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CNN IN THE MONEY

Anti-Terror Tips; Judging Judge Roberts; Can American Workers Compete Against Overseas Labor?

Aired July 23, 2005 - 13:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.
JACK CAFFERTY, CNN ANCHOR: Welcome to the program. I'm Jack Cafferty. Coming up on today's edition of IN THE MONEY:

Looking for trouble. London is wired up against terrorism with a slew of security cameras. We'll try to find out if surveillance is the key to beating the next attack.

And, the courtroom and the boardroom. President Bush wants John Roberts to fill a spot on the Supreme Court. We'll look at how that could play out for American business. They like this guy a lot.

Plus, say uncle. Chinese companies going after some of Uncle Sam's homegrown firms. See if the United States still has what it takes to compete worldwide.

Joining me today, a couple of IN THE MONEY veterans, CNN correspondent Susan Lisovicz, and LOU DOBBS TONIGHT correspondent Christine Romans.

So Shakespeare said it best: "it's a tale full of sound and fury signifying nothing." The Chinese made this big announcement, we're going to revalue our currency, we're going to value it against a basket of currencies as opposed to valuing it against the dollar, only we're not going to tell you what's in the basket, that will be a secret.

CHRISTINE ROMANS, CNN ANCHOR: And this is just a little, tiny first step toward that revaluation, some 2 percent or something.

CAFFERTY: Sure.

ROMANS: I mean, American business says they like the way this is going, but it doesn't necessarily -- going to translate to anything for them right now.

SUSAN LISOVICZ, CNN ANCHOR: Well, you know, it's interesting, because you had a big reaction on Thursday. It came out before the markets opened. And at first the futures went way up. It's like, yes, this is the right step in the right direction. And then the market sold off. It was a very busy day, including the London attempted bombings.

But there was a lot of "on the one hand/on the other hand." OK. It makes U.S.-made goods more competitive. On the other hand it makes Chinese-made parts more expensive.

CAFFERTY: Of course.

LISOVICZ: And guess what's made in China? Everything. And it was that kind of thing, like, well, maybe interest rates are going to go way up and that will inhibit U.S. consumption and the housing market.

CAFFERTY: There's a certain naivete in this country that somehow an announcement like this means that it's going to be good for us and bad for the Chinese. The Chinese are not going to do anything that isn't good for China -- period, end of discussion. Why Wall Street or anybody else got all excited about what this thing may mean, it doesn't mean anything as far as benefiting us.

ROMANS: Right. China has a national strategy.

CAFFERTY: Of course.

ROMANS: A national strategy to promote Chinese interests. The United States does not have that strategy. The United States has an ad hoc strategy that what is good for business is good for the U.S., except all of these businesses are now moving to China. So who's looking out for the U.S. strategy?

But overall, this is just such a small move, a move in the right direction, and the people who say this is in response to pressure from Washington, this is just a very little move. It takes another 50 steps like this to get where Washington wants them to be.

LISOVICZ: And China is the 800-pound gorilla. That is for sure.

CAFFERTY: They're killing us.

LISOVICZ: Yes.

CAFFERTY: Yes. They're absolutely killing us. And it will probably get a lot worse before it gets better and that's depressing. So, let's talk about something else. How about terrorism?

ROMANS: Oh, yes, that's depressing.

CAFFERTY: There's a happy thought. Londoners, no strangers to terror, after all the years of attacks from the Irish Republic Army.

To help fight terror, the British have turned to technology. In fact, there are now 500,000 live cameras on London streets and subway platforms, half a million of them. But does increased surveillance actually prevent terror attacks? And what about random bag searches and bomb-sniffing dogs and on and on and on?

Let's find out from our security expert Rafi Ron. He's president, CEO of New Age Security Solutions, joins us now from Washington, D.C.

Good to see you again, thanks for being with us.

RAFI RON, NEW AGE SECURITY SOLUTIONS: Thank you for having me. CAFFERTY: The conventional wisdom is this, if a suicide bomber is intent on taking his own life in the process of setting off an explosive device, there is next to nothing that can be done to stop him. Put all of this into a little perspective for us if you would, 500,000 surveillance cameras, random searches of backpacks on the subway, bomb-sniffing dogs, going to help?

RON: Well, first of all, let's look at this myth that a suicidal terrorist is unstoppable. The real-life situation is that most of them are being stopped as a result of good intelligence in those areas where the intelligence network is good enough -- for example, in Israel where over 90 percent of the attacks are being stopped by good, quality intelligence.

But when it comes to the field level, surveillance is a critical element. There's no question about it. Cameras are important as long as there is somebody in real-time watching them that can respond to what he sees on the screen.

Now, half a million cameras out there do not allow people to sit vis-a-vis the screens and try to watch all this huge amount of information that is pouring from the cameras.

