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Inside Politics

McCain-Feingold Reaches the Floor of the Senate; President Bush and Japanese Prime Minister Discuss Economic Issues

Aired March 19, 2001 - 5:00 p.m. ET


ANNOUNCER: Live from Washington, this is INSIDE POLITICS with Judy Woodruff.


SEN. JOHN MCCAIN (R), ARIZONA: I hope we will for the moment forget our partisan imperatives and take a risk for our country.


ANNOUNCER: Under the big top on Capitol Hill, the Senate opens debate on campaign finance reform.


SEN. MITCH MCCONNELL (R), KENTUCKY: I often say it ranks right up there with static cling as one of the great concerns among the American people.



WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: It's King Kong versus Godzilla, a clash of political titans.


ANNOUNCER: Bill Schneider focuses on the big names looming over the Senate debate.

And a likely lame duck visits the White House. What is the bottom line for the U.S., Japan and their economies?

Now, Judy Woodruff takes you INSIDE POLITICS.

FRANK SESNO, CNN ANCHOR: And thanks for joining us. I'm Frank Sesno, sitting in for Judy today.

The fact that the Senate debate over campaign finance reform is under way at all is in and of itself a milestone for Congress and for the champion of the cause, Senator John McCain. It's still anyone's guess, however, as to whether members will go a dramatic step further and approve a ban on unlimited "soft money" donations, as they're known, to political parties.

We begin our coverage of the debate and the politics surrounding it with our congressional correspondent Jonathan Karl.

Jonathan, lots to digest today.

JONATHAN KARL, CNN CORRESPONDENT: Well, Frank, this is one of the few situations where you have something come to the floor of the Senate and not really know ahead of time what's going to happen.

Right now, the debate is going under way. I believe we have Senator Jim Jeffords on the floor talking about campaign finance reform. There he is. Right now, the Senate is deciding the very first amendment to the McCain-Feingold bill, and it's an amendment that would try to do something to limit the advantage enjoyed by millionaire candidates who can run for office and spend an unlimited amount of their own wealth. This is expected to be just the first of many, many, many amendments to the McCain-Feingold bill to be considered.


KARL (voice-over): Before the debate hit the Senate floor, senators John McCain and Russ Feingold brought the case for campaign finance reform to the steps of the Republican and Democratic Party headquarters.

SEN. RUSS FEINGOLD (D), WISCONSIN: The party of the people is now engaged in raising 100,000, 500,000, million-dollar contributions from corporations, unions and individuals. This is not why I became a Democrat, and it is not the future of the Democratic Party.

KARL: Granny D, the 90-year-old activist who finished a cross- country walk for campaign finance reform last year, started walking again, this time in circles outside of the Capitol. Inside, the Republican leader predicted the kind of free-for-all rarely seen on the Senate floor.

SEN. TRENT LOTT (R-MS), MAJORITY LEADER: In this case we agreed that we'd have a jump ball, to put it in basketball terminology, and let the game begin.

KARL: Senator Chuck Hagel was among the first to leap in opposition to the McCain-Feingold approach to campaign finance reform.

SEN. CHUCK HAGEL (R), NEBRASKA: Why do we want to ban soft money to political parties, that funding which is now accountable and reportable? This ban would weaken the parties, and put more money and control in the hands of wealthy individuals and independent groups who are accountable to no one.

KARL: Where McCain-Feingold bans soft money, which can now be given in unlimited amounts to political parties, Hagel's alternative would limit it to $60,000 a year from corporations, unions and individuals. FEINGOLD: We cannot pick up the phone to raise soft money with one hand and cast our votes with the other hand for much longer. The harm to the reputation of the Congress is simply too great.

If we fail to pass real reform, we choose soft money over the public trust. That's a risk we cannot afford to take.

KARL: As it now stands, strategists on both sides believe McCain and Feingold have more than 50 votes for their bill. Far less certain is whether they will still have enough votes after the Senate concludes two weeks of free-wheeling debate, including votes on dozens of competing amendments.

MCCONNELL: Here at the beginning of two weeks of a wild ride, I think it's probably easier to predict who's going to win the NCAA tournament.


KARL: The so-called "millionaires amendment," which is now being considered, would make it possible for the opponents of millionaire candidates to raise far greater sums of money by lifting the limits imposed upon them in their fund raising. It would also, very interestingly, make it hard for millionaires to raise money to repay themselves.

So if a millionaire, as we have seen happen time and time again, lends themselves millions of dollars to run a campaign, they would not be able to then go out and seek political donations to pay themselves back.

This amendment faces the stiff opposition of none other than John McCain, who says that it is like taking a scalpel to a problem -- I mean taking a meat ax to something that would be much better dealt with, with a scalpel.

He is in favor of doing something about the advantages that millionaires enjoy, but would like to go a little less far -- not quite as far as this. And it's expected that this amendment will, in fact, fail.

But Frank, there's one very interesting development we have just learned about, and that is that McCain tomorrow at 12:30 will be meeting with John Sweeney in his office here. John Sweeney, the head of the AFL-CIO, one of the labor unions that has some very significant concerns with McCain-Feingold as it now stands.

Frank, back to you.

SESNO: All right, Jon Karl on Capitol Hill, following those developments, and they're going to be with us for the next two weeks.

And the debate over campaign finance reform is being shaped, to a large degree, not just by forces but by personalities, two personalities, to be particular, and the history between them. The angle of that story now from our Bill Schneider -- Bill. SCHNEIDER: Well, Frank, it's King Kong versus Godzilla: a clash of political titans. George W. Bush and John McCain each claiming the mandate of the election in 2000. The battlefield is campaign finance reform. The soldiers: the United States senators, who are terrified of being crushed when these two giant behemoths go to battle.


SCHNEIDER (voice-over): John McCain won the battle of New Hampshire. His prize? The title of reformer in chief, battling to protect his legacy.

MCCAIN: We are doing this for the next generation of Americans.

SCHNEIDER: George W. Bush won the battle of Florida. His prize? The title of commander in chief, battling to protect his authority.

The issue? Whose version of campaign finance reform will prevail. Will it be McCain's, with its total ban on soft money and restrictions on issue advertising, or Bush's?

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I think we ought to get rid of labor union and corporate soft money, and I know we need to make sure we have -- to make sure that shareholders and labor union members have got a say-so on how their money is spent.

SCHNEIDER: But no ban on contributions by individual donors.

MCCAIN: The fact that he doesn't outlaw individual contributions of these huge amounts of money, I have two words in response for that: Denise Rich.

SCHNEIDER: What bush has is power, the power to sign or veto campaign finance legislation. What McCain has is a public following that crosses party lines.

Look at the numbers. The two contenders are roughly equal in public standing, both with over 60 percent favorability. But there's a difference. Bush is wildly popular among Republicans, but much weaker among Democrats. McCain's support is more evenly spread among Republicans, independents and Democrats.

Bush has his party behind him. McCain has broader legitimacy.

Senators are apprehensive about this great battle. Why should they want to change a system that got them elected?

MCCAIN: We're asking incumbents to vote to change a system that keeps incumbents in office.

