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CNN Late Edition

Can the McCain-Feingold Bill Pass Congress?; Are Bush's Policies Right for America?; Should Faith-Based Initiatives be Allowed?

Aired March 18, 2001 - 12:00 p.m. ET


WOLF BLITZER, HOST: It's noon in Washington, 9:00 a.m. in Los Angeles, 5:00 p.m. in Dublin, 6:00 p.m. in Paris. Wherever you are watching from around the world, thanks for joining us for this two- hour LATE EDITION.

We will get to our interview with Senators Fred Thompson and Joe Lieberman in just a moment, but first the hour's top story.

Here in Washington, the U.S. Senate debate on the campaign finance reform legislation begins tomorrow. Most Democrats favor a bill sponsored by Arizona Republican John McCain and Wisconsin Democrat Russ Feingold. But Nebraska's Republican Senator Chuck Hagel has put forward an alternative proposal, and President Bush has yet other ideas.

CNN's Kelly Wallace is at the White House with details -- Kelly.


BLITZER: Kelly Wallace at the White House, thank you very much.

Earlier today, I spoke with Senators Fred Thompson and Joe Lieberman about their thoughts on campaign finance reform, tax cuts, and more.


Senator Lieberman, Senator Thompson, thank you so much for joining us. And I want to begin right away with tax cuts, the major issue on the agenda now, the U.S. Senate. The economy has been suffering, here in the United States, the markets were going through some major downturns over these past several weeks.

How bad is the economy right now, Senator Lieberman?

SEN. JOSEPH LIEBERMAN (D), CONNECTICUT: The reality, Wolf, is that we don't know. There is obviously a slowdown occurring. It's now affected consumer confidence, and brought the markets down. My own opinion is, and I think it's very important that all of us here in Washington say this, if we believe it, is that our economy remains the strongest in the world, growth has slowed but we are not into anything approaching a recession at this point. And long term, this economy, is strong if, we in Washington, don't mess it up. And I think that is why we have to be very careful and thoughtful about how we respond to the problem.

BLITZER: What about that Senator Thompson? How concerned are you about the economy right now?.

SEN. FRED THOMPSON (R), TENNESSEE: Well, I think Joe has it pretty well right.

I'm somewhat concerned about it because we don't know exactly where it's is going to go, but we do know what the trend is. Starting about July of last year, it's been going down somewhat in terms of growth, about two percent in the third quarter, a little over one percent the last quarter of last year, and now it's just a little over zero, apparently the growth rate. But the fundamentals are still strong.

So, all we can do is all we can do, which is, decent policies, decent fiscal policies that make for long term economic growth, and also provide some stimulus in the short term. And I think that's what this tax cut does.

BLITZER: Senator Thompson, you're speaking about growth rates. The Bush $1.6 trillion, 10 year across-the-board tax cut is based on budget surpluses, assuming the economy is growing at three percent, almost three percent a year, in the last quarter, it was 1.1 percent. Right now it might even be less than that.

How concerned are you that these budget surplus projections might not materialize?

THOMPSON: Well, three percent is pretty conservative if you look over a bit of a longer period of time. Now, I think that the estimates have been conservative, the Congressional Budget Office, has been somewhat wrong over the years, but they're usually undershooting the mark. Their estimates are more conservative, I think, than the ones that industry is making.

So, I think it's important that we do things, not just sit around and worry about it, but that we do things that's more likely to ensure that the surpluses are there. And that again gets back to growth. Without economic growth, without people investing, without people assured that we're going to have strong and conservative fiscal policies, we're not going to have that growth and our fear will become a reality then.

BLITZER: On that specific point, Senator Lieberman, your leader, the Democratic leader in Senate, Senator Tom Daschle earlier today on "Meet the Press" released a new proposal of his own insisting that he could bring the Democrats in the Senate along with him. Listen to the proposal that he unveiled this morning, I want to get your reaction.


(BEGIN VIDEO CLIP, "MEET THE PRESS") SEN. TOM DASCHLE, (D-SD), MINORITY LEADER: I would say today that Democrats would be willing to meet the administration halfway. We would support bringing down that 15 percent tier down to 10 percent as the president has proposed. Let's make it immediate. Let's make sure that it's universal, let's make sure that everybody has access to the cut, and we can do that today. It would cost around -- somewhere around $450 billion, just a fraction of what the administration's proposing, and it would really go to those people where it could do the most good. That's the kind of way we could generate the economy. I'd be prepared to do it today.


BLITZER: So, what do you think. Are you prepared to go along with Senator Daschle on that proposal right now?

LIEBERMAN: Well, I think Tom Daschle has made a very constructive proposal, and it's a necessary proposal because the fact is that President Bush's tax plan is dead in the Senate. And it's dead of its own weight. It's too big, and therefore, may take us back into debt, so I think a lot of Democrats and Republicans think it's fiscally irresponsible. It's too slow, it doesn't give any tax break to people this year and very little next year. And of course I think it's unfair because it give too much to people at the very top who don't need it.

Tom Daschle's proposal this morning, which I've just heard about, I think does improve on all of those and I think it's a very important step in the debate. My own hope had been -- my own idea for this which I just throw into the hopper, is that somewhat similar, but a little bit more conservative. Which is, as the economy is in a slow down, and we don't know how much worse it's going to get, but we do have reason to think that it needs a stimulus now. Why not take a conservative projection of what will be left over at the end of this fiscal year. Most people think it will be at last $100 billion.

Let's take some percentage of that for investments in education, defense that we need and let's take about two-thirds of it and give it back to the tax payers. Every one of them in a check as soon as we can cut those checks. That's the way to create a little confidence, get some money moving.

The one problem I have with Tom Daschle's proposal as I've just heard it, Wolf, is that it doesn't do anything for people who don't pay income taxes and there are millions of those and those are the kind of people who are going to be hurting in this economy, and also the kinds of people who, when they get a check or get money, are going to spend it right away. And that'll raise up the economy.

BLITZER: Well, let's talk about that, Senator Thompson. The Republicans in the House of Representatives and 10 Democrats there, sent over a measure from the House Ways and Means Committee that reduced that income bracket, the tax rate, from 15 to 12 percent in the first year. Now Senator Daschle is saying, reduce it all the way down to what the president eventually wants, 10 percent.

Do you think Senator Daschle's on to something right now?

THOMPSON: Oh, I don't think that there's any objection to speeding up the tax cut and to doing it across the board. But this tax cut is not too big if you look at it from a historical standpoint. In the '60s we had a tax cut that was bigger as a portion of our economy. In the '80s we had a tax cut that was bigger as a portion of our economy. Mr. Greenspan has said that this is an average tax cut. It's not too big.

I think that we should focus in on the immediate effect of it. But that's not the only consideration. The long term economic growth of this country should be the primary consideration that we have. That means we need an across the board tax cut, including those who pay the majority of the taxes, quite frankly, those who save and those who invest. That's the thing that will more likely guarantee, not only some immediate benefit from it -- and if you want to front end load it some, that's fine with me. But also to look down the road a bit and make sure those surpluses are there.

And by the way, we're not creating a 10-year budget year. We're not engaging in something that is dangerous. Congress meets every year. Some might say that's part of our problem. But we can have a tax increase or a tax cut any year we want to. We have not shown any reluctance in times past -- there have been 13 tax increases over the last couple of decades. We've not shown any reluctance to make adjustments as we need to. So we're not running any big risk here.

But from the first quarter of this year, it looks like the surplus is going to be even greater than previously estimated.

BLITZER: All right.

Senator Lieberman, the Democratic leaders, Daschle in the Senate, Richard Gephardt in the House, this week were engaged in what some are calling the blame game. Blaming the president and Vice President Dick Cheney for helping to create this messy economic situation in the United States right now.

Listen to what Dick Gephardt said on Thursday of this past week.


REP. RICHARD GEPHARDT (D-MO), MINORITY LEADER: You see how consistent consumer confidence has been until Dick Cheney started, really in December, and the president chimed in and everybody began to, frankly, scare consumers.


BLITZER: Is that fair to blame President Bush and Vice President Cheney for at least part of the economic problems of today when we know that the stock markets began to slide much earlier last year when Bill Clinton was still president of the United States and the economic growth began to go down when Bill Clinton was still president of the United States? LIEBERMAN: Well, Wolf, I'd say that you obviously cannot blame President Bush for the slowdown in the economy. It's happened for much larger reasons: excess inventory, perhaps the markets went to excess. But I do think that the president may have made it a bit worse by focusing on how bad he thought it was instead of talking about the long-term strength of the economy.

And what's really gnawing about that is that the president was using the downturn in the economy to push his tax plan, which goes back a year and a half to when he was in the Republican presidential primaries. And the tax plan doesn't do anything for the economy right now and very little next year.

So to say you need the Bush tax plan because of the economic downturn was just not right.

And I do think that is the biggest mistake that was made. I think the president has not only given the wrong answer, he is not asking the right question. The right question is a little bit more like what Fred Thompson said, although we may have different answers to it. The question is what should we be doing here in Washington that can keep America prosperous, and keep social progress going as we have had for the last eight years.

And I think this economy has some natural strength which will regenerate if we don't mess it up. And the one way we mess it up is by spending money we don't have and taking us back into deficit. And I think that is what the Bush tax plan will do.