So, we need some sophistication in order to filter this information and try to make it -- only to make only the relevant information come across to the decision-making position, where a decision can be taken immediately on the spot, because otherwise it might be too late and the video information could be only relevant for the investigation after the attack.

LISOVICZ: Rafi, so you're saying that the security cameras, the random checking of bags, OK, maybe it makes people feel a little bit safer and maybe it might deter, might deter, a particular attack or lessen the impact. But what is your intelligence on our intelligence? Have we, the U.S., made great strides since 9/11 or any progress at all?

RON: Well, I think that mass transit has been in the attention -- in the force (ph) of the attention only during the last few months at the level that it is now. And, obviously, we are yet far from where we have to be. I think that the developing skills of personnel and law enforcement people to focus on the right issues, whether they are detecting suspicious behavior or suspicious items, is a critical element. We've seen some of this already happening. Not enough yet.

As far as technological systems, yes, there has been some improvement on the surveillance systems, but, again, not enough and not yet -- that information is not yet being processed intelligently enough to help us prevent and deal with situations when they occur.

Mostly today surveillance information would allow us to do a better investigation after the attack. And that might be too late for those people that will be the casualties of these attacks.

ROMANS: Right, we can start capturing pictures of who we think are suspects and we can see four bombers coming into the train station, of course. Here in the United States, though, we have this little problem with these civil liberties groups who are concerned about racial profiling, they are concerned about taking people's rights away.

How do you use intelligence and technology together, but at the same time satisfy people in this country who, you know, say that we're sort of built on the idea that you have liberty and you can get into a train and not have to worry about, because of the way you look or your ethnicity, that you're stopped and searched?

RON: Yes. I think that there's no contradiction here whatsoever. I think the easy way out is to pick up on people of so-called Middle Eastern appearance. I think that, that would be a great mistake because, as we've seen, the latest attacks in London were carried out by local people. There are over 100 million people that look very much like those people that carried out the attacks in London.

Some of the worst attacks in Gurion Airport in Tel Aviv in Israel were carried out by Japanese terrorists back in the '70s. Later on, we had an Irish girl without her knowledge trying to take a bomb on board an El Al airplane. And we've seen a lot of examples of attempts of al Qaeda and other radical organizations to recruit people that do not meet the so-called traditional Middle Eastern terrorist ethnic profile.

So racial profiling is not only bad legally and morally. It is also bad professionally. And I would strongly recommend for law enforcement and anybody else not to use this criteria as its tool in the fight against terrorism. It's behavior that we have to focus on.

CAFFERTY: A big portion of your background has to do with designing some of the security that remains in place today in Israel. You helped develop security for El Al Airlines. You helped develop security for Israeli embassies around the world.

Israel arguably has as good security systems as exist on the planet when it comes to fighting terrorism. It was born out of a desperate need to develop these things, I understand. But address for just a second if you would the mindset of a country like Israel versus the mindset of a country like the United States, which arguably has done comparatively little to protect itself in the wake of the events since September 11th.

RON: Yes, I think that this is reflected by the effectiveness of some of the decisions that are taken. We can see that, for example, an area that the U.S. have addressed very substantially since 9/11, and that is aviation security. Even in that area, we -- some questions have been raised lately by GAO and others as to the total effectiveness of the system and the investment that was made.

Because I think that in Israel, when we -- they start to look for a solution, we start by defining the threat, identifying it correctly, and then coming up with solutions that mitigate the threat in a comprehensive manner. I'm afraid that sometimes what we see here is a tendency to jumping to quick conclusions that acquiring and installing a technological system may solve all our problems. There's a great tendency to avoid the human decision-making in the process. And these are weaknesses that as long as we will not develop our abilities in these areas, we will still have those weaknesses.

CAFFERTY: Interesting stuff. I'd like to pursue this with you some more at some future time. Unfortunately, right now, the clock has beat us up. Rafi Ron is the president and CEO of New Age Security Solutions, joining us from Washington. Thank you very much for being with us.

RON: Thank you.

LISOVICZ: And remember to stay tuned to CNN day and night for the most reliable news about your security.

When we come back, what John Roberts' future means for your money. We'll look at how the Supreme Court and the justices who sit on it affect America's business.

Also, Beijing Bling. A Chinese company is set to shell out for Unocal, but an American company just upped the ante. See if the U.S. still has the chops to compete worldwide.

And, this little piggy went to market. See if Altria's latest numbers are lighting up Wall Street.

(COMMERCIAL BREAK)

CAFFERTY: President Bush's nomination of John Roberts for a Supreme Court post is expected to be a hit with business leaders. Roberts has extensive experience in arguing cases before the high court, including some business cases. And people who know him say Roberts is steady, fair-minded, and won't spring any surprises.

For a look at how this nomination could play out for American business, we're joined now by David Boies, who's chairman of the law firm Boies, Schiller & Flexner and author of the book "Courting Justice."

