The MacNeil/Lehrer NewsHour

INTRO

ROBERT MacNEIL: Good evening. House Democrats today showed strong support for a move to get the Marines out of Lebanon promptly. The White House accused them of playing politics, and the President said he would ignore them. We'll have a full report. We'll also be covering the biggest political endorsement so far for the presidential candicacy of Walter Mondale. Jim Lehrer is off; Judy Woodruff is in Washington. Judy?

JUDY WOODRUFF: Also tonight, Secretary of the Treasury Donald Regan joins us to answer questions about the President's budget proposal, which was released today. Three key members of Congress follow him to give us a taste of how that budget will do on Capitol Hill. And we have a debate on one of the most controversial proposals in the budget -- a freeze on the money doctors can collect from Medicare. And we will conclude with a look at some happy New Orleans artists.

NEW ORLEANS ARTIST: So what you have here is that wonderful marriage of imagination and money. You can't beat it.

MacNEIL: Democrats in the House of Representatives today indicated overwhelming support for a resolution calling for the prompt and orderly withdrawal of U.S. Marines from Lebanon. But the White House accused them of playing politics, and President Reagan said he would not pay attention. The resolution, which does not name a date, was discussed at a closed caucus of House Democrats. There was no vote, but Speaker Thomas O'Neill said everyone was pretty much in agreement. O'Neil told reporters, "There is no excuse for the President. Somewhere they have messed up. the Marines were over there for diplomatic purposes, and now they're over there huddled down, defending themselves."

The resolution will be put to a floor vote soon: White House spokesman Larry Speakes, using language he said President Reagan had authorized, appealed to the country to close ranks with the President. He added, "We're watching this very closely, and we have some deep concern that the Democrats are playing politics with this critical foreign policy issue." President Reagan was asked about the resolution when he appeared for photographs with visiting Yugoslav President Mika Spiljak.

REPORTER: Mr. President, what do you think of the Democrats' resolution demanding speedy withdrawal from Lebanon?

Pres. RONALD REAGAN: This is too happy an occasion. We're not supposed --

MacNEIL: Aircraft and other noises obscured the rest of the President's reply. He said, "I am not going to pay any attention to it." Later, Speaker O'Neill was asked about the White House comments. O'Neill said, "We're trying to keep this as non-political as we possibly can. We're saying to the President of the United States, 'The safety of the Marines is at stake. Get them out of there.'" O'Neill, like many Democrats, supported legislation last September permitting the President to keep the Marines in Lebanon for another 18 months.

President Reagan's Republican support has begun to erode. This week, two Republican senators, Slade Gorton of Washington and Alan Simpson of Wyoming, called for withdrawal. Senator Simpson said, "The issue could become a terrible political liability for the Republicans."

In Beirut today, Shiite militiamen killed two Lebanese army soldiers in a ba09le near the Marine compound. The base was not hit.

Walid Jumblatt, the leader of the Druse faction, said a new round of full-scale civil war in Lebanon was inescapable. And Syrian President Assad criticized the United States, telling a visiting Australian official, "President Reagan is more concerned with the weight of the guns than with the weight of the principles."

Judy? Donald Regan on Reagan's Budget

WOODRUFF: President Reagan's nearly trillion-dollar budget proposal was formally unveiled today, setting the stage for an election year and renewed spending battles with the Congress. Despite Mr. Reagan's 1980 campaign pledge to balance the budget by last year, the 1985 dudget calls for a deficit of more than $180 billion, which is projected to keep rising unless major steps are taken next year to reduce it. If the President's financial blueprint is followed, there would be a continued buildup in the military and a decade-long freeze on domestic spending after inflation. At $925 billion, the budget for the fiscal year starting next October is the largest in the nation's history. It projects an increase of 8.4% over this year, despite forecasts of a growth rate of 4% for the economy in 1985, the administration says the gap between expenditures and revenues will leave, as we said, a huge deficit of some $180 billion. Paying interest on the debt caused by these continuing high deficits will cost the government in interest money alone next year $116 billion, an expense many economists say depresses the U.S. economy.

Despite that grim statistic, the President has offered no startling ways to trim the deficit. The only revenue increases he proposes are about $8-billion worth of tax loophole closings and taxes raised from workers whose employers pay for their health insurance. At a briefing today for reporters, Budget Director David Stockman acknowledged the administration's decision not to propose more spending cuts was a political one.

DAVID STOCKMAN, budget director: Now, there is no point in lining up all of these changes or proposals in a row so that every candidate running for office in the House, in the Senate and maybe elsewhere can pledge not to do them when we get back. I don't think -- it may be heroic in the eyes of some, but it wouldn't be very prudent, nor conducive to actually making progress next year. So you can question this as long as you would like, but we are simply not going to line up a whole array of targets for people to shoot at.

WOODRUFF [voice-over]: Stockman was known to have urged the President to include more tax increases in this year's budget, which Mr. Reagan refused to do. Today, Stockman hinted tax increases may be likely next year.

Mr. STOCKMAN: It's really a political question, and that's what we're going to debate out this year; that's what we hope to get some strong message from the electorate about next November, and I think within that clarification of what the American people want, we can answer that question more specifically next year.

WOODRUFF: Treasury Secretary Donald Regan, at the same briefing, chastised congressional Democrats for their delay in responding to the President's offer to work jointly on a way to bring down the deficit.

DONALD REGAN, Secretary of the Treasury: I'm personally disappointed that we've not heard from them by now. After all, the President asked for a meeting a week ago and so far the Democratic leadership has not responded. I wonder why.

