the differences.

RAY SUAREZ: Now, here we are three weeks away from election day. There have only been three of these events. But limiting them to such a small number, do you make the margin of error that much tighter, make it into a political high wire act?

PAUL GIGOT: You do. That's why some Republicans thought Bush should have started debating the Vice President back in the summer. If you're the challenger, if you're the rookie, you don't... you want to get practice. And Bush does tend to get better. He did in the primaries. He has tended to get better as these things have gone along. The biggest stakes for Bush I thought were the first one, because that was the place where Gore might have been able to knock him out if the Governor didn't look up to the job because that is when the voters were getting their first real look, a lot of them, at George W. Bush. This one, a little smaller audience, and higher stakes I think for Gore because it's his last chance, as Mark said, to draw some of those differences.

RAY SUAREZ: Well, Mark, this last debate is in St. Louis, and St. Louis being in Missouri, the home of Governor Mel Carnahan. Does this take Missouri out of play and give Bob Torricelli, the Senatorial campaign committee chief, some rough numbers to work with now?

MARK SHIELDS: Well, I don't think it takes Missouri out of play. I think any scenario for the Democrats to capture a majority in the Senate, ray, included Governor Carnahan beating Senator Ashcroft. The Republican in Missouri. That's not going to happen now, obviously. And even though his name remains on the ballot, the Democrats are not going to win that Senate seat. So John Ashcroft is effectively reelected. But Missouri as a state I don't think it does change obviously its importance. And I don't think it resolves the presidential race. This is a state, Missouri, that has voted for the winner in every presidential election this century except 1956 when it sported Adlai Stevenson against Dwight Eisenhower. What it means is that the Carnahan campaign, which was a well-organized, well-run campaign and was going to run a massive get-out-the-vote, especially in a Democratic city like St. Louis, will not be doing so on election day. That could be a problem for the Democrats. In contrast, of course, the Republicans will not have the sense of urgency or zeal that they had in a close Senate contest which was really up for grabs.

RAY SUAREZ: Paul?

PAUL GIGOT: I think that's right. Gore has to meet secretary of state the voters himself. It's one less reason for Democrats to come out and vote. And as far as the Senate goes, I mean, this is the mirror image tragedy that Republicans had when Paul Coverdale, the incumbent from Georgia lost his life and effectively turned that seat over to the Democrats. This makes it much less likely that the Democrats can run the table in most of the other seats where Republicans are vulnerable and take the Senate. I think a lot less likely.

MARK SHIELDS: Ray, I think one other thing I would add, I think it makes it more likely that President Clinton will may a more visible and prominent role in the last three weeks of the campaign.

RAY SUAREZ: Why do you say that?

MARK SHIELDS: Well, if you're talking about energizing Democratic voters and the core constituency to the Democratic Party, especially minority voters, Al Gore has not been able to do that thus far, and I think Bill Clinton's unmatched in that respect. It's a risk. There's no question about it because Bill Clinton remains very controversial with many voters who are independent. But the other factor is, I think Bill Clinton has an ability to frame the debate between Gore and Bush, which Gore has not been able to do up until now. And I could see Bill Clinton, you know, taking on George Bush's tax cut or whatever, and a lot more effectively than Al Gore has.

RAY SUAREZ: A quick response?

PAUL GIGOT: It will be fascinating to see if the Gore people want him to get in and do that because they've been keeping him at arm's length, but it is very high risk. But I agree Bill Clinton is itching to get into this thing.

RAY SUAREZ: How does somebody at the top echelons of the Bush campaign do the math when that news comes in, the cavalry has been called?

PAUL GIGOT: Their spin will be we love it, but they'll be worried about the Democratic turnout, because they have a thought all along this would end up being a turnout election, where both bases of both parties were very, very important, and who was motivated more, who was mobilized more could decide the outcome, because otherwise it's not a high-profile election where a lot of inattentive voters feel a great deal is at stake.

RAY SUAREZ: Gentlemen, thank you both; we'll see you later.

MARK SHIELDS: Thank you, Ray.

CONVERSATION

RAY SUAREZ: Finally tonight, another of our conversations about new books, and to Elizabeth Farnsworth.

ELIZABETH FARNSWORTH: Peruvian economist Hernando DeSoto takes on a tough question in his new book, "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else." Desoto is president of the Institute for Liberty and Democracy in Lima, Peru. He works with governments from Egypt to the Philippines on problems of economic development. "Time" Magazine named him one of five leading Latin American innovators of the century in its May 1999 issue.