BLITZER: What about that, Senator Thompson? Do you believe President Bush and Vice President Cheney should cool it as far as talking, as some would say, with such tones of doom and gloom about the economy right now because that seems, according to at least Gephardt and Daschle to create this self-fulfilling prophecy?

THOMPSON: No, I don't think that we can criticize the president and vice president for telling the truth. I think that that is pretty refreshing. And our Democratic friends didn't have any problems in 1990 and 1991 talking about their negative view of the economy.

It is just a fact that since about July of last year, you know, our growth rate has declined. That is not the whole story, and the president doesn't say that is the whole story.

Certainly our fundamentals are sound. Our non-farm growth, for example, is still there. A lot of other sound fundamentals -- but the real question is not overanalyzing where we are today. The real issue here is what kind of policies are we going to put into place that will more likely guarantee long term economic growth in the future? I think that has to do with an across-the-board tax cut right now more than anything else.

If taxes are at unprecedented high level, surpluses, even by conservative estimate, are high, and, confidence in economy right now is low. If this is not a time for a tax cut, I don't know he would when we will ever have one. BLITZER: All right. Senators, we have to take a quick break. We have a lot more to talk about including campaign finance reform -- that legislation is about to be debated beginning tomorrow in the U.S. Senate.

We will be joined again with Joseph Lieberman and Fred Thompson when LATE EDITION returns.


BLITZER: Welcome back to LATE EDITION. We're continuing our conversation with Republican Senator Fred Thompson of Tennessee, and Democratic Senator Joe Lieberman of Connecticut.

Senator Thompson, I want to get to campaign finance reform in a second, but I just want your quick response to what we heard from Senator Lieberman a few minutes ago when he said the president's tax cut proposal is dead in the U.S. Senate. I'm going to predict you don't agree it's dead.

THOMPSON: No, I don't agree with that. Obviously, some modifications are going to be suggested and probably made. I don't think the president expects anything different than that. But in terms of the amount and in terms of the approach, the centerpiece being the across the board part of it, I think it'll happen.

BLITZER: All right, let's ask Senator Lieberman about another issue that's going to be coming up tomorrow in the U.S. Senate, the McCain-Feingold campaign finance reform legislation which you've supported in the past, but some of your Democratic colleagues, including Senator John Breaux of Louisiana, was on this program last week, now saying very openly, he's having second thoughts about it.

Is McCain-Feingold going to pass this year?

LIEBERMAN: I sure hope so, this is one of those rare cases where I disagree with my dear friend John Breaux, and John Breaux may be one other person as far as I can tell on the democratic side who supported McCain-Feingold in the past, have some questions about it.

But the overwhelming number of Democrats in the Senate will support McCain-Feingold. We've got a good solid group of Republicans, including obviously John McCain and Fred Thompson who support it, and I think we're in range.

This is a critical debate. I mean, the most important debate this session is one we just finished about budget and taxes, because it affects the pocketbook and job of every American. But this is the second most important because, it affects the political system. It really affects the kinds of things we do with taxes, because it will determine whether we're beholden to special interests, and there's no substitute for doing the main thing that McCain-Feingold tries to do, which is to ban soft money.

The law seems to say pretty clearly that individuals are not supposed to give more than $2,000 to a presidential campaign. That corporations and unions are not supposed to give a dollar, and through the soft money loophole, individuals, corporations, unions are giving hundreds of thousands of dollars, making it look like our democracy is for sale and I think discouraging a lot of people from coming out and voting. So, this is a moment -- historic moment of opportunity, and we've got to do it by adopting McCain-Feingold.

BLITZER: In the past, Senator Thompson, you've supported McCain- Feingold, but some of your Republican colleagues, including Chuck Hagel, Nebraska, now has his alternative proposal, and President Bush has yet some third ideas, some third alternatives to McCain-Feingold.

Do you believe that McCain-Feingold is going to finally be enacted, or at least most of it this year?

THOMPSON: I think it has better shot than every before, those of us who have been there in the past are still there, and still strong. And it's going to be tough. I think you've got the lobbyists on both sides really fighting hard against this. You've got incumbents in both parties who are very nervous about this because the present system benefits incumbents, but I think more people are realizing the fundamental issue here, and that is, we are going from a small dollar system where the average person can participate to a huge dollar system where you're not a player anymore unless you're dealing in the hundreds of thousands of dollars increments.

That gives the wrong impression, Joe Lieberman's exactly right. I'm tired of picking up the paper. Every day we have an issue. I don't even know who's doing what in terms of support on it half the time, but we read in the paper about who's giving the most money to which party with regard to that issue.

People can't continue to read that day after day without having more and more cynical view of both political parties, and of our system. Our political parties are becoming nothing more than conduits for large amounts of money. I'm surprised they even get to open the envelope anymore, as the money goes on its way to the television station. We can do better than that.

BLITZER: Senator Thompson, your colleague from Kentucky, Mitch McConnell, who's leading the opposition to McCain-Feingold, he was on TV earlier today and he made the point that if this legislation were to be enacted, it would do severe damage to the political parties. Listen to what he had to say.


SEN. MITCH MCCONNELL (R), KENTUCKY: Fundamentally what he does is not take money out of politics, he takes the parties out of politics by federalizing the two parties, taking away 35 to 40 percent of their budget and in effect, diminishing their ability to do what they do best, which is to help challengers.


BLITZER: What do you say to that argument that if you eliminate soft money contributions to political parties, which is what McCain- Feingold proposes, it would do severe damage to those political parties?

THOMPSON: Parties are important. I think they are an integral part of our system. I would do nothing deliberately that would weaken them.

But I want to ask anybody who's knowledgeable in this area if they really think political parties are stronger today than they used to be. I don't. As I said earlier, I think political parties are becoming money conduits more than anything else.

The fact that large sums of money go through them, on their way to being spent on these attack ads or whatever, does not indicate their strength. I think that we ought to still have money going into party-building activities, grass-roots activities, the things the parties traditionally do.

The fact of the matter is, we've gotten away from all of that. The parties are becoming weaker as the dollars are getting greater.

BLITZER: Senator -- let me just point out, Senator Lieberman, that not only some Republicans are, a lot of Republicans are opposed to McCain-Feingold, but now the AFL-CIO, a major constituency group of your party, the Democratic Party, is saying they have some severe problems, because they think it's going to hurt labor's ability to deal with the political process.

Listen to what John Sweeney of the AFL-CIO said earlier this week on "INSIDE POLITICS" here on CNN. Listen to this.


JOHN SWEENEY, PRESIDENT, AFL-CIO: We think that state organizations in both parties should have -- should continue to be able to register voters, and to have programs that involve some soft money or some way of funding.

There's a lot more to be done, with McCain-Feingold, to make it true fundamental reform.


BLITZER: And the ACLU says that is a violation of the Constitution, because it restricts free speech, in effect, money being part of free speech.

LIEBERMAN: Yes, I hate to -- I doubt that the founders of our country, when they adopted the First Amendment and provided us with free speech, which so is central to American life, were thinking that money equals speech, or speech equals money. We've twisted the sense.

In fact, the explosion of money in politics has denied tens of millions of Americans a free speech, because the promise of equal access to our government by every individual is broken, when some individuals give hundreds of thousands of dollars and, obviously, have more access. The key is to stop soft money from coming in, the unlimited expenditures. That's what we've got to keep our eye on in the McCain- Feingold debate coming up over the next two weeks, and I think we can do it. And there's a lot on the line in this.

We definitely have a majority in the Senate for McCain-Feingold. The question is, whether through tricks and pressure, that they're going to try to filibuster this to a defeat, and I hope not. There's too much on the line here for our democracy.

BLITZER: All right. Senators, we have to take another quick break.

Up next, President Bush reversed his position on a campaign pledge this past week. Will broken promises hurt his reputation as a compassionate conservative?

We'll ask Senators Thompson and Lieberman when LATE EDITION continues.


BLITZER: Welcome back. We are continuing our discussion with Tennessee Republican Senator Fred Thompson and Connecticut Democratic Senator Joe Lieberman.

Senator Thompson, a lot of people are complaining that bipartisanship, the promised bipartisanship seems to have disappeared. And they say the way the Republicans pushed through that tax cut bill in House Ways and Means Committee through the House Of Representatives without much debate, without a budget to advance, with only 10 Democrats supporting it, every Republican in the House supporting it, that signaled the end of bipartisanship in Washington, this year.

Is it the end?

THOMPSON: No, I don't think so. I think that that is pretty much traditional as far as these tax bills are concerned. They, initially anyway, go pretty much along party-line votes. But, I think when talk about bipartisanship, it has to do with approach as much as anything else. Nobody is expected to give up their strongly held views.

So the president is reaching out, he is talking to people. He is expressed a willingness to listen to any constructive suggestions that anybody has. And he'll have to. When it gets over to Senate, you know, people are going to insist on some changes, modifications.

I think that we'll be pretty much in ballpark of what he is talking about. But certainly, you know, we are going to have some give-and-take over there.

BLITZER: He was reaching out, the president, Senator Lieberman, to many Democrats early on, including to you.