WOODRUFF: The one section of the budget sure to be the prime target of members of Congress, Democrat and Republican, is that which relates to the military. Defense appropriations, which represent about a third of all federal spending, would increase by $47 billion under President Reagan's proposal, a 13% increase over this year after inflation. The administration's total military spending request comes to $305 billion. No new major weapons systems are proposed, but tens of billions of dollars would go for 40 MX nuclear missiles, almost two dozen ships and hundreds of planes, tanks and other armaments. And there would be a 5 1/2% pay raise for the more than two million men and women in uniform. House Speaker Thomas P. O'Neill was one of the first to blast the proposal. He accused Mr. Reagan of spending what he called $1,000 million a day on defense and not leaving the nation as well off as the day that he took over. It was before a Senate committee, however, where Defense Secretary Weinberger went to defend his budget that he took the most criticism.

CASPAR WEINBERGER, Secretary of Defense: We present to you a budget that we can honestly say fulfills the responsibilities that I have, and I would not be able to be comfortable doing anything less. Large as the amount is, I have these responsibilities, and I think it's essential that I present to you the honest belief that I have, that the Department has, that the services have as to what is needed.

Sen. EDWARD M. KENNEDY, (D) Massachusetts: The President's request is astounding, because the Congress made it very clear last year that it would not go along with massive increases in the defense spending. And I believe the American people will pay for whatever is necessary to defend the nation and our allies, but there's no evidence to suggest, and there's certainly no evidence to be found in your statement, that we must spend the $48 billion on defense this year in addition to what was spent last year to be assured that we are in fact safe and secure.

Sen. SAM NUNN, (D) Georgia: It is a certainty based on last year's budget resolution and based on my perception there has been no change in sentiment in this Congress that the level of defense spending that is being proposed today will be reduced. The question is not whether it will be reduced; the question is when and how much it will be reduced, and how we go about making those reductions in a way that maximizes the defense capability we are buying with every dollar that is expended.

Sec. WEINBERGER: We recognize that these are not very popular subjects. Everybody wants a strong defense. Nobody much wants a strong defense budget. I want you to know that we do have a credible military strategy, and that it is based entirely upon the necessities of the world in which we live and that we do not have the option to eliminate at a stroke of the pen some of the capabilities that we have to have because we cannot eliminate some of the conditions which give rise to the requirements for those capabilities.

Sen. CAL LEVIN, (D) Michigan: Again, Mr. Secretary, you come to Congress asking for a large increase in the defense budget. It seems that the more things change out there the more your approach stays the same. The President says now that we have restored deterrence. The CIA says that it overestimated the amount of Soviet defense spending. The deficits are skyrocketed, but nonetheless, your approach stays the same, which is an ever-spiraling-up defense budget.

Sen. KENNEDY: Quite frankly, Mr. Secretary, I reject and find somewhat offensive these constant appeals to the national pride -- that those that support this particular budget are somehow patriotic and those that question it are somewhat not so. It may be good politics to make that particular appeal, but I believe that it is fundmentally poor defense policy. More money doesn't necessarily mean more security, and the American people are the losers.

WOODRUFF: Secretary Weinberger tried to appease his congressional critics by saying that huge defense budget increases won't be needed after another three years if Congress approves the current buildup. Robin?

MacNEIL: In domestic spending, which represents more than half the budget, Mr. Reagan calls for a virtual standstill. The actual figure for domestic programs -- $523 billion -- is $24 billion higher than for 1984, but, when adjusted for inflation, it represents no increase and, in fact, a standstill. They achieve that by reductions of $4.6 billion, in part by cutting discretionary programs like education and housing and in part by reducing the rate of growth in entitlement programs, including Medicare and Medicaid. With us to discuss some of the budget decisions and assumptions is the secretary of the treasury, Donald Regan, who is in his office in Washington. Good evening, Mr. Secretary.

Sec. DONALD REGAN: Good evening, Robin.

MacNEIL: You said earlier today you hoped this budget would be a springboard for deficit reduction. How will it be that?

Sec. REGAN: Well, what the President is asking for is that by taking his baseline budget, which shows a deficit of about $180 billion for the forthcoming fiscal year, that we would ask that working with a bipartisan group of the Congress that we could reduce that deficit further this year. We would then next year tackle even harder topics and try to get the budget deficit down even further in those outyears.

MacNEIL: Does that projected deficit of $180 billion assume that the bipartisan working group with Congress will make some cuts?

Sec. REGAN: Oh, yes. Very definitely. What we're asking for is $100-billion down payment over a three-year period. So, obviously, there have to be spending cuts. At least half of that should be spending cuts.

MacNEIL: So, in other words, if the bipartisan working group -- and we heard you on a taped clip a moment ago criticizing the Democrats for not responding yet to the President. If the dipartisan working group failed to make any cuts this year the deficit would be higher than $180 billion, would it?

Sec. REGAN: That's possible. If they don't enact not only the bipartisan cuts but also those cuts that we have resubmitted in our budget, things that they have already passed in at least one of the houses of Congress.

MacNEIL: How much of cuts does the projected deficit of $180 billion assume the bipartisan working group will make for this year?

Sec. REGAN: There is nothing in the current budget that assumes anything about the bipartisan group itself. What we are suggesting are cuts of about $26 billion together with savings of interest as a result of bringing the deficits down from the projection of about another $14 [billion]. That's a total of $40 [billion]. And add to that about $33 1/2 billion of revenue increases that we're suggesting. It's a total between $70-and $75 billion that we're suggesting.

MacNEIL: But just to make sure I do understand you, if -- but if those are not made, then the deficit will be higher than $180 billion?

Sec. REGAN: Oh, yes. The deficit then will rise closer to the $200-billion level. That's what they call a current-services type of budget.

MacNEIL: Your present budget calls for no actual increase in taxes as such. Do you think that, whether through the budget or through the working, group, if the Democrats cooperate, that the deficit can be lowered without increasing taxes?

Sec. REGAN: Oh, yes, very definitely. For the simple reason that I think the House Ways and Means Committee under Chairman Rostenkowski and the Senate Finance Committee under Senator Dole can probably identify, oh, I don't know, $30, $40, $50 billion over a three-year period of loophole closings. They'd have a list that would be fairly similar to ours here at Treasury. So just by closing those loopholes you could pick up that king of additional revenue over the three-year period.