Mr. DeSoto, you write in the opening line of your book, "the hour of capitalism's greatest triumph is its hour of crisis." Explain.

HERNANDO DE SOTO: Well, what's happened is that the Berlin wall fell some 11 years ago -- six billion people in the world. One billion people are in western Europe, north America, the United States, Canada, Japan, and two former colonies, and they're triumphing. The rest of us, in the former communist nations and developing nations, which are five million people, are all having trouble with capitalism and making it work for the majority of the people.

ELIZABETH FARNSWORTH: You actually use the term "capitalist apartheid." That's a pretty strong term.

HERNANDO DE SOTO: Well, it is a strong term, because what it refers to is something you can see when you visit any third-world country or many former communist nations, which is that some of the population, maybe 10%, maybe 15%, have entered into the global economy, and the rest are left outside.

ELIZABETH FARNSWORTH: And yet you're not in any way anti-capitalist. I noticed that on the back cover of your book, your book is praised by the likes of Milton Friedman and Margaret Thatcher. You're not exactly coming at this from the left in any way. How would you describe yourself?

HERNANDO DE SOTO: Well, I would describe myself as a person who sees, whether he likes it or not, that it's the only game in town. There's nothing else left but capitalism for the moment. And what we have to do is make sure that it works for the majority, which it's not. What we see in the West, which is the reason why it works, is that capitalism is essentially all about property rights, rights that can be transacted in a market to further the distribution of work, the division of labor. And what occurs in at least 80% to 85% of a population of the third world and former communist nations is that that part of the population has assets. They do have assets, as a matter of fact, trillions of dollars, but they're not paper rights in a property rights system, so their value cannot travel and actually insert itself into a diversified market.

ELIZABETH FARNSWORTH: Let's go into some detail here. You see the poor as actually rich. You don't see the poor as victims in this. You see them as potentially having assets that could they be realized would make them, if not wealthy, at least not terribly poor, right? Explain that first.

HERNANDO DE SOTO: Absolutely. Some of the poor are very poor indeed, but many of the poor are much richer than we think and have done an awful lot since the Second World War in the last 50 years. Take one case: Egypt. In the case of Egypt, in the measurements we did with the Egyptian government, we found out that those that call themselves poor or the lower middle classes actually own, in real estate alone, about $240 billion worth of assets, $240 billion.

ELIZABETH FARNSWORTH: And these are maybe houses on land that they squatted on and they build houses, but they have no title to them, they can't use it to borrow money. Is that the deal?

HERNANDO DE SOTO: Absolutely. That's the deal. However, they have accumulated those assets, which is the definition of capital by Adam Smith or Marx. Now, what's interesting is that $240 billion is equivalent to all foreign investment in Egypt over the last 200 years, includes the Suez Canal and the Aswan Dam. Or it's 30 times the size of the Cairo Stock Exchange. What it means is that the poor in fact in countries like Egypt and countries like Peru and the Philippines, in countries like Mexico, in effect have got more assets than their local stock exchanges, but as opposed to those who are members of the stock exchanges, they're not paperized in a way, that is to say they don't have titles on their assets in a way that they can be leveraged, used for mortgages, used to obtain credit, used to guarantee investments, and as a result of which they are what Adam Smith used to call "dead capital." They only serve in their physical value if they're houses or shelters, but not in the financial or investment market.

ELIZABETH FARNSWORTH: Why -- you use the term "paperized." Why do that they not have title? Why can't they make use of the capital that they do have to borrow money or to start... I think you said that in the United States, somebody's home is the main source of capital for a small business investment, right?

HERNANDO DE SOTO: That's right.

ELIZABETH FARNSWORTH: Why can't they do that?

HERNANDO DE SOTO: In the United States, a home serves as a physical shelter, but also in its representation in the form of a title, it can be burdened to obtain finance, to obtain credit, or to further investment or to become an address where one becomes accountable. But that requires that around the assets you build a legal system which people can access. It just so happens that in most developing countries, to enter the law is a huge problem. For example, in Peru, it used to take 22 years to title a home in the outskirts of lima. In Egypt, to title a sand dune and obtain a home takes you 17 years working eight hours a day, and in the Philippines, it can take up to 52 years.

ELIZABETH FARNSWORTH: Farnsworth: Because of bureaucracies, difficult paperwork?