David, nice to see you, thanks for being here.

DAVID BOIES, CHAIRMAN, BOIES SCHILLER & FLEXNER: Nice to be here.

CAFFERTY: Before we get to the relationship of the business community, is this nomination going to fly or are the Democrats going to fight this?

BOIES: I think obviously the senatorial process has got to play out. But I think that if you were to predict it now, you would predict that he will be confirmed.

CAFFERTY: What makes you say that?

BOIES: I think he is somebody who, by all accounts, is somebody who is well-qualified. He is somebody who I know somewhat, but the people who know him a lot better than I do all have the same view of him as a careful person, a very good judge, a good lawyer, somebody who is very smart, somebody who has a lot of respect for the integrity of the court, the role of the court, the Supreme Court, in our system of government, somebody who will be on the court probably for a very long time, given his age, and will have an opportunity to make a significant impact.

LISOVICZ: And, David, it should be said that you've worked with Judge Roberts on two different cases, on two different sides of the fence, right? On Microsoft, you were on the same team, so to speak, a very large team.

BOIES: Basically.

LISOVICZ: And then with the recount, with the first election, the first George Bush appointment, I guess, we should say, you were on opposite sides. What kind of personal observations can you share with us?

BOIES: I don't really have a lot of personal observations because he was at the appellate stage in the Microsoft case. I was at the trial stage. He was representing the states. I was representing the Department of Justice. And, of course, in the Bush v. Gore 2000 election controversy, we were on different sides and never appeared in court together.

But I have met him. And everybody who I talked to who know him well confirmed the impressions that I've had in the limited experience I've had with him, which is he's very personable, easy to get along with, low-key, thoughtful, reflective judge and lawyer.

ROMANS: And there are some liberals who say that he's too conservative. But, you know, when you're president of the United States, that's what you get to do, you get to pick who you want for some of these jobs. Obviously, the president was going to pick somebody who was conservative. Is he conservative enough to make the business community happy?

BOIES: I think he will be a good judge for business. I think it's a little bit of an oversimplification to talk about pro-business judges. But I think if you're going to have that kind of label, he probably will fall into that category. I think it's important to note, though, that in replacing Justice O'Connor, the impact on business is going to be a lot less than the impact than perhaps in some other area.

In the area of business, Justice O'Connor was pretty pro- business, too. So I don't think the change is going to be that significant.

CAFFERTY: According to published reports, members of the business community were interviewed at some length about who they might like to see in this job. And Judge Roberts gets the endorsement of big business in this country. So you've got a conservative white male who is the darling of the corporate community. Not exactly moderation there in that description, is there? BOIES: Well, he certainly doesn't add a lot of diversity to the court. On the other hand, in terms of moderation, I think you have to look at the way he approaches legal issues. Is he going to be conservative? Yes, he is going to be conservative. Is he basically I think going to favor what I think business thinks of as its interest? Yes, think they will.

But part of what business is looking for is somebody who is predictable, who is going to follow the law, who is going to be careful in making judicial decisions and articulating the bases for those decisions. And in that respect, it's not the question of being conservative or liberal, it's being a good legal craftsman.

LISOVICZ: And yet, David, one of the things I guess that is a question even for conservatives in the Bush administration is there's not a long paper trail for Judge Roberts sitting on the bench. And history is littered with Supreme Court justices who have gone a different way once they got appointed to the Supreme Court.

BOIES: And particularly after they've had a chance to be on the court for a while and develop as only being on the court can allow them to develop, their own judicial philosophy. So I think that it is premature to try to plot Judge Roberts' or Justice Roberts' judicial path too far into the future.

I do think, on the business area he is more likely to be predictable in that area, than perhaps in some others.

ROMANS: Let me ask you how tasteful the confirmation process is going to be, do you think? Tasteful, Washington, I know those are two words that don't go together. Tell us how you think that's going to play out.

BOIES: I think it will be. I think it will be dignified. The Senate has a constitutional obligation to examine the qualifications and the position, not just whether the person is a smart, good judge, but whether the person's ideology is consistent with the kind of ideology that is acceptable to the Senate. But that process I think will be carried out in a dignified way.

CAFFERTY: The great fear, of course, of certain members of Democratic Party and certain liberal constituents in this country is that the nomination of Judge Roberts, or whoever may be selected ultimately to fill Justice O'Connor's absence, is not going to be moderate enough or liberal enough on social policy.

The great fear is if you put another conservative on the court, that when things like abortion-related issues come before the court, we can see the erosion, gradual or perhaps even more sudden, of things like a woman's right to choose. Is this going to be a problem when it comes to his confirmation? BOIES: I think it could be to some extent. Certainly replacing Justice O'Connor, who was in the center of the court with somebody who was much more conservative than Justice O'Connor is, is going to have an impact on the court and it's going to have an impact perhaps on the very social issues that you identified. Now, remember, in his confirmation hearing to go on to the court of appeals, Judge Roberts referred Roe v. Wade as "settled law" and said he would respect that settled law. And everything that we know about him is that he is a judicial conservative, in the sense of not wanting to go in and overturn a lot of precedents, believing that the policy of the law is an incremental adjustment.