SCHNEIDER: In the past, Democrats have battled heroically for the McCain-Feingold bill, knowing Republicans, led by fierce warrior Mitch McConnell, had the votes to stop it in the Senate. But this year, McConnell doesn't have the votes. Moreover, Democrats now raise as much soft money as Republicans and are more dependent on it. FEINGOLD: Well, it's true that there might be some knocking of knees, nervousness, whatever you want to call it, over in the Senate, including on the Democratic side.


SCHNEIDER: Ah, the intrigue. Senator Chuck Hagel, as Jon Karl just reported, who was a key McCain ally from 2000, is sponsoring a rival reform bill. Democrats suspect he's secretly in league with President Bush. And oh, the ironies.

Republicans, who are determined to stop McCain-Feingold, claim the mantle of reformers, while Democrats, who were the first to exploit the soft money loophole, are now the uncertain soldiers of reform -- Frank.

SESNO: Or so it would appear.

SCHNEIDER: Apparently so.

SESNO: Bill Schneider, thanks very much.

And we turn now to our senior political correspondent, Candy Crowley.

Candy, you've been covering this issue in one form or another on the United States...


SESNO: ... the United States Senate, on Capitol Hill, out on the campaign. But the ground has changed, the political dynamic has changed. How?

CROWLEY: Well, absolutely. Just the power structure now -- you see it's not just that the Republicans don't have the numbers to mount a filibuster. It is also they have a president in the White House who is going to block something that they would deem really something they don't want, and it's also that they now have these Democrats, as Feingold said the other day, we're shooting with real bullets now.

So what you're seeing is Democrats who before could say we're all for it, because they could count on the Republicans to filibuster, no longer can count on that. And now, they're looking, and you're beginning to see Democrats going, well, it's OK except for this little part or that little part.

And what you have here with sort of free-for-all out there is the capability of the legislation sort of changing from every three hours when they put amendments on, and by that change, also changing who supports it and who doesn't.

SESNO: Which is why so many refer to campaign finance reform sometimes as the "Incumbent Protection Act."

But Candy, we -- the numbers that Bill Schneider showed for us, showed us a moment ago on McCain's favorability ratings are really quite striking. What is at stake for him, and how do those numbers translate on Capitol Hill?

CROWLEY: There's not an even translation. I mean, obviously anything you take to Capitol Hill in the way of public popularity helps you move something through if they're afraid of you. But the fact of the matter is that John McCain has dicey relationships, even he would admit to that, on all sides of the aisle. As he says, he never won Miss Congeniality up there.

The president is someone that people are going to have to deal with. I've been sort of intrigued by the fact that the president has put light fingerprints on this, but not really heavy ones. He's sort of letting the Republicans out there and doing their thing until it comes to the Oval Office.

What McCain has at stake here is, look, this is his signature issue. If he goes down in flames, clearly it draws some of the power from him, but it also just gives him the cause to go on with it. I mean, this is a man who says I will do this until I absolutely get something.

So he's not going to lose a lot of his political clout from the people. It might draw down some of it on Capitol Hill.

SESNO: All right, Candy Crowley, thanks.

Well, if a campaign finance reform bill becomes law, it seems certain that it will face legal challenge, all the way to the U.S. Supreme Court quite possibly.

Our senior Washington correspondent, Charles Bierbauer, has been looking at the markers the high court has already laid down on political donations and campaign spending.


MCCONNELL: We have an obligation not to pass laws that are clearly unconstitutional.

CHARLES BIERBAUER, CNN CORRESPONDENT (voice-over): That will likely be up to the Supreme Court, as it was in the benchmark 1976 campaign finance case, Buckley versus Valeo. The court ruled then "Limits on campaign contributions are constitutional, but limits on campaign spending violate the First Amendment guarantee of free speech."

Federal limits were enacted in the wake of the Watergate scandal. The court reasoned a $1,000 limit on individual contributions to a political candidate was "only a marginal restriction upon the contributor's ability to engage in free communication." But any restriction spending, the court said, "reduces the quantity of expression by restricting the number of issues discussed, the depth of their exploration and the size of the audience reached."

Since that ruling, campaign limits have been circumvented. ROY SCHOTLAND, GEORGETOWN LAW CENTER: Our experience has been that when you build dams to try to stop the flows of funds in politics, the dams turn out to be sham dams. The money just flows around it like water around dams.

BIERBAUER: That's what "soft money" does. Banning soft money is at the core of McCain-Feingold. The Supreme Court has not addressed soft money, the vast amounts that go to political parties, not candidates.

Independent issue ads, sometimes openly targeting a candidate, raise another free speech problem.


NARRATOR: Get the picture? George W. Bush is anti-choice.



NARRATOR: Al Gore wants you to believe he supports the Second Amendment.


BIERBAUER: McCain-Feingold would ban issue ads in the last 60 days of a campaign. How the court reacts depends on what the final language says and how it is tied together.

SCHOTLAND: Since there will be some parts that are at least problematic, if they do end up in -- on the cutting room floor when the court is finished, that would take down the whole bill.

BIERBAUER (on camera): That's why McCain-Feingold opponents want an all-or-nothing law. They call it nonseverability, hoping it will leave the court little option but to strike it down.

Charles Bierbauer, CNN, the Supreme Court.


SESNO: And still ahead on INSIDE POLITICS, two world leaders, both facing changing national economies. John King on the president, the prime minister and the politics of economics.


SESNO: President Bush said today he's confident about the U.S. economy. His comments came as the Federal Reserve prepares to meet tomorrow with the expectation of interest rate cuts.

The president focused on the economy during the meeting with Japanese Prime Minister Yoshiro Mori, who is dealing with his country's own economic slowdown.

John King has more on the meeting.


JOHN KING, CNN CORRESPONDENT (voice-over): On the surface, the perfect moment for a meeting: Japan's economy is in a chronic slump and the U.S. economy suddenly struggling, raising the prospect of a global slowdown.

BUSH: The stronger we are, the more likely it is that there will be prosperity in other parts of the world. And so this is going to be a very important part of our discussion.

KING: But Prime Minister Yoshiro Mori is considered a lame-duck, and senior U.S. officials privately doubt there is much he can do before he leaves office in a month or so. But that didn't stop Mr. Mori. Despite his delicate political standing back home, the prime minister promised vigorous steps to deregulate Japan's economy and to deal with a major banking crisis.

BRUCE JOSTEN, U.S. CHAMBER OF COMMERCE: Japan's economy is a basket case in fact right now, and it's only going to get worse. There is probably several hundred million dollars of debt that is going to have to be written off in Japan.

KING: One reason this relationship matters so much is that the United States and Japan account for 40 cents of every dollar in the world economy. U.S. investors could shrug off Japan's woes when Wall Street was booming, but not anymore.

ROBERT REICH, FORMER LABOR SECRETARY: They hold a lot of American property, a lot of American assets, and if they get very desperate and decide to sell off a lot of what they hold in the United States, then you will see the market in the United States respond very negatively.

KING: Democrats say Mr. Bush is fond of referring to the U.S. economy as sputtering to help make the political case for tax cuts. But the president's assessment on this day was relatively upbeat.

BUSH: I look forward to explaining to the prime minister that we do have a plan to give our economy a second wind. I'm very confident about our economy.

KING: Less optimistic was the administration's energy secretary.

SPENCER ABRAHAM, ENERGY SECRETARY: America faces a major energy supply crisis over the next two decades. The failure to meet this challenge will threaten our nation's economic prosperity.