HERNANDO DE SOTO: Because of laws that are not friendly to poor people. In other words, what we've done over the last 11 years, and there's a lot of good work that's been done, supported by the world bank and the IMF, is try to create friendly atmospheres for foreign investors. But since we weren't aware that the poor had accumulated even more assets ready to be invested in developing countries than the rich and foreign investors, we forgot to create a legal system that is also friendly to them. The result is these enormous obstacles to come inside the legal system, and these enormous obstacles to be able to foreclose credit, foreclose markets, and actually do transactions legally for the majority of the population of the citizens of those countries.

ELIZABETH FARNSWORTH: I was struck by that part of your book. You see this informal market or underground market or however one wants to term it as really dynamic. You see it as innovative, dynamic, a potential source of tremendous wealth, don't you? If only this process that the West went through over several centuries in developing this law could be realized, have I got that right?

HERNANDO DE SOTO: You've got it absolutely right. It depends how you look at things. People tend to think of black markets only in negative terms. But if you even think of the United States 150 years ago, California was divided into 800 illegal or extralegal jurisdictions that were created not according to Mexican law, not according to U.S. law, but according to contracts made by informal, extralegal, or black market miners who staked out the land. And on the basis of that, you built the wealth of the United States. In other words, you didn't inherit the common law, you actually built up your own system. What's happening in developing countries, it's their time. Now with the industrial revolution, the population of Port-au-Prince has grown 16 times -- the population of Waiaki 11 times in the last 40 or 50 years, and that of Lima and Cairo about six times. Most of these poor people have come into the market now, but what they lack are the legal mechanisms so as to create a modern market economy.

ELIZABETH FARNSWORTH: Don't they also lack the power to get the legal mechanisms?

HERNANDO DE SOTO: They lack the power, but what was missing so far were the figures. I think one of the strong points of "the mystery of capital" is that it's a result of an empirical investigation where we go city by city to indicate that the poor-- even though there are people who are in terrible situations-- in the biggest amount of cases have actually got the assets that are required to succeed at capitalism. But what's happened is we've always looked at the poor as really a task for the first lady of a country instead of being the main task for development. And what we are now seeing, as a result of these empirical investigations, is that the poor have done much more for themselves than what we can actually do for them. For example, what the poor in Egypt have is about 100 times more than all the foreign aid that they received in the last 50 years.

ELIZABETH FARNSWORTH: So what do you want to happen next? How would this process that took hundreds of years in the West take place in someplace like Egypt or Russia for that matter or Peru?

HERNANDO DE SOTO: It's to realize that the problem is the law; second, that you can't import laws. You can import techniques. But that essentially when you go on the ground, whether you are in Russia, in China, or in Cairo, you will see that poor people already have agreements among themselves, social contracts, and what you have to do is technify, professionally standardized these social contracts so as to create one legal system that everybody recognizes and obeys. That's how you created it in the United States. That's how it was created in Switzerland, in Germany. The law is not something that you invent in a university. The law is something that you discover and then you systematize to make it standard so that everybody can participate in a larger market. And a division of labor, which is what creates prosperity, is then possible.

ELIZABETH FARNSWORTH: And finally, is this happening anywhere?

HERNANDO DE SOTO: Well, it's happening everywhere. The problem is that it's happening slowly. We're trying to get them micro credit. We're trying to be more flexible with our laws. Everywhere, all developing and former communist nations are trying to create space for the black market economy. The question is: Are we going to take 200 or 300 years, like the west did, or now that we know what this is all about, take the short cut and start listening to the poor, and on the basis of what they're doing in black markets, build a solid white economy.

ELIZABETH FARNSWORTH: Well, Hernando Desoto, thank you very much.

HERNANDO DE SOTO: Thank you.

RECAP

RAY SUAREZ: Again, the major stories of this Tuesday. Israeli Prime Minister Barak and Palestinian leader Arafat agreed to a cease-fire at their summit in Egypt, but the fighting continued. And the year's final presidential debate was set for tonight in St. Louis. Organizers plan a moment of silence for Missouri Governor Mel Carnahan, who died last night in a plane crash. We'll see you online and again at 9:00 P.M. Eastern time for the third of the presidential debates, which will again be moderated by our own Jim Lehrer. And we'll be back here tomorrow evening with full analysis and reaction. I'm Ray Suarez. Thanks and good night.