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Inside Politics

President Stresses Strength of U.S. Economy While Insisting on the Need for Tax Cuts

Aired March 27, 2001 - 5:00 p.m. ET

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

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

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The American economy is like a great athlete at the end of the first leg of a long race: Somewhat winded, but fundamentally strong.

(END VIDEO CLIP)

ANNOUNCER: In the run-up to tax cuts, the president and Senate Democrats clarify their competing visions.

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), MINORITY LEADER: Is it possible that Republicans have just met the first tax cut they don't like?

(END VIDEO CLIP)

ANNOUNCER: Senator John McCain may be feeling a bit like Luke Skywalker, again, after overcoming a major threat to his campaign finance reform bill.

Plus, the energy flash points burning a hole in your pocket and the power struggles they're creating.

Now, Judy Woodruff takes you INSIDE POLITICS.

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

Senator John McCain and his campaign finance reform allies know it's too soon to be popping any champagne corks. But they did manage to defeat a rival plan that would have limited soft money donations, as they are known, instead of banning them, as McCain and his legislative partner Russ Feingold want to do. But the final showdown still lies ahead.

Our Congressional correspondent Jonathan Karl, following the action in the United States Senate.

(BEGIN VIDEOTAPE)

JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT (voice-over): The Senate rejected the main alternative to the McCain-Feingold bill, putting Democrats a step closer to a moment of truth: Do they vote for a campaign finance reform bill threatens that put their party at a serious disadvantage?

SEN. JOHN BREAUX (D), LOUISIANA: That it allows the one area where Republicans have the ability to raise twice as much money as Democrats to continue, and the one area where we are comparatively even in to be eliminated. That is not a level playing field. I don't think it's fair, and it's certainly not reform.

KARL: So far, Senator Breaux is the only Democrat to publicly oppose McCain-Feingold. But privately, several other Democratic senators say he is exactly right, pointing out that Democratic campaigns last year were fueled with more than $240 million worth of the unlimited donations given to political parties known as soft money, virtually the same amount raised by Republicans.

A ban on soft money would leave only the so-called hard money donated directly to candidates, and here Democrats raised less than $270 million, compared to nearly $450 million for Republicans. Making matters worse for Democrats, the Senate is soon to vote on a proposal by Senator Fred Thompson to raise the hard money limit from $1,000 to $2,500. If it passes, Democratic leader Tom Daschle says he will no longer support McCain-Feingold.

DASCHLE: If I'm criticized for not compromising, I'll take the criticism, but I cannot go farther than where we are just because of the extraordinary disadvantage I think that puts our party.

KARL: Even if Senators McCain and Feingold can navigate the hard money minefield, their reform bill faces another obstacle: the courts. In an effort to see campaign finance reform put in the courts, several Republicans are voting to tack on amendments they think are clearly unconstitutional, such as a measure to put limits on the political advertising done by outside groups.

SEN. MITCH MCCONNELL (R), KENTUCKY: I thought a bill that was already unconstitutional ought to be made a little more unconstitutional. So, that's why I voted for it and lobbied for it.

KARL (on camera): So what's the strategy here in this kind of voting?

MCCONNELL: Well, this bill, if it ever becomes law, is going to end up in court, and you're looking at the plaintiff.

(END VIDEOTAPE)

KARL: John McCain now acknowledges that the primary obstacle to getting his campaign finance reform bill passed may be Democrats, actually. McCain saying that Democrats who have long supported his campaign finance reform crusade may be getting cold feet. That's what he's looking at now, will Democrats be with him at the end -- Frank. SESNO: John, let's talk a little bit about those Democrats, specifically on this issue of hard money, the money that, you know, you can write a check to any candidate you want, but only to a certain amount. Where are they on that?

KARL: Well, right now, that hard money limit is at $1,000, Frank, and as you know, a limit set back in 1974. Tom Daschle has said all along that he doesn't want to see the limit raised at all. But today he came forward and could accept a hard money increase to $2,000, raising that limit of how much you can write the check to an individual candidate to $2,000.

But he is saying that is it, $2,000, and no more. Very interesting, Frank, because Fred Thompson later tonight is going to introduce his bill that would allow contributions of up to $2,500, and we are told by the vote counters on both side that that is likely to pass, putting Tom Daschle in a position of having to vote against campaign finance reform because he thinks it allows too much of an increase on hard money.

SESNO: He'll follow through on that threat?

KARL: Well, Frank, one thing that's important is that Democrats also have their own alternative that they will offer. It's going to get confusing on the Senate floor later today. Democrats, in the person of Dianne Feinstein, are going to say OK, let's raise the limit to $2,000.

It'll be interesting to see what happens when that comes to the floor because several Democrats are in favor of the larger increase to $2,500. Now, the question is, will they look at possibly killing campaign finance reform, will they agree to a lower limit? That's something nobody really knows right now. And the deal, Frank, will be hashed out right there on the Senate floor.

SESNO: John Karl with the score pad. Thanks very much. Following it closely.

Turning to tax cuts and the economy now. President Bush raised some red flags today about a growing Democratic push for a speedy tax rebate. In a speech in Michigan, Mr. Bush backed immediate tax relief, but warned that one time -- a one time cut, rather, would not be enough.

As CNN's Major Garrett reports, the president engaged in some finger-pointing as well.

(BEGIN VIDEOTAPE)

MAJOR GARRETT, CNN CORRESPONDENT (voice-over): Beset by recent stock market sell-offs, President Bush labored to shift the blame.

G.W. BUSH: U.S. stock markets have been declining steadily for more than a year.

GARRETT: The speech was billed as a major address, but contained no economic proposals. And while the president joined calls for swift, retroactive tax cuts this year, he drew a hard line against cutting taxes this year alone, urging Congress to attach any short- term cuts to his 10-year, $1.6 trillion tax cut.

G.W. BUSH: Our economy needs more than a pick-me-up, more than a one-time boost. Our economic health depends on people feeling comfort and confidence about long-term decisions.

GARRETT: This puts the president in conflict with Senate Democrats, who introduced their own stimulus package, an immediate stand alone $300 rebate for every worker and a reduction in the lowest tax bracket from 15 percent to 15 percent.

DASCHLE: Our plan will provide relief that is real, immediate, affordable, fair and good for the economy.

GARRETT: Democrats want to vote on their idea now, leaving a decision on the president's 10-year tax plan for later. But Treasury Secretary Paul O'Neill said he has witnessed the failed experiment of trying to stimulate the economy with a one-time tax cut.

PAUL O'NEILL, TREASURY SECRETARY: I was here when we tried that in 1975 and it didn't work. If we want to change consumption patterns, we need to make a permanent change in people's tax burdens.

(END VIDEOTAPE)

GARRETT: The White House fears the Democrats are laying a trap, accept swift tax cuts now, but to a lay a vote on long-term tax cuts for months, pushing the debate about cutting taxes for wealthier taxpayers closer to the next election. That's why the White House will demand linking tax cuts now with tax cuts later -- Frank.

SESNO: Major, the White House billed this speech today as a significant pronouncement by the president on the state of this economy. He got a fair bit of cable coverage. People were able to see it live. What was there in this speech that was different from what we've been hearing from the president for weeks?

GARRETT: Not much, Frank, except the president tried to recast the entire debate about the economy, and specifically the tax cut, saying yes, there is a push in Congress and there a sense among to populace generally that we need to stimulate the economy now. And he's all for that.