Is he still reaching out to you? LIEBERMAN: Well, there is some reaching out, and, some soft words. But in midst of it, there is also some tough politics going on, here. I thought that the move to run that tax cut through the House with very little Democratic support, before we adopted a budget so we saw what are our priorities -- I mean, in our family or in a business, you don't go on vacation before you know whether you've got enough money to pay the mortgage and send your kids to school and buy food. And I thought that was mistake.

I think the rapid attempt to withdraw and nullify those regulations that have been worked on 10 years to protect a hundred million workers in workplace from injury was not bipartisan and not reaching out. And there are a number of examples of that.

So in the end, we've got to get together on things like the budget and taxes, or, the government's not going to work and the economy is going to sputter even more. So I hope we'll be able to do that.

There is some good news. We do have our bipartisan centrist coalition, which meets once a week every week. And we're talking about programs we can work on together. There are some areas, like education. I have a bill -- it's very similar to President Bush's bill. We have been negotiating pretty well with administration. I think we're in reach of a good agreement there. Needs some more work, but we're in reach.

So it's a mixed picture now. But overall I'd say that underneath, the reality is a lot less bipartisan than it started out in this administration.

BLITZER: Senator Thompson, a lot of Democrats and others are saying the president flip-flopped, on the issue of carbon dioxide emissions this past week, announcing that no longer would there would be a requirement that they be reduced from energy power plants, a pledge that he made in the campaign last year. And some are saying that he held his Environmental Protection Agency administrator, Christine Todd Whitman, out -- held her out to dry because she had been on record supporting this earlier commitment.

How embarrassing, if it is, is this to the president?

THOMPSON: Well, I don't know if embarrassing is the word. It's one of those things that a president has to deal with. You know, I guess that's why he gets big bucks, because circumstances change and sometimes you have to take another look at things. This was a line in one of the president's speeches that he looked at, and on further reflection thought was not the thing to do. Circumstances have changed. The economy is certainly softening.

We have higher energy prices. We have an energy crisis out in California. I think the president decided on balance while there are certainly things that we can do in these areas, in terms of pollutants -- in terms of CO2 emissions and all of that. Right now, putting a new regulation on CO2 that the prior administration no one else has ever done before would not be the thing to do. THOMPSON: And it would probably help drive up already high energy prices.

BLITZER: What about that argument, Senator Lieberman? It seems you make a decision, but if circumstances change, you change with the circumstances?

LIEBERMAN: Well, with all respect, I don't think circumstances changed. I think the president got pressured into changing what was a thoughtful, and I'd say courageous position that he took during the campaign. I mean the science makes clear that the odds are the planet is warming, and it is going to affect the lives of our kids and our grandkids. We're the biggest producers of greenhouse gases. This begins to affect our foreign relations as Colin Powell has already found out. And, we've got to do something about it.

And this is a moderate proposal. The fact that the president flip-flopped on it is not a good sign either on this issue, which is an important issue, environmental protection, global climate change, but generally, it's an unfortunate thing to have happened at the beginning of a presidency because it suggests that he can be pressured by interest groups in to changing positions that he has already taken. And when a president does that, I think it weakens him and bad for whole system.

BLITZER: We only have a few seconds. But, I want to get both of your reactions to some criticisms from the left, from the right, from religious from non-religious, on the president's so-called "faith- based" initiative. Senator Lieberman, you have been a supporter of this in the past even though some religious groups are worried now that this could undermine their own mission.

LIEBERMAN: Yes, the basic point here and why I support it, is that there are tens of thousands of religious groups across America who are doing good work every day. Doing good works -- hunger programs, homeless programs, after school programs, drug abuse programs, family unity programs -- and, a lot of them don't have much money and they would like to expand those programs. And I think government ought to find a way to be helpful to those good people, and we can do it without violating the Constitution. I know it is difficult. But you know, I'd say to religious groups who feel they are going to be compromised by accepting federal money, they don't have to apply for it.

BLITZER: What about that, Senator Thompson? You can have last word. Are you having some second thoughts about this faith-based initiative the president has put forward?

THOMPSON: Not second thoughts, but I think it is a good idea that we be careful and that we take another close look at it. Joe is right. A lot of these institutions, faith-based institutions and programs, are doing a lot of good work in terms of addiction, juvenile crime, things of that nature. Faith is one of the reasons why they are working.

So, when we come along now and move in this direction we have to be careful if there's too much religion with regard to these programs. It'll fun afoul of the Constitution. But if they lose their faith- based component, and what I call religion in the general sense of the word, you are going to be losing what's made them so successful in the past. So, I think you've got to be careful, but I think that you can draw the line and balance those interests and come up with something that is very beneficial.


LIEBERMAN: Amen, brother.

BLITZER: Thank you to both senators. Fred Thompson, and Joe Lieberman, always good to have both of you on LATE EDITION. Thanks for joining us.

THOMPSON: Thanks a lot.


BLITZER: And when we return, the Dow suffered through its worst week in 11 years. Can the market plunge be stopped? We'll ask former Republican presidential candidate Steve Forbes, Senior Investment Strategist Mary Farrell, and former Clinton Labor Secretary, Robert Reich, when LATE EDITION continues.



CHRISTINE ROMANS, CNN CORRESPONDENT: It was a really tumultuous end to a very rough week, one trader just telling me, listen it was really painful this week, we're all just sort of gearing up for what could come next week.


BLITZER: CNN financial reporter Christine Romans recapping the Dow's worst week in 11 years, and it's worst weekly point drop ever.

Welcome back to LATE EDITION. Joining us now to discuss the market slump and what can be done to revive the economy, are three guests.

In New York, magazine publisher and former GOP presidential candidate Steve Forbes; also in New York, senior investment strategist with UBS-Paine Webber Mary Farrell; and in Boston, former labor secretary in the Clinton administration, Robert Reich.

Welcome all of you to Late Edition, and let me begin with you Professor Reich. The question that I asked earlier in this program, can this market plunge be stopped?

ROBERT REICH, FORMER LABOR SECRETARY: Of course it can be stopped, Wolf, the big issue, in fact the center ring is going to be Tuesday when the Federal Reserve board meets. Alan Greenspan and his group at the open market committee. The question is how much they reduce short-term interest rates. Everybody is watching, if they reduced only by a half percentage point, which is what the market expects, it's not going to be very much of a stimulus, it's not going to turn the situation around.

If they reduce by three quarters of a point, that will be much better. If they surprise people and reduce by a full percentage point, that will be terrific, and you'll hear the applause across the nation, maybe across the world.

BLITZER: What about that Steve Forbes, everybody remembers from your presidential campaigns, you were one of the most articulate on all the economic issues.

What can be done to stop this market plunge?

STEVE FORBES, FORMER REPUBLICAN PRESIDENTIAL CANDIDATE: Well clearly the Federal Reserve has been operating under a cockeyed theory that prosperity causes inflation and they deliberately engineered this slowdown. And so they have to go in a mode of pumping in sufficient liquidity into the economy. I hope they do a 100 basis points, one percentage point on Tuesday. But I think if they were doing their job right, you would see short-term interest rates with the economy the way it is today down at two and half or three percent.

So instead of doddling the thing, instead of dribbling it out, I wish they'd do the cutting all in one swoop so the economy can get sufficient liquidity to get back on track again.

The other thing obviously we have to do is get a muscular and immediate tax cut.

BLITZER: Well, we'll get to that in a short while, but Mary Farrell, you've been watching the Federal Reserve for a long time. Is that realistic to think that Alan Greenspan and his colleagues are going to reduce interest rates by a whole point this Tuesday?

MARY FARRELL, PAINEWEBBER MARKET ANALYST: I wish it were realistic and I certainly think it's out there in the possibility range, I'm not sure if it's probability. I think the market will treat anything less than three quarters of a percentage point as an extreme disappointment. So, I truly think that given the evidence that we've had across the board that this economy is slowing and accelerating its pace of slowing, clearly some strong action is needed, and I agree with Steve, inflation is not the problem of 2001 or going forward, that's behind us here, and we can certainly use enough stimulus to restore some confidence and get the economy back on track.

REICH: In fact, we had a report last Friday that inflation if you take out energy prices, inflation is nonexistent, the rate of inflation is as low as it's been in the 1990s, so the Fed should not be concerned about inflation, whatsoever.

BLITZER: You know, President Bush has been speaking out, and I want to go back to you Robert Reich on this. I want you to listen to what President Bush said this -- earlier this week to the New Jersey chamber of commerce speaking about the economy, speaking about the market plunge, listen to this.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I'm sorry people are losing value in their portfolios. That worries me, but with the right policies, I'm confident our economy will recover. The right policies, fiscal policies and that means giving people money back in plain language.


BLITZER: He obviously agrees with Steve Forbes, what he's suggesting, is a massive tax cut as quickly as possible. He's put on the table $1.6 trillion, as you know. Is that going to do the job in helping to stimulate this economy?

REICH: Well Wolf, first of all, the tax cut that the president is now proposing at least for next year is about $5-6 billion, and that is approximately one half of one-tenth of the entire -- of one percent of the entire national product in a $10 trillion economy. That is almost a rounding error.

REICH: It will not have any effect whatsoever. But more to the point, if you provide a tax cut mostly for people who are very wealthy -- and this is the tax cut that the president is proposing -- those people are not going to go and turn round and use that tax cut to spend more. Wealthy people already are spending as much as they possibly want, and possibly can spend.

