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Inside Politics

CBO Increases Estimate of Budget Surplus; President Using Growing Surplus to Push for Tax Cuts

Aired January 31, 2001 - 5:00 p.m. ET

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

JUDY WOODRUFF, CNN ANCHOR: In tax cuts he trusts. How do new surplus numbers, and new action by Alan Greenspan's Fed figure in?

Also ahead...

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Nothing can change the suffering and loss of this terrible act. But, I hope the families do find some solace that a guilty verdict was rendered.

(END VIDEO CLIP)

WOODRUFF: A conviction in the 12-year-old bombing of a Pan Am jet, puts new pressure on the Bush administration. Plus: the debut of Professor Gore.

ANNOUNCER: From Washington, this is INSIDE POLITICS with Bernard Shaw and Judy Woodruff.

WOODRUFF: Thank you for joining us. Bernie is off today.

It doesn't hurt to have a head for numbers, if you're trying to follow the political debate in Washington. Interest rates are down again, after today's moves by the Federal Reserve. Estimates of the federal budget surplus are up, and the president and members of Congress are wrangling over the size of a tax cut.

We begin our coverage with CNN's John King.

(BEGIN VIDEOTAPE)

JOHN KING, CNN CORRESPONDENT (voice-over): The president says the new surplus numbers strengthen his hand in the tax cut debate.

BUSH: I think it helps further the case that there is enough money to pay down debt, to meet priorities, and to give some of the money back to the people who pay the bills, that is the taxpayers.

KING: The Congressional Budget Office now projects a surplus of more than $5.6 trillion over the next decade -- $2.5 trillion of that is the Social Security trust fund. And both parties promise not to touch that money, but that still leaves a pot of more than $3 trillion, as the president and Congress debate how to spend the surplus.

Mr. Bush says half of it: $1.6 trillion, should go to tax cuts, and some Republicans are thinking even bigger.

REP. RICHARD ARMEY (R), TEXAS: I think we ought to have a reduction in capital gains taxes to secure (ph) the investment of the economy.

KING: But Democrats say it doesn't add up, especially if Mr. Bush wants to keep promises to spend more on defense, education and a Medicare prescription drug benefit.

SEN. KENT CONRAD (D), NORTH DAKOTA: We could be right back in the deficit ditch so fast, it will make your head swim, if we are even close to the pessimistic forecast that CBO announced today.

KING: But the debate is clearly moving the president's way, thanks to the combination of the growing surplus and a slowing economy. $500 billion was the Democrats' bottom line on tax cuts last year. $850 billion, the party's opening offer, as the tax cut debate begins this year. Democrats say they are open to compromise, within limits.

SEN. TOM DASCHLE (D), SOUTH DAKOTA: I think there are a number of things, first of all, that we have got to address substantively with regard to, who gets the tax cut? Do we just say, the richer you are, the more you get, or is there another way to do it?

KING: Just splitting the difference between the Bush plan and the Democratic counter offer would mean a tax cut in the $1.2 trillion range.

(END VIDEOTAPE)

KING: Given how critical the Democrats were of the Bush plan during the campaign, the White House view is that the president is already winning the tax debate. The remaining question now, just how big the tax cut and his victory will be in the end -- Judy.

WOODRUFF: John, what about today's rate cut announced by the Federal Reserve bank? Is that playing into the White House calculations at all?

KING: Well, they certainly hope that will spur the economy. There are some Democrats who say, actually, that that works against President Bush, in the sense that you should leave trying to spur the economy to the Fed and then just debate fiscal policy separately -- budget policy separately.

But we have no reaction from the Bush White House -- that keeping with his new policy. He says he learned a very painful lesson during the transition not to comment on what the Fed does.

WOODRUFF: John, separately, tell us; the president is up to something a little later this hour? KING: He is indeed. He will meet with members of the Congressional Black Caucus; that, a meeting the president requested. He wants to sit down with the leading black members of the Congress, leading liberals, of course, too. Number one, on the agenda for the members of the black caucus: election reform. That is an issue that President Bush has promised to address, so long as he says it does not turn into a gripe session over the Florida recount.

The Democrats say they obviously need to discuss what happened in Florida, but they're trying to reach an agreement over how to proceed -- and in an aside earlier today -- at a meeting with catholic ministers, the president even made a joke about that. An archbishop introduced himself; he said he was from the state of Florida. The president laughed, and said, I'm thinking of naming my brother, who happens to be the governor, as ambassador to Chad -- Judy.

WOODRUFF: I wonder what the people of Chad think about that. All right, John King, at the White House, thanks.

Well, from the White House to Wall Street, the Federal Reserve's action today was widely expected. The Fed did lower its key short- term interest rate by a half percentage point, in an effort to bolster the sagging economy. CNN financial news reporter Peter Viles joins us now from Washington.

Peter, tell us, how will this move by the Fed filter into the broader economy, and how quickly?

PETER VILES, CNN CORRESPONDENT: Some of it, Judy, is immediate. Major national banks today cut their prime lending rates within minutes of the Fed action, cut their prime lending rates by half a percentage point. That means somebody who goes for a loan tomorrow may get a better rate than they would have gotten yesterday. The idea is to make it more likely for consumers and businesses to take out new loans, to show confidence in the economy; but a rate cut is also sending a signal to the American consumers and American businesses and investors that the Fed is on their side. Remember, a year ago, the Fed is trying to slow the economy down; this is the Fed sending a clear message to Main Street, the Fed is on the side of a stronger economy, and it is doing everything it can to speed up the economy.

WOODRUFF: Peter, what do we know about the current state of this economic slowdown?

VILES: Well, the economy is clearly slowing, and clearly slowing more rapidly than most people thought. Today, we learned that growth in the fourth quarter was at an annual rate of just 1.4 percent -- that's the slowest rate of growth in 5 1/2 years. Yesterday, we learned that consumer confidence is slipping quite rapidly. But this is not a worst-case scenario, unemployment is still just 4.0 percent; that is a terrific unemployment rate.

Inflation is still very low, and the advantage of low inflation is it gives the Fed free reign to fight this war on recession with lower interest rates; they don't have to worry about sparking up inflation, and Alan Greenspan said today that inflation remains contained, so that is good news about this economy.

WOODRUFF: Peter, when will all the layoffs that have been announced lately across the economy -- will that have any effect on unemployment?

VILES: We'll know the answer to that on Friday morning when we get the unemployment report for January, and economists do expect a slight up-tick in unemployment. But remember, some of these layoffs are spread over two or three years; I know the Chrysler layoffs, 26,000 job cuts there, those are spread over several years, so they won't necessarily all hit at once, but we do get a fresh reading first thing Friday morning.

WOODRUFF: All right, Peter Viles reporting from Washington. Thanks a lot.

We have more, now, on official Washington's response to these latest economic indicators. House Speaker Dennis Hastert is a key player as we know in the process. He spoke today with our Congressional correspondent Jonathan Karl -- Jonathan.

JONATHAN KARL, CNN CORRESPONDENT: Well, Judy, you just heard Peter Viles talk about those latest economic figures that show the U.S. economy growing at its slowest rate of growth in five years. I began my interview with Speaker Hastert by asking him, if in light of those figures, he is concerned about a possible recession.