But he also said we can't simply just think about the short-term. We have to think about the long-term, the long-term in forms of tax policy, cutting rates across-the-board and cutting rates across-the- board for years to come, phasing them in gradually so not only consumers, but businesses have a sense they have will have tax cuts in the future.

He also said energy policy needs to be changed, and trade policy needs to be changed, opening markets overseas so U.S. business have a place to export their goods -- Frank. SESNO: And finally, one other question, Major, before we go. You mentioned in your piece, and we've heard from the president himself in that speech, a fair bit of finger-pointing, if you will, that the seeds of the economic slowdown, turndown, whatever you want to call it, took root in the Clinton administration.

Is the administration feeling political pressure to be sure that people connect this with the previous administration or is there some other goal here?

GARRETT: Well, they're feeling that political pressure, and they've felt it just recently. In the days leading up to the inauguration and just afterwards, the White House did not feel there was any particular political price to pay for saying that the economy was slowing down.

But then, consumer confidence began to dip. You started to see stock market gyrations and then the public began to say, well, wait a minute. If the president wasn't so negative about the economy, maybe things would be better. Well, that message has clearly gotten to the White House, and they're to reshape and recast the president's message, a tacit admission that sometimes the president's negative comments about the economy have taken root, depressed consumer confidence, perhaps affected the stock market.

Now, the White House wants to present a more optimistic, more forward looking president talking about what needs to be done for the short and the long term -- Frank.

SESNO: White House correspondent Major Garrett with the president in Michigan. And joining us now as we take a closer look at the nation's economy and competing tax cut plans and the politics behind all of it, Ron Brownstein of "The Los Angeles Times" and David Brooks from "The Weekly Standard."

David, you wrote, "Goldilocks is dead and George W. Bush should admit it." What a party pooper.

DAVID BROOKS, "THE WEEKLY STANDARD": Yes, she's dead all right.

SESNO: What do you mean?

BROOKS: The idea -- Bush said the tax is not too big, it's not too small. We ought to stick with this tax cut plan. The problem is there's a vacuum in the first few years of this tax cut plan. Bush does almost nothing over the next two and three years.

The Democrats have filled that vacuum. They've got their short- term plan. So, they've seized control of the agenda and Bush is way too passive. This speech today was an attempt to regain control of the agenda, but it was still the long-range plan.

SESNO: Now, you're a pretty solid conservative guy and you talk to a lot of conservatives. Is this a widespread sentiment that Bush is somehow missing the boat here? BROOKS: I'd say, half and half. There is a feeling among many conservatives that if he changes his plan one little bit, then suddenly the business community, everyone else, will jump in with their ideas and the whole thing will go kablooey. So, there's some, you know, we're in trouble, let's stick to our guns. The opposite argument is, if all hell's breaking loose and the Democrats are controlling the agenda, you better get on the offensive.

SESNO: Ron Brownstein?

RON BROWNSTEIN, CNN POLITICAL ANALYST: Well, they are already changing the plan perhaps, to some extent. I mean, Senator Domenici last week suggested that they may put off action on the estate tax and the marriage penalty until later this year or beyond. The White House economic adviser Larry Lindsey was quoted as saying, that they may delay action on the estate tax.

And all of that reflects the fact that Republicans in the White House are now caught between contradictory pressures. The sense in the slowdown in the economy increases the demand for them to do something; it increases the desire for some kind of tax cut for adding new elements, anything that will stimulate the economy.

On the other hand, Frank, the sense of the economy slowing down adds to the sense of uneasiness about the reliability of a long-term economic projections -- the surplus projections, and it makes you, in a contrary way, more uneasy about committing yourself to a big tax cut that could reopen the threat of deficits later on. And either one of these end points -- reopen federal deficits or a sustained economic slowdown -- would be a substantial risk to the congressional majority.

BROOKS: Yes. And these two competing pressures lead to what I think of as a Kantonian solution, which is a teeny-tiny triviality. The Democrats want to do something stimulative, but they also don't want to blow a whole in the deficit. So, they have something mock- stimulative: $60 billion. Nobody believes that will have any effect on the economy. You know, Wall Street loses that much money in a wink these days, but it's a symbolic gesture.

I think what's really happening is people understand that nothing Congress passes in the next couple months will affect a recession if it comes, they just want to take advantage of the crisis atmosphere to get something passed they want to pass anyway.

BROWNSTEIN: Which is usually the way things go in Washington. But, one point, though, in terms of symbolic gesture. It is worthwhile to take a step back and think about the terms of debate have changed and how presidential elections matter.

When Bill Clinton came in in 1993, he wanted to stimulate the economy as well. His answer was, a package of new public works spending and other program. Right now, here we are, eight years later, George W. Bush looking at the need to stimulate the economy. Every idea on the table, from Democrats and Republicans, is about tax cuts. And it shows you how the frame of the possible does change in Washington, depending on who sits in the Oval Office. SESNO: David Brooks, if Washington were actually situated in an English pub, the favorite game would be throwing darts. I mean, clearly, here's George W. Bush saying look, this economy has turned down. Today he talked about layoffs, he talked about jobs that are being lost. He said it's urgent, he talked about the tax cut. He's been blamed for talking it down, he has been blamed for talking it up. Truly, what do people expect him to do, especially people from his own party?

BROOKS: Yes. Listen, this whole idea of him talking it up and down, I think it is all nonsense, frankly. Wall Street does not listen to him. He's not Alan Greenspan; he's not that powerful.

SESNO: But he does have a bully pulpit?

BROOKS: He does have a bully pulpit, but Wall Street flows, rises and fall -- do we think if George W. Bush was talking up the economy over the past two weeks, the Nasdaq would have soared? No.

SESNO: What do people want from the taxes? What do people want to see that he hasn't already offered that will really have an impact?

BROOKS: Well, I think they want something genuinely stimulative. There is a possibility for a left-right coalition here. Bush does not have the votes right now for what he's proposing.

SESNO: So, what's the coalition?

BROOKS: He takes something from Tom Daschle, which is lowering those bottom rates from the middle class and something truly stimulative. It could be a capital gains cut. It could be an immediate bringing down of the top rate for the big investor class; and marry those two ideas together.

SESNO: And marry those -- Ron, then what happens to the rest of the tax plan? What happens to those rate cuts for those upper income people?

BROWNSTEIN: Well, the big fear of the Republicans is, if you let the Democrats vote alone on reducing the bottom rate from 15 percent to 10 percent, there'll be very little incentive for anything to come back and cut the upper rates?

SESNO: Right. What's in it for them?

BROOKS: At that point, they're off the hook. The Republican strategy has been to sort of tie the whole thing together, so the price of voting to cut the bottom rate is accepting some reduction of the top rate. Look, he's not going to get -- all indications are, he's not going to get a cut in the top rate as big as he wants. He may have to defer the estate tax. The fear of deficit in the long run, along with the fear of slowdown in the short run, so there will be pressure to keep the cost down, even as you try to accelerate it.

SESNO: Can't let you guys come in and go out without a snapshot of Washington's favorite topic these days, which is campaign finance reform; we've seen the demise of the Hagel bill here; what's left, David?

BROOKS: Jonathan Karl put it excellently: it's the Democrats who are the problem all of a sudden. There are these two competing bills: 2000 which could pass, 2,500. The bottom line is, if senators are looking for a way to kill this thing surreptitiously, they've got the perfect excuse: the Democrats could say "vroom" and stab the...

SESNO: Ron, is the public going to hold anybody to account on this?