KING: Critics called it an another alarmist tactic, this one designed to sell the administration's controversial plan to drill for oil in the Arctic National Wildlife Refuge.


KING: The White House says that's not so, and the president will continue to call them as he sees them, whether the subject is tax cuts or energy policy. And in any event, even senior White House officials acknowledge that the Federal Reserve's looming decision on interest rates cuts will go a lot farther in having a significant impact on the U.S. economy than anything the president could say or do right now -- Frank.

SESNO: John, let's stay on the U.S. economy for just a moment. A letter late this afternoon that's been released from the Democratic leader in the United States Senate, Tom Daschle, to the man who occupies that building over your shoulder, the president of the United States. Daschle, writing to propose a first step to get something going on the economy, a quick cut from 15 to 10 percent of Americans' tax rate, asked the president to join in on that. He says, if you do so, we can have this on your desk to sign by May 1st of this year. How is the White House responding to this?

KING: The White House has been anticipating such a tactic from the Democrats, in saying, on the one hand, it welcomes the Democrats saying let's act at a much quicker pace than the Senate. But on the other hand, let's adopt the entire package, that to get all this money into the economy you should adopt the entire package of a rate cut; that means cutting the higher rates as well as the lower rates. So, the White House will try to take this as evidence the Democrats are perhaps trying to rush ahead of the schedule.

But the Majority Leader Trent Lott today said to do that, you would have to get a universal agreement in the Senate because the Democrats could filibuster and there's no evidence they could get an agreement right now.

SESNO: So the likely response from the White House, John, is thanks but no thanks?

KING: Thanks, but let's negotiate a little bit more and why don't you call Senator Lott, Senator Daschle.

SENSO: OK, John King, thank you very much.

Well, joining us now, Ron Brownstein of the "Los Angeles Times." Ron, you were up on Capitol Hill today; you were talking to some lawmakers as I understand about this sort of thing and the idea of getting more money in more Americans' pockets more quickly.

RON BROWNSTEIN, "LOS ANGELES TIMES": Which is an attractive idea that probably it will happen as part of the final tax bill. But I think Republicans have reason to be leery of this particular proposal, because if Democrats are free to vote to lower the bottom tax rate from 15 to 10 percent, something that would in fact provide relief to all Americans, because you move up the income ladder, pays up as well. If they could vote for that, they would have much less pressure to vote for the final portion of the rate cuts later on in a separate package that would be more targeted to upper income taxpayers.

So, I think if the thing is separated, Democrats can go back and say, look, we voted for tax cuts for working people. It's easy for them to oppose the second piece. I think it will be very little Republican interest in this proposal.

SESNO: You are not suggesting the Democrats are playing politics, are you?

BROWNSTEIN: Well -- obviously. Look, I think what you've got here, though, is some important changes Frank, in where Democrats are and you can see how the economy and the Bush election has moved the Democratic position on taxes. Go back a year. Al Gore was talking about targeted tax cuts to encourage certain kinds of behavior. You know, saving for college and retirement.

Democrats moved first to broad based tax cuts through the, kind of, rebate idea and with Senator Daschle's comments yesterday and this letter today, they have taking another step towards cuts and income tax rates. They are moving closer towards Bush in that sense. They may not get everything he wants, but he has moved the entire debate in that direction.

SESNO: How do people on the Hill and elsewhere feel all around the town, Ron Brownstein, when you combine the expected cut in interest rates that may well come from the Fed tomorrow, and this notion of getting money more quickly to Americans through a tax cut?

BROWNSTEIN: Well, they're looking for any way to move the economy forward. You saw on President Bush's comments today, that he was more optimistic or at least sort of more talking about the long- term strength of the economy. At some point, this will dawn on him that this is their economy. They'll have to run on this economy in 2002 and 2004. Republicans control all levers of government. They are ultimately the ones who have to rise or fall with this.

And I think that when they started off talking about the economy slowing, it was more rhetorical device in an argument for their tax cut. Now they're facing the reality: hey, the economy is slowing, we need to get things going again.

SESNO: To that point, Ron, I was speaking with people last week who said quite flatly, that last week, given the gyrations of the market, what is going on in Europe and Japan, politically at least, it became George W. Bush's economy last week, whether he wanted to acknowledge it or not. And people will expect him to act.

BROWNSTEIN: And certainly by the time people vote again, in 2002 in the Congressional elections and 2004 in the presidential election, it will be very much his economy. But it is a dual-edged sword as many things are here in Washington, Frank.

On the one hand, as the economy weakens, or if there is a sense of the economy weakening, there is more pressure for accelerating the tax cut for having other elements like capital gains, things that could be seen as trying to stimulate the economy, but that pushes the price tag up.

And at the same time, you're dealing with the reality that if the economy is slowing, perhaps the surplus numbers won't come in as big as expected and that would raise the risk on the back end of moving back into deficit, which is something no one on Capitol Hill -- very few people on Capitol Hill would think of it as a viable strategy and most of the public would recoil from.

So, I think as the economy slows, it really exerts a cross- pressure on public opinion. People want the relief as a way of stimulating the economy; they may also fear that the surplus won't be as big as expected and that could raise the risk of deficit later on.

SESNO: And what's the sense of the cost of that deficit, politically speaking? Republicans, as you say, now controlling the levers of government. Would Americans be forgiving of that?

BROWNSTEIN: One Republican said to me today that it would be political suicide, that if you could run again in 2004, With the budget back in deficit -- the White House hasn't been able to view it quite so emphatically in that...

SESNO: Not all Republicans do.

BROWNSTEIN: Larry Lindsey has said several times that it might be worth going into the Social Security surplus to fund the tax cut in the early years, if you are unwilling to deposit the risk of going back into deficit, you are extremely limited in how much you can accelerate the tax relief. You can only take it from the on-budget surplus, and that doesn't get big until later in the decade. So, there is a pressure here in both directions.

SESNO: All right, Ron Brownstein, thank you very much. Next time you come in, we'll bring the calculator.

BROWNSTEIN: Exactly! We'll do it all.

SESNO: OK, thanks.

There is much more to come on this edition of INSIDE POLITICS. Straight ahead:


UNIDENTIFIED MALE: I do expect them to (UNINTELLIGIBLE) those people. However, I don't count on it.


SESNO: New violence shakes the Middle East, as Israel's prime minister prepares for meetings with President Bush in Washington. And:

The Bork nomination revisited. White House officials meet with leaders of the American Bar Association, and discuss the way judicial nominees are screened. Plus:


UNIDENTIFIED MALE: There are many Amendments. The fix is not in as it often is in congressional debates and no one is quite certain what will come out.


SESNO: Our thoughts from our Bruce Morton on the debate over campaign finance reform.


SESNO: We will have more of the day's political news coming up, but now a look at some other top stories.

The lights are out in California again. Rolling blackouts were ordered today, from Beverly Hills to the northern part of the state. Some half million homes are affected. Officials blame higher demand and a lack of electricity from the northwest.


JIM DETMER, ISO V.P., OPERATIONS: What this event was was a sudden onset of the loss of about 1,400 megawatts in southern California of generation. That sudden onset had us making the arrangements to try to find the power to be able to maintain our reliability requirements here inside the state.