The way you stimulate the economy is to front-load it, you have more of a tax cut this next year, maybe this next year is the only tax cut you have. But you push it down to people who are working people, who really need the tax cut.

So, for example, if you exempted first $10,000 of income from your payroll tax. Most Americans spend much more, pay much more in payroll taxes than they do in income taxes. That would be one way -- or provide a rebate of a thousand dollars for a working person on your payroll taxes, that's the way you actually stimulate an economy.

BLITZER: Steve Forbes, a lot of information there, in what Robert Reich had to say.

What do you think about his ideas?

FORBES: Well, I think the whole tax cut should be made retroactive to January 1 across the board. You do need more investment to get this economy to have a higher standard of living in future, and you do want to have people be able to keep more of what they earn. The $5.6 billion for this year is utterly inadequate. It's equivalent of a penny on every $200 of economic output.

So -- and I also think that we need to put more muscle into that tax cut, by reducing capital gains, by liberalizing Roth IRAs, and other measures, to make sure that we do have a good recovery, just as we had with the Kennedy tax cuts of the early '60s and the Reagan tax cuts of the early '80s. Do it right. This economy needs it.

BLITZER: Mary Farrell, a lot of economists, you know, believe that even the significant tax cut retroactive to January 1, as much as possible that could go forward this year, probably would only have a limited impact on the economic recovery.

What is your assessment?

FARRELL: It would have a limited impact. I mean, I think it can be structured again, retroactively, across-the-board tax cuts that would have an impact sooner, but not in a huge way.

But one other impact that hasn't been mentioned, and I think we shouldn't minimize, is that it will have a psychological impact. I mean, right now, 50 percent of Americans own stocks, they got -- every month, get their statements, and it's not been a pretty picture.

So, the confidence numbers have clearly been coming down in response not just to the slowing economy, but also the very poorly performing stock market. I think a tax cut would have a good psychological boost, they'd see some more money, they might feel more confident, particularly if it was a multiyear -- a large tax cut over a multiyear period like the Reagan tax cuts and the Kennedy tax cuts.

So, I would hope that we would see a tax cut occur, very soon, retroactive, but restructured so we get as much stimulus as possible.

BLITZER: And, on that psychological impact, Robert Reich, a lot of people not only wait every month to see what their bottom line and their portfolios are, they go on-line, they can see almost every hour what their numbers are, and it is having an impact.

Take a look at these numbers. I want to put it up on the screen. The latest "Newsweek" poll, just out this weekend: Americans who believe a recession is ahead. In December, 54 percent thought a recession was ahead, but take a look now, in March 2001, 71 percent of those who responded in this poll say a recession is just ahead. That seems to be a pretty gloomy assessment that a lot of Americans have.

REICH: Well, Wolf, obviously psychology plays a big part in the stock market. In 1998, we had irrational exuberance, 1999, irrational exuberance, and maybe now we have irrational gloom and doom. The fundamentals of the American economy over the long term are very, very good.

Over the next two or three or four years, I am absolutely confident the stock market will rebound, mostly, high technology stocks are good stocks, unemployment still is down almost to a 30-year low, but there are problems, obviously, energy, the dot-com bubble bursting, Japan, that is a serious problem. Alan Greenspan and the Fed do need to take action.

And, by the way, relative to a tax cut, what Alan Greenspan and the Federal Reserve Board do next week is so much more important the tax cut doesn't even register on the Richter scale! BLITZER: All right. We're going to pick that up point with Steve Forbes. I'm going to ask him if there is some sort of irrational doom and gloom right now, as Robert Reich is suggesting.

But we have to take a quick break. When we return, they'll also be taking your phone calls, Steve Forbes, Mary Farrell, and Robert Reich. LATE EDITION -- we'll be right back.



UNIDENTIFIED MALE: I'm going to try and hold out.

UNIDENTIFIED MALE: I think I'm in a good position.

UNIDENTIFIED MALE: I'm taking an approach that this will just ride out overtime.

UNIDENTIFIED MALE: I was very devastated when I found out about it. And I have had a few days to sort of think about how I got myself into this situation.


BLITZER: Mixed emotions from investors on Wall Street's wild ride. Welcome back. We're continuing our discussion on the nation's economy with former presidential candidate Steve Forbes, Senior Investment Strategist Mary Farrell, and former Labor Secretary Robert Reich.

Steve Forbes, the chairman of the federal reserve once spoke about irrational exuberance. Today we heard Robert Reich suggest perhaps there is some irrational doom and gloom out there right now.

Is it irrational to be looking at this doom and gloom scenario?

FORBES: Well, not at all. I think the Internet strengths of the American economy are absolutely profound and very, very, very positive. And if we just make some of these policy changes, I think we can get this economy back on track again.

But people are absolutely right to be worried. The Federal Reserve is now starting to fall under the trap that the Bank of Japan did, which helped put that economy through a real ringer in the last 10 years. It looks like we are going to have a real nip and tuck on getting a meaningful tax cut that will really do long term and short term good. So, the worry, I think, is properly placed. It's something that can be easily cured. But, until it is cured, I think people are right to be a little bit anxious.

BLITZER: Mary Farrell, I want to get to a caller in a second, but, you're up there on Wall Street. You are watching all this all the time. The Democrats, in Congress this week, said President Bush, Vice President Cheney are partially to blame for all this doom and gloom because of all their negative talk of a possible recession. Is that a factor in what's happened on the stock market?

FARRELL: I wouldn't put that as a cause or blame for what's happened in the stock market on that. The president's job really isn't national cheerleader. I think to the extent that he's being realistic, facing up to the fact we are in a slowing economy, and, asking serious questions about what is appropriate response. And I think part of that response, and again, certainly a less important one than the Federal Reserve's response, but part, I think, is fiscal policy, is a tax cut. So, I don't think he should be blamed. I think he has just been realistic.

BLITZER: Let's take a caller from Stockholm, Sweden please go ahead with your question.

CALLER: Yes, madam/gentlemen, good evening. Of course, if I was in your country, I'd say good afternoon. My question concerns this. Isn't it so that we are now losing markets? And if we have lost markets, especially like in the Middle East and other areas, shouldn't we allow the markets in states here in Europe to adjust itself since the Internet bubble is what it is, a bluff? Shouldn't we let it burst instead of using this phony and dishonest adjustment of bringing down the interest rate? If we rely on bringing down the interest rate, we are showing that the American economy is really a bluff.

BLITZER: Let's ask Robert Reich to answer that.

REICH: No, that is that is absolutely not the case. First of all, the Internet bubble, the dot-com bubble was a very small part of United States economy and an infinitely small part of the European economy. What has happened is mostly, mostly due to the fact that beginning in June of 1999, the Federal Reserve Board in the United States, began raising short-term interest rates, and it continued to do so even after March of 2000.

When the NASDAQ started to show trepidation, when a lot of things began to collapse a little bit, they continued to raise interest rates. Now, if you do that, if you tighten the money supply, if you raise interest rates, you are making it much harder for people to borrow and also more costly for companies to borrow. You don't have to be a rocket scientist to figure out that eight months later, 10 months later, 12 months later, everything is going to start collapsing.

Now, it is true also in Europe. The European Central Bank has tightened too much. The European Central Bank ought to ease. It is now the time around the world where we need more demand, more aggregate demand. This not the time to have a very rigid, fiscally austere and a monetarily austere policy.

BLITZER: What about that, Steve Forbes? Do you agree with Robert Reich?

FORBES: Well, I think that definitely we need ease by central banks in Japan, Europe, and the United States to pump in more liquidity. They have been starving their economies for proper liquidity. And I think that the dot-com bust -- yes, it is hurtful. But remember, in the 1980's, we had a very, very good economy -- very real high growth rates, higher than the 90's even though the farming sector was in a depression in the mid 1980's, and even though the energy sector had a huge bust in the early and mid 1980's, Texas was in the tank, banks were going out business.

FORBES: But the economy as a whole was doing very well. The key is, the Fed has been starving the economy for proper liquidity. And we do need a tax cut.

One of the paradoxes of prosperity is that it kicks people into higher tax brackets. You start to lose deductions and tax credits. We need real relief along the lines of Kennedy and Reagan.

BLITZER: Mary Farrell, a lot of investors out there are see some of these stocks that are really low right now, including a lot of blue chip excellent stocks, is this a time for bargain hunters to step in? Is this a time to go in and buy some of these stocks? Or should smart investors stay on sidelines and see if rock bottom has not yet been hit?

FARRELL: Wolf, I think it is virtually impossible to be a market timer. I know no one who has successfully done that. So I'm not prepared to say this is the bottom of the market. But I don't think for individual investors, investing is about calling market tops and bottom. It's much more about owning good companies. And I make a distinction, owning the companies, you buy the stock, but ultimately what you are buying is a good company. And right now, valuation levels are very cheap.

This is the reverse of a year ago, where the fundamentals were perfect but valuations were getting ahead of themselves. Today, the valuations are very, very attractive but we do have fundamental issues to deal with. I would say for investors with long-term time horizon -- and let me emphasize long-term -- I think these valuation levels will look to have been very cheap.