BROWNSTEIN: Probably not. They never have. It never has been a voting issue. Along with what David's saying, it's worth remembering when Democrats had the opportunity to do this on their own in 1994 when they controlled the House, the Senate and the presidency, they kept it in a conference committee for 10 months, buried it there until they brought it out, so that Bob Dole could ritualistically slay it in the final days of the session. Neither side has really shown that it wants to do this, if it could become law.

SESNO: Gentlemen, lots more to watch in the days ahead. Thank you very much, David Brooks, Ron Brownstein, appreciate it.

Coming up: Senator Chuck Hagel on those efforts to turn back McCain-Feingold. He'll talk to us live, plus:

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: It's not that it's not available, it's getting it where it is needed and wanted in a timely way. That isn't always easy to do.

(END VIDEO CLIP)

SESNO: We'll take a closer look at the nation's energy crunch; is it a problem of delivering the supplies or supplying the demand?

And later: President Bush and international affairs, an early analysis of White House policies. This is INSIDE POLITICS.

(COMMERCIAL BREAK)

SESNO: Let's talk some more now about campaign finance reform and what happened today with the senator whose alternative plan was, for the most part, shot down today: Nebraska Republican Chuck Hagel.

Senator, good to see you as always. What happened today?

SEN. CHUCK HAGEL (R), NEBRASKA: Thanks, Frank. Well, we had a good three amendment vote this morning, we were able to get our disclosure provision included, which I was very pleased about.

SESNO: Disclosure means, people who are getting money need to say where the money is coming from, completely.

HAGEL: That's right. And publicize that and get it where everybody understands it. I always believed that's the heart of any real campaign finance reform. So, we were able to get that amendment agreed to.

Second, we came within three votes of getting a hard dollar limit from $1,000 to $3,000 included. We only walked away three votes short. I think Fred Thompson is about ready to move on the floor with an increase from 1 to 2,500 and index it to inflation, just as I had. I think that's going to pass, so then we'll get that, I believe.

Then, the third part that went down today, which I think most of us always believed it probably would is, I had talked about putting a cap on soft money versus banning it.

SESNO: And a cap of $60,000. And many say that was the core -- the guts of your bill. That going down, what does that mean for the future, and where does that place you and your troops on the subject of this campaign finance reform debate that's going forward this week?

HAGEL: Well, as many of us have said, and again, I have said right from the beginning, it seems to me disclosure is the key to it. But I don't believe there is any future for this bill, Frank, unless we have a very significant increase in the indexing of individual contribution, and moving those from 1974 numbers -- 26 years ago, those limits were set -- and moving them just up to get to where inflation is now.

SESNO: Tom Daschle -- Tom Daschle says he could go to 2,000 in the interest of compromise, but you're talking about Senator Thompson, 2,500 indexing to inflation, which means it goes up and up in years to come. Why not, in the in the interest of compromise and campaign finance reform, meet halfway in between, shake hands with Tom Daschle, and have agreement on this?

HAGEL: Well, I think we did have a compromise. I started -- I was the original cosponsor of the increase in hard money. We started at the most accountable, reportable amount money, Frank, which I think is just common sense, that you can index it to inflation. So the compromise is already in. The compromise is at $2,500, because I started at 3-, Daschle was at 2-. The compromise is what Fred Thompson has -- 2,500.

SESNO: And if the Democrats say that's not acceptable?

HAGEL: Well, Tom Daschle may say that, but my guess says you're going to have enough Democrats to pass this. Because, again, look at what I came within passing this morning. I was three votes short of passing my amendment. They'll find another three votes.

SESNO: Senator, in Jonathan Karl's piece a few moments ago we heard Senator Mitch McConnell, who is very much opposed to McCain- Feingold campaign finance reform because he says to limit money is to limit free speech. We heard Senator McConnell say he thinks the bill is unconstitutional, and he'll attach more amendments to it if he can to make it more unconstitutional, to increase the prospects of it being challenged in court and the whole thing thrown out.

What do you think of that strategy? HAGEL: Well, that's not a new strategy, as you know, Frank. There are members in the Democratic party that quietly subscribe to that. Because there are Democratic senators who don't want this to pass for obvious reason, because that cuts all soft money away from the parties.

The constitutional issue is a very real one. Look what we did last night with Wellstone. I think that's blatantly unconstitutional, so do many of the Democrats. I think the millionaire's amendment, the first one we passed, is unconstitutional. I think Snowe-Jeffords, that's now in McCain-Feingold is unconstitutional.

There is no question, Frank. You know this, everybody who hasn't been on Pluto the last couple of years, know that if this bill is signed into law -- or any bill -- before the ink is dry, it will be appealed in the courts.

SESNO: Senator Hagel, what do you think the public reaction is going to be at the end of all this -- two weeks of debate and amendments and votes and that kind of thing -- if the United States Senate does not pass some significant legislation to limit the flow of dollars into the political process, into the campaign process? Will the public rebel?

(LAUGHTER)

HAGEL: I don't think so, Frank. I think the public will applaud us, if it's a bad bill and we don't let it out. We've got a lot of bad legislation and laws we're dealing with today because we let emotion and political intrigue sway us. If it's a good bill, it'll get out of the Senate. If it's not a good bill, it won't.

SESNO: Senator Chuck Hagel, thanks very much for joining us today after a busy day on Capitol Hill. More to come.

HAGEL: Thanks, Frank.

SESNO: Appreciate it.

Well, so-called energy hogs in California brace for a slap on the snout. Still ahead on INSIDE POLITICS: a move that could cost the state's heaviest power users dearly.

(COMMERCIAL BREAK)

SESNO: We'll have more of the day's political news coming up. But now a look at some other top stories we're tracking this hour:

Upbeat signals today from President Bush and the economy. Mr. Bush says Americans need tax relief as quickly as possible, but he says it should not be a one-shot deal.

And the latest consumer confidence report is better than expected. It rose to 117 this month, up from 109 in February. Thanks, in part, to that report, the Dow closed up 260 points. The Nasdaq finished up more than 53 points. Russia today followed through on threats to expel American diplomats. Four U.S. officials were declared persona non grata and ordered to leave the country within 10 days. The officials were accused of carrying out activities incompatible with their diplomatic status. The move is considered a response to similar action taken by Washington last week in connection with a spy scandal. A State Department official called Russia's action unwarranted.

The body of an F-15 pilot was recovered today near a mountaintop in Scotland. His jet was one of two F-15's that disappeared yesterday while on a low-flying mission. Bad weather in the region forced officials to suspend search efforts for the other plane, at least until tomorrow. Contact with the jets was lost about 45 minutes after they took off from an air base about 75 miles northeast of London.

A study is raising new questions about acetaminophen. The study tracked more than 300 cases of acute liver failure and linked 38 percent to the active ingredient in Tylenol and other pain relievers. At issue is whether warnings are needed to caution users about possible overdoses. The study's author says many people use the drug too liberally. He says they underestimate its potential for harm because it is sold over the counter. The maker of Tylenol says it is one of the safest over-the-counter products.

The U.S. Surgeon General says that women now account for nearly 40 percent of smoking-related deaths. The proportion of deaths among women has doubled since 1965. In a report released today, Surgeon General David Satcher said about one in five women smokes. He said more teenage girls are smoking now, and said increased marketing by the tobacco industry is at least partly to blame. The number represents a doubling since 1965. As we say, the proportion of smoking-related deaths among women has doubled.

Next here on INSIDE POLITICS, we turn our focus overseas. Two explosions rock Jerusalem and Israel's prime minister vows to respond.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

G. W. BUSH, PRESIDENT OF THE UNITED STATES: The lights are dimming in California. Consumers and businesses in California, the West and all over our nation are paying sharply higher energy bills.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

G.W. BUSH: I've directed Vice President Cheney to lead a task force that will produce the comprehensive energy strategy this nation needs and has lacked for many years. The energy problem wasn't created overnight and we won't solve the problem overnight.

