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Senate Shrinks the President's Tax Cut; China and U.S. Working Toward Compromise on Air Crew

Aired April 6, 2001 - 17:00   ET

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


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: I applaud today's action, and congratulate the Republicans and Democrats who helped make it happen.

(END VIDEO CLIP)

ANNOUNCER: The president declares victory after the Senate passes a tax-cut plan. But was it really what he had in mind?

Also...

(BEGIN VIDEO CLIP)

SECRETARY OF STATE COLIN POWELL, UNITED STATES: I am encouraged because there has been movement, and because we are exchanging rather precise ideas as to how to bring this to a conclusion.

(END VIDEO CLIP)

ANNOUNCER: Hopeful words from Washington on the U.S.-China dispute.

And a look at the first fan: What George W. Bush wanted to be before he had to settle for being president.

Now Judy Woodruff takes you INSIDE POLITICS.

JUDY WOODRUFF, CNN ANCHOR: Thank you for joining us.

As President Bush shared the news that his administration was making progress toward an end to the U.S.-China standoff, the White House was being dealt a blow in the U.S. Senate over its main domestic priority. Senators today approved a budget that included a $1.2 trillion tax cut, well below the 1.6 trillion the president had asked for, but enough of a compromise that all 50 Republicans and 15 Democrats agreed to support.

We'll bring you complete coverage of the U.S.-China standoff in a few minutes. But first, here's our Jonathan Karl with the latest on that important Senate vote.

(BEGIN VIDEOTAPE)

JONATHAN KARL, CNN CORRESPONDENT (voice-over): In the land of an evenly divided Senate, the deal maker who crosses party lines is king. The Senate passed a tax cut that falls more than $300 billion short of what the president wanted, but it's virtually exactly the compromise proposed by Democratic moderate John Breaux.

SEN. JOHN BREAUX (D), LOUISIANA: I think that what we have shown today. that it is in fact possible to change the political culture of Washington. A vote of 65 to 35 for a budget is a significant change from the way business has been done in the past.

RICHARD CHENEY, VICE PRESIDENT OF THE UNITED STATES: And House concurrent Resolution number 83, as amended, is agreed to.

KARL: After a week of intense debate and back-room dealing, the Senate overwhelmingly passed a budget outline that includes $1.2 trillion worth of tax cuts over the next 10 years, and an additional $85 billion this year. President Bush announced the news to a group of business leaders he was addressing at the White House.

BUSH: I am really pleased to report that the United States Senate, just moments ago, passed a budget that funds our nation's priorities, and allows for over $1.2 trillion of meaningful real tax relief for the American people.

KARL: Republicans had fought hard to pass the $1.6 trillion in tax cuts the president wanted, but declared the final result close enough for victory.

SEN. PETE DOMENICI (R-NM), BUDGET CHAIRMAN: Those who have been waiting for a stimulus, waiting for a permanent marginal rate cut, help is really on the way, because we can't avoid it now. Nobody can filibuster it. Nobody can delay it.

KARL: In all, 35 Democrats, including all the party's leaders, voted against the budget outline. But they, too, declared victory because Republicans were unable to pass the full tax cut sought by the president.

SEN. TOM DASCHLE (D-SD), MINORITY LEADER: I think we've made good progress this week, and I'm very encouraged by it. I understand some of our Republican friends have called this a victory. If this is a victory, there ought to be more like them.

(END VIDEOTAPE)

KARL: It was quite a day in the U.S. Senate. And unpredictable series of developments that started this morning, when Senator Trent Lott, the top Republican in the Senate, met with the rest of his Republican leadership team, told them that he simply was not having any look wooing over any of those two moderate Republicans that were against the president's tax cut, Jim Jeffords and Lincoln Chafee, or the one Democrat that they thought they could get over, Ben Nelson. Lott said, we don't have these guys, we're not going to get them for anything near the $1.6 trillion. He suggested going forward -- lowering the number down even further than the 1.4 that they had been talking about, going after a wider group of moderate Democrats. He left that meeting and then went into a meeting with Senator John Breaux of Louisiana. John Breaux told him that he could get a number of Democrats, he said possibly 10 or more Democrats, if Lott would agree to a tax cut between 1.2 and $1.3 trillion. And Lott immediately said that's a deal, let's do it.