MacNEIL: Does it disappoint you, as the treasury secretary of an administration that has made a very big point of wanting to reduce the size of federal goverment, that you produced a budget this year which accounts for almost 24% of gross national product, as compared with, say, the last budget in the Carter administration, 1980, which accounted for 22.4%?

Sec. REGAN: Yes, it does. I wish that we could cut spending further, and we are committed to cutting spending further as times goes on in the outyears. This '85 budget that we submitted today does bring down spending as a percent of GNP from what it was last year. Next year it'll be even better. So we are on that slope where we are bringing it down toward the low 20s.

MacNEIL: I see. Why is this increase in the defense budget necessary this year?

Sec. REGAN: Well, it's based upon the best judgment of the secretary of defense, the joint chiefs of staff, the National Security Council that at this rate we will put ourselves in a position to be able to defend ourselves and the free world from whatever threats that might be made against it.

MacNEIL: Since both Republicans and Democrats -- and we just heard Senator Nunn, who's a strong defense supporter say so. We had Senator Baker on this program last week saying that you wouldn't get all the defense increase you're asking for. Is this figure a kind of bargaining figure projected high because you expect, like entering a labor negotiation, to get less?

Sec. REGAN: Well, there are many who think that that is the posture that we've adopted. But we already chopped back what was submitted to us by the Pentagon. They came in with something over $315 billion for the year, and we've cut that back to $305 in the budget that we've just submitted. So I don't think it's exactly a ploy on our part.

MacNEIL: But in saying to the projected working group that everything's on the table, does that mean -- or everything's open for discussion, that means that you expect to bargain over this figure?

Sec. REGAN: Well, we'll at least listen to what they have to say, discuss it with them and so forth, and to see where they want to make those cuts. You know, there are cuts and cuts. If there are anything that can be saved -- for example, the Grace commission has made a lot of suggestions as to where the Department of Defense might be able to save money. Well, we'd want to take a look at that if that's what, indeed, what they're talking about.

MacNEIL: You make almost very few cuts in domestic spending this year, much smaller than the cuts the administration has asked for in previous years. Does that mean that the President and you now believe there are no more significant cuts to be made in domestic spending?

Sec. REGAN: Well, I think what we're looking at there is political realism, Robin. We know that this year, the entire House, one-third of the Senate and the President are all up for re-election. We know that this means that they aren't going to be willing to do very much this year up on the Hill. You can't blame them for that; that's traditional. That being the case, we tried to submit what would be called a realistic budget as far as getting major cuts through the Congress are concerned.

MacNEIL: Could I ask you briefly, we heard you say in that clip this morning that -- you speculated why the Democrats were not replying to the President's invitation on the working group. What is your speculation?

Sec. REGAN: Well, I honestly don't know. I do know this, that last October -- October of '83 -- a majority of the House actually went on record in the reconciliatin bill as saying that they wanted the President to do this. Now, if a majority of the House wants it done, the majority leader also, Mr. Wright, in two occasions recently in public speeches, has called for such a summit. Therefore we're puzzled as to, you know, why they haven't responded more quickly to our offer.

MacNEIL: Mr. Regan, thank you very much for joining us. Judy? Congressional Budget Reaction

WOODRUFF: And now, for a preview of how the budget will play in Congress, we have two members of the House and a key committee chairman from the Senate. First, Senator Robert Dole, Republican of Kansas, who chairs the Senate Finance Committee; also, Representative Newt Gingrich of Georgia, a Republican who heads a group of conservative congressmen who are drafting an alternative to the President's budget. And Congressman Tom Downey of New York, a Democrat who sits both on the House Budget Committee and the Ways and Means Committee. Congressman Downey, do you think the President should have done more to reduce the deficit below the $180 billion than he's done in this budget?

Rep. THOMAS DOWNEY: First of all, Judy, let me just say that I'm delighted to see that Secretary Regan now thinks that cutting the deficit is important, because just a few weeks ago he was saying that it didn't matter, and now he's chastising the Democrats for not hurrying to the table quick enough. Democrats are a little skeptical that the President doesn't want advice, that he would prefer accomplices. But I --

WOODRUFF: Well, let me ask you about that. Why haven't the Democrats been quicker to respond to the President's invitation?

Rep. DOWNEY: Well, they're going to come to the table because the best politics is good government, and the best good government that I can think of offhand is to face the fact that the deficits are enormous and are going to require spending reductions and tax increases to deal with it. So they'll be there. We'll be there in the next couple of days. Indeed, we had a meeting in the Ways and Means Committee, and we were talking about what some of the potential compromises might be in the way of taxes to deal with the problem.

WOODRUFF: So this group is going to happen?

Rep. DOWNEY: Absolutely.

WOODRUFF: All right, then quickly to the other question: should the President have done more to reduce the deficits than what is in this budget?

Rep. DOWNEY: I think he should have. I think that the increases in the military budget are, frankly, unconscionable, and as Senator Nunn pointed out, they are not going to happen. So I think a more modest defense increase would have been far more justified and a more frank and candid recognition on the part of the President that revenue is going to have to be raised in 1984 for the fiscal year '85 would have been far preferable.

WOODRUFF: Senator Dole, what do you think? Should the President have done more to reduce the deficit than is displayed in this budget proposal?

Sen. ROBERT DOLE: Well, I think we have heard David Stockman earlier; I think he is fairly candid. This is an election year. Why put all the targets up there for somebody to shoot down? Obviously we're going to reduce the defense number. Maybe that can be used as a tradeoff to find some spending cuts in other programs. I'm convinced that once we get together, the Democrats and Republicans in Congress with the White House people, we may exceed the $100 billion over three years. And I think there's enough trust among Democrats and Republicans in the Congress that the right group can put it together, and so I'm encouraged by not only the budget but by the thought of getting together in a bipartisan way to further reduce the deficit.