(BEGIN VIDEO CLIP)

REP. DENNIS HASTERT (R-IL), HOUSE SPEAKER: I don't want to use the 'R' word. But I think there is two things we can do, there's fiscal policy and there's monetary policy. The Fed's done its part, lowering interest rates -- I think that's the right thing to do, and the Congress can do its part by lowering taxes. We know that that will put more money in the economy; it's a stimulant. It's going to take a little while for this thing to work out. But I think that's the best action that we can move forward and take, and I think we can prevent major downturn in this economy. We always see little adjustment -- I taught economics for a number of years, this is typical. But I think we can change that outcome by actually doing the right thing in Congress.

KARL: Well, if it's cutting taxes, the big question now is, how much? What kind of a number? You are going to need to make a decision on that soon, because you have your budget resolution. So, what's it going to be? How big a tax cut is it going to be?

HASTERT: The president has asked for 1.6 trillion over 10 years. We had budget numbers come out our surplus over the next 10 years; it's a $5.6 trillion. When you take Social Security and Medicare out of that, it leaves about $2 1/2 trillion. So, I think we have a lot of room to work. So, we want to do two things: we want to basically move forward with the president's tax cut proposal, and the second thing we want to do, is be able to pay down the debt. I think we can do both.

KARL: So, you'll have that $1.6 trillion figure in your budget?

HASTERT: We have to work it out. It's not -- nothing is absolute yet. But I would think that probably, we want to work with the president as closely as possible -- that's what he ran on. That's what most Republicans ran on to make sure that that tax cut for the American people could become a reality.

KARL: Now, by my count, you've been to the White House five times over the last, well, less than two weeks. What's going on?

HASTERT: Kind of like 10 days. As a matter of fact, I've been to the White House more than I've been in my office it feels like some days. But I think that shows a good cooperative effort we've laid down. You know, the Congress really has to work with the president to get these things done, especially the areas of fiscal responsibility, tax cuts, and those types of thing; getting the budget done to start to lay out what the appropriation process is going to look like.

And it's best when we can work together, and he just hasn't had Republicans down, he's had Democrats down as well to talk to him and try to, you know, sound him out, hear what they have to say and then try to put together a program that works. And I think that's good.

I found the president to be very attentive to what we have to say. I found him to be very articulate in what he wants to do, and he knows the nuances of a lot of these things that a lot of people didn't expect him to know, and he's been very, very much on top of this.

KARL: Now, as these education and other bills move through, obviously, you've got Dick Gephardt on the other side, either working with you or against you. You've had frosty relations with Gephardt. I mean, I remember last year he said that he got along better with Newt Gingrich than he got along with you. Is that going to be the same this time around?

HASTERT: He didn't ask for Newt back. But anyway, I'm just kidding. But anyway, what we'll do her is we've met with -- I've met with Dick Gephardt probably five different times this year, and we're trying...

KARL: Five times this year? That has to be more than you met with him all of last year; am I right?

HASTERT: Well, I mean, there was a difference of how we ran the House last year. And you know, that election is over. It's time to move forward, and I think we have some agreements and we've sat down and talked about some things and tried to move it forward on a more bipartisan basis.

KARL: Campaign finance reform seems to be getting momentum. It looks like we will see something like Shays-Meehan or McCain-Feingold pass the Congress. Should the president veto such legislation, and would you have votes to sustain a veto?

HASTERT: One of the things that I think anything we pass ought to be something the president should pass. We shouldn't go through and exercise just for the sake of going through the exercise that the president can't sign. So, I think we need to get some type of agreement with what are the parameters that the president can sign so that people benefit from this. People just don't get to demagogue the issue.

First of all, you know, I don't think we -- anybody, Democrats or Republicans, ought to be able to unilaterally retreat and say that we're going to give everything up to the other side, and some of those provisions and a couple of those bills basically do that.

I think if you're going to take soft money from at least the private sector, you ought to take soft money away from unions. And, you know, that's how you make this thing equitable. But on the other hand, you got to have something that passes the constitutionality test.

KARL: If the ultimate goal here is to pass something that the president can sign, should the president do what Tom DeLay has suggested and make it clear that in its current foreign, Shays-Meehan or McCain-Feingold, the current campaign finance leading bills out there, he would veto.

HASTERT: I think there needs to be a candid conversation on what's acceptable and what's not.

KARL: Vice President Cheney now has an office here on the House side of the Capitol that you've given to him. What's that all about?

HASTERT: Well, I think, first of all, Dick Cheney is the man of the House. I think with the close numbers in the Senate, he's probably going to be on Capitol Hill a great deal more. He's given important responsibilities by the president to really follow and manage some legislation, and I think it's appropriate that when he comes up here he has a place to work and can sort of step off and meet with some people rather than, you know, have to do his business in the hallways.

KARL: Is he going to be playing more of a role than vice presidents have in the past in terms of actually -- you know, obviously he's got a role to play in the Senate because he's going to have to be breaking, theoretically, a few more tied votes than we've seen in the past. But, you know, in terms of moving legislation through, talking to members, maybe twisting an arm or two?

HASTERT: I think he understands and has worked very much up to this point, very much of a partnership with President Bush, and I would assume that he will continue to do that, and I think he'll have legislative responsibilities. I think we'll see him up on the Hill a lot.

KARL: And then finally, over on the other side of the Capitol, John Ashcroft vote probably happen tomorrow. It looks like he will be confirmed as attorney general, but with as many as maybe 40 or maybe even more Democrats voting against him. Was it a tactical mistake for this president to move forward with such a controversial pick for attorney general? HASTERT: I think if you watched the history of presidents and Cabinets being put together, it almost always seems that there's somebody that's singled out to be -- to get spotlight. John Ashcroft, in this situation, happened to be this -- in this situation.

You know, I know John Ashcroft, and he has certainly been a good representative in Missouri, and certainly served in a lot of different capacities, one being the attorney general of Missouri. He knows this business. He's a man of principle. And you know, I think he has an impeccable record of public service and personal integrity.

And what more can you ask for? We have a lot of people who have different opinions about things, but that's what makes this country great. So, I think John Ashcroft will be confirmed and I think he'll do a good job you.

(END VIDEOTAPE)

KARL: Now you heard Speaker Hastert talk about how he wants to move forward quickly with the tax cut proposal. Meanwhile, Democrats are very much geared up for that fight. There were two press conferences here just today taking issue with the tax cut. And what's very interesting, Judy, is Democrats are not doing what Al Gore did during the campaign.

During the campaign, Al Gore put tax cuts into an issue of class warfare, talking about how Bush's tax proposal would benefit the rich. Not so here. What the Democrats are now saying is that it would be fiscally irresponsible. What they're saying is that the tax cuts would blow away the budget surplus, leave us in deficit and saying the Democrats are the party here of fiscal responsibility. It's a different message from what we heard from the Democrats just last year.

WOODRUFF: Jonathan, when the speaker said to you that he found the president more familiar with the details of policy than many expected him to be, was he referring to Republicans as well as Democrats?

KARL: I believe so. I mean, you know, what he's saying is that President Bush seems to know exactly what's going on with a lot of these bills. A lot of people, in Hastert's view and in the view of some of the other of Bush's allies up here, underestimated the president. Thought he would not be a detailed man, thought he would be talking in general principle. But what Hastert is saying is that in fact Bush knows what's in this legislation, especially when it comes to education.

WOODRUFF: And John, over on the other side of the Capitol, of course, the Ashcroft confirmation debate goes on. You did you ask the speaker about that, but bring us up to speed on where that debate and the vote stand right now?