Now, I think that on the margins there will be some erosion on some of these social issues, like a woman's right to choose. I think that's going to be something that the Senate is going to inquire into seriously and they should.

But I think when it's all said and done, their view, I believe, unless something comes up that we don't expect, will be the view that I have, based on my knowledge of Judge Roberts, which is that he will follow the law. He will be respectful of precedent.

ROMANS: We have to leave it there. David Boies, thank you so much for joining us, chairman of Boies, Schiller & Flexner. Thank you, sir.

BOIES: Thank you.

ROMANS: Coming up after the break, Wall Street or Tobacco Road? See if the bulls are holding up their cigarette lighters over Altria's latest numbers.

Also ahead, the middle class crunch. You thought you were getting a tax cut but you may find yourself owing more to Uncle Sam. Find out if you could get hit with the alternative minimum tax.

And it's just a little fender bender. We'll show you a Web site that's got something for art fans and insurance companies alike.

(COMMERCIAL BREAK)

LISOVICZ: Now let's take a look at the week's top stories in our "Money Minute."

Ads like this one for GM's employee discounts for everyone have been getting lots of attention, but they're not doing much for the bottom line. General Motors reported a $286 million loss for the second quarter. The company said rising sales could not offset health care and other costs. GM has now lost money for three consecutive quarters.

Hewlett-Packard is cutting its workforce by 14,500 jobs. That's 10 percent of its current number of employees. The cuts will be made over the next year-and-a-half. HP is also freezing some pension and retiree medical benefits. New CEO Mark Hurd is hoping the moves will prove the company is serious about cutting costs.

And if you've decided to cut down on your back-to-school spending this year, you're not alone. A new survey from America's Research Group says parents plan to spend an average of 296 bucks on new school supplies and clothes this year. That's way down from the $411 they averaged in '04. ROMANS: Altria shares were in play this week, thanks to strong second-quarter profits. Higher cigarette prices and better overseas sales were responsible for those better numbers. Philip Morris renamed its parent company Altria after it decided to separate cigarettes from Kraft Foods.

Now as you can see, it has been a pretty good year for Altria shares. They've been on a climb for the last seven months or so. And right now they're trading near 52-week highs.

Altria and the tobacco business overall is our "Stock of the Week." Even with litigation, you can't keep a good tobacco company down, I guess. They are the sin of sin stocks and the stock has been doing very, very well.

LISOVICZ: But, you know, you have to say that litigation is just around the corner, not only on health care costs, right, you know, the health care impact, I should say, but now the DOJ, the Department of Justice is coming back and asking for re-read on a racketeering case. So that's something that you have to consider.

This stock is trading near 52-week highs. The price increases for Marlboro Man and so on have worked real nicely for the bottom line. But you have to take that into effect that this is an industry that has been hard-hit by litigation.

CAFFERTY: The money has got to be coming from overseas, right?

ROMANS: Absolutely.

CAFFERTY: I mean, they're charging, what, $7 a package or something here in the United States. Apparently smoking is on the decline here. You've got companies that won't even hire people if they're smokers. We have learned now how deadly tobacco is. So they've got to be making their bucks off-loading these cancer sticks on unsuspecting foreigners.

ROMANS: I wonder if litigation, you know, it is a big, dark cloud over this company. You know, they say...

CAFFERTY: Not exactly if their marketing plan.

(LAUGHTER)

ROMANS: But, I mean, I wonder if...

LISOVICZ: You want to cut it there.

ROMANS: No. But I wonder if it's that not necessarily that much of an uncertainty. I would say that investors don't like uncertainty. Maybe investors have built in the fact this company is going to have a lot of litigation problems. They like the dividend, they continue to like the dividend, and they think that overseas sales are going to continue to plow ahead.

But clearly overseas governments, especially in emerging markets, don't seem to have the concerns the Department of Justice and others do.

LISOVICZ: Well, they have many other concerns.

ROMANS: Right.

LISOVICZ: And let's face it, the Marlboro Man, that's one of the most recognizable brands in the world. That's right up there with Coca-Cola. So, sure, people understand right away. And they're -- even in emerging markets, they're brand conscious.

ROMANS: A lot of money managers won't buy this, you know, the socially -- the social awareness ones won't buy it. And that has never slowed down the stock. So Altria, Philip Morris, they could change the name, the ticker symbol is still MO.

(CROSSTALK)

LISOVICZ: Big M-O.

ROMANS: You can change your name, but we still know you're a tobacco company.