WOODRUFF: But, as you know, there are no significant tax increases proposed in this budget. You'd like to see some tax increases, realistically, wouldn't you?

Sen. DELE: No, I don't like tax increase --

WOODRUFF: Well, I don't mean that, but --

Sen. DOLE: -- but the President said, "Let's get together on noncontentious items." Now, if you get into the indexing or the third year, those are contentious. Those aren't going to happen. What the President has spelled out, and Don Regan has just referred to a number of loopholes that we can close, and we believe there may be others. So we can find, I think, over a three-year period $30 billion or more on the revenue side if we can match that, probably, and more with spending cuts if you count what we may do in defense, we could exceed the $100-billion downpayment over a three-year period.

WOODRUFF: Congressman Gingrich, do you think the President went far enough in cutting spending in this budget?

Rep. NEWT GINGRICH: Judy, I think the President is faced with the reality that -- and I brought along a sample of a Tip O'Neill campaign letter attacking the President. I think he understands that the Democrats had two slogans. If he came out for a significant cut in domestic spending they were going to talk about how heartless he was, and if he came out for avoiding that they were going to talk about how irresponsible he was on the deficit. And he decided the less expensive of the two choices was letting them attack him on the deficit.

WOODRUFF: Well, what is then the thrust of your alternative budget?

Rep. GINGRICH: Well, basically, because, frankly, we don't trust the Congress and we think that in 1982, when we had a tax increase bill, we were supposed to get $3 in spending cuts for every dollar in tax increase. We ended up getting a dollar in spending increase for every dollar in tax increase. And we would start first with the Grace commission with, potentially, a freeze. I would agree with my colleagues that the defense numbers are, I think, laughable. They're not going to happen and they're put in there for bargaining purposes. But we would argue that, first of all, we'd rather see a spending approach and then, if we have to, let's come back and look at revenues. But I worry automatically when you have Washington-based politicians walk in a room with both spending and taxing on the same platter because, frankly, they're going to come out with taxing and ignore the spending.

WOODRUFF: Congressman Downey, what about that? Do you think you can find the kind of spending cuts --

Rep. DOWNEY: Well, I wonder if Newt plans to have a combination of state legislators come up here and take care of our budget. We're all, unfortunately, both Washington based and district based, and we're the ones that have been elected by the people to deal with this problem. I think where I would differ with him is the fact that if you take a look at the revenue side of the picture, you realize that the five-year, $750-billion '81 tax cut went too far, and this President wants to remove himself from the fact that it is his tax cut that Congress passed, his defense numbers that the Congress has gone along with and increased deficits that have driven this deficit. And one thing that Democrats are very skeptical of is the fact that the President seems to want to remove himself from this whole process. We're not going to tolerate that because he's got to be a willing participant.

WOODRUFF: But what specific alternatives are the Democrats prepared to agree to?

Rep. DOWNEY: Well, I think that we are prepared to hold the line on domestic spending at or about inflation this year, though that is going to cause a lot of pain. We will be prepared to reduce defense, and we will be prepared to work with Senator Dole -- and I hope this doesn't hurt you, Bob -- because he's been responsible in the past, and try and enhance revenue. Raise taxes, or whatever it's called, to get the deficit down. That combination of things we think is responsible and doable.

WOODRUFF: Senator Dole, let me ask you to be a little more specific about the kinds of tax increases that might be a part of this bipartisan package.

Sen. DOLE: Well, I think we have to be very honest. You know, the President said in his State of the Union message "no contentious items." Everything's negotiable. So I assume the Democrats may bring in a lot of things. I may bring in Walter Mondale's tax package, see how they like that. You know, they're -- we know the game is being played around here. We have to be very candid about it. Maybe they like John Glenn's surtax, which 83% of the people don't like. So, you know, if we start that game we're never going to do anything, but I think we're going to insist that the President put everything on the table and so should candidate Mondale and candidate Glenn, and I don't think we'll need to do that. I'm convinced that if the chairman of the Ways and Means Committee, the chairman of the Finance Committee, the Appropriations Committee chairman, the Budget Committee chairman and others -- and I want to assure Newt we're not going in for a tax-raising session. You know, none of us believe in tax increases, and that myth about $3 for $1 last year, the truth of the matter is, Congress did cut spending about 70%. It was the administration that was supposed to do the other 54% that fell down.

Rep. GINGRICH: Judy, just let me say, first of all, that the American people don't want tax increases. This is the lowest inflation year we have had in a decade, and, frankly, a number of us would rather start, if necessary, by freezing the budget and forcing changes in the system. I mean, I think that the average American out there -- despite my friend, Mr. Downey's position, the average American out there does not want tax increases, and the polls are overwhelming that they would be willing to accept, I think, even a freeze.

Sen. DOLE: You'd have to freeze the tax changes, too, if you freeze everything.

Rep. GINGRICH: I think that might be negotiable at some point, but I do think that we represent people who really want to look first at the spending side of government, rather than starting off, as I think the liberals --

WOODRUFF: Are you saying you can close -- let me just ask you. Are you saying you can close the deficit gap without tax increases?

Rep. GINGRICH: I think you can come a much further distance than Tip O'Neill would let you believe.

Rep. DOWNEY: Well, Tip O'Neill is not -- Tip O'Neill -- let's stop having demons here and deal with reality and deal with numbers. Tip O'Neill is only a very small portion of the problem. Newt Gingrich represents a wing of his party that just doesn't believe that the government is a particularly good idea except for delivering mail and having a huge defense, and the fact is that the government does a lot of good things that people, frankly, don't want to pay for, and that is what Stockman pointed out when you have this ambivalence on the part of the American people. We can raise revenue by undoing some of the corporate giveaways of the 1981 tax cut. We can raise lots of money by making people who currently do not pay taxes begin to pay taxes. We don't have to raise the taxes of ordinary Americans. We can begin by broadening the base, which is frankly something we're going to have to do.