They went to the Senate floor, and that's what happened. That's how we ended up with this tax cut. A tax cut much bigger than what the Democratic leadership proposed, but still far short of what the Republican president had wanted to see.

WOODRUFF: So, John Karl, where does this go from here? It was 1.6 coming out of the House, 1.2 trillion coming out of the Senate. What happens next?

KARL: Well, what we have to do is go to a conference to reconcile the differences between the two bills. As you mentioned, the House went for the full tax cut proposed by the president, $1.6 trillion. That -- House negotiators will get together with Senate negotiators, try to come to some kind of an agreement. Now, what the Republicans are hoping is that when they go to that conference committee, that they can get that tax cut back up closer to $1.6 trillion.

But won't be easy, Judy, because whatever the conference of House and Senate leaders come up with, will have to again pass the U.S. Senate. And this U.S. Senate showed this week that there isn't the will to pass a $1.6 trillion tax cut, or even something close. So it's going to be very hard to pass anything more than what we've seen. But that will be happening sometime in, probably by May, we'll see a vote on the final deal between the House and the Senate.

WOODRUFF: All right, John Karl, thanks.

Even though the president had called for a bigger tax cut, the White House is trying to put a positive spin on today's Senate vote. Now let's bring in CNN senior White House correspondent, John King.

John, what are they saying there?

JOHN KING, CNN WHITE HOUSE CORRESPONDENT: Well, Judy, what they're urging is that we take the long view, and say, even if you take the $1.27 trillion figure passed by the Senate, White House officials saying that is three or four times what Democrats said last year they would accept for tax cuts, that it includes an across-the- board rate cut, something President Clinton said was risky and it would put the health of the U.S. economy and Social Security and Medicare at risk.

So the administration, making the case that they have fundamentally changed the debate over tax cuts here. But, of course, take the short view as well. Even senior officials will concede privately here that this was a true test of how difficult it is to navigate in this 50/50 environment in the Senate, especially when some of the president's own fellow Republicans, especially those northeast moderates, won't go along with him.

They're saying the president may have learned a lesson here, and that he might have to reach out to Democrats a little bit sooner. They will make their case in the conference committee to bring that number up a little bit. But obviously, the administration here -- remember, it was the president who used the line around here, they called it the Goldilocks defense. He said some wanted the tax cut bigger, some wanted the tax cut smaller, he said his was just right. He said that so many times, that administration officials concede that if he doesn't get $1.6 trillion, you have to acknowledge at least that part of the debate is a setback.

WOODRUFF: All right. Now, John, in the international arena, I know you have also been following the negotiations between the United States and China over the fate of the crew of that downed American surveillance plane. What is the latest on that?

KING: The latest now, Judy, is after very intense negotiations in Beijing that went into the early morning hours there, the talks have now moved here to Washington. The U.S. ambassador -- the Chinese ambassador, excuse me, to the United States due at the State Department this hour to continue those discussions. And as he goes to the State Department to meet with top Bush administration officials, we are hearing from sources there are letters being exchanged back and forth. Drafts of the an agreement the Bush administration hopes will end this stalemate quite soon.

(BEGIN VIDEOTAPE)

KING (voice-over): Government sources tell CNN the administration hopes to resolve the standoff by the weekend. And the president sounded a note of optimism.

BUSH: We're working hard to bring them home through intensive discussions with the Chinese government. And we think we are making progress.

KING: Administration sources say the negotiations are aimed at developing a joint statement that calls the collision unfortunate or regrettable, but assigns no blame, and clears the way for a joint investigation.

These sources say the obstacles include Chinese demands for an end to such U.S. surveillance flights, and language acknowledging the U.S. plane entered Chinese airspace and landed at a Chinese military base without permission.

The U.S. ambassador to China negotiated into the early morning hours in Beijing, and China's ambassador to the United States followed up with an evening session at the State Department.

POWELL: We are in very intensive discussions, and negotiations, and exchanging ideas and papers, and there has been movement, but that's as far as I'd like to go right now.

KING: Senator John Warner emerged from a briefing by administration officials and suggested major progress toward a written agreement.