SESNO: This is the first time since January that rolling blackouts have been needed in California.

A crew member of the submarine that sank a Japanese ship today said he failed to maintain a manual plot of the surface ship. Petty Officer First Class Patrick Seacrest told the Navy inquiry that he had been tracking the Ehime Maru the day it was rammed by the USS Greeneville. He said his attention was distracted by a new contact on his radar screen. Meantime the commander said he is prepared to assume full responsibility for the accident under certain conditions.


SCOTT WADDLE, USS GREENEVILLE: If Admiral Fargo should choose to grant me testimonial immunity, and I am afforded the opportunity to take the stand under oath, the first words that I say to the court will be that, in fact, that I am accountable, I am responsible for the actions that led to the tragic collision and sinking of the Ehime Maru. None of my crew members should be accountable or responsible for that accident.


SESNO: Nine Japanese were killed in the accident.

There's another warning today about overuse of antibiotics. A doctors group is warning that antibiotics should not be used against common respiratory infections, such as sore throats, bronchitis, and most sinus infections. The group says the infections are caused by viruses against which antibiotics are not an effective treatment. And a new study appears to contradict fears that Viagra is bad for the heart. The study found that Viagra users who experience heart troubles tend to be older men who may not have had sex for some time. The leaders of the study advises Viagra users to relax during sex and don't overdo it. The study was funded by Pfizer, the maker of Viagra. The leader of the study says Pfizer had no control over the research or its conclusions.

Israeli Prime Minister Ariel Sharon is making the rounds in Washington. Up next, who's he talking to, what's he saying and a look at the continued obstacles to Middle East peace.


SESNO: Israeli Prime Minister Ariel Sharon is scheduled to meet with President Bush tomorrow at the White House. He's already in Washington. Senior Israeli officials today say Mr. Sharon will tell Mr. Bush that he, Sharon, is prepared to resume negotiations with Yasser Arafat and the Palestinian Authority if the violence in the Middle East stops. And that, officials say, Israeli officials say, is not negotiable.

Mr. Sharon spent this day in meetings with several Bush Cabinet members, rather including Defense Secretary Donald Rumsfeld, seen here outside the Pentagon, as well as Secretary of State Colin Powell. Earlier in the day, some Muslim American groups held a news conference to denounce Sharon's visit. They specifically criticized Sharon's role in the 1982 Israeli invasion of Lebanon.


KHALID TURAANI, AMERICAN MUSLIMS FOR JERUSALEM: All crimes are crimes, and what Ariel Sharon did deserves to be label as war crimes and he should be treated as a war criminal. We believe the United States of America should treat him as such and should treat him with the same respect that war criminals are treated by.


SESNO: The Israeli prime minister's arrival in Washington came just as new violence erupted at some familiar sites in the Middle East.

CNN's Jerrold Kessel reports on the clashes and their potential impact on efforts at peace.


JERROLD KESSEL, CNN CORRESPONDENT (voice-over): A double- barreled challenge to Ariel Sharon, shooting on the West Bank and near Gaza even as Israel's new minister was heading for his Washington talks in a bid to get U.S. endorsement for his stance that peace moves can't be resumed while violence rages.

The aftermath of a mortar bombing of an army post inside Israel near the Gaza strip is attributed by Israel to a unit operating out of Palestinian-controlled Gaza. One soldier was likely hurt in this, the first such attack against Israeli territory, though there have been similar firings on Jewish settlement within Gaza.

On the West Bank, an Israeli settler was killed in an apparent drive-by shooting or ambush. Some 15 bullets are said to have hit his car, which then collided at high speed with a truck. The army says it believes the gunmen returned to the nearby town of Bethlehem. That's under the control of Yasser Arafat's Palestinian forces.

BRIG. GEN. BENNY GANZ, ISRAELI ARMY: I do expect them to arrest those people. However, I don't count on it.

KESSEL: After cordoning off the area, the military immediately reimposed a blockade on Bethlehem. This only a couple of days after Mr. Sharon, under international criticism, had eased the restrictions.

Further confrontation as Israeli troops fired tear gas and stun grenades to disperse a demonstration of several hundred Palestinian women. They had marched on an Israeli checkpoint between Ramallah on the West Bank and Jerusalem to protest the ongoing limits on Palestinian travel and economic activity.

HANAN ASHRAWI, PALESTINIAN COUNCIL MEMBER: The closures are the utmost in inhumanity. And not only that, but they attack us violently and then -- we are unarmed civilians, women. They attack us and they say stop the violence. This should expose exactly what Israel is, what its occupation policies are.

KESSEL: Mr. Sharon said he was entrusting his foreign minister, Shimon Peres, to serve in his stead and to handle the volatile situation until his return on Thursday.

SHIMON PERES, ISRAELI FOREIGN MINISTER: It looks like a new game which is very worrying, and it may bring to an escalation, something that we are totally disinterested in.

KESSEL (on camera): From last week's battle of the blockade of Palestinian towns, the Israeli demand of Mr. Sharon now is that he find quick answers to the Palestinian shootings, interacting challenges to the new Israeli leader; challenges which are mounting.

Jerrold Kessel, CNN, Jerusalem.


SESNO: The Bush administration focuses on the rating process for judicial nominees. Up next: Past criticism of how the ABA has rated conservative judges. And the outcome of today's meeting at the White House.


SESNO: And now, politics in the judiciary. Bush administration officials are taking a close look at how the American Bar Association rates nominees for the federal bench following criticism from some conservatives that the ABA is biased in favor of liberal judges. Critics often point to the grades given Supreme Court nominees Robert Bork and Clarence Thomas as examples of ABA bias.

But ABA officials maintain the screening process is fair, and earlier today they made their case in person at the White House. Now in just a few minutes, we're expecting to talk with the president of the American Bar Association, Martha Barnett, but first we want to talk with former secretary -- attorney general, rather Richard Thornburgh. He joins us here in the studio.

You have some direct experience in this matter of the ABA and rating judge and what the White House should be doing about all of that in a previous administration.

RICHARD THORNBURGH, FORMER ATTORNEY GENERAL: Well, the ABA got into trouble when they started to play politics. They were originally invited into the process by President Eisenhower in the 1950s to give the viewpoint of the bar on the judicial qualifications of candidates for the bench. During the 1980s, they increasingly, through their changes in the guidelines, got into assessing ideological and political views of the judges and we put our foot down on that in the late 1980s and they went back to the original process...

SESNO: We being the Bush administration of Bush I?


SESNO: All right, and you were attorney general.


SESNO: And you took those steps, and they appealed to you and things changed. Why? They, in the ABA.

THORNBURGH: Well, what happened during the 1990s was that a second factor came into play, and that was increasingly the American Bar Association itself, quite apart from the selection process, became extremely politicized and insisted on taking views on all of the political hot button issues of the day.

And the risk there was that the judicial candidates would feel that they had to toe the line on those views before they got a favorable rating and it's reached the point now where I think this administration has finally said enough, we've had enough. We don't need political advice from the American Bar Association. We're not getting the kind of unpolitical assessment that could help us in this process.

SESNO: But you backed off the effort ultimately...

THORNBURGH: No, we got them to change their rules.

SESNO: But now you're saying, you know, you're better off without them, right?