Coming up on IN THE MONEY, heavy lifting with Chinese and Indian companies coming on strong. Find out if America still has the muscle to compete.

Plus, shutting down the alternative minimum tax, plenty of middle class taxpayers want to do it. I'm one of those people. We'll look at what a presidential panel has to say.

And the cons and pros of the celebrity sex tape. As Colin Farrell sues a playmate over his version, see what a little dirty laundry could mean for his career.

(COMMERCIAL BREAK)

LISA SYLVESTER, CNN ANCHOR: I'm Lisa Sylvester at the CNN Center in Atlanta. IN THE MONEY returns after a look at stories "Now in the News."

Not connected. Police in London say a man shot and killed on a subway train had nothing to do with the botched bombing attacks on Thursday. Police previously said the shooting was directly related to the ongoing terror investigation. Authorities have not identified the man.

A searing heat wave is causing misery across much of the country. Triple-digit temperatures are blanketing part of the Midwest and the Southwest. The blistering heat is blamed for at least 21 deaths in greater Phoenix.

I'll have all the day's news at the top of the hour, including the latest developments in the bombing investigations in London and Egypt. Now back to IN THE MONEY at CNN.

ROMANS: Within the last few weeks, Chinese firms have grabbed U.S. attention by doing what we're used to seeing American companies do, cross the ocean and try to buy businesses. That's one factor raising U.S. concerns about whether America can compete in the global business world.

But our next guest thinks the real question is, can Americans compete? Jeffrey Coleman of "Fortune" magazine is going to tell us about that. He joins us now.

Can Americans compete? And at what price, I guess, is important here?

GEOFFREY COLVIN, FORTUNE MAGAZINE: You have put your finger on exactly it. The big issue is, for a lot of working Americans, are they worth what they cost? Because in a global labor market, which more and more people are in for the first time, that's what it's all about. And millions of them are going to find that they are not worth what they cost. And there are only two ways out of that. Be worth more or cost less. The painful one, the second one, is the way more and more people are going, at least for now.

LISOVICZ: You know, it's interesting, Bill Gates, for instance -- and this is not something new, but just, I think in the last few days, he said, I need people who are strong in computer sciences. These jobs pay well. The U.S. market, best-paid labor force in the world. And we're not strong in these areas, in math and sciences. It's crazy.

COLVIN: Yes, it's incredible. But we've all seen these numbers, how the United States ranks very poorly in math scores in school, science scores. These people are being educated awfully well in India and China, in huge numbers, far larger than the numbers of graduates we have here. And they will do the work and they will do it beautifully for a fraction, a fifth or a tenth of the costs.

There are computer software writers in the United States who are making $100,000 a year who are being fired left and right because those companies can hire people who will do the same work at least as well for a fifth or a tenth of the cost.

CAFFERTY: Are we just witnessing the inevitable decline of having been at the top the mountain for a very long time? We had it all going our way, and we don't anymore. Our schools don't work. Our health care costs are obscene.

COLVIN: Way up.

CAFFERTY: The three major American automobile companies will probably be out of business as a result of health care costs and other legacy problems.

COLVIN: Right.

CAFFERTY: Cheaper overseas labor. We don't make anything in this country anymore. It's a service-oriented economy.

COLVIN: Yes.

CAFFERTY: Is it just -- is the game just starting to be over here, for now?

COLVIN: Well, I think the big point that you have identified is that things are in a way, equilibrating. In other words, the U.S., as you said, was way out in front, beating the world for a long, long time. Well, a lot of that was simply for reasons that are disappearing. A lot of it was that the rest of the world was bombed to rubble after World War II and it took them a while to recover. We also had a much superior education system for most of the 20th century, but now the rest of the world is coming up to match us there.

More and more of the whole world economy is service-based, which means this work can increasingly be done, in theory, anyplace. Any kind of claims processing or accounting or financial services, media software, it can all be done in theory anyplace.

ROMANS: But we've been able to -- for example, the math and science issue before, 26 percent of our Ph.D.s in this country were born in another country.

COLVIN: That's right.

ROMANS: We have been able to take the cream of the crop from other countries and bring them to the United States where they can live the American dream. As an American, seeing this equalizing, I'm not quite so sure that's a good idea. The United States is the engine of global growth. Shouldn't we, corporate America, and our government, be trying to make sure that we have the best and we are driving, because if what's good for America ultimately should be best for the rest of the world. Is that naive?

COLVIN: Well, no, but what we want to be doing is attracting all those people from the rest of the world to come here and stay here. This has always been the great strength of America, the best, brightest, most ambitious people around the world were attracted to come here because this is where they could make the most of their lives.

And so we would love to keep having that happen. What is happening instead is that, as you say, an awful lot of those Ph.D. candidates are from other parts of the world. They're coming here, getting their Ph.D.s...

ROMANS: And leaving.

COLVIN: ... and leaving in much greater numbers than they used to.