WOODRUFF: Senator Dole, this may sound like I'm re-asking a question I asked earlier, but is there enough of a recognition in this budget that deficits are a problem, that they are keeping interest rates high, if you believe that's the case.

Sen. DOLE: Well, I think there's a recognition because you look at how big they are. That's the recognition. They're $180 billion in '85, and they go up to $170, $180 billion again in '86. And I think that's the point we miss when we debate about whether it's going to be taxes or spending. We ought to debate what happens if we do nothing as far as employment's concerns and home-buying is concerned.

WOODRUFF: What will happen if we do nothing?

Sen. DOLE: Well, I think in '85 and '86 we could face a clamity and I don't think any disagreement on this panel with that. And I don't think any one of the three of us -- we all believe we ought to face the deficit this year. Is that right, Newt?

Rep. GINGRICH: I think that's right.

Sen. DOLE: And I think you agree with that.

Rep. DOWNEY: Uh-huh.

Sen. DOLE: So, get us together. You get some people of good will, sit down together, and I'll bet in two or three days we could put together a package that will reduce the deficit, will satisfy Newt Gingrich on the one hand and Tom Downey on the other.

Rep. GINGRICH: You'd be a miracle worker if you could do that.

Rep. DOWNEY: It would be quite a package.

Sen. DOLE: -- possible.

WOODRUFF: Wait a minute. We didn't have you gentlemen all here to agree, but seriously, Senator, you don't understand why the Democrats would be skeptical about joining this little bipartisan working group?

Sen. DOLE: Well, I mean, I don't want to become partisan in that debate because I want to meet, and I think if I started saying, well, I'm going to condemn Tip O'Neill or someone, then there may never be a meeting. I don't want to politicize it, but we can't -- you know, maybe we can't meet with Andropov. We don't know where he is. But we know where all these players are; they're all right here in town. We could be together tonight at 9 o'clock.

WOODRUFF: All right, one last word.

Rep. GINGRICH: I just want to say that I do think this is a political decision in the best sense of the word, that ultimately the country, as Tom said, has to decide, does it want less government and less taxes, or does it want a lot more government and a lot higher taxes? And I think that's part of what the presidential race, frankly, is going to be about this year.

WOODRUFF: Well, if we could have this kind of togetherness throughout the administration and the Congress, all our problems would be solved. Thank you, gentlemen, for being with us. Robin?

MacNEIL: In Bonn, the West German government confronted another kind of crisis today. Chancellor Helmut Kohl tried to calm a growing political storm by reinstating General Gunther Kiessling, a high-ranking officer at NATO headquarters who had been fired by the German defense minister on allegations of homosexuality. Gerard Williams of Visnews has a report.

GERARD WILLIAMS, Visnews [voice-over]: A Cabinet meeting at the defense ministry would not have been the most appropriate of moments to announce the sacking of Manfred Woerner, so West Germans following the Kiessling affair weren't really expecting a statement from beleagured Chancellor Helmut Kohl. He's been under intense pressure to sack Defense Minister Woerner over the handling of investigation into the alleged homosexuality of General Kiessling. As it turned out, Woerner had offered to resign, Chancellor Kohl explained to reporters after the Cabinet meeting, and he also revealed his decision on what would happen to both central figures in the affair, to the great amusement of those listening. Chancellor Kohl said his defense minister would not be sacked, nor would he resign. As for General Kiessling, he would be formally reinstated in his post as a top NATO general. However, Chancellor Kohl said Kiessling would take sick leave until his retirement at the end of March.

General Kiessling, seen here arriving at the defense ministry, had strongly denied all charges leveled against him. He ridiculed suggestions that he had been a regular visitor to the gay clubs and bars of Cologne's red-light district. Therefore, he argued, there was no question of him being a security risk. It was a security issue that prompted the defense minister to investigate Kiessling's background and later sack him. But in the cold light of day, the evidence provided by witnesses was shown to be unreliable, casting grave doubts on Woerner's judgment as a minister.

[Video postcard -- Beavers Bend State Park, Oklahoma]

MacNEIL: The U.S. Steel Corporation, the largest steel producer in the country, announced a deal today to buy most of National Steel, the fourth-largest producer. Only yesterday, U.S. Steel reported a loss of $1.6 billion last year. National Steel operations showed a profit of $22 million. Judy?

WOODRUFF: The nation's highest-ranking elected Democrat today endorsed former Vice President Walter Mondale for the Democratic nomination for president. House Speaker Thomas P. O'Neill broke his own precedent of avoiding endorsements with a statement made today in the Capitol building.

THOMAS P. O'NEILL, Speaker of the House: The next four years could be our last opportunity to negotiate a nuclear peace. I believe that Walter Mondale is the best man for this job. He is an experienced and a tough advocate. More important, he knows that the true art of leadership lies not in the force of arms but in diplomacy, not in international name-calling but in compromise. Vice President Mondale will bring something else to the Oval Office -- a true understanding of our country and what it stands for. We Americans believe in fairness. We elect our President to be a leader and a spokesman for all of the people. Every American has a right to feel that the president of the United States is on his side and that he cares. That goes as much for a poor man who lives on a park bench as it does for a rich man living on Park Avenue. Walter Mondale will unite our country because he will represent all of the people.

WOODRUFF: Later, Mondale came to Capitol Hill, where he joined Speaker O'Neill at a reception given in his honor by House Democrats. Mondale was also the favorite at a morning meeting of the House Democratic Caucus where delegates were selected for the national convention. Of the 164 House members elected to go to the convention, almost half are openly pledged to Mondale.

Robin?