KARL: Well, the floor debate is going on right now. Right now, we see the continuing debate. There's Barbara Boxer talking, obviously one of the strong opponents of the Ashcroft nomination. But Judy, very shortly we're expected to see come to the floor Chris Dodd of Connecticut, one of the former Democratic leaders in the Senate. Dodd is going to come forward and he is going to say that he will vote in favor of the Ashcroft nomination, we are told.

That brings to five the number of Democrats who will vote in favor of John Ashcroft. So, that's what we're looking at right now. Meanwhile, the Democratic leader Tom Daschle has come out and said that what he is hoping to have happen here with the Ashcroft debate, is he is hoping that they will get at least 40 Democrats to vote against him.

WOODRUFF: People surprised...

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), SENATE MINORITY LEADER: I think it would be phenomenal if we were able to reach 40 votes. I don't know if we can do that. Frankly, we're not there yet. But if we did 40- plus, it would be as strong a statement, I think, as we could make that if the time comes when it may be required, even on a nomination, that 41 of us stand together, we will be there.

(END VIDEO CLIP)

KARL: Now, of course, the significance of 40, Judy, is if the Democrats had 40 or more votes on a future nomination, they would have enough to kill the nomination by using the filibuster tactic because it would take at least 40 votes to kill the filibuster.

Now meanwhile, on the floor, you have seen some very strong arguments on both sides. Senator Leahy, who, of course, was the top Democrat on the Judiciary Committee, was making the point earlier today that because of the controversial nature of George W. Bush's victory in the election, he should have provided a less controversial nominee for attorney general.

(BEGIN VIDEO CLIP)

SEN. PATRICK LEAHY (D), VERMONT: One person gets half a million more votes, the other person becomes president. The one who becomes president after a disputed count in one state, becomes president by one electoral vote. Now he is president. He has all the powers. He has all the obligations, all the duties of the presidency and all the legitimacy of the presidency. I have no question about that. But I think that he has an obligation to try to unite the country, not to divide the country.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

SEN. ROBERT SMITH (R), NEW HAMPSHIRE: That's what this debate is about. It's about the continuation of the election. The election over. Hello? The election is over, folk. The president of the United States should pick his Cabinet. That is the right thing to do, and every one of you know it. (END VIDEO CLIP)

KARL: So, Judy, the debate will go on today. It will go on probably pretty late into the night tonight. It will continue tomorrow and we are expecting a vote by tomorrow afternoon.

WOODRUFF: Jonathan Karl at the Capitol. Thanks very much, and for that interview with the speaker.

Gale Norton was sworn in as the secretary of the interior on this day after the Senate confirmed her nomination. Although Mr. Bush's choice of Norton was considered controversial, she faced fewer obstacles than John Ashcroft.

Nonetheless, Norton told CNN today the confirmation process has been too partisan.

(BEGIN VIDEO CLIP)

GALE NORTON, INTERIOR SECRETARY: I was very disappointed by the partisan attacks, and by some of the things that were not based on accurate information about what I really thought. And I know that Senator Ashcroft is going through some of those same sorts of things. It's unfortunate that in Washington, we've seen a history of partisanship, and I think it is time for us to begin moving beyond that and being able to work together on a bipartisan basis.

(END VIDEO CLIP)

WOODRUFF: Gale Norton was the first of President Bush's Cabinet choices not to be unanimously confirmed. Yesterday's Senate vote for her was 75-24.

Still ahead on INSIDE POLITICS, remembering Pan Am 103: An international verdict with political repercussions. How will the new Bush administration handle relations with Libya?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SUSAN COHEN, MOTHER OF PAN AM VICTIM: Now we have this verdict. What is the Bush administration going to do about Gadhafi? Are they going to say, oh, great, you know, he let us have this trial, which he did on his own terms. It never touched him. It never went one bit higher than the lowest level, the people who placed the bomb. We don't know more about the specifics and details about that. So, this is an end, this should really be a beginning, in a sense, of let's not just sit and say everything is OK.

(END VIDEO CLIP)

WOODRUFF: The mother of one of the 270 victims of the Pan Am 103 bombing, calling for the Bush administration to continue actions against Libya, even after today's verdict. Three Scottish judges convicted a former Libyan intelligence officer of murder in the 1988 bombing, sentencing him to life in prison. A second defendant was acquitted.

The verdict comes more than 12 years after a bomb ripped apart the 747 over Lockerbie, Scotland, killing all onboard, and 11 more on the ground. The FBI says the verdict does not close the Pan Am 103 investigation, and the White House says that it will not signify the end of U.S. sanctions, either.

CNN's Andrea Koppel reports.

(BEGIN VIDEOTAPE)

ANDREA KOPPEL, CNN CORRESPONDENT (voice-over): The trial may be over, but the message from the Bush administration: It's not over yet for Libya.

BUSH: I want to assure the families and victims the United States government will continue to pressure Libya to accept responsibility for this act and to compensate the families.

KOPPEL: This the same message U.S. and British diplomats at the United Nations delivered to Libya just last week, and one administration officials now say they plan to reiterate soon. Unless and until the Libyan government acknowledges responsibility for the Pan Am 103 bombing and pays compensation to the families of the 270 victims, they say U.N. sanctions will remain.

Meanwhile, the investigation continues. FBI agents looking to prove who else may have assisted or approved the 1988 bombing, now legally linked to Libya.

NEIL GALLAGHER, FBI ASSISTANT DIRECTOR, NATIONAL SECURITY: I'm going to be driven by the evidence. We're going to have to find evidence that tells us who was involved. I wouldn't want to speculate how far up. What I haven't heard anybody suggest that this was some sort of rogue operation by one individual operating outside the control or direction of the Libyan external security organization.

KOPPEL: What investigators have not been able to prove, that Libyan leader Muammar Qadhafi was behind it. For that and other reasons, Robert Pelletreau, a former U.S. diplomat and Middle East expert, believes the Bush administration should keep its options open.

ROBERT PELLETREAU, FORMER ASSISTANT SECRETARY OF STATE: We have to set some kind of a path for Libya to regain international respectability. It doesn't have to be an easy path or a clear path, but we should set such a path.

KOPPEL (on camera): At the moment, though, the path chosen by the Bush administration for Libya to fulfill all U.N. requirements, is one Tripoli has been unwilling to follow.

Andrea Koppel, CNN, the State Department.

(END VIDEOTAPE)

WOODRUFF: A bipartisan commission today called for sweeping changes in the way the government handles the threat of terrorism on U.S. soil. Citing a "significant and growing" danger, the panel recommended the creation of a Cabinet-level national homeland security agency. It noted that 40 agencies now respond to threats or attacks.

(BEGIN VIDEO CLIP)

WARREN RUDMAN, FORMER U.S. SENATOR: We're not talking about creating a new bureaucracy, we're talking about taking a number of bureaucracies and consolidating them into one streamlined organization because right now, I can tell you from my own experience, there is little coordination between these agencies and if there was a major disaster in this country, we are unprepared to deal with it, and we're unprepared right now, frankly, to plan for it or to prepare for it or to prevent it.

(END VIDEO CLIP)

WOODRUFF: Former Senator Warren Rudman chairs the commission along with former Senator Gary Hart. The report is the result of a two-year evaluation commissioned by the Department of Defense.

There is much more ahead on this edition of INSIDE POLITICS.

Still to come:

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I'm not a nuclear scientist, but any damn fool ought to be able to figure that one out!

(END VIDEO CLIP)

WOODRUFF: A U.S. senator blows his stack over shrinking power supplies and their potential impact on the energy-dependent economy.