SEN. JOHN WARNER (R-VA), ARMED SERVICES CHAIRMAN: First, at the level of the ambassador and the foreign minister, but that letter is being reviewed both by our president and the president of China. So it will reflect a common understanding.

KING: CNN obtained this photo on the sixth day of the standoff, as U.S. officials held their second meeting with the 24 crew members. A third session is planned for Saturday.

BUSH: We're proud of these young men and women who are upholding the high standards of our armed forces. We know this is a difficult time for their families, and I thank them for their patriotism and their patience.

KING: U.S. officials privately rejected the account of a Chinese fighter pilot who said the U.S. EP-3 surveillance plane was to blame for the collision. But there was no public rebuttal, because as one senior official put it -- quote -- "Given the sensitivity of the negotiations, we are for now going to look away."

(END VIDEOTAPE)

KING: And senior officials cite the same reason, the sensitivity of those negotiations, as refusing any public discussion of all of what the president might do in terms of the long-term U.S.-China relationship once this standoff is over. They say the goal right now is that these negotiations are at a critical stage, all the president will focus on right now is winning the release of those crew members, and then the airplane -- Judy.

WOODRUFF: And John, when the White House talks about progress, what are they attributing the progress to? What do they think turned the corner here?

KING: Well, two main points: One, they think the Chinese government, just as much as the United States government, recognizes that the longer this goes on, the more likely there will be lasting damage to the relationship, and the U.S. believes that at the highest level of the Chinese government, there is a sensitivity to that, that they do not want any long-term lasting damage to the relationship.

Number two is, U.S. officials say once they started moving up the ladder, and speaking to senior officials in the foreign ministry in Beijing, and having daily contact with the U.S. ambassador, China's ambassador to the United States, that once they moved up the ladder and were having discussions at the senior level, that things began to move along quite rapidly.

WOODRUFF: All right, John King, at the White House, thanks.

Still ahead on this edition of INSIDE POLITICS: (BEGIN VIDEO CLIP)

RICHARD CHENEY, VICE PRESIDENT OF THE UNITED STATES: I'm delighted, as is the president, with the approval by the Senate.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), SENATE MINORITY LEADER: I understand some of our Republican friends have called this a victory. If this is a victory, there ought to be more like them. We are pleased.

(END VIDEO CLIP)

WOODRUFF: It seems everybody wins on Capitol Hill, as the Senate votes to trim the president's tax cut.

Plus, two presidents, both under intense pressure, and both walking a political tightrope. And later, a new snag for California, as a key power utility files for bankruptcy protection.

(COMMERCIAL BREAK)

WOODRUFF: Let's go once again to Jonathan Karl on Capitol Hill for more on that Senate budget vote this afternoon -- Jonathan.

KARL: Well, Judy, immediately following that vote on the Senate budget outline, I interviewed Chuck Grassley, who is the chairman of the Senate Finance Committee that will have to make that $1.2 trillion tax cut into reality. It's his Finance Committee that will have to actually put together the details of the tax cut.

I started the interview off by asking him, why it was that the Senate Republicans couldn't pass the tax cut, the full tax cut, that the president was looking for.

(BEGIN VIDEOTAPE)

SEN. CHUCK GRASSLEY (R-IO), CHAIRMAN, FINANCE COMMITTEE: This is a tremendous victory for the president of the United States. Just think, he has moved the Democrats from zero tax cuts last summer to $1.3 trillion tax cuts just today. Democrats are on record in support of that.

Secondly, this will be a Bush victory, because this is going to be the third biggest tax relief package in this past 50 years.

KARL (on camera): Well, what happened? I mean, you clearly, from the beginning of the week, Republicans, yourself included, really thought you had $1.6 trillion, the full Bush tax cut, able to get it through here in the Senate. What happened?

GRASSLEY: The Democrats stuck together to a point where any reduction below the figure of 1.6 trillion would be figured to be a presidential defeat. And that was their only goal, and every amendment that they offered had something to do with cutting down on the tax cut.

KARL: And they had help from a couple of moderate Republicans.

GRASSLEY: You're absolutely right. And the point being that Republicans should think in terms of our being in a majority, and do they want to govern. This is a first opportunity in 48 years that Republicans have controlled the House, Senate, and the White House, and I don't know for sure if we are acting like governing people, in the sense of all of us pulling together. And if you don't pull together, you know, there's retribution.