(END VIDEO CLIP)

SESNO: The president's call to action on energy -- he called the situation ominous today -- comes as California officials have proposed a major rate hike to deal with their electricity woes. The plan under consideration would produce a tiered rate hike, hitting the heaviest power users with the largest increases of up to 46 percent.

Residential customers who conserve would see no new increases. The proposal comes on top of an already approved across-the-board increase set to take effect next year.

Critics say the plan does nothing about the high rates out-of- state power providers are charging, and California is hardly alone in feeling the pinch of high energy prices.

(BEGIN VIDEOTAPE)

SESNO (voice-over): Larry Gilbertson is in charge of schools in Alexandria, Virginia. He keeps them working and warm. But soaring energy prices have made his job much harder.

LARRY GILBERTSON, ALEXANDRIA, VIRGINIA SCHOOLS: Our normal budget is $350,000 a year for gas, and this year the price of gas has almost doubled for us.

SESNO: And despite vigorous efforts to conserve...

GILBERTSON: We put energy efficient windows in. We put insulation on our roofs.

SESNO: ... Gilbertson has lost ground. He's got plenty of company this year. Californians cope with rolling blackouts. New Yorkers face dire warnings of electricity disruptions this summer. Home heating prices have doubled, or worse, for those who use natural gas. Prices at the pumps have bounced erratically. The Bush administration says the country is in dire straits.

SPENCER ABRAHAM, ENERGY SECRETARY: America faces a major energy supply crisis over the next two decades.

SESNO: But is it really a crisis? That's certainly what the country endured in the 1970s. The '73 Arab oil embargo tripled the price of oil, causing long lines at the pumps, clobbering the economy, costing half a million jobs. This time, experts say, it's different.

JIM PLACKE, CAMBRIDGE ENERGY ASSOCIATES: It's not a resource crunch.

SESNO: Energy consultant, Jim Placke, has been tutoring the Congress.

PLACKE: It's not that it's not available. It's getting it where it's needed and wanted in a timely way. That isn't always easy to do.

SESNO: Take natural gas, which heats 60 million American homes. Average bills this winter were $1,000, roughly double last year's tab. Prospects for next winter: Some easing, but still about $800. Why the price spikes? Here's the problem: There are massive gas reserves, but not enough pipelines. For example, as a byproduct of oil drilling, Alaska's Prudhoe Bay yields 8 billion cubic feet a day of natural gas, 13 percent of the country's total daily consumption. But since there are no pipelines there, the gas is pumped right back into the ground.

Take electricity: There's more than enough of it in some parts of the country, Texas and New England, for example. But in California, demand has vastly outpaced construction of new power stations and transmission lines. Outages are becoming routine. In the next 20 years, planners say, electricity demand will jump by 45 percent, requiring more than 1,000 new power plants.

And then there is oil.

PLACKE: The amount of crude reserves is more than twice now what it was 30 years ago, so the world is not running out of oil.

SESNO: But there is a shortage of refineries. There hasn't been a new one built since 1975, and lots of old ones have been shut down. The administration says all this adds up to an energy crisis sweeping the nation.

But many are uncomfortable with talk of "a crisis."

PLACKE: There are a lot of things that need to be addressed at the present time. But I think there are answers for them that are within the realm of what is economically manageable.

SESNO: The Bush administration is ringing the alarm bells to get people's attention, but even more, to change the debate to one that embraces new development of the nation's energy resources. Expect a head-on collision with environmentalists and others, who say the priorities and the politics are all wrong. Alaska's oil will be ground zero.

(BEGIN VIDEO CLIP, AUDUBON SOCIETY AD)

NARRATOR: President Bush, don't gamble with America's last great wilderness.

SESNO: Back in Alexandria, Virginia, Larry Gilbertson is merely worried about next year's heating bill for his schools.

GILBERTSON: When you have to find that much money, $200,000, it means that that's approximately four teachers.

SESNO: He's hoping for a mild winter.

(END VIDEOTAPE)

And one final note, Secretary of State Bill Jones cited the energy crisis in announcing yesterday he's running for governor in California, in 2002. Jones is California's only Republican statewide office holder, so some political fallout.

He criticized Governor Gray Davis for his handling of the problem, saying the state can do better.

We'll turn our attention overseas after this and look at how Bill -- or rather, George Bush, George W. Bush, is being treated.

(COMMERCIAL BREAK)

SESNO: Macedonian officials said today, government forces have pushed ethnic Albanian rebels into the hills along the Kosovo border and restored relative calm to the area near the Macedonian city of Tetovo.

While spokesmen acknowledged pockets of resistance still remain, government soldiers today took reporters to a hillside fortress overlooking the city. The soldiers said they took the area from Albanian guerrillas in the military offensive that began on Sunday. The guerrillas controlled part of the region for 12 days before they were driven back into the hills.

In the Middle East, two bomb blasts in Jerusalem killed one person, injured at least 27 others. The second explosion happened near a crowded bus and killed a man believed to be a suicide bomber. Earlier, a car bomb exploded near a shopping center during the morning rush hour.

Israeli Prime Minister Ariel Sharon accused Palestinian Leader Yasser Arafat of, quote, "declining to stop acts of terror," and he said he'll deal with the violence at the right time. At the summit of Arab leaders in Jordan today, Arafat said the Palestinian Authority rejects terrorism.

During the 2000 presidential campaign, George W. Bush called himself an internationalist, but he also was openly skeptical of certain Clinton administration policies toward other nations, especially those that include the use of the military.

CNN's Bruce Morton takes an early look at international relations under President Bush and how the U.S. role is playing out.

(BEGIN VIDEOTAPE)

BRUCE MORTON, CNN CORRESPONDENT (voice-over): It's early yet, but signs are mounting that President Bush sees a much more modest international role for the United States than his predecessor, Bill Clinton, did.

Item: Clinton worked hard to help South Korean's Kim Dae-Jung build bridges to North Korea's Kim Jong Il. Bush saw no urgent need for more talks with the North.

G.W. BUSH: We're not certain as to whether or not they're keeping all terms of all agreements.

MORTON: In fact, the U.S. and North Korea have only one agreement, made in 1994, which stopped North Korea's processing of plutonium at a suspected nuclear weapons plant, and U.S. Officials told "The New York Times" this month there's no evidence it's being violated.

But the point is, Bush is in no hurry. It's the European Union that now proposes sending mediators to encourage the two Koreas to make peace.

Item: Northern Ireland. Clinton made three trips, countless phone calls to try to broker peace. Bush will let British Prime Minister Tony Blair play melody.

G.W. BUSH: I am going to wait to be asked by the prime minister. He's got a better handle on it than I conceivably could as to when and if the prestige of the United States is needed to make the process work better.

MORTON: Item: The Middle East. Again, Clinton was heavily, personally involved: Sessions at the White House, camp David. Bush made it clear to Israeli Prime Minister Ariel Sharon the United States will help, but not lead.

G.W. BUSH: Secondly, I told him our nation will not try to force peace.

MORTON: Item: Bosnia. The administration denied a CBS news report it had sent NATO a plan to withdraw 80 percent of the U.S. troops from Bosnia, but did concede there had been some consultation with the allies. And Bush has made his general feelings about U.S. troop involvements clear.