It is very similar to what we experienced -- we have referred earlier to '98, the collapse of those Asian economies, the collapse of the Russian economy. It looked like we weren't going to crawl our way out of that, and the market bottomed and anticipated, quite accurately, what would be a very good subsequent year or two in the economy.

Right now, I think, we are probably by fourth quarter going to get back to seeing some good earnings comparisons. The first two quarters of this year will be very negative, but by fourth quarter -- and next year we could see earnings growth of 10 to 15 percent for the S&P 500.

So I think, yes if you are long term, individuals, should consider buying over the next let's say next month or two.

BLITZER: OK. Stand by all of our guests. We have to take a quick break. For our international viewers, "WORLD NEWS" is next. For our North American audience, stay with us for the second hour of LATE EDITION. We will check the hour's top stories and continue our conversation about the state of the economy, with our guests.

Then, the Reverend Jerry Falwell and the Reverend Barry Lynn debate President Bush's faith-based proposals. Plus our LATE EDITION round table Bruce Morton's Last Word. It's all ahead, when LATE EDITION continues.


BLITZER: This is the second hour of Late Edition, the last word in Sunday talk.


BUSH: With the right policies, I'm confident our economy will recover.


BLITZER: We'll discuss the nations economic health with former Republican presidential candidate Steve Forbes' former Clinton labor secretary Robert Reich, and investment strategist Mary Farrell.


UNIDENTIFIED MALE: I really believe that President Bush has a huge heart for the least, the last and the lost of our society.


BLITZER: But there's a huge debate over the president's faith- based initiative. We'll hear the arguments from the Reverends Jerry Falwell and Barry Lynn.

Plus our LATE EDITION roundtable. Steve Roberts, Susan Page and David Brooks. And Bruce Morton has the Last Word on money, the free speech of politics.

Welcome back to LATE EDITION. We'll get to more of your phone calls for Robert Reich, Steve Forbes and Mary Farrell on the nations economy in just a moment, but first let's go to Donna Kelley in Atlanta for a check of the hour's top stories.


BLITZER: Thank you very much Donna, we're continuing our conversation with former GOP presidential candidate Steve Forbes; senior investment strategist Mary Farrell, and former Clinton labor secretary Robert Reich.

We have another caller from Kassel, Germany. Please go ahead with your question.

CALLER: Yes, I wanted to ask if the panel felt that the falling economy was the result of former President Clinton's economic policies as suggested by Republican leaders, or was it the oil price shock in the mid-summer of 2000 that truly shook the markets? I want to know if it's felt that perhaps there's a blame game going on in Washington from the Republicans to discredit the former administration, and to also, for their own political gain, to support the tax cut plan put forth by Mr. Bush.

BLITZER: All right, let's start off with Robert Reich, what do you think about that?

REICH: First of all, let's be very, very clear, most of the reason for this slowdown is that the Federal Reserve board overshot. It raised interest rates too much and too fast, and we're now paying the price. The Federal Reserve Board is trying to pull back a little bit, they ought to pull back more.

Now, as to whether the new administration in Washington is playing politics with this in trying to use the slowdown to sell their tax plan, there is no doubt at all about the truth of that allegation. Yes, this tax plan, remember, was first floated during the campaign of George W. Bush, there was no economic slowdown at that time, then came the slowdown and then came the opportunity to tout the tax plan as a stimulus.

But make sure we understand, and I really think this is very, very important. This is not a stimulus. It's not a stimulus for two reasons. One, because it's very tiny in the first year, and if it got big in the first year, it couldn't be affordable, it's even not affordable as it is. But secondly, it's not a stimulus because it goes mostly to rich people, who are not going to spend the extra money they have. That's very important that we all understand that.

BLITZER: Steve Forbes, I know you disagree strongly with Robert Reich on that.

FORBES: Yes. He is right about the mistakes of the Federal Reserve. Actually for three years the Fed has been going into a deflationary mode, they formally did it a year and a half ago, we're paying the price for it today. They've got a truly pump more liquidity into the economy.

As for the tax cut, the fact of the matter is Washington today, the states are taking more of your personal income, a percent of your income, higher percent than at any time since World War II. People are being punished for being successful. If we want long term prosperity, we have to reduce that burden.

We need investment, we need spending, an across-the-board tax cut does it just as it did for John Kennedy, just as it did for Ronald Reagan. It'll do so if it's properly structured for George Bush, and that's why we must make this tax cut retroactive to January 1. Do it across the board, add things like a reduction in capital gains, then we'll have something muscular that will have a good impact.

REICH: I don't want to break into Mary's turn, I just have to say one thing in rebuttal here. If we were serious, if George W. Bush and his administration were really serious about a stimulus package that would really change the direction of the economy right now, it would be a tax cut for average working people.

REICH: And let me stress this. They would reduce the payroll tax that most people spend and pay more of than they do income tax. Eighty percent of Americans -- this is not a tax cut for average working people. This is a tax cut for people at top.

FORBES: But that's not right, Robert. The fact of the matter is the bulk of tax cut does go to middle and lower income Americans. They get a far higher tax cut proportionately than upper-income Americans.

REICH: Oh, come on, Steve.

FORBES: And on Social -- well, it's true.

REICH: They're getting 300 -- they're getting a little bit more than $300 a year.

FORBES: Look at the numbers.

REICH: They're getting a little bit more than $300 a year. That's not going to change anybody's spending habits.

FORBES: They are getting a higher percentage of a tax cut, than so-called rich.

REICH: It's a percentage on a very low income. You are playing arithmetic games.

FORBES: And on Social Security, I'm all for a new system where part of that tax, or the bulk of it -- the plan I had -- would go to your own personal retirement account instead of the grasping hands of the politicians in Washington, D.C.

REICH: Now...

BLITZER: Let me bring Mary Farrell in.

FORBES: That would have very good impact on the economy, long term.

BLITZER: Let me bring Mary Farrell in.

Mary is there a consensus, on Wall Street -- I know everyone on Wall Street wants to see Alan Greenspan and the Federal Reserve lower interest rates significantly. But is there a consensus on what the U.S. government, the federal government, should be doing as far as tax cuts is concerned?

FARRELL: I don't think I would call it a consensus on tax cuts. I think there is certainly general agreement that lowering the capital gains rate would be very important, not just for the stock market, but also for the U.S. economy and future investment.

But I think, also, -- and this partly addresses the question as well, this was the longest, or this is the longest economic expansion in our U.S. economic history. And as such, it was maturing, as any expansion will, and was slowing. So I think it is a combination of the monetary policy on the part of Federal Reserve, and fiscal policy, tax cuts. There is a consensus we need both, and we need some pretty good action.

BLITZER: You know, Robert Reich, last Sunday you wrote op-ed piece in "The Washington Post" which declared Democratic party basically dead because of what it has not done over these past several months. To which Al Frum, who is the head of the Democratic Leadership Council, a so-called new Democratic organization, wrote in response. I want to read to you what he said.

He said, "Reich laments the fact that President Clinton and the New Democrats changed our party in the last decade. But without that modernization, progressive governance surely would have died in American.

You've been getting a lot of criticism over the past week for that article. It was discussed on this program extensively last week. Any second thoughts about the death of the Democratic Party?

REICH: Well, no, not at all. In fact I think the discussion we are now having illustrates the problem.

The Democrats need a message, a strategy. They need visible leadership. They ought to be out there making sure that the public understands that the Democratic Party stands for the little guy, the underdog, the person who didn't get all that much out of the '90s expansion and who is going to get clobbered as this economy declines. A tax cut for average working people, not for people at the top, health care for people, child care for people.

We have a huge surplus, and we are going into an economic slowdown, we ought to be crafting policies that help average working people. And the Democrats are saying very, very little about this.

BLITZER: And we only have a few seconds, Steve Forbes. But I just want your reaction. You have been criticized a lot over the past week for a radio ad that you ran using some sound from John Kennedy, when he supported his own tax cut 1962, including from the Kennedy family. They were saying you were unfair in using some of that. Any regrets about spending that money, for that ad using John F. Kennedy's voice as a source of support for another tax cut?

FORBES: No, I think the ad was very effective because John Kennedy, 40 years ago, 1962, made the case. An across-the-board tax cut's the way to get America moving. It worked in early '60s. It can work again.

John Kennedy belongs to history. He had a good point then. It is good point today was good point in early 1980s. And the fact that Democrats are yelping about it I think shows the ad was very effective.

BLITZER: All right. We're going to leave it right there. Steve Forbes, Mary Farrell and Robert Reich, thanks for excellent discussion. We'll do this again.

Thank you and when we return, President Bush's faith-based proposals are causing concern among members of church and the state. Will keeping the bait pay off? We'll speak to the Reverend Jerry Falwell and the reverend Barry Lynn, when LATE EDITION continues. Stay with us.



BUSH: Americans want to see the government welcome faith-based programs in the compassionate delivery of health. So, we're going to have a good package and I'll be signing a good bill.


BLITZER: President Bush defending his faith-based proposals this past week. But he's facing some opposition from some unlikely places.

Welcome back to LATE EDITION. Joining us now to discuss the details of the president's plan are two guests. In Lynchburg, Virginia the Reverend Jerry Falwell. He's the chancellor of Liberty University. And here in Washington, the Reverend Barry Lynn. He's the Executive Director of Americans United for Separation of Church and State.