KARL: So of course, this isn't the end of the road. Are Republicans going to pull together when it comes to doing what you have to do in the Finance Committee as Finance chairman? Are you going to get the tax cut through?

GRASSLEY: Yes. You know, there were 15 Democrats who voted for this budget resolution, meaning that they want tax cuts. So it's going to be not easy to get a tax bill, but we're going to get a tax bill.

My problem may be that there are so many Democrats on record for so many tax cuts that go even beyond their figure, and then bipartisan tax bills that have passed, that I may have a problem keeping it within the budget resolution.

(END VIDEOTAPE)

KARL: And you hear from Senator Grassley some real frustration at those Republican moderate, Jim Jeffords of Vermont, and to a lesser extent, Lincoln Chafee of Rhode Island, who declared their opposition to the Bush tax cut. It was because of those Republican moderates that they couldn't get the full tax cut through the Senate, Senator Grassley very frustrated about that.

And also, many of the Republican leaders here very frustrated, especially at Senator Jim Jeffords, given that he is a committee chairman, he's a senior Republican, and they felt that when they really needed him, when they really needed him to pass the centerpiece of the president's domestic agenda, he was not there for them. That is something they'll be talking about as they go on recess now for the next two weeks -- Judy.

WOODRUFF: All right, Jonathan Karl, thanks very much.

And joining us now also from Capitol Hill, Democratic Senator Kent Conrad of North Dakota, he's a ranking member of the Budget Committee. Senator Conrad, you just heard Senator Grassley say this was a tremendous victory for President Bush?

SEN. KENT CONRAD (D), NORTH DAKOTA: Well, you know, it reminds me a little of the story of the German general who said at the end of World War II, he knew they were in trouble when they kept reporting the victories closer to Berlin.

Look, the president has called repeatedly for a $1.6 trillion tax cut, the Senate today cut that by 25 percent, cut that to a $1.2 trillion tax cut over the 10-year period. So clearly, the president did not get what he was seeking.

But look, I don't think it should be just seen as a defeat or a victory for the president. I think this was more of a victory for the country in the sense that by reducing the size of the tax cut, we were able to increase the amount of debt reduction and improve the resources for education, and prescription drug benefit, and our national defense. And I think those priorities are really better than the ones the president was pushing.

WOODRUFF: But doesn't the president deserve great credit from the standpoint -- you heard Senator Grassley say, Democrats have moved from zero last year to over 1.2 trillion?

CONRAD: Well, Senator Grassley is just flat wrong. We weren't at zero last year, we were at $550 billion in our proposals for tax cuts last year, and we went to a $900 billion figure based on two things: number one, what's happened with the economy, and number two, what's happened with the forecast of the surplus, which increased in the last year by $2.4 trillion.

And we had a formula that we thought made sense: save all the money for Social Security and the Medicare trust funds, and then, with what's left, have a third for a tax cut, a third to deal with our long-term debt and to strengthen Social Security, and a third for these high-priority domestic needs, like improving education, and meaningful prescription drug benefit, and strengthening our national defense.

WOODRUFF: But the Democrats still moved up, senator, wherever you start, whether it's 500 -- you said 900, but 15 of your colleagues were willing to go to 1.2 trillion.

CONRAD: That's the nature of compromise, and I think that's healthy for the country. Remember, though, still with that level of tax cut, what got left to the side? What got left to the side was, we wanted even more debt reduction, and we wanted more money set aside to strengthen Social Security for the long-term. So, I'd say to you this fight is not over with. We made progress this week, it's a better package than what the president sent us, but we still got work to do.

WOODRUFF: But, Senator, if you look at what came out of the House, that was what the president wanted, at $1.6 trillion. SO if anything, isn't the compromise going to be closer to the president's number, rather than less?

CONRAD: I don't think so, because none of those higher numbers can get through the Senate. And any proposal has to get through both bodies. What we've just seen is that the Senate has indicated a 1.2 trillion is what they think is about the right size.

WOODRUFF: Well, Senator, if you could predict a number right now, where would you say the Congress will end up?