MacNEIL: Michigan voters have provided their own commentary on politics, taxes and budgets. In special elections yesterday, they defeated two Democrats who backed Governor James Blanchard's call for an emergency tax increase to save the state from bankruptcy. The voters thus swung control of the Michigan senate to the Republicans for the first time in 10 years. The Republican state chairman said the results showed that the voters were embracing the policies of Ronald Reagan.

Our next major segment tonight takes us back to a part of the federal budget, medical care, and a change the Reagan administration wants to make there. Charlayne Hunter-Gault has more. Charlayne? Medicare Fee Freeze

CHARLAYNE HUNTER-GAULT: The President hopes to be able to do something to curb the growing cost of government health programs. At present one of the biggest items in the budget goes towards paying the medical bill of some 54 million Americans. In 1985 the federal government will spend $69.7 billion on Medicare, the program for the elderly and the disabled. The government will spend another $22.1 billion on Medicaid, its program for the poor. In both cases the dollar amount is higher this year because of inflation. Medicare is up because of the growing population of elderly people eligible for the program. The administration hopes to save over $2 billion through a series of controversial reforms. The President proposed most of them last year, but they stalled in Congress. Congress is now under growing pressure to act because the Medicare program is in danger of going bankrupt in less than 10 years.

One proposed reform that seems to have a good chance of passage is a one-year freeze on the fees doctors collect from Medicare. If passed, it would be the first time that efforts have been made to control medical costs from the doctors' end. One person who believes that such a move is long overdue is Professor Karen Davis of Johns Hopkins University School of Hygiene and Public Health in Baltimore. Formerly deputy secretary of health in the Carter administration, she is currently studying the reform of the Medicare system. Professor Davis, why is the one-year freeze on fees a good idea?

KAREN DAVIS: Well, I think a one-year freeze on fees is a good idea, but that's not exactly what President Reagan is proposing. He's freezing -- proposing to freeze what Medicare pays physicians. Physicians would still be permitted to charge whatever they wish. What would happen in that case is that the $600 million of budget savings that President Reagan hopes to get from this proposal would simply be shifted onto older Americans, and they would find themselves paying lots more for their doctor bills.

HUNTER-GAULT: So what would you propose instead?

Prof. DAVIS: I think that if we're going to freeze physician fees, what we ought to do is freeze physician fees, not just what Medicare pays. That means going towards a fee schedule and requiring physicians to accept Medicare's fee as full payment for their services.

HUNTER-GAULT: Can you hear me now?

Prof. DAVIS: Yes.

HUNTER-GAULT: Good, because I saw your earpiece drop out. Now, how much do you think that your proposal would save?

Prof. DAVIS: This proposal would save the $600 million that's in the President's budget, but it would do so by actually reducing the incomes that are going to physicians rather than increasing the cost that the older person has to pay.

HUNTER-GAULT: Why do you think it would be passed on? I mean, what makes you think that the doctors would do that?

Prof. DAVIS: Currently, physicians are permitted to charge whatever they like under the Medicare program, and about 50% of them charge more than what Medicare considers a reasonable fee. In those cases the patients simply have to pay the difference between what Medicare pays and what the doctor charges.

HUNTER-GAULT: You have some concrete examples of how that would work? I mean, do you have any evidence of things that have happened that make you convinced that this would be the case?

Prof. DAVIS: Certainly. In a hearing last week before the Select Committee on Aging of the U.S. House of Representatives, one of the witnesses pointed out that her mother, without knowing it, got a $2,000 bill for surgery when she went into the hospital. Medicare only paid $700 out of that bill. The mother was forced, then, to come up with the $1,300 in addition to what Medicare considered a reasonable fee for that service. This woman only has a monthly income of $300 from Social Security, and found that $1,300 out of pocket to be simply unbearable.

HUNTER-GAULT: And you think that this would be the general rule if nothing is done to cap this practice?

Prof. DAVIS: That's right. In this case what should happen is that the physician should be required to settle for the $700 that Medicare considers a reasonable fee.

HUNTER-GAULT: If in fact Congress goes along with what the President is proposing, what do you think would happen after the one-year length of the freeze expired?

Prof. DAVIS: I think there'd be a temptation to continue keeping it down because it would save the federal budget money, but it does so by increasing the cost to the elderly. This budget overall is really bad news for older Americans. It would increase their cost by over a billion dollars on top of cuts that took place in the Medicare program last year, the year before that are already increasing costs to the elderly by over a billion dollars. In 1985, even without these new cuts that the Reagan administration is proposing, an elderly person would pay, on average, about $1,700 out of pocket for health care services, more if they got seriously ill and were in the hospital several times.

HUNTER-GAULT: All right, we'll come back. Judy?

WOODRUFF: Now to find out how doctors are likely to react to all this we have Dr. James Sammons, executive vice president of the American Medical Association. Mr. Sammons, what is your reaction to the administration's proposal?

JAMES SAMMONS: Well, I think you first have to divide a lot of things that Dr. Davis has said into the appropriate components because she said a lot of things that aren't correct. But we can come back to that. In terms of a freeze on physician fees, the doctors of this country have always said, "We will do our fair share to help reduce the deficits, to protect the health of the American people." I believe that that is the case. Our elected officers, we have said this; our doctors across the country have said it. They are at this point, and have been for months now, holding the line very nicely on fees. We have encouraged them, are encouraging them by every possible mechanism not to pass through any additional increase in charges as a result of whatever the Congress finally does relative to the Medicare freeze proposition. And I think that they are responding and responding well. In fact, the overall rate of inflation in health delivery in this country for the last two years as opposed to 1983, the two years prior to '83, as opposed to '83, definitely will show a reduction in '83 of a very substantial amount. Now, when Dr. Davis talks about tying a fee freeze to a mandatory acceptance of assignment that's an entirely different problem because, as she pointed out herself, over half of the doctors' charges in this country under the Medicare program are already paid on an assigned basis. Over half of the total amount of the numbers of bills that are presented to the Medicare program are on an assigned basis.