Gentlemen, thanks for joining us.

Reverend Falwell, I want to begin with you. As you well know, there has been some surprising criticism of the president's plan coming from some religious, social conservatives. Are you having some second thoughts about the faith-based initiative as put forward by the president?

REV. JERRY FALWELL, LIBERTY UNIVERSITY: No, I'm a strong supporter from the beginning, and continue to be, of President Bush's program. I stated some concerns on belief in that dot-com which were sort of exploited. I stated the same concerns that the president has and is building in safe guards to deal with such as the strings attached to ministries that accept those funds.

I want to say out of the chute, we don't plan to apply for or accept any funds. But, I think it is a good program. I think that those ministries that have been involved in the inner cities already, with private funds successfully, in the prisons like prison fellowship et cetera, can do a better job with public funds.

But I did make the statement which caused "The Washington Post" to put me in the nay saying group, and should not have, that those groups that are bigots -- I'm speaking of the Aryan Nation, which would call itself religious, but are racist and some Muslim groups that might be anti-Semitic. That no group should be given public funds unless they are going to serve all Americans, regardless of their religious background or their color, et cetera.

BLITZER: That is what the president wants, Barry Lynn, that sounds reasonable. What's wrong with that?

REV. BARRY LYNN, AMERICANS UNITED FOR SEPARATION OF CHURCH AND STATE: Well, I think what would be more reasonable is if we simply kept it the way it is. That is for the last 50 years, religiously- affiliated organizations have been spinning off their own separately incorporated organizations, and they're doing a couple things. They are not trying to evangelize with federal money. They're not trying to convert anyone with federal money. They are simply trying to present a secular service, and in so doing.

BLITZER: Let me interrupt you for a second. Isn't this an expansion of what President Clinton did in 1996, when he allowed the Department of Housing to go forward and give some grants to religious organizations to help in dealing with crime in some public housing areas?

LYNN: Well, it is an interesting issue because the Housing and Urban Development department has announced that it will cutting half of its budget for security in public housing projects. One of the undersecretaries said that will be replaced by faith-based initiatives.

Ironically, though, a few years ago, under the Clinton administration, HUD did give grants to the Nation of Islam. The Nation of Islam security forces patrolled housing projects in Baltimore. There was a bipartisan opposition to that. Here was a group that seemed to want to only hire co-religionists. They didn't hire any women. They didn't hire any non-Muslims.

As a consequence, those contracts were canceled. Now, I don't see how you can replace this. If you cut these funds, and you are unwilling to replace them with one of the few organizations that has security force, as one of its ministerial outreaches, I don't know what do you except pray that drug dealers go somewhere else.

BLITZER: Reverend Falwell, there was some praise for the Nation of Islam for some of the work that it did do in those public housing areas with some of those federal grants.

FALWELL: Yes, there was. And I would say this. That there can be no strings attached against methodology or message. I'm not a Muslim, I don't agree with the Muslim message. I'm not a Mormon, I don't agree with Mormon message. But if you tell the Mormons, the Muslims, if you tell Chuck Colson Prison Fellowship, who's doing a great job in prisons, and has worked with President Bush in Texas, that you can do your secular work, but you cannot mention your message, then they become as useless and as fruitless in their work as those secular state agents who have been doing it so long without success.

For example, I'm Evangelical. We have homes for unwed mothers here. We have a home for alcohol and drug addicted men. And half of the men who come through our alcohol and drug addiction home never use chemical dependency again.

FALWELL: But it's because we introduce them to Jesus Christ and we preach the death burial resurrection to them, they come to know the Lord, and the Lord helps them over. But if you take the message away from me, then I won't do any better than those guys who've been doing it unsuccessfully all these years. So, you cannot put that string on anybody.

Let the Scientologists preach Scientology. Let the Mormons preach their Mormonism, let everybody have a free throw, don't limit anybody, give the money, no strings attached and build in infrastructure that no president down the road, unlike President Bush who's on the right side of this, can ever use it to put strings on religious groups.

LYNN: You see, Dr. Falwell, it's all right for you or for me to have a different opinion about religious groups, to feel that some are doing a better job than others. It is not, however, possible to institute a program that says that some groups are by their very nature too hateful, some are too rude, some are too new, something else.

FALWELL: I think that's easy to do.

LYNN: So that they become ineligible for those funds, so your opinion and my opinion on the theological outlook of these groups, or as you said in the belief in that article, how new they are, how much they can demonstrate that they contributed in the past.

These are not distinctions that the federal government can make leaving aside separation of church and state, just under the concept of equal protection of the laws of the United States.

FALWELL: That's what America's all about.

LYNN: Everybody's in or everybody's out.

FALWELL: What America's all about is, free access, free participation. I'm an evangelical Christian who believes that salvation is in and through the shed blood of Jesus Christ, plus nothing, minus nothing. The Mormon would take another stand, the Muslim another stand, et cetera, et cetera. But, as long as we give everyone no strings attached if they are doing a qualitative work in the areas of the disenfranchised, let them have their message, their methodology, the whole bit. I'm willing to put gospel of Christ up against any and all of them, any time, anywhere on equal footing as long as I am not restricted.

BLITZER: Barry Lynn, if the president's proposal can be enacted in a way whereby religious organizations do good work whether with school children or against crime, health -- whatever, young women, and they don't preach their own religious convictions, would that be acceptable to you, to let some of these religious groups go out there and do some of the social services that the secular organizations try to do? LYNN: Sure. Lutheran Social Services have been doing it. Catholic charities have been doing it. If one wanted to expand those kinds of programs, we wouldn't have the constitutional problems or the public policy debate that we're having right now.

But this a dramatic new program, this is one in which some of the adherents, including Jerry Falwell say there really can't be any regulations at all, and I don't think the American people in poll after poll even if they like religiously based services, they don't like the idea that people are going to be converted to one religion with their tax dollars. Conversion is a matter for the churches, the mosques, the synagogues and the temples, it is not the business of the federal government.

So when Jerry Falwell says we can't have any regulations, he really means no scrutiny, no testing of the results, and I don't think that the church can be put into a position of having less accountability than a defense contractor has.

FALWELL: Oh, I think there ought to be accountability.

LYNN: To tries to get buy hammers, sell hammers to the Defense Department. (OFF-MIKE) held a higher standard.

FALWELL: I think there should be financial accountability, there should be social accountability, no racist, no bigots should be given 10 cents no matter who they are, and it's easy to prove. When someone has shown that they are bigots, that they are racists, that they're anti-semitic, it's a matter of record, it's easy to prove.

But, as far as dealing with the results of their efforts, I believe that we can -- we can find that faith-based groups in America, leaving out no one, can do a super job. I want to repeat, we are not applying for, in 45 years, I've been pastor of the same church. We've never taken one dollar in public grants from the states, the feds, anybody. We don't plan to start now. But I think it's a great, great concept.

I applaud President Bush for what he's doing. I think it will become the law, there will be some tweaking and so forth, but the ACLU and Americans United will not get their will done in this any more than they have in a lot of other things they've tried to erase religion from the public sector.

BLITZER: All right gentlemen, we have to take a quick break. We have a lot more to talk about including your phone calls for the Reverends Jerry Falwell and Barry Lynn.

LATE EDITION will continue right after this.


BLITZER: Welcome back. We're continuing our conversation about President Bush's faith-based proposals with Reverend Jerry Falwell, chancellor of Liberty University, and Reverend Barry Lynn of Americans United for the Separation of Church and State. Reverend Falwell, John DiIulio, who's the president's point-man on this entire faith-based initiative, said some controversial things about you, Reverend Pat Robinson, other evangelicals. Among other things, he said this, and I'll put it up on our screen.

"With all due respect, and in good fellowship, predominantly white ex-urban evangelical and national parachurch leaders should be careful not to presume to speak for any persons other than themselves and their own churches."

That was seen as a slap against you, and Reverend Pat Robertson.

FALWELL: That's how I see it.

BLITZER: I assume it caused you had some consternation?

FALWELL: That is how I interpreted it. I could be wrong, but I also said, the other night on CNN, I do not believe that President Bush had any idea of what he was going to say, or what he did say.

And, while I have no knowledge of this, I suspect that he will not say it again. I think he's just -- he's new on the block. When he says ex-urban, we raised $150 million a year, we've been doing this for many, many years, I've been here 45 years. We support a home for unwed mothers, we support a home for alcohol-and drug-addicted men, we give to AIDS groups, we work very hard in the inner cities, millions of dollars there. I suspect that we've invested more money in this type of ministry to the disenfranchised in one day than he has in his lifetime.

Now, with all that said, if I'm wrong all he has to do is tell me what he's spending and what he's doing and how many hours he has spent in the inner-city ministry.

BLITZER: Let me let Barry Lynn respond to that, but I want to ask you very quickly, Reverend Falwell, do you think John DiIulio should continue on in that job, or he should resign?

FALWELL: No, I think he should stay right where he is and just run his speeches by Karl Rove and the president and a few fellows before he makes them, obviously he doesn't know what he's talking about.