LISOVICZ: So what's the solution here? It's sort of something that, you know, we were weak in math and sciences. And one of our guests had said, you know, they used to -- when we were growing up, it was, hey, make sure you eat all your food because there are people starving in China. Now it's make sure you do really well in school because there are people starving in China for your job. It has really come to that.

COLVIN: Yes, it has. It has absolutely come to that. And so when you ask, what should we do? Ask anybody, the number one prescription is always one word, education. Improve the educational system in the United States, particularly primary and secondary. The university system is still awfully good. The primary and secondary education system is not awfully good.

And that's one reason that Bill Gates, for example, has given literally billions of dollars trying to improve American high schools. So step one is try to improve education, which of course is a huge project. I mean, this is a gargantuan challenge.

CAFFERTY: One of the things along those lines that we're learning is you can't just do that by spending billions dollars.

COLVIN: That is exactly right.

CAFFERTY: I mean, we throw money and money and money at the schools, and the schools continue to produce lower and lower test scores...

ROMANS: And we don't throw it at teachers.

CAFFERTY: ... especially in science and math. And we pay teachers next to nothing...

COLVIN: Terribly.

CAFFERTY: And we pay Barry Bonds -- or, you know, I mean, that's a -- but how do we develop somehow this national will to say, we're going to educate our kids? I mean, really educate our kids, make them go to school, make them study, make them learn, and make them become competitive on the world stage?

COLVIN: Well, and really in your question, I think you almost contained the answer, which is how do we develop the national will? It is a cultural thing. You know, we can talk about passing laws and spending more money. It's not going to do a thing unless culturally we simply decide as a people we have to be passionate about education. And, man, you can see in plenty of other countries where they are passionate about...

ROMANS: It might not happen until we're hungry again. When we're hungry, then we start to have some of the spunk of China and India and then we try to improve things again.

COLVIN: And, of course, the great history of the United States -- it's not great but it is the history of the United States, is that we respond to these things only when it turns into a crisis. When it finally gets seriously, desperately bad, we will do something, but typically not before.

LISOVICZ: Geoffrey Colvin, whose article appears in "Fortune" magazine, "Can America Compete," thank you so much for joining us.

COLVIN: My pleasure.

LISOVICZ: There's more to come here on IN THE MONEY. Up next, how a tax aimed at the wealthy wound up slamming the middle class. See what a presidential commission says about the future of the alternative minimum tax.

And, itsy-bitsy fender benders. We'll show you a car crash that can fit on a desk on our "Fun Site of the Week."

(COMMERCIAL BREAK)

LISOVICZ: The alternative minimum tax. Before you roll back your eyes and pick up the remote, consider this. According to the Treasury Department, 21 million families may be affected by the dreaded AMT next year. And that's up from 4 million this year. A presidential panel said this week that they want the AMT repealed. But that's easier said than done.

Donna Lavalley is a tax attorney and contributing editor of the best-selling "J.K. Lasser Your Income Tax Guide." She's here to sort it all out for us.

Welcome back

DONNA LAVALLEY, TAX ATTORNEY: Thank you for having me back.

LISOVICZ: OK. It's really unpopular. I certainly know. I thought I was getting tax breaks, until I met...

LAVALLEY: They swooped in.

ROMANS: Mr. AMT.

LISOVICZ: Mr. AMT. That's actually being nice, Christine. In any case, it's easier said than done, because the Treasury Department gets $1.2 trillion alone from the AMT?

LAVALLEY: Absolutely. And some experts have said the way things are going, you can actually repeal the regular income tax system and get more money out of the AMT system, because it's a very flat tax and so once you're in there there's really no way to plan around it. And one of the striking things is that common things that people do to lower their regular income taxes could actually push them into the AMT.

ROMANS: A lot of people had no idea they were going to get hit by this. And when I was in the newsroom about a month before tax time, Susan's door slammed. So did Bill Tucker's. Mine slammed a couple times. "Are you kidding me" I kept saying on the phone. And it really hurts. And this happened to a lot of people, especially in places like California, New York, where you have real high local taxes and state taxes. How do I make sure this doesn't happen to me next year?

LAVALLEY: There is no way to make sure, unfortunately. That's the point of it. There is no way to plan around it. There are no special good deductions or good ways to save or spend your money in order to avoid the AMT. What the problem is with the AMT, in addition to not being indexed for inflation, and it was put in place, you know, late '60s, early '70s, so it has been a lot of time. You've had two small increases in the exemption amount. There's nothing on the 1040 that tells anybody, hey, you know, if your income is this much, go to this work sheet, go to form 6251 and see if you're subjected to it.

So a lot of people find out that they're going to pay it when they get a letter in the mail from the IRS saying, you owe us this amount, plus interest and penalties.