WOODRUFF: Well, before we get to the assignment question, what is to stop a doctor, though, if there were a freeze, from passing on his extra charge to the patient directly?

Dr. SAMMONS: Under the option of accepting an assignment or not accepting an assignment, the physician now has the opportunity and the privilege and the right to negotiate a contract with his or her patient to accept the assignment as payment in full if they wish and to let that Medicare payment be it. In those instances where the patient can afford to pay more, where there are other resources that are available, the physician has the opportunity to charge his or her usual and customary fee. There is no reason for that part of this activity to be changed. But I believe that the evidence is very clear that physicians have responded and are responding and holding their fees down.

WOODRUFF: Well, what would the reaction of the AMA be if Congress were to mandate this so-called assignment? In other words, accepting Medicare as the payment in full?

Dr. SAMMONS: Well, we will do our best to see to it that the Congress does not mandate the assignment because the people who ultimately get hurt in a mandated assignment situation are the patients. First of all, you have to understand that mandating assignment acceptance does not save the federal government one dime. The federal government only pays whatever HHS determines it's going to pay in the first place. It does not relieve the patients of having to pay front-end deductibles, co-insurance that is already in the law -- parts of the law. But it saves the federal government not a nickel to mandate the acceptance of assignments.

WOODRUFF: Well, let me just ask you this. What do you think doctors could do to share in the burden of trying to bring down this enormous increase in health costs?

Dr. SAMMONS: Doctors are sharing in it in a wide variety of ways already. First of all, the physician portion of the total health care bill is less than 20%. Controlling their own fees, holding down fee increases, is one thing. Going to ambulatory care as opposed to in-hospital bed care whenever that's possible is still another. The whole question of high technology costs over time will even out, and that will stop that great portion of the escalation.

WOODRUFF: So you're saying doctors are already doing as much as they can?

Dr. SAMMONS: I think doctors are working at this very diligently in this country, and I think that the record speaks for itself that doctors are. A fee freeze, we will do our fair share.

Mandatory acceptance of assignments will hurt only the patient.

WOODRUFF: All right, thank you. Charlayne?

HUNTER-GAULT: Professor Davis, what's your reaction to Dr. Sammons' claim that doctors are already doing their fair share, already holding the line?

Prof. DAVIS: I think there's no evidence of that. We see that in the President's budget. The payments that the Medicare program will make to physicians are going to go up 16% in 1985 over 1984. They've been going up 18% a year every year for the last two or three years. These are very important costs to the federal budget. This year the increase in Medicare payments to physicians itself will be over $3 billion.

HUNTER-GAULT: Dr. Sammons?

Dr. SAMMONS: That is not -- that is not because of physician fees in its entirety. Yes, there have been fee increases, as there have been inflation increases in everything else in this country. But you have to remember that the number of elderly people in this country is growing. The intensity of care has been increasing. The overall cost of living vis-a-vis the hospital charges, vis-a-vis nursing home charges, have all been going up. So the increase in the total outlay in the Medicare problem and in the Medicare program is not simply because doctors have increased their fees.

HUNTER-GAULT: What about that, Mr. Davis, that the elderly population is increasing, which accounts in large part for the increase in the fees?

Prof. DAVIS: Well, it's true that we do have more old people every year, but that's 1%, 2%. We're talking about a 16% increase in expenditures. It's partly fee increases and it's also a tendency on the part of the physician to find more and more things to bill for, to provide more and more services that may not be necessary, and that's where --

HUNTER-GAULT: You mean like tests -- hospital tests and things like that?

Prof. DAVIS: That's right.Repeat visits, referral to specialists. These are the ways the physicians manage to gain the current Medicare program to increase their income, but also to increase the cost of the federal taxpayer and to the elderly.

HUNTER-GAULT: Is that the case, Dr. Sammons?

Dr. SAMMONS: Well, what Dr. Davis is really suggesting here is reducing the level of care tht is being given to the elderly population in this country --

HUNTER-GAULT: Excuse me --

Dr. SAMMONS: That's a very unacceptable position.

HUNTER-GAULT: Excuse me. How is she suggesting that?

Dr. SAMMONS: Well, she's just saying that one of the reasons why the costs have gone up is that doctors refer their elderly patients to specialists. She implies that they have them return unnecessarily to be seen. The referral to specialists is a mark of intensity of care and continuing care. I challenge the statement that says that doctors deliberately, unnecessarily have patients return. The question of laboratory tests, X-ray examinations and so forth, high technology costs in the hospital setting today accounts for a considerable amount of that increase. It has absolutely nothing to do with the physicians' fees.

HUNTER-GAULT: Professor Davis, you don't accept the doctor's argument that the quality of care is in fact enhanced because of all of these tests that they are doing, even as it increases the fee?

Prof. DAVIS: No, and in fact the Congress didn't agree with that argument last year either in the case of hospitals. Before hospitals were paid more the more they did.Last year the Congress instituted a whole new system for paying hospitals that pays the hospital a fixed amount based upon the diagnosis of the patient. A patient goes in, say, for a hip replacement; the hospital gets a fixed fee for that care, and it doesn't matter how many tests are done or how long they keep the patient in the hospital. They just get a fixed amount of money. The Congress considered applying that same principle to physicians, saying whether they kept the patient an extra day, went in to see the patient an extra day, provided a lot of tests, did a lot of consultations that they would simply get one prospective payment rate based upon the patient's diagnosis. They didn't move in that direction last year, but I think that's the proposal you'll again see considered.

HUNTER-GAULT: What about --

Dr. SAMMONS: What Dr. Davis forgets when she goes through that litany is that the whole question of DRG payments to hospitals is as yet unproven.

HUNTER-GAULT: BRG?

Dr. SAMMONS: That's the prospective payment mechanism that Dr. Davis referred to, and only one-third of the hospitals in this country at this point are being paid in that -- by that mechanism.