THORNBURGH: I think it's reached that point because the Bar Association itself, as I said, quite apart from the selection process, has become so politicized and exhibited a bias that really doesn't make them useful in the process.

SESNO: Isn't it fair to say, though, that without any outsider view of any kind the process is going to be equally politicized, maybe more so, by whichever administration is doing the searching?

THORNBURGH: Well, I think you have to remember it was the Bar Association that introduced politics and ideology into their process when they changed their rules in 1980. And nobody can shut them out up. They have a right to rate judicial candidates as does any other group in the country.

The fact that they have had this semiofficial status over the years, however, has been very valuable to them and I think they're going to be very sorry that they've had to give it up.

SESNO: Would Bob Bork be on the high court now were it not for the ABA review process? What would change?

THORNBURGH: That's hard to say, but it's equally hard to see how four members of the Judicial Qualifications Committee could find him unqualified to be on the Supreme Court. They may have disagreed with some of his views, but no one disputed his firepower intellectually as a judge and then as an individual. And that's the kind of thing that's, I think, gotten people's dander up.

SESNO: And here we're seeing a picture of Bob Bork during those famous or infamous confirmation hearings, and it was the start of what many believe was a politicization of the judicial process through the confirmation process itself. So, your argument would be it starts with the ABA and then extended right on through...

THORNBURGH: Well, I quite agree that the Bork nomination changed the rules of game and turned judicial -- controversial judicial nominations into something more like a political campaign. You had ads being run on television, radio, full-paged newspaper ads. We see that recur from time to time, most recently with John Ashcroft's nomination to be attorney general. That's not a healthy thing to do in the case of judges and I think that the Bar Association has to bear some of the burden for that.

SESNO: Very simple, succinct question here and a simply response, I hope, and then one to bounce off our guest from the ABA when we hear from her in just a moment. Does this nation have more liberal judges in your view now because of this ABA process?

THORNBURGH: No, I don't think that's the case. I think what I regret is that a very valuable process has been devalued because of the insertion of politics and ideology.

SESNO: Richard Thornburgh, thanks very much. A pleasure as always. Appreciate it.

And we're going to be talking with the head of the ABA right after this break.

(COMMERCIAL BREAK) SESNO: We have a new development to report to you in the case of accused spy Robert Hanssen. Justice correspondent Kelli Arena has been working the story, and joins us here now.

Kelli, a very interesting new development you've learned.

KELLI ARENA, CNN JUSTICE CORRESPONDENT: Yes, Frank, an intelligence source tells CNN that Russian Embassy's press attache Vladimir Frolov was a handler for accused spy and FBI agent Robert Hanssen. Now, Frolov has been permanently recalled to Moscow, unexpectedly cutting short his second tour of duty. The source could not say why Frolov was pulled back to Moscow, and the FBI had no comment.

And in an unrelated development, intelligent sources also tell CNN the Bush administration is considering whether to demand a widespread withdrawal of Russian diplomats the U.S. suspects of being intelligence officer. Now, sources say the U.S. intelligence community and other parts of the administration agree as they haven't in years that such a move is needed.

Law enforcement sources say the number of Russian diplomats the U.S. believes to be spies has risen to Cold War levels, and that U.S. agents are overwhelmed trying to keep track of them. Now, if the U.S. demands they leave, it would replicate an action that was taken during the Reagan administration known as Operation Famish. Then, 100 then- Soviet diplomats were ordered to return home to Moscow -- Frank.

SESNO: Kelli, let's talk about this fellow Frolov a little bit more. His name has been bandied about. He was based where?

ARENA: He was based here in Washington. Very popular with the press. Quoted often as a Russian-U.S. relations expert, very accessible, very friendly, very well thought of, but snapped back.

SESNO: And it's now believe that he played a key role with accused spy Hanssen.

ARENA: Yes, that he was a handler. Handler means someone who was a contact for Robert Hanssen while he was here, whether that meant getting information, involved in some of those cold drops and picking up information. It's not clear exactly what his role was, but handler was the term that was used.

SESNO: Kelli Arena, thanks very much. Very interesting.

ARENA: You're welcome.

SESNO: And legislative battle over legal campaign contributions in under way in the Senate. For Senators John McCain and Russ Feingold, this is a big day.

But as our Bruce Morton points out, much of the day was about show, and not substance.

(BEGIN VIDEOTAPE) BRUCE MORTON, CNN CORRESPONDENT (voice-over): 10:02 a.m.: the day the great debate begins. John McCain and Russ Feingold have called a press conference in the Senate TV gallery. A new plan?

MCCAIN: We're going to propose that it be changed to Feingold- McCain. We've been on McCain-Feingold and lost. Maybe it'll change our luck.

MORTON: The press conference isn't a press conference. It's the first move in the photo opportunity. Those matter here. By 10:05, McCain and Feingold are walking. Granny D, age 90, who walked across the country for campaign finance reform, CFR in this initial-friendly capital, is with them. By 10:27, they've reached Republican headquarters.

MCCAIN: It's time to end business as usual.

MORTON: Walking again. 10:34, they've reached Democratic headquarters, just a couple of blocks away. The walk, they say, symbolizes how close the parties and money are to the Congress. At the DNC, initials again, McCain says a sign he likes, and has a suggestion.

MCCAIN: Some great Americans up there, we are proud of them. God bless you. Send back the checks, guys!

MORTON: Not likely. They keep walking. 11:34 a.m., Senate Republican Leader Trent Lott opens his pre-Senate session chat with reporters by noting that Mississippi, his state, his school, beat Notre Dame in the NCAA basketball tournament. Campaign finance, his fourth subject, after hoops, the tax cut bill, and the American Bar Association's role in picking judges, gets a basketball reference, too.

SEN. TRENT LOTT (R-MS), MAJORITY LEADER: In this case, we agreed that we'd have a jump ball, to put it in basketball terminology, and let the game begin and hopefully it'll produce a winning result.

MORTON: There are many amendments. The fix is not in, as it often is in congressional debates, and no one is quite certain what will come out.

The Senate meets at 12:00 for what's called morning business. By 12:45, Frank Murkowski of Alaska is speaking on energy. One other senator is on the floor. Murkowski has pictures of caribou and bears coexisting with oil drilling and the pipeline.

FRANK MURKOWSKI (R), ALASKA: They are not disturbed. They are not attacked. They are very comfortable and these are real, Mr. President, these are not stuffed.

MORTON: At 1:00, a quorum call, what the Senate does to kill time. At 1:03, the great debate kind of starts.

UNIDENTIFIED MALE: That's 27, the bill to amend the Federal Elections Campaign Act of... MORTON: 30 seconds later, Mitch McConnell is announcing plans for calling up the First Amendment. Six or seven senators are on the floor now. You can watch it on TV in your office, of course. Chris Dodd of Connecticut yields to Feingold. In turn:

FEINGOLD: I would prefer to defer to my commander on this. The senior senator from Arizona.

MCCAIN: Today we begin the first open Senate debate in many years on whether or not we should substantially reform our campaign finance laws.

MORTON: They're off. Outside, Granny D, the 90-year-old militant, plans to walk around the Capitol while they debate. They're off. Maybe it's history. Or reform. Or democracy. Whatever.

Bruce Morton, CNN, Washington.