Our roundtable of Fed watchers will assess U.S. economic health and today's rate cut decision.

Also:

(BEGIN VIDEO CLIP)

FIONNUALA SWEENEY, CNN CORRESPONDENT (voice-over): Peace against the backdrop of the current violence between Israelis and Palestinians seems the main issue among young adults.

(END VIDEO CLIP)

WOODRUFF: Fionnuala Sweeney on the youth vote in Israel: What young people are saying about the choice for prime minister.

And later, a new flag rises over the Georgia state capitol.

(COMMERCIAL BREAK)

Republicans ran on, to make sure that that tax cut for the American people become a reality.

KARL: Now, by my count, you've been to the White House five times over the last, well, less than two weeks. What's going on there?

HASTERT: It's kind of like 10 days. As a matter of fact, I've been to the White House more than I've been in my office, it feels like some days. WOODRUFF: We will have more of this day's political news coming up, but now a look at some other top stories. The nephew of Mrs. Robert F. Kennedy Jr. will go to court as an adult. He faces charges in the 1975 killing of a neighbor.

Michael Skakel was 15 years old when Martha Moxley was found bludgeoned to death. He is now 40. A Connecticut judge ruled today that his age now was a major factor in her decision to try Skakel as an adult.

If he is convicted, he could face 25 years in prison.

The Justice Department says that it will not prosecute the four New York City police officers who shot and killed an unarmed West African immigrant. Amadou Diallo died in a hail of police bullets two years ago.

CNN's Maria Hinojosa is here now with more on today's announcement -- Maria.

MARIA HINOJOSA, CNN CORRESPONDENT: Judy, the Diallo family has been waiting for this decision for 10 months, anxiously awaiting to hear whether the federal government would charge the four white police officers who shot and killed their son with federal civil rights abuses. Today, they found out that would not come to pass.

The images captured New York's attention for many months: an unarmed black man cornered in the vestibule of his own Bronx apartment building shot by police officers 41 times. The officers were charged and tried for murder. Last year, they were found not guilty of those charges.

Amadou Diallo's death sparked months of protests from New Yorkers who accused the police of racial profiling. Today, Diallo's parents were disappointed once again. The Justice Department said there would be no further criminal action against the officers.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: There's no doubt in my mind that what happened to Amadou is a crime.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I cannot convey to you the sadness I feel by hearing this decision today. I am very disappointed. (END VIDEO CLIP)

HINOJOSA: Mrs. Diallo, who has become something of a symbol for anti-police brutality activists here said they were not giving up. And while this is clearly the end of the criminal case, the family will be back in court, perhaps sometime this year. They filed a civil wrongful death case against the city for a total of $61 million: $20 million in damages and $1 million for each of the 41 times Diallo was shot -- Judy.

WOODRUFF: All right. Maria Hinojosa here in New York. Thanks.

When we return, a roundtable on the nation's economic health and what today's interest rate cut says about where the economy is headed.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. BEN NIGHTHORSE CAMPBELL (R), COLORADO: Clearly you can't have it both ways. You can't have a growing economy, a growing number of people, a growing reliance, as Silicon Valley is, on energy, as manufacturing is on energy, and then at the same time not be willing to build the very apparatus that produces the energy. I mean, I'm not a nuclear scientist, but any damn fool ought to be able to figure that out.

(END VIDEO CLIP)

WOODRUFF: That was Colorado Senator Ben Nighthorse Campbell earlier today, venting his frustration at the ongoing power crunch in California. Campbell blamed much of the problems on the failure of power suppliers to keep pace with the region's growing power demands.

Well, the power shortage out west is just one of the pressure points dragging down the U.S. economy. A little earlier, I spoke with three people who make their living analyzing U.S. economic conditions: Martin Regalia of the U.S. Chamber of Commerce; Kim Wallace, the chief political strategist for Lehman Brothers; and Laura Tyson, a former economic adviser to President Clinton. She's now at the University of California at Berkeley.

I started by asking Laura Tyson if today's rate cut by the Fed was the right move or if the cut should have been larger.

(BEGIN VIDEOTAPE)

LAURA TYSON, FORMER ECONOMIC ADVISER TO PRESIDENT CLINTON: I think it was the right thing for the Fed to do. I think if you look at the situation, we've had an unprecedented 100-basis point cut within a month. I think this was what the market expected. I think it was the right thing to do.

Interest rate cuts can be made quickly in response to additional information. So I think this was sufficient at this time.

WOODRUFF: Martin Regalia?

MARTIN REGALIA, U.S. CHAMBER OF COMMERCE: I would agree with that. The Fed moved very aggressively early in January and again now with another half point cut. I think they're going to have to go further than this, but I think they have time to do that.

WOODRUFF: And Kim Wallace?

KIM WALLACE, CHIEF POLITICAL STRATEGIST, LEHMAN BROTHERS: I would agree with the two other people, but say that Marty's right: The market is expecting further cuts, possibly in between the meetings, between now and the end of March.

WOODRUFF: So, Kim Wallace, how much, how quickly does the Fed have to move again in your estimation?

WALLACE: Well, that's entirely up to them, but the markets are expecting a move in between these meetings and possibly another move at the meeting. These expectations are slightly changed from a week or two ago, when most people thought that if they went 50 basis points today, they might do a quarter at the end of March and that would be enough.

That has changed. The expectation of the marketplace is for further monetary easing.

WOODRUFF: Laura Tyson, are you surprised there wasn't a more favorable reaction from Wall Street to this today?

TYSON: No, I guess I'm not, because I think the markets had expected this kind of move. In fact, the only real risk today was that the move would not have been as great.

Markets had come to the conclusion based on the recent evidence, and particularly the very weak consumer confidence reading, that 50 basis points was going to happen today, so it already had been factored in.

The other thing, of course, is that the market is looking at the additional information coming in about the economy: the preliminary report on fourth-quarter GDP, which showed that actually we had slowing trends throughout the quarter in major consumption in the investment areas.

So there has been accumulating evidence of a growing weakness, and so I think the markets said, well, we have this evidence, we've also seen aggressive action, which we expected. No big reaction because nothing really new in the news today.

WOODRUFF: Martin Regalia, we heard Alan Greenspan say last week that the one barrier now to a significant economic downturn was consumer confidence. We now see, according to a major survey, consumer confidence has taken a sharp drop. Are we in a full-blown recession?

REGALIA: Well, I really don't think we're in a full-blown recession yet. But -- but I don't think that the difference between where we are in a recession really is much more than semantics at this point. We are virtually at a standstill in economic growth at this point.

WOODRUFF: Kim Wallace?

WALLACE: Marty's got it right. And in fact, if you look at the revisions to the data that had been reported the previous two or three quarters, all of the revisions to update those had been downward with the worsening economy pictured. So, yes, it's clear that the economy has slowed. Manufacturing has been in recession for six months at least. And there's concern that it could drag other pieces of the economy down into it.

WOODRUFF: Laura Tyson, do you call what we're in now a recession?

TYSON: Well, the technical term is two quarters of negative growth. I think it's quite likely we are in a quarter of negative growth right now. That does not mean we'll be in two quarters. And the problem here is that we won't really know. These things are very difficult to predict. And we won't really know, because we'll have to see how these interest rate cuts have occurred and some better information on global energy prices play into the next several months.

But I would say it's a pretty good bet right now that we're in a negative, slightly negative growth period.