LYNN: You know, one of the disturbing things -- and, Jerry Falwell, you said you wouldn't take a dime under this program, yet some -- for some reason you think other people should be able to, or should be happy to take it, I was frankly a little surprised, at two things were done recently by the Southern Baptist Convention, of which many, many...

FALWELL: I'm a member.

LYNN: ... in fact you are a part.

FALWELL: Yes. LYNN: Number one, first of all, they said, "We love the idea of George Bush's armies of compassion, this whole faith-based initiative." But then a few days later they also announced that they had cut the percentage of their own budget that was going to go for social service outreach.

And, when the constitution is said and done, I'm also worried that individual churches and church denominations will get the impression that there's a large amount of new money out there. There will not be.

And they will also get the impression that, if they have Uncle Sam giving money into their collection plates, then other people in the congregation can decide to spend their money on something else. I think it's very destructive to the idea of genuine charity to have Uncle Sam look like he is bailing you out if you decide to go buy a pizza with your five dollars instead of putting it in the plate.

And that is precisely what's happening.

FALWELL: We're certainly not interpreting that way. The Southern Baptist Church is 47,000 of them; 16 million Southern Baptists will give somewhere between $5 and 10 billion this year. And a vast majority of it will go into ministry to people, not in bricks and mortar. And not just in America, but around the world.

LYNN: That's just evangelism, it's not for social service, according to their own officials, last week. So I'm afraid that what you're going to see...

FALWELL: Well you're talking about the headquarters in Nashville, and the agencies. The 47,000 churches have their own budgets, and their own ministries like ours, the Liberty Godparent Home for Unwed Mothers, the adoption agency, the home for alcohol-and drug-addicted men, our inner city ministry. We actually own and operate an urban church totally, and so forth...

LYNN: I understand that.

FALWELL: As do 47,000 other churches in this country.

LYNN: That's (UNINTELLIGIBLE), but the problem is...

BLITZER: Gentlemen, I want to take a quick caller -- we only have a few seconds left, but let's take a caller from Houston, Texas.

Please go ahead.

CALLER: Yes, this won't end government programs already doing drug intervention, and it will just aid religious organizations. If I feel as an American citizen that it would help me better to go to a religious organization, of any -- if I'm Jewish or Muslim or whatever, and -- get help in that form, aren't you discriminating against me, and seeing -- the way that I think I could be helped?

BLITZER: All right. Barry Lynn, go ahead. LYNN: I don't think we are not discriminating against you, because in fact if this is a mission, a ministry of a church just like the church itself can't get federal money, we don't give one percent of the budget to Protestants and two percent to Catholics, we don't have that kind of a battle every year in the budget. We shouldn't have it for the ministries and missions of those churches either. I do think it's important to find ways for individual Americans to help those organizations through tax donations to organizations that they approve of.

But to get the government of the United States into the business of funding peoples religious conversion through programs like Teen Challenge or others, I think is a terrible mistake. I think ultimately it breaches the integrity of the religion and of the state.

BLITZER: All right, Reverend Falwell, you're going to have the last word, but I just want to ask you very quickly, cause we only have a few seconds left, do you want your tax dollars going to these three churches, the Church of Scientology, the Unification Church and the Nation of Islam?

FALWELL: As long as my tax dollars are going to all and every -- including Evangelicals every church has access, I have no problem. I give a lot of money that I don't approve of the way it's spent in the Pentagon and other places, but to answer the question. The ACLU and Americans United have separation of church and state, if they had their way, would not allow tax -- a tax break for property real estate taxes for churches; would not allow tax deduction for contributors to local churches and so on. They fight against things like all with God all things are possible, the Ohio State motto which thank God the courts just ruled in favor of, and so on.

Their real problem is they want particularly Evangelical and conservative religion particularly Christianity ruled off the playing field, and this is just one more way they have of doing its.

BLITZER: Unfortunately gentlemen, we have to leave it right there. I know Barry Lynn does not agree with you, Jerry Falwell, that's not going to be a big surprise.

FALWELL: But he knows it's true.

BLITZER: But I want to thank both of you for joining us, thank you especially on this Sunday.

Just ahead, President Bush reversed his position on a campaign pledge this past week. Did he sacrifice his environmental chief in the process? We'll go 'round the table with Roberts, Page, and Brooks when LATE EDITION returns.


BLITZER: Welcome back.

Time now for our LATE EDITION roundtable. Joining me, Susan Page, Washington Bureau Chief for "USA Today"; Steve Roberts, Contributing Editor for "U.S. News & World Report"; and, David Brooks, Senior Editor for "Weekly Standard."

Steve, some would call it a flip-flop, others are calling it a thoughtful policy reversal. President Bush last September, during the campaign, said this about carbon dioxide emissions at power plants.

Listen to what he said.


BUSH: With the help of Congress, environmental groups and industry, we will require all power plants to meet clean air standards in order to reduce emissions of sulfur dioxide, nitrogen oxide, mercury and carbon dioxide within a reasonable period of time.


BLITZER: Of course, this past week he announced that he had changed his position.


BLITZER: Given the fact that there is an energy crisis out in west in California, the economy is sputtering, a thoughtful reconsideration?

ROBERTS: No. This is a political decision, based on the fact that his big money contributors and the coal industry and elsewhere have put pressure on him. And also the fact that the this an example of how the Senate is because it's 50-50, he can get pushed around a little bit. And Joe Lieberman said that, said you know, this doesn't bode well for some of his other policies.

I think there were some western state senators, coal state senators, said you want our support on other things, you've got to reverse it. And he hung his EPA Administrator Whitman out to dry. She spent a whole month talking about this. I think he's totally ineffective now. And, I think this is just politics, that is all.

BLITZER: Is that what it is, David?

DAVID BROOKS, CNN COMMENTATOR: No. It is substance, too. One of the things we've learned about George Bush is he likes overruling his cabinet secretaries. You know, there was talk we'd have cabinet government and Bush would be weak figure. Nonsense, it's not true.

But there is substance here. The Department of Energy did a study, during the Clinton years, about the four major pollutants that Bush mentioned in that address. They decided there is no commercially equitable way to regulate carbon dioxide. If you do it, you have to raise the price of coal fired energy by four times, natural gas goes up. We are really looking at an economic catastrophe if we go ahead with some of these regulations.

BLITZER: Susan I want you to respond.

SUSAN PAGE, CNN COMMENTATOR: Environmentalists do dispute some of those numbers in that Energy Department study, saying they're inflated, it wouldn't be nearly that expensive. The response from White House, I thought, was interesting. Their argument was, well Bush didn't really mean it. He only said it in a speech. When the speech was over, he turned around and said why did I say that. Doesn't it raise the question that this is their defense. I mean shouldn't he read through a policy speech before he gave it? And, if he has a problem with that position he's outlining, shouldn't he make it clear?

BLITZER: On that point, David, there are people who say somebody just stuck it in the speech and he read it and it was mistake to put in that speech.

BROOKS: Well, if you notice he said carbon bonoxide, so that's where we're going to reduce the emission, not carbon dioxide.

BLITZER: But, you know, Steve, you point out that this is an embarrassment for Christie Whitman, the Environmental Protection Agency Administrator. She was asked about it earlier this week on Friday. Listen to what she said.


CHRISTINE TODD WHITMAN, EPA ADMINISTRATOR: He acknowledges that this an issue with which we need to deal. And that he is ready and willing to work with our allies.

QUESTION: But you were taken by surprise, were you not?

WHITMAN: No, I was part of the discussion. I knew what was going to happen.

QUESTION: Has this strained the relation between the two of you?

WHITMAN: Not at all.


BROOKS: Yes, she knew it was going to happen about 12 minutes before it was announced. Please. This woman has spent a month talking about this. She's gone all over the world talking about how there are negotiations ensuing, about worldwide agreements on these things, under the Kyoto Agreements. And she has just totally had the legs cut out from under her.

And one of the things that, I think, is a potential downside for this administration -- foreign governments look at the new Bush administration and say we -- can we trust this guy's word? Because his own representative has been saying this all policy, all of a sudden it is not.

BLITZER: Has her credibility been undermined?

ROBERTS: Yes, but that is not Bush's fault that is her fault for getting so far out front. Nobody is surprised that Bush is suspicious of the Kyoto Accords, which are the accords governing all this. If you were voting last election, you knew Gore was for them, Bush was against them. This policy is utterly consistent with the general tenor of what he was saying in those terms. Now, Christie Todd Whitman, should not have gotten way out front the way she did. That is more her fault than his.

PAGE: I don't think repeating what the president said during the campaign in policy address is getting way out in front. I mean I think that is probably a cabinet secretary should be able to depend on that unless she's told otherwise. Now there was a clue this was going to happen because he put a line in the president's speech to a joint session of Congress about this reiterating the campaign promise which was deleted at the last minute. And maybe that should have been a clue to Christie Todd-Whitman that something was coming down the pike.

ROBERTS: Maybe she didn't know that it was deleted.

PAGE: Maybe so.

BLITZER: Maybe she should've known it was deleted. All right. We're going to take a quick break. A lot more to talk about with our roundtable when we come back.

Stay with us.


BLITZER: Welcome back to our roundtable.

You know, David, I want to play for you a sound bite from Tom DeLay, the House majority whip, on the tax cut initiative, suggesting that the $1.6 trillion proposal may not be enough. Listen to this.