SESNO: And we want to take you back to a story are that we were discussing a little while earlier with former attorney general Dick Thornburgh, the subject of moves by the White House to distance itself from the American Bar Association the way that it rates nominees for the federal bench. The meeting today at the White House on that subject with the president of the American Bar Association Martha Barnett. She joins us now here in the studio.

Ms. Barnett, thank you very much for your time.


SESNO: I appreciate your time. Sorry that you were not here to hear Dick Thornburgh. I guess you were caught in Washington traffic; it's a fate we all face. Start by telling us about the meeting in the White House today, and again, for the viewers who may be joining us and the White House saying, you know what, we've had enough of the ABA rating these judges; we will do it on our own.

BARNETT: We had a very constructive today with the White House counsel and with Attorney General Ashcroft in talking about the continuing role that the ABA will have in assisting the White House, in vetting potential nominees for the federal courts. They, by no means, told us that they were going to disregard the ABA's role. And in fact assured us that they wanted to continue.

The question they raised is, what that role should be? And what we focused on in our discussions with them was the process that our standing committee on the federal judiciary uses to assist the White House in finding out, based on evaluations in a highly-confidential structured format, how their peers in the legal community view the potential candidates based on their professional qualifications only. Their temperament, integrity, and competence.

SESNO: Did they raise with you at the White House, the concern expressed that the ABA is somehow biased against conservative judges? BARNETT: Not in exactly those words.

SESNO: In other words?

BARNETT: What they raised with us is whether the fact that the ABA had taken positions on certain policies that many would characterize as liberal such as affirmative action, for example, or calling for a moratorium on the death penalty. Whether those policies somehow affected the role of our standing committee on the judiciary.

SESNO: What is your response to that?

BARNETT: Our response is that they are completely separate roles and that for a half century, our standing committee has been insulated totally from the policy positions and any influence of those policy positions as they talk to candidates for potential officers.

SESNO: But Ms. Barnett, isn't it fair for some to say that the conflict exists, or at least in the appearance of the conflict exists in the group, the ABA, that is taking positions on certain issues and also rating judges and people for the federal bench?

BARNETT: The ABA standing committee is -- provides a very unique and limited role in assisting the White House. We are the only group that, in the confidential candid format that we have, can get information on a potential candidate's professional qualifications. And that is all the committee does.

Now, when I say all, it's a critical piece of information available to the White House, and we provide it to the White House, and they can do with it what they want.

SESNO: So what changes will the ABA be making then in this ongoing process? You say you're going to continue with this process vetting judges, correct?


SESNO: And you have been given that assurance today, correct?


SESNO: What changes will you make?

BARNETT: We don't know. We'll certainly accommodate our evaluation process to the White House, they have not told us what role they would like us to play. The issue is real -- the real issue is whether they will continue to give us the names prior to those names becoming public. The ABA believes that this is an important part of the information that we, as a profession, can provide on these lawyers. And we hope to continue to have a constructive role in the White House deliberations on these candidates.

SESNO: Martha Barnett from the American Bar Association; as they say in the courtroom, no further questions. We'll have you back. I appreciate it. BARNETT: Thank you.

SESNO: A preview of tomorrow's Fed meeting and the prospect of an interest rate cut. We will have a look at Alan Greenspan potential next move when INSIDE POLITICS returns. And also:

President Bush weighs in on U.S. energy policy and the latest rolling blackouts in California.


SESNO: The Bush administration and the markets look ahead to the Fed meeting tomorrow with considerable interest.

Amid another power alert in California, economic warning bells are ringing here in Washington.

And the Senate debate over limiting the political influence of big money. An inside view from Minority Leader Tom Daschle.

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

SESNO: And welcome back to INSIDE POLITICS. I'm Frank Sesno. Judy is obviously off today.

Faced with Democrats' charges that he's been talking down the economy and growing concerns about a global slowdown, President Bush sounded a more upbeat note today. During a meeting with the Japanese prime minister, Mr. Bush said he is very confident about the U.S. economy. Adding, quote: "I know it can beat expectations."

Japan's chronic economic woes have become harder for many Americans to overlook in light of recent losses on Wall Street. But tomorrow's meeting of the Federal Reserve policy-makers is providing some with a ray of hope.

We're joined now by CNN financial correspondents Peter Viles and Allan Chernoff. First to you, Allan. What do we know and when are we going to know it?

ALLAN CHERNOFF, CNN CORRESPONDENT: Well, we will know it at 2:15 Eastern time. That's when the Federal Reserve makes its announcement and the anticipation is that the Fed will cut the Fed Funds Rate, which is the overnight bank lending rate, by either 50 basis points, that's half a percent, or perhaps three-quarters of a percent, 75 basis points.

SESNO: Allan, what's the likely fallout of that going to be? I mean, we've been reading so much about the rates got to be more than a half percent to be taken seriously by investors on Wall Street. From what you're hearing, people you're talking to, what are the expectations and where's the benchmark?

CHERNOFF: Very difficult to predict how the stock market will respond because this is a market that is severely depressed, involved in corporate news and a lot of people are saying it won't matter in the near-term so much how the Fed responds simply because corporate earnings have been miserable and bad news continues to come out from corporate America.

That said, it's certainly possible that if the Fed moves aggressively tomorrow, the stock market could rally on that news. But again, critical for the stock market to hear good news out of corporate America. In terms of consumers, this actually could be quite very good news if the Federal Reserve does move aggressively because this actually would lower home equity loan rates and also adjustable rate mortgages as well. They respond to rates that are influenced by the Federal Reserve's Fed Funds Rate.

SESNO: Now, there's a time lag there, Allan. How long would it take for that to work its way through the pipeline and actually end up in consumers' wallets?

CHERNOFF: A very good question. Well, in terms of the consumers, that could be immediate in terms of the home equity home rates because right away banks will respond by lowering their prime rate and the prime rate is what influences the home equity loans. But in terms of influencing the economy, that is hotly debated on Wall Street, and a lot economists say it takes at least six months to feel the full effect of a Federal Reserve interest rate cut.

SESNO: Allan Chernoff, thanks very much. We'll be talking to you soon. Over to Peter Viles now and Peter, what you've been hearing on what's ahead and who's leading the way?

PETER VILES, CNN CORRESPONDENT: Well, Frank, the markets have come to expect a mix of leadership and hand-holding from the treasury secretary during times like this, and Robert Rubin in the Clinton administration was masterful in this role.

Paul O'Neill, on the other hand, has not embraced this part of the job. Today, he was pressed on the issue, asked essentially if he had anything at all to say to investors about the market right now. Here's how he answered.


PAUL O'NEILL, TREASURY SECRETARY: I think the markets go up and the markets go down, and if you've been watching them as long as I have, you know that and you anticipate that, and it's not clear to me that there's some high utility in me noticing every day what's going on.


VILES: Another difference between this administration's Treasury Department and the Clinton administration, this administration has been very quiet in what they think other countries should do to stimulate their economies. Case in point: Japan.

We heard many, many times from Treasury Secretary Rubin and Summers after him what they thought the Japanese needed to do to get their economy going, and what they shouldn't do, which is allow the yen to weaken to make Japanese exports more competitive. You have not heard that from this administration. That's part of President Bush's campaign pledge to run a more humble foreign policy, but it's also a difference from investors. They're not sure where the leadership is going to come from now in this global economy -- Frank.