CAFFERTY: I have somebody prepare my taxes, as I'm sure my colleagues on this program do, because I'm not smart enough to begin to understand how to do that.

ROMANS: That's why we're journalists, we can't do math and so we had to be journalists.

CAFFERTY: That's right. We just do these TV shows and this is a big enough challenge. Anyway, the story I started to tell is, this guy who does my taxes, and he has been a CPA for a long time, screwed this whole thing up for me this year. And I got this letter from the IRS, as you just alluded to, saying, a mistake was made on your return concerning the proper AMT something-something-something or other.

And apparently there are these ridiculous tables that they have to consult in order to come up with what -- and here's a guy who's paid to do taxes and he doesn't understand how to do it. You know, I don't blame him. I blame the thing -- the system for being so complicated.

This is like a boondoggle that was smuggled into the tent in the middle of the night when nobody was looking and now it's going to gobble up all the people in the tent.

LAVALLEY: Absolutely. And it's coming closer and closer to the middle class. Like you've mentioned, in places like California and New York with high state and local income taxes, that's what's called a preference item, things that you can normally deduct from your regular income tax. Well, you don't get a deduction for those on the AMT.

And so I recommend people, if you're single, you have adjusted gross income of $75,000 or more, or if you're a married couple, adjusted gross income of $125,000 or more, pay for the computations or do them yourself. But that's the point at which you want to start looking, am I subjected to this? Because you don't want to find out in the mail.

LISOVICZ: And, Donna, from what I understand, the panel is considering things like a national retail sales tax, a value-added tax, and a flat tax that would exclude taxes on interest, dividends and capital gains. As a professional, what do you think of those alternatives?

LAVALLEY: I think it's a good thing to explore. A lot of people -- the biggest problems with the income tax is lots of loopholes, lots of law, lots gimmicks. It's a compliance problem. It's a time problem for people. So anything that is more straightforward, if it happened at the register, or if it was a flat tax, I think people would be more happy with it.

Whether or not they would be happier -- you know, they don't get a deduction for their mortgage interest, they don't get a deduction for charitable donations, there's a lot of things that go into it besides putting a system into place, which I think politically would be a huge thing to do.

ROMANS: Let's talk about really rich people for a second here. If I'm not mistaken, their share of the overall tax burden has been declining over the past 20 or 30 years. Maybe that's part of what this whole AMT thing -- this was meant to get rich people who had a lot of other income -- it was meant to make sure that they were paying their fair share. So the middle class gets stuck with this AMT. Do you think that they should be raising taxes on people who are the super-wealthy in this country?

LAVALLEY: Well, I think if you're interested in a progressive tax system and you want to do away something like an AMT where it encroaches on the middle class, then that would be the way to sort of -- to get to it and to do it in a straightforward manner. Simply raise the revenue through the income tax code instead of the alternative minimum tax.

As you've seen, I don't know if anybody over there, have you seen the numbers, the greatest increases in the people subjected to the AMT are in the higher two brackets the IRS sort of breaks people into. That's not so much the problem, though.

The problem is, people -- for instance, a man, he had nine children. He paid an additional $4,000 in the AMT because between he and his wife and his children, that was 11 exemptions. And that's certainly not the people who were meant to be targeted by the AMT.

They could simply go in and index the exemption amount for inflation and that would probably save a lot of the middle class.

LISOVICZ: All for saving the middle class, that is for sure. That's what this show is all about. Donna Lavalley, contributing editor, "J.K. Lasser Your Income Tax 2005," thanks for joining us once again.

LAVALLEY: Thanks for having me.

LISOVICZ: Stick around, there's more to come here on IN THE MONEY.

Up next, career Viagra. Find out if the sex tape that goes public could give a celebrity a boost, if you will. And if you don't buy that argument, or you just want to rant about the news this week, drop us a line. The address, InTheMoney@CNN.com.

(COMMERCIAL BREAK) CAFFERTY: Well, if it turned out you were on an illicit sex tape -- my wife, for one, wouldn't believe it -- that went public, you would probably lose your job. But that's not the case for everyone. And that's the subject of Allen Wastler's "Inside Out."

ALLEN WASTLER, MONEY.COM: Ah, Jack, Jack. Did you follow the news this week about Colin Farrell?

CAFFERTY: Yes.

WASTLER: Apparently he and -- I'm assuming a former girlfriend, apparently -- and how does this work? They agree to joint custody of a sex videotape that they decided to make together. Whatever. She's -- apparently she's a former playmate, too, so she's apparently -- wants to distribute it and he's suing to stop her.

Now everybody's saying, oh, of course, you hate this stuff to get out. But I'm saying, now wait a minute, let's look at this from an economic viewpoint. OK?

CAFFERTY: Absolutely. It's a business program.

WASTLER: Let's look at the track record here. Let's look at Paris Hilton. OK?

LISOVICZ: Do we have to?