WOODRUFF: That being the case, Martin Regalia, look in your crystal ball. How long is this likely to go on and how bad will it be?

REGALIA: Well, I think the first quarter is going to be the worst, but it will be well into the second half of the year before we see marked improvement. We're going to have -- we still will have a little bit of an overhang in inventories. We still have a little bit of excess amount of the stock of capital, new technology capital, that's on-hand, already been purchased and brought online. And I think it'll take a little while to work that off.

So the first half of the year is going to be a very slow time, and then as we get on into the end of the summer, I think we'll start to see some noticeable improvement.

WOODRUFF: Kim Wallace, do you agree?

WALLACE: I agree, and I think one of the reasons is technology, in two ways. First, technology is being used to pass information faster between policy-makers and participants in the markets. That should help the recovery come sooner than traditionally has been the case. And then also technology, as we know, has added to the burst of productivity enhancements over the last five years. And while there's clearly a slowdown in that kind of capital investing, companies are going to continue to buy technology because it is -- become one way to differentiate yourself and gain a competitive edge.

So we would expect the downturn to be slower, or pardon me, to be slighter and shorter than they have been in the past.

WOODRUFF: Laura Tyson, how bad and how long do you think it's going to last? How bad will it be, how long will it last? And then let me ask you, what should be done about it?

TYSON: Well, again, let me say that this is where economists have the most difficulty forecasting. The consensus view is that this will be relatively short-lived, that the greatest period of risk is the first half of this year. We went into the first half of this year on a downward note, and the numbers we've seen so far do suggest going through zero into a negative range. On the other hand, we do see going forward in time this year the effects of lower interest rates beginning to play into stronger investment and stronger consumption, and improvement in the energy pricing outlook.

Those feed in with lags, and that's why everyone expects it'll get better in the second half of this year.

What should be done? I think what the Fed is doing is basically the best that can be done. Monetary policy is the most -- is the easiest to move up and down in response to changing information about the economy.

Whatever happens on the budget side I think will not be in time to affect the period of greatest risks, in addition to which I think there are a lot of long-term issues about changes in taxes which should be considered. If all of us are right here today saying that this period of risk is short term, we should be making fiscal policy for the long term.

WOODRUFF: Martin Regalia, what about tax cuts of the magnitude that President Bush is saying he wants? Would that help?

REGALIA: Well, I think the tax cuts are necessary. I think that, you know, you're looking at a slowing economy and a growing surplus, and those types of policy, surplus policies at a time when the economy is slowing really, I don't think, are the policies. And so a tax cut and a tax cut that looks forward, that requires that individuals and businesses do something, like save more and invest more -- in order to get the benefits of the tax cut -- it will be the kind to set us up for future economic growth.

So I'm a big fan of tax cuts, especially with CBO's numbers that, you know, we're going to have almost a $6 trillion surplus over the next 10 years. That's clearly way too much to run.

WOODRUFF: But Kim Wallace, can those tax cuts make a difference in the current downturn?

WALLACE: Very difficult to see how. In order for that to happen, first you'd have to have the legislation enacted into law relatively soon, certainly by the second quarter, and large components of that would have -- or at least parts of it would have to be retroactive, so it would affect this taxable year, '01.

That's going to be extremely difficult to pull off, because if this is going to be a tax cut year -- and it's likely going to be -- it will be the first one of its size in 20 years. And very likely, every subcommittee and committee of Congress that has purview over it will want to get a bite at the apple. The process is not going to move quickly.

WOODRUFF: But just quickly, do you think then -- are you saying tax cuts are a bad idea?

WALLACE: No, I'm not saying they're a bad idea. I think it's two different questions. Tax cuts probably will do very little for this downturn if it's short. But if you have excess cash during the next decade, one of the more effective ways of rebating that cash is tax cuts.

WOODRUFF: All right. Kim Wallace with Lehman Brothers, Laura Tyson, and Martin Regalia. Thank you all three. We appreciate it.

(END VIDEOTAPE)

WOODRUFF: And when INSIDE POLITICS returns: an appeal for the youth vote. What young Israelis say about the race for prime minister and how the two candidates are working to earn their support.

(COMMERCIAL BREAK)

WOODRUFF: Next week's election for Israeli prime minister offers voters there a strong contrast in policy and style. But to hear many of Israel's young people tell it, neither man has much to offer.

CNN's Fionnuala Sweeney reports from Jerusalem.

(BEGIN VIDEOTAPE)

SWEENEY (voice-over): A TV election campaign for Ariel Sharon, leader of the right-wing Likud Party and its candidate for prime minister in the upcoming elections. Does it look familiar?

GADI WOLFSFELD, POLITICAL ANALYST: Indeed, his one commercial looked like very much the Madonna clip, "American Pie," and I'm sure that's intentional, because remember that in both ways Sharon is running against character. He's running as a peace candidate and he's running as a young person. He's running, as I said, except for growing his hair and singing "Give Peace a Chance," I don't know what else he could do to convince (UNINTELLIGIBLE) his public that he's peace.

SWEENEY (on camera): Both sides are vigorously chasing the youth vote. Many young people will be voting for the first time, and polls show even those young people who may have voted for Barak the last time are uncertain about whether they'll vote for him again.

(voice-over): Still, young people have featured in some of Sharon's most difficult campaign moments, such as at this meeting with high school students.

UNIDENTIFIED FEMALE (through translator): Ariel Sharon, I blame you for causing me 16 years of suffering and my father 16 years of suffering. You brought my father into Lebanon.

SWEENEY: Ehud Barak, too, has faced difficult questions from young people.

UNIDENTIFIED MALE (through translator): The promises you made before the election remain promises.

SWEENEY: Peace against the backdrop of the current violence between Israelis and Palestinians seems the main issue among young adults. Both Barak and Sharon have faced protests from students like these at Tel Aviv University about their handling of peace with the Palestinians. At the Hebrew University in Jerusalem, opinion among the students with whom we spoke was undecided, even apathetic.

From the left...

UNIDENTIFIED MALE: As a Palestinian and Israeli citizen, I'm not going to vote, and like this lack of voting is a very strong protest against both sides.

SWEENEY: From the center...

UNIDENTIFIED MALE: It will not be Barak, but I'm not sure I will vote for Sharon.

SWEENEY: And the right...

UNIDENTIFIED MALE: It doesn't make a difference if it will be Barak or Sharon.

WOLFSFELD: I think that one finds that the younger people, especially, again, the secular younger people, have become especially angry and cynical, in part because of the events they've watched since Barak got elected.

SWEENEY: Wolfsfeld warns young people in this election may be voting against a candidate rather than inspired to vote for a candidate, a motivation that may mean a lower turnout on election day.

Fionnuala Sweeney, CNN, Jerusalem.

(END VIDEOTAPE)

WOODRUFF: And this reminder: CNN senior political analyst Bill Schneider will begin live reports on next Tuesday's Israeli elections. That's starting tomorrow right here on CNN.

And just ahead, from faith-based initiatives to the economy, Margaret Carlson and Tucker Carlson review the president's latest efforts.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. CHRIS DODD (D), CONNECTICUT: ...their personal adversaries. Attacking motives, using people as political scapegoats, acting with reckless disregard to the reputations of others. These are the kinds of actions that I find contemptive and that, unfortunately, have all -- have become all too common in life today.