SESNO: Peter, on that subject, I've been hearing from some, to include two very prominent Republican senators last week, questioning the leadership of Paul O'Neill. What you're hearing on Wall Street, what we're hearing here in Washington, is this the beginning of a second-guessing campaign?

VILES: Well, there certainly is some second-guessing, but we should be clear about two things. One, that's not the major headache over this market. The market has many more important things to be concerned with. And secondly, it's a tough job, treasury secretary. You have to really speak this very delicate language.

Essentially, it's the art of saying nothing and sounding like you're saying something. Bob Rubin was terrific at it but his predecessor, Lloyd Bentsen, the originally treasury secretary, did have some stumbles when he came out of the blocks in this delicate language of what do you say about the dollar, and some people have compared Paul O'Neill's little trouble with the dollar to Lloyd Bentsen.

So, these aren't things that can't be overcome. But the consensus has been that he has made a few rookie mistakes in the first two months here.

SESNO: Peter Viles on the treasury secretary, Paul O'Neill.

Well, the connection between the economy and another topic, energy, were very much on the minds of President Bush and administration officials today.

Major Garrett has details on that, after a meeting of Mr. Bush's energy task force -- Major.

MAJOR GARRETT, CNN WHITE HOUSE CORRESPONDENT: Hello, Frank. Well, The energy issue became noticeable to the Bush administration first in California. But now the White House fears that energy shortages and all the problems that they bring, higher prices, potential brown-outs, could spread across the country this summer.

The president said today there are no short-term fixes. Nevertheless, the White House turned its attention to trying to insulate itself from political blame.


GARRETT (voice-over): As California ordered another round of rolling blackouts, the president's energy task force briefed him on what they see as a looming national crisis.

BUSH: It is clear from first analysis that demand for energy in the United States is increasing much more so than production is. And as a result, we're finding in certain parts of the country that we're short on energy. And this administration is concerned about it.

GARRETT: The president's energy secretary went further, invoking the dreaded "R" word.

SPENCER ABRAHAM, ENERGY SECRETARY: This nation's last three recessions have all been tied to rising energy prices, and there is strong evidence that the latest crisis is already having a negative effect.

GARRETT: Abraham laid out America's inability to meet rising energy demands over the next 20 years: Natural gas usage up by 62 percent; Oil use up by 33 percent; Electricity use up 45 percent. In all three cases, Abraham said domestic supplies will not keep up.

But proposed White House solutions, from drilling in the Arctic National Wildlife Refuge to building natural gas pipelines and using more coal, are all long-term and critics argue the White House is hyping the problem to get its way on Capitol Hill.

MARK COOPER, CONSUMER FEDERATION OF AMERICA: We do not believe it is yet a crisis. We believe that the administration is using concerns about energy to promote an agenda that they had going in, and they've had for a number of months now to increase drilling for oil in some of the nation's most environmentally sensitive places such as the Arctic National Wildlife Refuge.


GARRETT: Now, senior administration officials say the crisis is all too real, and poses a definite political problem for them this summer. The energy crisis, many here at the White House see as a trap door between -- beneath, rather, the president's economic plans. They had hoped that with interest rate cuts and a tax cut approved by sometime this summer, the economy could get back on its feet. But if there is, in fact, a big energy crisis, all bets are off, White House officials say -- Frank.

SESNO: Major, what is the White House responding to critics who say that there's not enough about conservation in this emerging energy plan?

GARRETT: Well, the president addressed that, Frank, in his remarks to his energy task force that met with him at the White House today. The first thing he said in dealing with the overall crisis, he said we need to have good conservation.

Then after that, he said, we also need to increase domestic production. Before it always had been an emphasis first on increasing domestic production and then a little bit later down in his list of priorities increasing conservation. The president switched those in order today, a signal at least that he is hearing those critics.

But as California's experience has well underlined and as administration officials say, Americans talk a good game when it comes to conservation, but when they want the lights on and when they want the air conditioners on in the summer, they turn them on and expect the energy to be there. The White House knows if it's not, they're going to get the blame -- Frank.

SESNO: Major Garrett at the White House on the emerging energy policy from this new administration.

And as the debate over campaign finance reform plays out on the Senate floor, we'll talk to Minority Leader Tom Daschle about the bill, its politics and its prospects.


SESNO: There's a great deal of anticipation in Washington and on Wall Street concerning tomorrow's Federal Reserve Board meeting. What Fed Chairman Alan Greenspan says, rate cut or not, will likely impact the markets.

Patty Davis takes a closer look at the Fed chairman and his political and economic clout.



WILLOW BAY, CNN ANCHOR: How low will the Fed go tomorrow? This is what everyone is talking about on Wall Street is talking about:

UNIDENTIFIED MALE: It's all in that guy's hands right there.


PATTY DAVIS, CNN CORRESPONDENT (voice-over): Considered by some the most powerful man in Washington, Alan Greenspan is no stranger to the spotlight. Just learning the ropes in Washington, all eyes were on the new Fed chairman as he faced down the 1987 stock market crash.

WAYNE ANGELL, FORMER FEDERAL RESERVE BOARD GOVERNOR: Well, Alan Greenspan is always in a non-crisis mode. You never see him when he appears to be that excitable.

DAVIS: Greenspan also has proven himself adept politically. Despite being appointed by a Republican president, Greenspan was reappointed by Democrat Bill Clinton, his power and influence evident. George Bush blamed Greenspan for keeping rates too high and costing him the '92 election.


DAVIS: But the latest President Bush has sought out the Fed chairman.

BUSH: I talked with a good man here.

DAVIS: Greenspan has offered his own endorsement, of sorts. ALAN GREENSPAN, FEDERAL RESERVE BOARD CHAIRMAN: Having a tax cut in place may, in fact, do noticeable good.

DAVIS: On the personal side, Greenspan is a regular on the Washington social scene. Over the years, the often cryptic Greenspan has urged caution in high-flying times.

GREENSPAN: How do we know when irrational exuberance has unduly escalated asset values?

DAVIS: Now he is again the man to watch as the economy flirts with recession.

GREENSPAN: We have had a very dramatic slowing

DAVIS: He gets regularly criticized.

GREG VALLIERE, SCHWAB WASHINGTON RESEARCH: There are many professional investors who feel that Greenspan's halo has slipped, that he tightened way too much last year and was far too slow reacting to the economic downturn

DAVIS: Greenspan works long hours crunching numbers with colleagues. But make no mistake, the chairman is in charge.

ANGELL: He's able to give an appropriate air of disdain for views that he doesn't find all that compelling.

DAVIS (on camera): Fed insiders point out Greenspan has faced harsh criticism before, but he's got a good defense, his policies have usually proven right.

Patty Davis, CNN, Washington.


SESNO: And on those predictions of the economy and some more on campaign finance, we'll be joined in just a moment by none other than Senate Minority Leader Tom Daschle. First a preview of what's ahead on "MONEYLINE" with Allan Chernoff -- Allan.


SESNO: Welcome back to INSIDE POLITICS. I'm Frank Sesno sitting in for Judy Woodruff today. We've been focusing on two main subjects here in Washington this day: Campaign finance reform, the debate is under way in the United States Senate; and the state of the economy and what can be done by way of taxes and a potential lowering of federal interest rates to get things going again on the economic track.