G.W. BUSH: We're going to be reluctant to put troops on the ground to keep people apart, warring parties apart.

MORTON: Bush has said he does not object to the European Union's plan to form a rapid reaction force, though some worry it would compete with NATO, and he firmly supports a defense against ballistic missiles, which many in Europe oppose.

Who's he listening to? Maybe the voters.

(on camera): Last January, a "Time"/CNN poll asked, should the United States use its leadership position in the world to help settle international disputes and promote democracy or reduce its involvement and concentrate on solving problems at home? Thirty-seven percent said try to settle disputes, and that's up from 19 percent 10 years ago when the first President Bush was in office.

Still, the overwhelming majority, 57 percent, said concentrate on problems at home. President Bush isn't going to morph into some kind of Pat Buchanan isolationist, but he is stepping back from the role his predecessor played.

Bruce Morton, CNN, Washington.

(END VIDEOTAPE)

SESNO: Democratic Senator Joseph Biden is often mentioned as a potential presidential candidate, and according to the item in today's "Political Hotline," Biden has two goals in the coming months. One, win a sixth term as senator from the state of Delaware and two, serve as the Democratic party spokesman on international affairs.

So, we're going to give the senator a chance to share his perspective. He joins us now from Capitol Hill.

Senator, good to see you.

SEN. JOSEPH BIDEN (D), DELAWARE: Thank you, Frank.

SESNO: Senator, it's been said that politics stops at the water's edge of international affairs. Are you about to dive in and take on your president?

BIDEN: No, because I don't know that the president has -- in fairness to the president, he's only been there eight weeks. We don't know exactly where he is going. But one thing I think is a little misunderstood by some of the statements he's made or maybe, if I understand what he's saying in the clip you just had, is that international affairs (UNINTELLIGIBLE) as a vacuum.

The United States' prestige has lost if it does not lead. It's not like we can stand still. The idea that, for example, in North Korea, the Europeans now concluded that they have to go in and broker a continuation of no test on long-range missiles, making sure that no missile material is produced, et cetera, is, in fact, not a very welcome sign for me. Here you have a situation where...

SESNO: Well, what do you think the president should be doing about it?

BIDEN: He should continue to negotiate and the lead. Keep in mind, Frank, that this was an alliance decision. It wasn't merely the United States that was working with President Kim of South Korea, it was the European Union, NATO, as well as Japan and South Korea...

SESNO: But senator...

BIDEN: ... providing for the money.

SESNO: ... if the president of the United States, however, feels that the North Koreans may not make good on their pledge, may be developing nuclear weaponry, why not say, let's hold on here. Let's take a look at this and let's not just dance into something blindly.

BIDEN: You don't dance into something blindly, Frank. As his own team will tell you, there's no evidence they are making those weapons. There's no evidence they've broken the deal. He misspoke, flat out wrong.

The agreed framework, they have kept. Now, I am not saying you should go and make a deal. We're clearly smart enough and he has enough competent people for him to go and toughly negotiate on three things. One, will they stop selling missile capability to other countries? Two, will they refrain forever from working on a third stage of a long-range missile? Will they continue to adhere to not building a nuclear weapon?

And not base it on trust, base it on verifiability. But the idea that you would say without consultation, apparently, with our allies, without consultation with our Japanese or South Korean friends, that, no, ma'am, we're just holding pat here. It would have been nice to warn them, you know.

SESNO: One of the themes in George W. Bush's international policy is not only that the world -- that the United States is not going to be the world's policeman, but the United States is not going to be the world's mediator.

BIDEN: No.

SESNO: Take for example -- take for example the Middle East, where he's basically said or Northern Ireland, call us when you're ready to take a larger role. Is that a mistake...

BIDEN: It is a mistake.

SESNO: ... because, if I may, some would say that it was a mistake for Bill Clinton to be as aggressively involved as he was say at -- in Camp David recently?

BIDEN: Well, let's assume, let's take for the sake of this discussion that Bill Clinton was too aggressive. I disagree with it. But let's say he was too aggressive. The obverse of that is saying not being involved at all, not make sense.

Now, the American people don't want someone to -- us mediating disputes that the outcome of which it can't affect us. The outcome of what happens in the Middle East is of dire consequence to our national interests, our national interests. We're not doing this for Israel and for the Palestinians. We're doing this for our naked self- interests.

It's in our interest that there be peace there. It's in our interest that Saddam Hussein doesn't curry the favor of the rest of the Arab world. It's in our interest that oil continue to flow, and to make this analogy to Northern Ireland and the Middle East is bizarre.

SESNO: Here's what Ariel Sharon, the Israeli prime minister, would say to that, and I know that because I heard him say it when he was in this country just last week or in -- and in recent days. And that is that the United States' first interest and the new president's first interest should not be necessarily to mediate the Israeli- Palestinian dispute, but to look regionally and recognize the danger of terrorism.

Right or wrong? And is George W. Bush doing that?

BIDEN: He is -- that is as right as -- I think you have to be able to walk and chew gum at the same time, Frank. I think they're directly related and directly linked. Let me be precise what I mean. The president of the United States shouldn't be in there foisting an agreement on anyone, but the president of the United States should have sent a clear message and directly to Arafat saying, look, thus far, you have been unable to show any sign of a willingness to negotiate. When you are ready to make a concession, you call me. That's leading.

That's different than saying, by the way, we don't have a dog in the fight. We're just going to step back from this and when somebody calls me, either side. then I'll think about it.

SESNO: Senator...

BIDEN: I'm not saying he's done either, but there's a difference, there's a difference in leading and imposing a settlement.

SESNO: Senator Biden, with some affection, we call this program INSIDE POLITICS, and as you know, we profiled you and your trip to New Hampshire on yesterday's program. You were in New Hampshire for a St. Patrick's Day celebration, but there was a clear presidential timbre or tone to that visit. Are you running?

BIDEN: No.

SESNO: You're contemplating?

BIDEN: I'll make that decision after I win re-election, if I win re-election.

SESNO: Well, you're proclaimed party spokesman on international affairs.

BIDEN: Well...

SESNO: Is there a reason for that?

BIDEN: Well, there is a reason for that. I'm the ranking member of the committee in charge of that and that's what I've done the last 10 years. That makes sense. The other one doesn't make much sense

SESNO: More travels coming up?

BIDEN: No.

SESNO: OK, we'll hold you to that.

(CROSSTALK)

SESNO: We'll watch your itinerary.

BIDEN: All right. Thanks, Frank.

SESNO: Senator Joseph Biden, we appreciate your time.

BIDEN: I appreciate your interest. SESNO: And we will turn next to some more of this: Andrea Koppel on one of the toughest international issues facing this administration, the sanctions and Iraq.

(COMMERCIAL BREAK)

SESNO: Another international hot spot for the Bush administration is Iraq. Today, speaking to the Arab summit, United Nations General Secretary Kofi Annan addressed the sanctions on Iraq, calling Iraqi cooperation with the world community the best way to see the embargo removed.

Here in the United States, CNN's State Department correspondent Andrea Koppel reports the Iraqi sanctions are not going away, but they may be modified.

(BEGIN VIDEOTAPE)

ANDREA KOPPEL, CNN STATE DEPARTMENT CORRESPONDENT (voice-over): Once the Arab League summit in Jordan is over, State Department officials tell CNN, the U.S. plans to step up consultations with Iraq's neighbors on the details of its so-called "smart sanctions" policy.

RICHARD BOUCHER, STATE DEPARTMENT SPOKESMAN: We are looking at all kinds of mechanisms and ways of working with other governments to achieve those goals, but we haven't finally come down to a set of measures.