Mr. President, I hope John Ashcroft will change and turn away from such behavior in the future. I believe that he can. The saying goes, there is no sinner without a future and no saint without a past, Mr. president. I believe John Ashcroft is a decent human being, and I will take him at his word. If his flaws loom large, at least in part because they have been aired and examined and the magnifying light of public life.

(END VIDEO CLIP)

WOODRUFF: Connecticut Democratic Senator Chris Dodd speaking now live on the floor of the United States Senate. He becomes the -- will become the sixth Democratic senator to declare that he will vote for the confirmation of John Ashcroft to be attorney general. It is already quite clear that Ashcroft will be confirmed. Now, it's just a matter of how many Democrats will vote for him.

And joining us now from Washington: Margaret Carlson of "TIME" Magazine and Tucker Carlson of the "Weekly Standard."

Tucker, does it matter in the end how many -- we know he's going to be confirmed -- we believe that he will be confirmed. Does it matter how many Democrats are there voting for him?

TUCKER CARLSON, "WEEKLY STANDARD": Well, I mean, to some extent, the speeches matter. Margaret and I were just laughing that the Democrats who come out in favor -- said they were going to vote for Ashcroft -- are actually giving the, kind of, nastiest, anti-Ashcroft speeches.

But no, in the end, it doesn't matter. Bush will point to his attorney general six months from now and say, he was confirmed -- that Democrats voted for him, et cetera. Feingold had a pretty interesting line the other day, where he said, this is an olive branch, not a white flag, but ultimately, the distinction doesn't matter or won't matter several months from now.

WOODRUFF: Margaret?

MARGARET CARLSON, "TIME" MAGAZINE: Some of them want to take their votes back to their districts, or back to their states, and that's why there is the, you know, I think, the long speeches. But when Chris Dodd says, what he's done is contemptible, and therefore, I am going to vote for him -- there's a cognitive dissonance there that, the speeches given by them are ones in which, you know, you don't need any enemies if you have votes in your favor like that.

WOODRUFF: Well, he also said that all of us have sinned, and we have to put our sins behind us and ask for forgiveness.

M. CARLSON: Yes, we are in a honeymoon period.

WOODRUFF: Will there be residue from all of this, Tucker?

T. CARLSON: Well, I guess that's the whole point of it. Is that, you know, this will be a sign that Democrats are giving to the Bush administration, that, hey, don't try to slip any strongly, pro- life nominees into the Supreme Court for instance. I guess that's the point of all of it. The danger, of course, for Democrats is that Bush, in a kind of judo move, will end up making them look like the ones, that is -- the Democrats -- the ones who are against bipartisanship and who are being mean and who are being hard liners, et cetera, et cetera, et cetera.

It obviously remains to be seen if he'll be able to pull that off, but if they keep going, Bush may end up looking like the friendly accommodationist in all of this.

WOODRUFF: Margaret, turning to the economy: new numbers out today indicating a sharp drop in consumer confidence. Does it make it all but certain that the president is going to get the tax cut that he wants?

M. CARLSON: Well, Alan Greenspan made it nearly certain that he would get the tax cut, the tax cuts that he wants in his testimony last week. But with consumer confidence down, and then Alan Greenspan lowering interest rates today, there was, I think, one or two up- arrows in the market. And this is going to continue. It helps -- it helps Bush that consumer confidence is down. But Alan Greenspan -- Saint Alan is the person who's really made those tax cuts possible.

WOODRUFF: Tucker, where are we on the tax cut prospects, in terms of the size of it, the structure of it, and when it will take effect?

T. CARLSON: We are getting one. It was interesting -- you heard right after the Supreme Court came down with this decision, you immediately heard Democrats saying, well, you know, we really do need a tax cut. You know, a targeted tax cut, a small tax cut but, you know, when you hear Democrats use the term "death tax" and you have, then that means, it's inevitable. I guess at a certain point, the question becomes, do people lose faith in Alan Greenspan? And that is, you know, that's -- you know, hard to imagine happening, but if it does, then that's not good for Bush.

WOODRUFF: Margaret, another issue in front of the new president: his decision to create an office in the White House for so-called Faith-based and Community Initiatives. Is this something that the president is -- will turn out to be a good move by the president?

M. CARLSON: Well, it -- you know, he did it in Texas and it seemed to be OK there. And at times, there was criticism because some of these did cross the line, where there was actual prayer or some religious-based activity going on at places that were getting the federal funds, and I think that Steve Goldsmith, who is heading of the office, said he was in favor of a homeless shelter having, and, you know, a period of prayer during the day.

You know, some of this separation of church and state is not to protect the state, but to protect religion as well. And, you know, we have gone 200 years with this wall; you know, Bush may want to be careful about, you know, knocking it down too much.

WOODRUFF: Tucker, should he be careful?

T. CARLSON: Well, of course you ought to be careful, and they're at great pains to explain how careful they're going to be. I mean, Goldsmith -- every other sentence, you know, makes the point that no money will go toward proselytizing or any activities like that. But this has turned out to be another opportunity for Bush to haul in Democrats. I mean, the whole office is going to be run by Democrats -- John DiIulio from Philadelphia, and an opportunity to get Joe Lieberman at the photo-op, so I don't know, modern Democrats have been pretty accepting, it seems like.

M. CARLSON: It's very hard to be against something that sounds this good. But, I am sorry, Judy.

WOODRUFF: I was going to ask you -- we've only got a few seconds and I wanted to ask you both about President Clinton -- former President Clinton's decision to lease -- what? -- a $700,000 a month office in Manhattan?

M. CARLSON: It's good we only have a minute, Judy. I mean, the wretched excess of it. After the gifts, after the pardons -- it's all of a piece.

T. CARLSON: And not a great office. I think he's leasing the former offices of "Talk" magazine, for which I write, and if that's true -- and I remember the offices well -- "Talk" magazine relocated downtown because the offices weren't very good. So I think he is not getting a very good deal. He needs a new broker.

WOODRUFF: All right, we will leave it there. Margaret Carlson, Tucker Carlson, good to see you both.

M. CARLSON: Bye, Judy.

WOODRUFF: Call it political counterfeiting. In Kentucky, a customer paid his $2 tab with a phony $200 bill, featuring the face of President George W. Bush. On the back, a White House, complete with yard signs, like "we like broccoli" to "USA deserves a tax cut." The creator of the bill drove away from a Dairy Queen with $98 in real change.

Stay with us. When INSIDE POLITICS continues at the top of the hour, on the heels of new economic numbers, our Brooks Jackson looks for the bottom line.

Plus: will concerns about the separation of church and state lead to a court battle over a key proposal by the new president?

(COMMERCIAL BREAK)

WOODRUFF: Al Gore is back in the public eye today with some lessons to share. ANNOUNCER: This is INSIDE POLITICS with Judy Woodruff in New York.

WOODRUFF: Welcome back to INSIDE POLITICS. Among the many members of Congress President Bush has been courting, the group he's been meeting with this past hour may be one of the most resistant.

CNN's John King joins us now with more on Mr. Bush's get-together with the Congressional Black Caucus -- John.

KING: Judy, that meeting has been running about 30 minutes now in the Cabinet room here at the White House. Mr. Bush seated in the middle of the table, surrounded by the members of the Congressional Black Caucus. The meeting was arranged at Mr. Bush's request. While the caucus chairwoman, Eddie Bernice Johnson, she is from Dallas in Mr. Bush's home state of Texas obviously here seated at the table; some of the most liberal members of the Congress, all of them big Al Gore supporters in the past campaign. Many traveled to Florida to help make the vice president's case, then-vice president's case during the Florida recount battle.