REP. TOM DELAY (R-TX), MAJORITY WHIP: The Bush plan is a great beginning, but it's a floor, not a ceiling. Let's remember where the surplus came from as we design a fair tax relief plan.


BLITZER: Is that a realistic assessment that the 1.6 may just be the beginning, potentially could be a lot more?

BROOKS: Well, I don't know if it matters if it goes up or down, that number, but one thing is clear, the tax plan is sort of brain dead, that it was written two years ago for a totally opposite situation. It doesn't respond to the situation we have now before us. And that there should really be chance to radically rethink the tax cut. Maybe take some ideas -- some really pro-growth ideas the Republicans like, like cutting capital gains and some pro-growth ideas the Democrats like, giving people break at the middle-income level to boost consumption, marrying those two together. There really is an opportunity for some radical rethinking. And I think that's being done on the Hill.

BLITZER: Well, we know Tom Daschle earlier today made a suggestion that immediately cut the rate from 15 to 10 percent for everyone the first -- especially for the lower income groups. The House Ways and Means Committee proposal cuts it in the first year from 15 to 12 percent.

Is that new proposal from the Democrats going to get going?

ROBERTS: Well, I think it might have some attention, partly because of what David's saying. The situation is very different. You're now talking about -- if one of the rationales for the tax cut, as Bush keeps insisting it is, is because of the slowing economy and you have to inject money into the system, then under Bush's plan, most of the tax cut is back loaded and it's not going to kick in nearly enough time. So the Democrats, trying to get at some political advantage are saying, "Hey, you got to front load this tax cut. Get money into people's pockets right away." So I think it will have some effect.

BLITZER: Susan is Tom Daschle the leader of the Democratic Party today?

PAGE: Well, that's a -- you know, that's a difficult question. I don't think there's one leader of the Democratic Party now. And I don't think there is one Democratic Party, in fact. If you -- you know, Bob Reich is an example of the fact that there are different Democratic parties out there with different leaders.

Daschle is certainly the leader of a part of the Democratic Party that's very crucial in the Senate and an important figure. But not the only one. And we don't know, I think, now who speaks for kind of a critical mass of Democrats. Maybe nobody does quite yet.

ROBERTS: It reminds me of 1981 when Jimmy Carter left under a cloud, been defeated. Here you have Gore having been defeated. Clinton leaving under a cloud. Clinton really was -- if we had been talking two months ago, we would have said Bill Clinton would be the leader of the Democratic Party. He has undermined his own credibility.

And in 1981 with Ronald Reagan as president, it was left to the Democrats on the Hill to be the leaders of the party. They were the only voices -- it took them a long time. It took them at least a year before Tip O'Neill and the Senate Democrats formed a voice. But they never, ever, could compete with a president.

BLITZER: You know, David, Frank Rich, the columnist in the New York Times wrote yesterday that Al Gore in recent months since the election has been, in his words, "in the witness protection plan." He's become invisible. I take it he's not the leader of the Democratic Party right now.

BROOKS: Yes. No, that was a great line. And I think it's true. You know, he went off to teach a course somewhere. And I think it's probably intelligent from his point of view because nobody wants to be the leading Democrat right now because they're getting their head handed to them on a certain number of issues. The problem -- but I think if you had to pick one person of this constellation -- Lieberman and all these people, I think you would pick Daschle, merely because he's majority leader in waiting. That there could be some illness or death or something and then he becomes the putative -- he is...

PAGE: He's leader if only disaster were to strike somebody else.

BROOKS: But he is the only one who can emerge. I would say that.

BLITZER: He was on the cover of "The New Republic."

PAGE: He was. Although one problem is even among Senate Democrats, he's only the third best known Senate Democrat, right, nationally. Hillary is first and Lieberman is second. I mean, it's a tough position to be the leader of Democrats in...

ROBERTS: Teddy Kennedy also is probably better known.

PAGE: And Teddy Kennedy probably up there, too. OK, let's move him down to fourth.

BLITZER: Let's go around the table. I want to get your assessments. Tomorrow they start the debate on campaign finance reform. It looks like a -- there's the John McCain-Russ Feingold proposal. There is now an alternative from Chuck Hagel. President Bush has come in with his own principles. And of course, Mitch McConnell opposes all of the above. What's going to happen?

ROBERTS: Well, I think that there's a possibility something will happen of a modest nature. But I think the defection of the Democrats very serious news for the hopes of this bill. Senator John Breaux always a very important bellwether in the Senate. It's hard to imagine the majority of the Senate without John Breaux on anything. And his defection indicates that there's a real weakening of Democratic support.

So, I think you might get something like the Hagel bill, a modest cap on soft money. But I think the McCain bill is basically in trouble.

BLITZER: What do you think?

BROOKS: I agree. I'm struck in the tenor of the debate how everyone assumes the McCain bill will not work. They're all saying well how are the big money people going to get around this. And some people will say it will go to the state parties -- the money will flow through state parties. Other people say they're a lot more independent in explaining the truth.

But the bottom line is nobody believes this is a solution because the money can just go around any set of rules. So I agree with Steve.

BLITZER: Unfortunately, Susan we have to leave it right there.

PAGE: I'll tell you next week.

BLITZER: Next week we'll get your assessment of what happened this week. Thanks for joining us Susan, David, Steve. See you next week.

Just ahead: Bruce Morton's "Last Word."


BRUCE MORTON, CNN CORRESPONDENT: Big givers have a lot more to do with what bills get written and passed, what policies prevail.



BLITZER: Welcome back, time now for Bruce Morton's Last Word. In political elections, is money a necessary evil?


MORTON (voice-over): Monday, the Senate takes up an old complicated issue, campaign finance reform. What's the problem, money and the influence fat cats have on politicians. In Fred Thompson's 1997 hearings, we met Roger Tamrass (ph), who became a citizen in 1989 and gave $300,000 to the Democrats. Listen.


LIEBERMAN: Have you since then registered to vote?

UNIDENTIFIED MALE: I have not registered.

LIEBERMAN: You have not registered to vote?


LIEBERMAN: So that your participation in the political process has been limited to contributing to campaigns?

UNIDENTIFIED MALE: Well, I think this is a bit more than a vote.

LIEBERMAN: That's the problem.


MORTON: That is the problem. Big givers have a lot more to do with what bills get written and passed, what policies prevail than the average voter. But fixing the problem isn't easy. The Supreme Court ruled in 1976 that political contributions are like speech, they can be limited in the interest of removing corruption and appearance of corruption the court said. But a candidate can spend as much as his own money as he wants and the U.S. Senate is almost a millionaire's club.

John McCain, who's signature issue was campaign finance reform would ban soft money, contributions to political parties used for, among other things, issue ads which aren't supposed to promote a particular candidate, but usually do.

Others want to ban ads by issue groups, the pharmaceutical industry, the teachers union, whatever. But the first amendment says flatly, Congress shall make no law abridging the freedom of speech or of the press.

And if a candidate can advertise why not an issue group, freedom of the press has always meant if you own a press, you can print whatever you want. And campaigns have always cost money, even George Washington bought drinks for his supporters when he ran for Virginia's House of Burgesses. Three of the presidents on Mt. Rushmore were wealthy.

And there's another problem. Harold Ickes, a veteran of many campaigns summed it up in those 1997 hearings when he said water finds a crack, money finds a campaign.

My job, a political friend once explained is to take whatever rules they pass and bend them to my candidate's advantage. Today's ineffective laws began life as reforms. Public financing, but could parties and candidates still spend more?

Another factor, this Congress all got elected under the system we have now. What happens in the coming Senate debate may depend on what amendments pass, many, hundreds perhaps will be offered. Money and politics is a real problem. Figuring out how to fix it is hard.

I'm Bruce Morton.


BLITZER: Thanks Bruce. Now it's time for you to have the last word. Lee from Virginia writes this. Many think that this tax cut is a payoff to the rich, big business and big corporations, but I think there's more to it than that. Everyone seems to be overlooking President Bush's own self motivation, it's known as greed.

Steve writes. I really wonder if Bill Clinton and his wife are really laughing at us. They have gotten away with so much. Now they are still in the news, they just won't disappear quietly. The American public is quite blind when it comes to the Clinton's.

LATE EDITION will be right back.


BLITZER: And now a look at what's on the cover of this week's major news magazines. It's a trifecta. The drop in the stock markets is on all three news (OFF-MIKE). The economy, how scared should you be? Confidence is shaky, and what you can do now, on the cover.

"TIME" magazine is looking beyond the bear. Yes, it's scary out there, but a recession isn't a sure thing, with a bearish stockbroker on the cover. And on the cover of "U.S. News & World Report," bear trap, will tech stocks sink the rest of the market and the economy?

And that's your LATE EDITION for Sunday March 18. Please be sure to join us again next Sunday and every Sunday at noon Eastern for the last word in Sunday talk. And, if you missed any part of our program today, catch a one hour replay tonight 7:00 Eastern, I'll see you tomorrow night on Wolf Blitzer Reports, 8:00 p.m. Eastern. Until then, thanks very much for watching. Enjoy the rest of your weekend.

I'm Wolf Blitzer in Washington.



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