KOPPEL: What they have come up with, however, following Secretary of State Colin Powell's swing through the Middle East last month, are ideas as to how to help the Iraqi people while maintaining core sanctions against Iraq's weapons programs.

Among the ideas: lifting restrictions on an estimated 1,600 United Nations contracts for exports to Iraq and making future approvals easier to get; increasing the number of inspectors and checkpoints at border crossings and at some regional airports; and finally, creating escrow accounts or a financial safety net in every border state to force Iraq's president to do business with all his neighbors and not play favorites.

The key to making it all work: cooperation from Iraq's neighbors, including front-line states like Jordan, Syria and Turkey, to reduce, if not eliminate, rampant smuggling.

ALAN MAKOVSKY, INSTITUTE FOR NEAR EAST POLICY: Smuggling is a misleading term when it comes to the oil trade, at least when we're talking about Turkey, Jordan and Syria, because this is going on virtually openly.

KOPPEL: The Jordanian and Turkish governments insist the smuggling is all about economic survival. Jordan says it has lost $1.5 billion a year for the past 10 years, while Turkey says its loss is double that.

KEMAL DERVIS, TURKISH ECONOMIC MINISTER: Iraq, of course, was a very important trading partner for Turkey.

KOPPEL (on camera): State Department officials readily admit it'll be extremely difficult to accommodate the needs of all of Iraq's neighbors, but unless they do, Jordan, Turkey and other front- line states say they won't sign on.

Andrea Koppel, CNN, the State Department.

(END VIDEOTAPE)

SESNO: Coming up in the next half-hour of "INSIDE POLITICS": President Bush sounds off on short-term versus long-term tax relief. We'll get some historical perspective from Bill Schneider.

And John McCain's campaign finance reform facing a major challenge on Capitol Hill this hour. We'll tell you more.

(COMMERCIAL BREAK)

SESNO: President Bush is commander in chief of the economy. What's the bottom line on his battle plan? On Capitol Hill, the campaign finance reform battle zeros in on hard money. Plus, what did the Supreme Court justices say today about a mentally retarded convict's death sentence?

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

SESNO: And welcome back to "INSIDE POLITICS." I'm Frank Sesno. Judy is off this week.

President Bush, responding today to Democratic charges that his tax cut plan offers too much, too late. He is back at the White House this hour, after giving an economic speech in Kalamazoo, Michigan. Mr. Bush saying that there is a need an immediate tax cut.

Though he portrays the economy as fundamentally strong, but he says, it must be tied to long-term cuts, like those in his $1.6 trillion plan.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our economy needs more than a pick-me-up, more than a one-time boost. Our economic health depends on people feeling comfort and confidence about long-term decisions to start a new business, to invest in a new idea, to buy a new home.

And the people who make those decisions don't care only about this year's tax rate. They care about next year's rate and the year after that.

(END VIDEO CLIP)

SESNO: Bush dismissed the proposal by Senate Democrats for an immediate one-time, $300 tax rebate. (BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), MINORITY LEADER: Is it possible that Republicans have just met the first tax cut they don't like? Or is it the tax relief where everyone is being held hostage by their commitment to a massive tax cut to the very few?

(END VIDEO CLIP)

SESNO: So, that's the Democrat response. Now we're joined by our senior White House correspondent John King to help make sense of all of this.

John, the president is in a tough spot. The economy is strong, he says, but it's in need of help. It needs a tax cut, but not too big a tax cut, but his tax cut. How's it playing?

JOHN KING, CNN CORRESPONDENT: Well, the president -- more than any new policy today, Frank, what we got from the president's speech is new positioning. Look, we have a 50/50 Senate, this is the president's first big test. His tax cut plan -- they're increasingly worried here at the White House that if the vote were today they might lose the vote. So, the president trying to make an economic argument about the Democratic plan, saying a one-time tax cut fix is not enough for the economy.

And a political vote for Republicans: you have to vote for my plan, that big $1.6 trillion plan. Today's speech -- billed as a major speech, but just the first step in an aggressive 10-day lobbying campaign.

SESNO: John, let's come back to where the president is on the $60 billion proposal on the Democrat. Their positioning as well, of course, although they deny it I'm sure, that is to get money quickly to people through that $60 billion plan. But by separating it out, the question becomes the political viability of the rest of the president's plan.

KING: That's exactly right. And you were discussing this with Ron Brownstein of the "L.A. Times" earlier. Democrats would get to vote on a smaller tax cut and then not have to vote for the things Democrats don't like in the bigger Bush package.

The Bush team is crunching numbers at the Treasury Department. They completely support front loading this tax cut, putting 60 billion. Some administration officials say, in the end, perhaps as much as $100 billion in immediate tax relief this year, but they want to tie it to the overall package. Again, the president saying, there's an economic argument for that, but there's certainly a political argument if he wants the bigger tax cut to get through the Congress.

SESNO: John, we are talking tax cuts. In the Senate today, they're talking campaign finance reform. But next week, a very important battle looming over the budget, the larger economic blueprint? KING: That's right. The Senate is scheduled to vote next Friday, 10 days from now, on its budget resolution and the tax cut figure target will be in that budget resolution. Nick Calio is the president's top man on Capitol Hill. He told the senior staff meeting at the White House today, we need to clear up some of the president's schedule.

He might need time next week to twist some arms. The Republican Congressional leadership will be brought here tomorrow. That event being added, again, to enforce a little party loyalty on any wayward Republicans, especially in the Senate. Very reminiscent, Frank, of 1993: remember, Bill Clinton won that first budget battle by a single vote. Al Gore was in the Senate. Dick Cheney won't be leaving Washington next Friday.

SESNO: What's the president's leverage?

KING: The president's leverage, number one, is this is a new administration. Not even yet at the 100-day mark. The message to wavering moderate Republicans in the Senate, like Lincoln Chafee of Rhode Island and like Olympia Snowe and Susan Collins of Maine, Jim Jeffords of Vermont; this Republican president cannot lose this vote, if he is to lead the party.

SESNO: John King at the White House.

In his remarks today, President Bush hearkened back to the presidencies of John F. Kennedy and Ronald Reagan to help make his case for tax cuts. Our Bill Schneider has been looking back too, to put Mr. Bush's economic plan into some perspective -- Bill.

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL CORRESPONDENT: Well, you know, Frank, the president is seen as commander in chief of the economy. Really, that's his main job in the post-Cold War era. The problem is, a president can't command the economy like an army. Nevertheless, the president has to create the impression that he has a plan for keeping the economy on course. That's what President Bush was doing today, setting the course.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Presidents need to set a course, so there's something for people to rally around when times are bad. Stick with me, the president can say, and I'll steer us out of this. For John F. Kennedy, a tax cut was the way to get the economy moving again. Lyndon Johnson relied on the older Democratic formula: spend more and build a Great Society.

It worked for a while. Then the economy turned bad in the 1970's, and three successive presidents struggled to set a new course. Richard Nixon enraged conservatives when he imposed wage and price controls. Gerald Ford asked Americans to wear "WIN" buttons for "Whip Inflation Now." Jimmy Carter seemed to blame the people for the country's economic malaise. President Reagan finally set a firm and decisive course of tax cuts and a military buildup. Initially, the economy got worse. Reagan's response? (BEGIN VIDEO CLIP, MAY 1982)

RONALD REAGAN, PRESIDENT OF THE UNITED STATES: That the only thing that's keeping the interest rates up and preventing a speedier recovery is the lack of confidence on the part of the private sector that government will stay the course.