So, Mr. Bush facing a tough task here trying to convince these members that he wants to work with them. A key item on the agenda, obviously, election reform for the members of the Black Caucus. Mr. Bush at the very top of the meeting invited reporters in. He tried to lighten the mood just a little bit here by saying that as president he realizes he needs to be very deferential to the Congress.

(BEGIN VIDEO CLIP)

BUSH: Thanks for coming. An important part of my job is to talk to everybody who is in the legislative body. I will remind you all, I understand the difference between the executive branch and the legislative branch. I only get to suggest. You all pass the laws and that's what we're here to work about.

(LAUGHTER)

BUSH: I understand that well.

(END VIDEO CLIP)

KING: Now, as you mentioned, this one of many meetings the new president is having with members of the other party as he tries to get off to a bipartisan start. But given the events of recent months, especially the very close and contested elections, senior White House aides acknowledge this one more important than most.

(BEGIN VIDEOTAPE)

KING (voice-over): Outreach to African-Americans is an urgent early Bush goal. Services at a predominantly black church on Sunday; this Tuesday visit to a District of Columbia community center to promote federal aid to faith-based organizations that provide social services.

BUSH: How are you? Good to see you.

KING: It is an effort to calm the anger over the election results, and what African-American leaders call widespread voting irregularities in Florida and elsewhere.

UNIDENTIFIED MALE: Count every vote.

CROWD: Count every vote.

UNIDENTIFIED MALE: And let every vote count!

KING: Al Gore carried 90 percent of the African-American vote to just 9 percent for Mr. Bush. Congressional Black Caucus leaders applaud the new president's outreach, but say the true test will come when Congress considers election reforms, and they say Mr. Bush is blunt in saying cooperation is a two-way street.

REP. CHARLES RANGEL (D), NEW YORK: He made it clear he could be very helpful by being very positive about the contributions that we're making legislatively. And he also made it clear that if we were weren't positive, that he didn't have to be positive either.

(END VIDEOTAPE)

KING: Now, Mr. Bush has made clear to Democrats that he is more than happy to have a debate about election reform, as long as it looks forward. He said he does not want Congress to have a public grieving session, more complaints over the details of Florida.

He says he is committed to providing some money so that the poorest districts around the country can, say, buy new voting machines and do other things to help avoid in the future some of the problems we just had in the past election. The key test, of course, will be whether the two sides can agree to keep the tone of that debate civil. We'll learn a bit more when the members of the Black Caucus flow out of the White House. We're expecting that in about 15 or 20 minutes -- Judy.

WOODRUFF: John, on another favorite topic of the new president, his proposal for a huge tax cut over 10 years, even more good news today at least as far as the president is concerned that he may get what he wants?

KING: Indeed, that's right, Judy. The White House believes now the president is in a strange way in the perfect position. Democrats have come way up with what they will consider for tax cuts. They say they'll take about $850 billion. And remember, that's just their opening offer.

President Bush proposed during the campaign a plan they now say adds up to about $1.6 trillion over 10 years. Some Republicans are saying with these new surplus numbers by the Congressional Budget Office, an extra trillion dollars now in the projected surplus, some Republicans saying let's go over $2 billion or more.

So the White House says think back. Look how much Democrats criticized this during the campaign. Now, they say the president gets to be the reasonable guy in the middle helping to broker a compromise.

WOODRUFF: All right, John King at the White House. Thanks very much.

Well, more on the economic front today. Alan Greenspan's Federal Reserve Bank lived up to expectations and slashed a key interest rate by a half percentage point. It was yet another sign that the economy is in need of some pumping up.

CNN's Brooks Jackson joins us now to try to put some things -- some of this in perspective. Brooks, we've been hearing so much bad economic news lately: daily announcements of these big corporate layoffs, consumer confidence has falling, economists predicting a recession. Some are saying we may already be in a recession. What is your sense of all this?

BROOKS JACKSON, CNN CORRESPONDENT: Well, Judy, clearly the bloom is off the boom. A year ago, the economy was roaring along at a super-hot growth rate of 8 percent. But just look now. The Commerce Department reported this morning that growth was down to a rate of 1.4 percent in the last three months of last year. That's lower than most economists had expected. And Alan Greenspan says that right now the rate might be down to zero. Maybe.

We won't know for a long time. But, also today, some unusually positive news from the home building industry. New home sales surged up 13 percent last month to the second-highest monthly rate ever recorded, a very strong showing. And that's a positive sign for the future, too, because when people buy homes they also buy furniture and appliances.

WOODRUFF: But Brooks, won't those -- isn't it the case that those sales are not going to continue if people have lost their jobs or even if they start worrying that they might lose their jobs? Aren't we getting into sort of a dangerous downward spiral here?

JACKSON: That is the danger. It's what worries Alan Greenspan, and it could happen. But it probably hasn't happened yet. Let's take a close look at that report on consumer confidence you mentioned earlier.

The Consumer Confidence Index dropped again last month. It's now down 20 percent from last July, and that's its lowest level in four years. It's almost in free-fall. And that is reason to worry if it continues. But here's something interesting. That index is based on a public opinion poll, asking people a series of questions about how things look now and how people think things will look six months down the road.

And now people still think things look pretty good. Forty-nine percent say jobs are still plentiful, and fewer than 13 percent say jobs are hard to find. But ask about six months from now, and nearly 22 percent expect fewer jobs to be available, and nearly 16 percent think business will be worse. That number has tripled, by the way, since last August.

So people are clearly reacting to headlines, even though most economists still are not predicting a full-blown recession this year.

WOODRUFF: Well, Brooks, what about unemployment? The figures for January are going to be reported this Friday. What are you hearing?

JACKSON: Well, maybe not so bad. Last month, nearly everybody was surprised when the unemployment rate didn't budge. it stayed right at 4 percent, very low historically, despite a lot of talk earlier of layoffs and recession talk.

Manufacturing jobs are hurting. But there's still a lot of hiring going on in the much larger service sector. And there hasn't been a big increase in people filing claims for unemployment insurance. So Friday's number just might surprise people again.

WOODRUFF: All right, we'll see if you are right. Brooks Jackson, thank you very much.

Well, in these uncertain times, you probably can't say too much about the economy or its political implications. So, let's talk some more about it now with CNN senior analyst Jeff Greenfield.

Jeff, we all remember that famous sign on James Carville's office door: "It's the economy, stupid." Is this always necessarily a make- or-break issue for a president?

JEFF GREENFIELD, CNN SENIOR ANALYST: I think it's almost always break. If the economy is bad or if people think it is bad, Brooks Jackson alluded to that, a president and his party can almost never be saved. At least, I can't think of a counterinstance.

But even a good economy can't save a president or his party if there is something really big on the table. In 1968, the war and domestic divisions. In 1976, with Gerald Ford, I think it was the Watergate overhang and the desire to get to something new. Break, yes; make, maybe not always.

WOODRUFF: But if things do continue to get worse, what's to stop the Bush administration from saying, wait a minute? This is the fault of the guy who was here a few months ago, Bill Clinton. It's the Clinton administration to blame?

GREENFIELD: Well, they can say it and they might even be right. The problem is that we don't any have example, I think, of voters pausing in their discontent economically and saying, I wonder if there were other factors at work. You remember because you were covering the White House at the end of the Carter term, I mean, the oil embargo quadrupled oil prices. It caused much of the inflation and recession. Voters in 1980 didn't say we're not going to hold Carter responsible, it was that Middle East oil cartel. So, I think if it happens on your watch, you get the credit and you get the blame.