HUNTER-GAULT: Let me just ask Professor Davis about your point that freezing the fee really means that the patient gets hurt and that it doesn't save the federal government any money.

Prof. DAVIS: Freezing the fee does save the federal government money. If you freeze the fee and don't require the physician to freeze his fee, then it costs the elderly person money because what happens, the government freezes what they pay physicians, the physician increases his fee for the service, and the older person simply has to pay the difference. So what I'm suggesting is to save the government money you should freeze the fee, but in order to prevent that cost being borne by the older person, you should require the physician to accept that fee as their fair payment for the service rendered.

HUNTER-GAULT: All right, we know, Dr. Sammons' position on that. Let me just ask you this. You heard Dr. Sammons say that the doctors are really going to fight this thing in the Congress --

Dr. SAMMONS: The mandatory assignment.

HUNTER-GAULT: That's right. Do you expect to launch an equal fight in response, and what do you expect the outcome to be?

Prof. DAVIS: I think all of us who are concerned about the burden that the elderly are now facing have to raise our voices about this very serious problem. The costs are going up. I think something needs to be done about that, but I think it needs to be done by looking at the root cause, which is looking at the payments to the physicians of this country rather than trying to take it out on older persons.

HUNTER-GAULT: All right, Professor Davis and Dr. Sammons, thank you.

Prof. DAVIS: Thank you.

HUNTER-GAULT: Robin? Hotel Art in New Orleans

MacNEIL: To close tonight we offer you a little change of pace from all the heavy-browed stuff about budgets and politics. It's the story of an innovation in hotel art, and if you think hotel art is in itself a contradiction in terms, watch this report by Kwame Holman.

KWAME HOLMAN [voice-over]: Even New Orleans, a city best known for its jazz, cuisine and spirit of tolerance, had never seen anything quite like it -- an open-air ballet in the middle of downtown. The festivities were to celebrate the opening of the Intercontinental Hotel, an opening designed to usher in a new era of artistic appreciation in New Orleans. Operators of the hotel have spent $700,000 to showcase local artists. For a city whose craftsmen think that they've been ignored for too long, it was big news.

BEVERLY GIANNA, New Orleans Tourist Commission: This is definitely the art story of the year here in New Orleans. It's great to have somebody from the outside to come in and say, "Hey, look, folks. You've got this right in your own backyard. Pay attention to it."

GEORGE SCHMIDT, New Orleans artist: In the city of New Orleans the people with the money have had no imagination, and the people with the imagination have had no money. So what you have here is that wonderful marriage of imagination and money. You can't beat it.

HOLMAN [voice-over]: The idea at the new hotel is to emphasize contemporary art in a relaxed environment and to give local rather than international artists the commissions. Sculptor Lin Emery has lived here for over 30 years and has had her work displayed locally only once before.

LIN EMERY, New Orleans sculptor: I've always thought New Orleans was a marvelous place to work in, but until now it hasn't been a place that my work would stay. Now it's that much more exciting to be an artist because your work is seen here and appreciated here, and this hasn't happened before.

HOLMAN [voice-over]: When the $80-million hotel was being built, two groups of local artists were commissioned, one group to work as individuals, the other to work in collaboration. The collaborative group included a painter, a composer and a sculptor. They worked with a physicist to create what they call the Musical Courtyard.

Lin Emery spent most of last year designing the instruments for the intricate art piece.

Ms. EMERY: At first when the composer told me he wanted a E# it was just hit and miss. I kept cutting pieces of metal and playing them for him over the phone. Then the physicist showed me how to find the exact frequency that an E# was. First I'd take a piece of metal, find the nodes -- this is the physicist's trick -- with salt, suspend it from those particular points, and then tune it with the help of the oscilloscope. It is the oscilloscope sound. Then to amplify that sound, the physicist showed me how to develop a tube, which is part of the sculpture that would amplify it.

A person could come along and compose his own song by pushing one or another or simply stand and let the wind compose the music for him.

HOLMAN [voice-over]: In addition to the collaboraive group, 17 local artists were commissioned to produce individual works of art for the hotel's interiors. One of them, George Schmidt, decided to paint the history of New Orleans' most popular event.

Mr. SCHMIDT: I told the hotel I'd like to create the true version of the Mardi Gras, or the carnival, as we call it. First, right behind here, is the Grand Duke Alexis watching the Comus Parade in 1872, and the Grand Duke Alexis was the reason the carnival was started to begin with. And then there was Poppa Jack Lane's Reliance Band lining up with the Rex Parade. Jack Lane was a musician and a bandleader who provided a lot of music in New Orleans at the turn of the century, particularly like around carnival time, and he's known as the father of white jazz. And the seventh one is the August Perez meets Charlton Heston at the airport, which is just a recent event, last year.

HOLMAN [voice-over]: A New Orleans native, Schmidt thinks it's about time that local artists are playing a major role in this city's development.

Mr. SCHMIDT: The tourists are coming here to perceive something. They're not coming here to appreciate how we have, you know, handled the traffic problem. What they come here is to see and to be -- they're actually coming here for an aesthetic experience, and who in the hell is better equipped to provide that experience than the artists of this city?

HOLMAN [voice-over]: Paul Sheeline is the chief executive officer of Intercontinental Hotels Corporation.

PAUL SHEELINE, hotel executive: Nowadays, when it's so difficult to get money out of the federal government and out of other agencies for the development of art, then it is a corporation's responsibility to fill part of this void. It has to be a financial decision because, after all, we can't give the money away. So we do it in a way which we think will help us and will help others at the same time.

HOLMAN [voice-over]: Recently artists here got more good news when the New Orleans city council passed a so-called 1% law. So, starting next year, 1% of the cost of any city construction project will go for acquiring art for city buildings.

MacNEIL: Good night, Judy.

WOODRUFF: Good night, Robin. I always knew physicists and artists had a lot in common. That's our NewsHour for tonight. I'm Judy Woodruff. Thank you and good night.