(END VIDEO CLIP)

SCHNEIDER: And Americans did, because they felt Reagan had defined a strong and clear course for the country. President Bush defined his course initially.

(BEGIN VIDEO CLIP, AUGUST 18, 1988)

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: Read my lips: no new taxes.

(END VIDEO CLIP)

SCHNEIDER: When he abandoned that course, the voters felt betrayed.

President Clinton surprised the country when he came in and made deficit reduction his top priority, including a tax hike. He paid a political price for it, too. But in the end, it paid off by convincing financial markets that the Clinton administration, a Democratic administration, was setting a course of fiscal responsibility.

George W. Bush set his course back in December, 1999 when he announced his tax cut plan.

(BEGIN VIDEO CLIP, DECEMBER 1999)

G.W. BUSH: Today I want to share a tax cut plan with you, and I want to share it with America as well, a tax cut designed to sustain our nation's prosperity.

(END VIDEO CLIP)

SCHNEIDER: That was then, this is now, and prosperity can no longer be assumed. Democrats are urging the president to alter his course. Moderate the tax cut, they say.

SEN. CHRIS DODD (D), CONNECTICUT: We are now in anything but a robust economy, and it seems to me the president ought to tailor his tax cut proposal, and that's what most of we Democrats are calling for here.

SCHNEIDER: Republicans, too.

REP. TOM DELAY (R-TX), MAJORITY WHIP: Well, the president obviously wrote a tax package when he was running for the presidency, and economic conditions then were different than they are now.

SCHNEIDER: Increase the tax cut, Republicans say. The president's answer?

G.W. BUSH: I think it's just right.

SCHNEIDER: That's Bush's way of saying, "stay the course."

(END VIDEOTAPE)

SCHNEIDER: President Bush certainly knows what happened to his father. When former President Bush delivered what was to be his final State of the Union speech, January 29, 1992, there was a huge buildup. Americans were waiting to hear the president's big plan to turn the economy around. They came away disappointed.

It was on that night voters decided they did not want to re-elect Bush. This president may be another Bush, but when it comes to staying the course, his aim is to become another Reagan.

SESNO: Bill, what does this history lesson teach us about compromising on these fundamentals of an economic plan?

SCHNEIDER: Americans want to know that a president has a plan, that he's sticking to it, unless it clearly isn't working, because they don't want to feel directionless. That's the way they felt under his father after he abandoned his tax pledge.

In Reagan's case, it was interesting. When he became president, a lot of people had doubts about his plan. Would it work? Was it too risky? But they said, we've got to do something, so they stuck with it even when it wasn't working. He led them through those bad times. They want to know that a president believes in something, and that he has a program. Then clearly, they will stick with him until they are convinced this clearly is a disaster.

SESNO: If you stay the course, you have to have a course to stay.

SCHNEIDER: That's right. That always tells the tale. They don't like a president without a course.

SESNO: Bill Schneider, thanks very much.

On Capitol Hill, the Senate is moving toward another key vote on campaign finance reform. At issue: a proposal to more than double the limit on hard money donations made directly to candidates. This, after a victory earlier today for supporters of the leading reform legislation.

So, let's check back in now with our very busy congressional correspondent Jonathan Karl -- Jonathan.

KARL: Well, Frank, the Senate now debating an issue that could put John McCain on a collision course with Democrats who have long supported his effort to reform the campaign finance system.

At issue, as you said, is this question of what in the political jargon is known as hard money. Fred Thompson is on the floor of the Senate right now introducing an amendment to the McCain-Feingold bill that would increase the hard money limit that was set at $1,000 way back in 1974. Thompson would increase the limit to $2,500. He says it's only reasonable to do something to adjust that limit for current inflation.

But there's a problem here, and that is the Democrats, in the person of the Democratic leader, Tom Daschle. Tom Daschle says that he can support no hard money increase over $2,000.

(BEGIN VIDEO CLIP)

DASCHLE: That's as far as I can go. I want to serve notice. I will not support under any circumstances anything beyond that. If I'm criticized for not compromising, I'll take the criticism.

(END VIDEO CLIP)

KARL: Now, Daschle's point is that Thompson would not merely increase the hard money limit to $2,500 for individuals, but he would increase something called the aggregate limit, and that's the limit that individuals can give to any candidate.

Right now that limit is set at $25,000 a year. Thompson would increase that to $50,000 a year, and that is per election, so that means that an individual could do something to increase -- an individual could give a candidate $25,000 -- $50,000 for a primary, another $50,000 for a general election. That person's spouse could also do the same, bringing to $200,000 that a married couple could give during a political year in hard money.

Tom Daschle says that is simply too much. And if the McCain- Feingold bill has the Thompson amendment in it, he'll vote against it.

Of course, not a vote on this until tomorrow, Frank. That leaves plenty of time for compromise, but this may be the trickiest issue yet for McCain-Feingold.

SESNO: All right, Jonathan. Stay with us.

We do want to tell our viewers, by the way, as we got to you and to Candy Crowley, to chew over some of these issues that Tom Daschle, the Senate Democratic leader will be on "WOLF BLITZER REPORTS" tonight, 8:00 p.m. Eastern, 5:00 Pacific.

Candy, you've been watching this campaign finance reform debate through its many twists and turns here, and we saw the Hagel bill debated and essentially rejected today. Surprises in that for you?

CANDY CROWLEY, CNN CORRESPONDENT: I think so, and here's why. I thought it had a fairly good chance of passing. It's really the only major alternative out there. I think what's been surprising about this entire one-week plus of debate is the staying power of McCain- Feingold. Now, it remains to be seen whether some of those things that have been added on to it prove to be problematic, either in the final vote or later on in the courts, which many suspect they will be. But I think what's been surprising here is that McCain-Feingold really has had some staying power, has navigated some fairly troubled waters here. I don't think anybody ought to underestimate the power of what these two men have put together.

Now, having said that, Jonathan is absolutely right. This is huge now, it's on the Democrats, and when they get into that issue of severability, heaven help us, that's also a major pothole for them.

SESNO: Jonathan?

KARL: Well, severability, John McCain is saying severability is French for "kill campaign finance reform." And that's going to be the critical vote here, which is, if the courts knock down a piece of McCain-Feingold, does the whole bill get thrown out? So that's a major issue.

But there's also, Frank, another question, and that's the old filibuster that Senators Phil Gramm and Mitch McConnell are both holding out the possibility that they could try to talk this bill to death, using Senate rules to keep it even from coming up to a vote at the end of the week. So there are several major potholes in the road ahead for campaign finance reform.

SESNO: Candy and Jonathan's earlier reporting, we heard a reference from Senator Mitch McConnell -- who's very much opposed to McCain-Feingold, because he feels is steps in the way of free speech -- that he believes the bill, fundamentally, is unconstitutional. He'll add on anything else that he can figure out that would make it even more unconstitutional. What are his and the Republicans' aces in the holes really, in terms of defeating this bill, that issue among them, really?

CROWLEY: Well, I think Senator McConnell said it quite frankly. Their ace in the hole here is the courts. They believe, and have long believed, that just in general, limitations on contributions are, in fact, limitations on freedom of speech. But having said that, beyond that, there are some amendments now to this bill which are very problematic as far as the Constitution is concerned, and even Democrats say that. So there are a couple aces in the hole, here.

First of all, there's the House, and you never know what's going to happen over there. It's followed by a conference committee, you never know what's going to happen in that. There is the possibility of a presidential veto which, of course, this particular president does not want to have to exercise.