WOODRUFF: So, if the economy matters so much, how come Al Gore didn't win big in November?

GREENFIELD: Well, in fact, every academic who tried to produce one of the scientific models of the election before, predicted that Al Gore would win, some in a landslide just because of that, because they weighted the economy so heavily.

I think it was a lot of factors. I happen not to believe in a unified field theory where one explanation suffices. You take Al Gore's limitations as a candidate, which even own party people recognize; you take the Clinton noneconomic issues, the desire for a change from personal misbehavior which I think drove a lot of votes, and there was this other irony.

Just like in good comedy, the secret of politics sometimes is timing. This economy was so good for so long, unlike say Reagan in '84 when people felt that it was on the mend. It had been the longest expansion in history. I think people went to the polls thinking the good economy was like, you know, warm weather in the summer. It was a force of nature, and therefore, Gore and the Democrats shouldn't get much credit for it.

WOODRUFF: So they took it for granted?

GREENFIELD: I think it did in. I think in a weird way, it might have helped if we'd been in a trough about 1997 and come out of it so people could have contrasted it. You know, the Bush administration in '92 told people hey, the recession is over. It was over in '91. People didn't feel it. People still saw help wanted or rather signs of unemployment, and they made President Bush the first a one-term president.

WOODRUFF: And we are famous for short-term memories in this country.

GREENFIELD: I think long-term memory, when it comes to either voters or for that matter journalists, is a sometime thing. Yes. maybe we should keep that in mind in the months ahead.

WOODRUFF: Perhaps.

GREENFIELD: We'll see.

WOODRUFF: Jeff Greenfield...

GREENFIELD: Good to see you in New York.

WOODRUFF: Good to see you. It's good to be in your city for a change, Jeff.

Well, President Clinton, whom we've just been discussing, has left the White House, as we know, but the presidential pardon he gave to fugitive billionaire Marc Rich continues to stir controversy.

CNN has learned that House Government Reform Committee Chairman Dan Burton has scheduled hearings on the pardon a week from tomorrow. And Burton has asked Marc Rich's attorney, Jack Quinn, to testify at the hearing. Burton also plans to ask someone from the Clinton administration to explain why the pardon was granted.

Still ahead on INSIDE POLITICS, a possible constitutional battle over federal funds and religion. Charles Bierbauer on the legal opposition to the president's faith-based plans.

(COMMERCIAL BREAK)

WOODRUFF: President Bush has made his faith-based initiative the focus of week two of his administration, meeting today with leaders of Catholic Charities. But critics are ready to challenge the president's plan on the grounds that it breaches the constitutional separation of church and state.

Charles Bierbauer looks at the legal and political arguments.

(BEGIN VIDEOTAPE)

BUSH: Thank you all for coming.

CHARLES BIERBAUER, CNN CORRESPONDENT (voice-over): At a meeting with Catholic leaders, President Bush stressed a need to help faith- based charities by changing the tax code.

BUSH: And that is to allow non-itemizers to deduct charitable giving off their income.

BIERBAUER: The president says that will increase giving. Such indirect aid might also decrease legal challenges.

WILL MARSHALL, PROGRESSIVE POLICY INSTITUTE: A charitable contribution is less likely to run afoul of the constitutional doctrine of separating church and state than direct funding schemes.

BIERBAUER: But the faith-based initiatives won't escape the courtroom.

BARRY LYNN, CHURCH-STATE SEPARATION ADVOCATE: On its face, the Bush plan is sinking in constitutional quicksand.

CROWD: Amen.

BIERBAUER: For example, critics contend religious organizations are not bound by civil rights laws in hiring, and could discriminate when filling jobs for the government-supported programs.

SISTER MAUREEN FIEDLER, QUIXOTE CENTER: Baptists can refuse to hire Catholics or Jews or vice versa, and, of course, groups might refuse to hire someone if they're divorced and remarried, if they're gay or lesbian, or, let's say, they're a nonveiled Muslim woman.

BIERBAUER: Lawsuits already abound when the wall between church and state appears to have cracked. Last year, the Supreme Court ruled federal aid could be used to purchase computers and other equipment for parochial schools because the program was neutral on religion.

MARSHALL: Government should not favor a faith-based institution, but it also shouldn't discriminate against one

BIERBAUER: But a lower federal court ruled that a school voucher program in Cleveland broke the constitutional wall because its low tuition limit favored religious schools.

(on camera): The legal questions about the faith-based initiatives are being raised now, but the judicial answers won't come unless the programs are put into effect.

LYNN: You really need to have to have real people who have real problems of job discrimination, people who feel that they're being compelled to engage in religious activity that they find offensive.

BIERBAUER (voice-over): Only then will it be clear if President Bush's embrace of faith-based action is a constitutionally permitted partnership.

Charles Bierbauer, CNN, Washington.

(END VIDEOTAPE)

WOODRUFF: In Georgia, the new state flag is flying above the state capitol at this hour. The new flag dramatically reduces the size of the Confederate battle flag, which until yesterday dominated two thirds of the official state banner. The new version features the state seal against a blue background along with smaller versions of five past flags that have flown over Georgia. The Georgia legislature approved the new flag at the urging of Governor Roy Barnes in the face of threatened boycotts.

Still ahead, we'll check in with former Vice President Al Gore. He's on campus in California, and we'll tell you why he's headed back to school.

(COMMERCIAL BREAK)

WOODRUFF: Since his election loss to George W. Bush, Al Gore has focused his post-election energies toward the world of academia. And he's not limiting his services, apparently, to just one institution or one part of the country.

Joining us now from the campus of UCLA is CNN national correspondent Martin Savidge. Hello, Martin.

MARTIN SAVIDGE, CNN CORRESPONDENT: Hello, Judy. You may remember it was last week when the former vice president announced that he was interested in pursuing academia and teaching in his post- election life. Well, today his appearance on the campus of UCLA was his first step in that new direction.

Here, he is known as Professor Gore. Actually, more correctly, he is know as Visiting Professor Gore. He is working in the school of public policy and social research, basically taking part in a program that university officials say will teach students in a wide variety of disciplines that hopefully they will then take back to their communities to work to make them a better place.

Today he was taking part in a symposium to come up with a curriculum for the graduate students. Aides say he has been interested in teaching for quite some time, and though he has no former training or background in teaching, he certainly has a wealth of experience in life.

This particular stint at UCLA grew out of a dinner conversation he had with a professor at the White House back in 1999. Incidentally, this is not the only place where Mr. Gore is going to be the big man on campus. He has also agreed to teaching programs at two other universities back in his home state of Tennessee. So, the former vice president heads back to school, perhaps not as the head of a nation, but he'll definitely be at the head of the class -- Judy.

WOODRUFF: Martin Savidge on the campus of UCLA. Very interesting, thanks.

There are new developments tonight in the investigation of the USS Cole bombing. The former commander of U.S. forces in the Persian Gulf region says that he was never informed of credible threats against U.S. warships in Yemen. Retired Marine General Anthony Zinni described the military's failure to disseminate the warning as quote, "an intelligence lapse." But he said he could not say in hindsight that the warning would have changed his plans to allow U.S. ships to refuel in Yemen.

And that is all for this edition of INSIDE POLITICS. I'm Judy Woodruff. "MONEYLINE" is next.

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