We are joined now by the Senate minority leader, Tom Daschle. He joins us from Capitol Hill. Senator, good to see you.

SEN. TOM DASCHLE (D-SD), MINORITY LEADER: Good to see you, Frank. SESNO: You have been busy today, among other things, writing letters, one of which goes to the president of the United States, and you repeat in this letter what you said yesterday on television, which is, "Let's move quickly," you say, "to reduce one tax rate, the tax rate paid by those who are in the 15 percent tax bracket, down to 10 percent." You say, if the president joins you, you can get this done by May 1 of 2001, of this year.

Why should he do that, because once you do that, some say, he won't get the higher-end rate reductions?

DASCHLE: Well, Frank, I think we should do this for a lot of reason. First of all, because I think it is the best fiscal stimulus we could provide right now. We can do this in a way that would probably do some real good economic generation, which is what we're all looking for. By targeting this amount to the lower- and middle- income people, although everybody would get the tax break, I think it would do a lot.

Secondly, it's something everybody agrees with. The president and Democrats alike would agree that taking this action would go a long way.

And finally, it's affordable. It's $450 billion rather than the $2.5 trillion the president is proposing.

SESNO: Senator Trent Lott today, the Republican leader, said that he's in favor of speeding the process of the overall tax cut to get more money into people's pockets more quickly, and he also suggested taking up the House-passed bill, and in that way he could beat his own deadline in terms of getting tax reform passed.

Now, you would have to join him to do these things. Will you?

DASCHLE: I can't do that. First of all, we have to pass a budget resolution. We can do that in the first couple of weeks in April. Once that's done, I think we can pass a tax cut by May.

But you can't pass a tax cut of the magnitude they're talking about without some consideration of how we're going to do this with all the other priorities we've got, Frank, and that's really what I'm hoping we can avoid.

Let's not get into a partisan fight here, let's not try to polarize this debate. Let's bring ourselves together, let's agree on what we can do. We can do this: We can lower that lower rate and go a long way to providing the fiscal stimulus that we all say we want.

SESNO: Will you also sign onto lower capital gains rates, given what's been going on in the market? Some say that becomes an especially good idea now.

DASCHLE: Well, I think we've got to take this all a step at a time. Let's make sure that we know how much we've got to dedicate to tax cuts, and I don't think we can say that today. Obviously, capital gains reduction would be in addition to everything else the president's proposed, and he's already at $2.5 trillion. So to bid it up even further, to go to, say, $3 trillion, which is what this probably would cost, is something I don't think we can afford budgetarily, nor do we know that we've got the projections that will allow us the confidence that we're going to have the money in the first place.

SESNO: Senator, we heard earlier from John King, over at the White House, who said in response to this proposal that you've made that the White House is very unlikely to sign onto that, because many would see it as precluding, if this thing passes, chances for the higher-end tax reduction that the president wants.

Aren't you joining the political process rather than focusing on getting real tax relief, real quick?

DASCHLE: Frank, all I know is that the president and most Republicans have said they support lowering the lower rate. We support lowering the lower rate. We support giving a tax cut to everybody and we support doing it as soon as possible. This is the only piece upon which there is almost entire agreement on both sides of the aisle. How does it get any better than that?

That seems to me to be exactly what we should be doing. Let's do that now, let's see how much money we've got, let's see what the situation looks like a year from now, let's come back and look at other pieces later. This is what we can agree on now and we ought to do it.

SESNO: One other question on the topic of tax cuts, and that is the issue of retroactivity, making more of it come back to people this year.

DASCHLE: Well, that's what my proposal would do. It would start the tax cut the 1st of January, it would make it available to everybody, it would have the greatest effect in terms of fiscal stimulus of any different option that has been proposed so far. So there's no question this would do a lot of good and it would do so soon.

SESNO: I want to throw Trent Lott at you one more time. I quoted him a moment ago in some of the things he wants. One of the other things he was asked today is whether Democrats are talking down the economy and if they're doing that for political gain, that was the question. Here's the response, take a listen.


SEN. TRENT LOTT (R-MS), SENATE MAJORITY LEADER: That was just one of a series of things that the Democrats have been saying to try to find a way to get out of having tax-rate cuts for individuals. They've tried, "Oh, we shouldn't do it at all." "Well, we can do a little." "Well, we can do more than that."

But I've never seen such squirming and struggling around trying to avoid giving working Americans tax-rate cuts.


SESNO: Senator Daschle, your response?

DASCHLE: Well, I think the Republicans were looking for some motive, some reason to have the tax cut they were talking about last year. This goes all the way back to the New Hampshire primary, when then-candidate Bush was trying to outdo some of his opponents.

We all recognize that tax cuts are something we could support, that Americans deserve. But we've got to do it right. We have to do it with other priorities in mind, like paying down the public debt, investing in education and in health care. That, to me, is what's at stake here, finding the right balance.

SESNO: Senator Daschle, let's turn to campaign finance reform. As I mentioned, the debate has been under way today, early amendments to limit or at least put some controls around what individuals, rich individuals can spend on their own campaigns and the rules around that.

But over the weekend some sense that many Democrats -- Democrats -- may be lukewarm to this notion of sweeping campaign finance reform; Senator Torricelli among those speaking out and demonstrating his own misgivings about some of this.

Can you hold all your party members?

DASCHLE: I think we can, Frank. Obviously there is always going to be fear of the future and the uncertainty of what the future holds. But there's no doubt, we all recognize you can't get much worse than the current system. We can do a lot better than what we've got right now and we have to do a lot better.

McCain-Feingold may not be the perfect way with which to do it. It certainly isn't going to clean up and fix every problem we've got. But it's a very important beginning, and I think at the end of the day you're going to see virtually every Democrat in support of it.

SESNO: Specifically on McCain-Feingold, this thing that's being debated right now, how do you respond to those who say that the controls that it would put in place would only squeeze the money elsewhere, to the NRA or Planned Parenthood or the Sierra Club? They could go out and spend money on behalf of candidates, if not directly identified as such, for the causes they stand.

DASCHLE: Well, I hope we can find a constitutional way to deal with that issue. We're beginning to find ways with which to do it with this prohibition on outside groups spending money on attack ads those 60 days prior to election. That's a start. We've got to go a lot farther.

But as I said, this is a beginning. This isn't going to solve all the problems, but it's going to address many of them, and we're going to go from here. Let's pass this and let's go on to the next stage.

SESNO: Two weeks of debate beginning today on campaign finance.

Senator Daschle, thanks very much for your time. Really appreciate it.

DASCHLE: My pleasure, Frank. You bet.

SESNO: And Majority Leader Trent Lott, we should tell you, was unable to join us today for discussion of these topics and more. We do hope to have him on INSIDE POLITICS very soon. We'll hear from the Republican perspective, then, and of course, in many places in- between.

That is it for this edition of INSIDE POLITICS. Of course, you can go online all the time at CNN's; AOL keyword, CNN.

And this programming note: Mexican President Vicente Fox will be discussing the drug trade and immigration in a live appearance tonight on "WOLF BLITZER REPORTS." That at 8 p.m. Eastern time.

Also Larry King talk with three-time Winston Cup winner Jeff Gordon about racing safety.

I'm Frank Sesno. "MONEYLINE" is next.



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