WASTLER: Just your run-of-the-mill multimillion-dollar heiress. But then the sex tape comes out on the eve her new wacky reality show. Suddenly, she's a big star, she has got her own line of all sorts of products. She gets 300 grand a club appearance, accord to Forbes. Wow, that's a lot. She's pulling down at least $6.5 million. She's now on the Forbes Celebrity 100.

From zero to, you know, big premier event. Let's look at Rob Lowe. Remember, he had one of those, too.

LISOVICZ: In Atlanta during the Democratic Convention.

WASTLER: And one of them was underage. Uh-oh. But so it came out, he laid low for a little while, all of a sudden gets a starring role on "Wayne's World" and then goes on to "The West Wing." That's very good.

Pamela Anderson. She was on downward. That tape comes out, all of sudden, she has got a TV series.

ROMANS: So you're saying this is good PR to have disgusting sex tape...

WASTLER: I'm saying that this...

ROMANS: ... and pretend like you're horrified.

WASTLER: Poor Colin, he did "Alexander," right? What else to wash the pain away... LISOVICZ: For some of us who unfortunately saw that movie, that was pornography.

(LAUGHTER)

LISOVICZ: I saw the movie with my nephews. I'm still apologizing to my nephews for that one.

WASTLER: I'm saying that if you look at the economics of the situation, it's better for them to just let it go, let it go there. Now other celebrities, think Hugh Grant, Peewee Herman, all those, remember, those had major eww factor to them. OK?

Also, they were crimes. And this wasn't somebody being essentially the victim of a broken trust agreement-type thing.

CAFFERTY: Are you suggesting that the Paris Hilton tape doesn't have the eww factor?

(LAUGHTER)

CAFFERTY: What was your point there?

WASTLER: Well, I don't know, Jack, it just seems to have worked out well. But she was a victim there. Her boyfriend sent it out without her...

ROMANS: I love these people are so egotistical that they think that they need to have a camera with them in the first place...

(CROSSTALK)

ROMANS: It's so gross.

WASTLER: Yes, sex in front of the camera, eww. Anyway, there's the argument for you.

CAFFERTY: What's the "Fun Site of the Week"?

WASTLER: We like to find interesting things. OK? And you've always struck me as kind of like a bonsai guy, you know, with the little tree and everything?

CAFFERTY: Are you talking about the little trees?

WASTLER: The little trees and everything.

(CROSSTALK)

WASTLER: We've found just the ones for you. Just the ones for you. This artist is putting together -- but they have sort of a modern effect. Let's take a look.

See that? That's a little model car he has got...

CAFFERTY: That's kind of cool. WASTLER: ... crashing into it. And he does a whole series of these. Oh, a classic car. A little booing! Ooh, that's bad. But he has taken these different models and done all -- that's one of my favorites right there, that...

CAFFERTY: The Beetle meets the bonsai.

WASTLER: But these are real pieces of art. He sells them for between $75 and $150. And you can get your little bonsai tree, but with the screaming wreck on it, Jack. And I just thought you would enjoy that. So there, something peaceful for you.

CAFFERTY: Well, thank you, Allen, I'm touched.

Coming up next on IN THE MONEY, time to hear from you as we read some of your e-mails from the past week. You can send an e-mail right now if you're so inclined. We're InTheMoney@CNN.com. If you keep it clean and coherent then we actually have somebody here who will answer your letter, poor pathetic soul that he is.

(COMMERCIAL BREAK)

CAFFERTY: It's time now to read your answers to our question of the week about how best to use taxpayer money to fight terrorism.

John wrote this: "We need to spend more on intelligence gathering and creating elite military units to take out terror cells. We should also spend what we need to keep these things quiet. By publicizing our efforts we feed right into the terrorists' propaganda."

Rowland wrote: "Just like when President Kennedy challenged Americans to land a man on the moon before the end of the 1960s, President Bush should set an effort in motion to get the U.S. off petroleum within 10 years, that way we would stop bankrolling oppressive Middle East regimes."

And Pat said this: "The best way to protect us from terror attacks is to hire more cops with dogs to patrol our mass transit areas. But that will never happen because no major corporation can make money on that."

Time now for next week's e-mail question of the week, it's this: Are your children living better, worse, or the same as you were at their age? Send your answers to InTheMoney@CNN.com. And you should also visit our show page at Money.com/InTheMoney which is where you'll find the address of our "Fun Site of the Week," those little trees with those little cars sitting in them.

Thank you for joining us for this edition of our humble program. My thanks to CNN correspondent Susan Lisovicz, LOU DOBBS TONIGHT correspondent Christine Romans, and Money.com Managing Editor Allen Wastler. Serwer is away on vacation this week. But I think he's back next week.

Join us next week, Saturday at 1, Sunday at 3, for another fun- filled edition of IN THE MONEY. Until then, enjoy the rest of your weekend.

END

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