But more than that, there is the court. If they are able to get nonseverability -- that is, if the Senate votes that if one part is thrown out as unconstitutional, everything else goes out with it -- why not let this thing pass, so the thinking goes, and let the courts undo what maybe some lawmakers don't want to have to do with their votes?

SESNO: Jon, are you hearing from all those members and staffers that you talked to that there's anything resembling a prairie fire out there in the land for campaign finance reform of one form or another?

KARL: Well, Tom Daschle's complaining that his Web site is getting overwhelmed with hits and e-mail coming in from supporters of John McCain. McCain does have his grassroots effort out there. He's been working very hard, he's been having town hall meetings around the country. He's got a whole list of grassroots organizations like Common Cause working for campaign finance reform. It's a very organized effort to provide at least the appearance of a prairie fire out there.

But most members are saying that they firmly believe, on both sides of this debate, that they firmly believe that this is not a major burning issue with the electorate. Most people believe that, except for, of course, the hard-core believers here, McCain and Feingold. And so far, they've been able to have quite a bit of a grassroots effort out there, using those groups to put pressure on lawmakers.

SESNO: Jon Karl on Capitol Hill, Candy Crowley right here with us, with some perspective.

The Supreme Court hears arguments in a capital murder case. When INSIDE POLITICS returns: the high court considers what a jury should have considered about a convicted killer who is also mentally impaired.

(COMMERCIAL BREAK)

SESNO: News of politics and the law: A U.S. district judge today threw out the admissions policy at the University of Michigan Law School. The judge ruled the policy unconstitutional because of its use of race as a factor in admissions. The decision is at odds with a December ruling by a different federal judge that upheld race-based admissions for undergraduates at the university. The two cases are headed to the Court of Appeals and could ultimately be decided by the United States Supreme Court.

And at the high court today, justices heard arguments in a case that centered on what jurors should be told about a convicted killer's mental capacity and its effect in death penalty cases.

CNN senior Washington correspondent Charles Bierbauer reports the case serves as a preview to a broader question: What constitutes cruel and unusual punishment?

(BEGIN VIDEOTAPE)

CHARLES BIERBAUER, CNN CORRESPONDENT (voice-over): Johnny Penry, mentally retarded and a convicted murderer, sits on Texas' death row, waiting for the Supreme Court to decide if a jury was properly instructed when it gave him the death penalty, not life in prison.

JOHNNY PENRY, DEATH ROW INMATE: The only thing I know that I'm going to be doing if they let it go through, that they're going to stick a needle in my arm, and that's all I know. BIERBAUER: Penry's lawyer told the justices, when the jury considered his low IQ and abuse by his mother as "mitigating circumstances," it was hindered by Texas law. The law required the jury to answer three questions: Was the murder deliberate, an unreasonable response to provocation? Was Penry still a threat to society?

Texas' assistant attorney general explained jurors were told, if you felt a life sentence more appropriate, you could answer one or more of the special issue questions no to effect a life sentence.

Justice O'Connor responded: "Even though literally they should answer yes? It's very awkward."

Justice Scalia differed: "We assume, even if the defendant is mentally deficient, the jury is not."

Penry's guilt in the rape and murder of Pamela Carpenter is unquestioned.

ELLEN MOSELEY-MAY, VICTIM'S SISTER: He knew exactly what he was doing. He knew that -- he stated, "I knew if I went over there, I'd have to kill her, because I didn't want to get caught."

BIERBAUER: In Penry's case the court is not considering the Eighth Amendment prohibition of cruel and unusual punishment. It will in the fall, though, in the case of North Carolina inmate Ernest McCarver, perhaps to Penry's benefit.

ROBERT SMITH, PENRY'S ATTORNEY: If the court is ready to decide, as it did not decide in 1989, if it is ready to decide that the execution of the mentally retarded is always unconstitutional, then I think that should save my client's life.

BIERBAUER (on camera): On death row in Texas, Johnny Penry will be getting a phone call. His lawyers say he'll have some tough questions. Do the justices still want to kill him? Will he win his case? The lawyers won't be able to answer that. The justices will some time in the next few months.

Charles Bierbauer, CNN, the Supreme Court.

(END VIDEOTAPE)

SESNO: Are you really as rich as you feel? Don't answer just yet. Still ahead on INSIDE POLITICS, how consumer feelings play a role in the economy and the economic slowdown.

(COMMERCIAL BREAK)

SESNO: We have more for you ahead on INSIDE POLITICS. But first, we want to take you to Willow Bay for a look at what's ahead at the bottom of the hour on "MONEYLINE."

Hello, Willow. WILLOW BAY, CNN ANCHOR: Hello, Frank. Well, just ahead on "MONEYLINE," Blue Chip stocks roaring higher for the third-straight session. Renewed confidence in the economy is sparking the buying frenzy on Wall Street. Plus, President Bush today calling the economy "somewhat winded, but fundamentally strong," as he pushes an immediate tax cut.

Those stories and more just ahead on "MONEYLINE." INSIDE POLITICS continues in a moment.

(COMMERCIAL BREAK)

SESNO: Economists say, how consumers feel about their pocketbooks plays a big role in the growth of the economy. Brooks Jackson has more now on this so-called "wealth effect" and how it's contributing to the current economic slowdown.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): Sally and Paul Misencik's stock investments are suffering, putting some of their spending plans on hold.

PAUL MISENCIK: That includes things like remodeling the inside of the house, getting a new furnace like we need.

SALLY MISENCIK: My inclination is to be slower in wanting to redo a recreation room that we have or putting the new walkway in the front.

JACKSON: It's what economists call the "wealth effect," in reverse.

DAVID WYSS, STANDARD & POOR'S DRI: In general, when people are richer, they spend more money. Our equations say that when they get an extra $100 of wealth, they spend about an extra $2.50 a year.

JACKSON: The booming stock market added an estimated $9 trillion to Americans' personal wealth, making them feel so rich they actually spent beyond their normal means. Americans once saved about 8 percent of their income, but now the savings rate is negative: consumer spending financed on credit.

And now the market has taken back about half that $9 trillion gain.

WYSS: With the decline in wealth you're going to see people trying to save more. The stock market is not doing their saving for them anymore.

JACKSON: As they save more, they'll spend less, $100 billion a year less, Wyss estimates. Older Americans have more wealth and feel the effect most.

UNIDENTIFIED MALE: Oh, I want to cry.

JACKSON: Where's this New Yorker cutting?

UNIDENTIFIED MALE: Spending in restaurant, luxury spending, less traveling perhaps, less luxury products.

JACKSON: This Miami woman says her family lost a lot of money.

UNIDENTIFIED FEMALE: We can't really shop anymore like we used to.

JACKSON (on camera): A year ago, the wealth effect was stimulating an already overheated economy. Now, some fear the reverse effect may prolong the slowdown.

Brooks Jackson, CNN, Washington.

(END VIDEOTAPE)

SESNO: And we'll remind you that consumer confidence was up at the last measure out today.

That's all for this edition of INSIDE POLITICS. But of course, you can go online all the time at CNN's allpolitics.com. AOL keyword: CNN.

And these programming notes: President Bush's environmental policy will be the topic tonight on "CROSSFIRE." The guests will be former Green Party presidential candidate Ralph Nader and Senate Environment Committee member Kit Bond. That's at 7:30 p.m. Eastern Time.

And at 8 p.m. Eastern, Senate Minority Leader Tom Daschle will be discussing tax cut proposals and campaign finance reform with Wolf Blitzer on "WOLF BLITZER REPORTS."

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

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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