CONRAD: I would predict it would be close to the $1.2 trillion the Senate passed, because clearly, a higher number does not enjoy majority support in the United States Senate. And I think, as people realize the budget that just passed raided the Medicare trust fund for $54 billion.

As they come to understand that this tax cut is still a little too big, and the result is that it's raided the Medicare trust fund for $54 billion, and doesn't provide much money to strengthen Social Security for the long term. And we've still got additional publicly- held debt we should be paying down -- that as people come to understand all of these trade-offs, perhaps that number could even move down some.

WOODRUFF: All right. Well, Senator Kent Conrad, ranking Democrat on the Senate budget committee. Thank you very much.

CONRAD: You bet.

WOODRUFF: Appreciate it.

Still to come: Day six in the standoff over a U.S. plane and its crew in China. We'll have the latest on the diplomatic efforts on both sides.

But first, a check of some other top stories, including news of violence in the Middle East. We'll be right back.

(COMMERCIAL BREAK)

WOODRUFF: We'll have more of the day's political news coming up, but now a look at some other top stories. More than 20 Palestinians were injured today in clashes with Israeli soldiers. The battles broke out in the West Bank and Gaza. Palestinians hurled stones and fire bombs, and the Israelis fired back with rubber bullets and live ammunition. Also today, Israeli helicopters rocketed two Palestinian police stations after mortar attacks on four Israeli villages.

This could turn into another expensive summer for U.S. drivers if gasoline prices and distribution estimates turn out as expected. This Energy Department is forecasting another round of price spikes in gasoline due to limited supplies and higher demand. Among the projections that are being predicted by the National Energy Information Center, is that retail gas prices will remain high, and that there may be only a slight decline in the $27-a-barrel price. Pipeline disruptions at home and abroad may also raise prices.

(BEGIN VIDEO CLIP)

MARK RODEKOHR, ENERGY INFORMATION AGENCY: Last summer, for the U.S. as a whole, we averaged $1.53 a gallon. This summer, we're expecting $1.49 a gallon. You'll have to notice that this is well below the numbers in 1998 and 1999, of $1.04 and $1.17 per gallon. So, we expect a very marginal decline in prices, relative to last summer. So, again, driving will be fairly expensive.

(END VIDEO CLIP)

WOODRUFF: The outlook for natural gas is also grim, with prices there expected to be twice as high as two years ago.

A key economic report released today took the wind out of Wall Street's sails. The nation's unemployment rate edged up to 4.3 percent. Now, that is the highest jobless rate since July, 1999. Overall, businesses cut 86,000 non-farm jobs in March.

The stock markets did suffer a big drop today, in part due to the unemployment report. By the closing bell, the Dow had lost 126 points. The Nasdaq was down 64 points, losing about half of Thursday's gain. There's more on market action on the "MONEYLINE" news hour, and that's at 6:30 Eastern, right after INSIDE POLITICS.

When INSIDE POLITICS returns: Senator Paul Sarbanes talks about meeting with the Chinese ambassador, and about why he is canceling his trip to China.

(COMMERCIAL BREAK)

WOODRUFF: The Bush administration is sounding an optimistic note on the standoff with China. This morning, a U.S. diplomat met with the 24 crew members being detained in China, as talks continue over the release of the crew and the return of the U.S. spy plane that landed in China last weekend.

The U.S. and Chinese presidents are using very careful language, as they each try to gain an advantage under differing political pressures. We have two reports now, starting with Mike Chinoy's look at President Jiang Zemin.

(BEGIN VIDEOTAPE)

MIKE CHINOY, CNN SENIOR ASIA CORRESPONDENT (voice-over): He confounded the skeptics, outmaneuvered his rivals and presided over the greatest economic boom in modern Chinese history. Now, after 12 years in power, President Jiang Zemin is struggling to resolve the U.S. spy plane standoff with his future political role, and perhaps even his legacy, at stake.

ROBERT ROSS, BOSTON COLLEGE: The Central Committee, the Politburo, will look at this issue and will use it against him, if it isn't handled well.

CHINOY: Jiang must deal with this crisis against the backdrop of an impending leadership change in China. Next year, the Communist Party will hold a crucial Congress, where Jiang is scheduled to retire. But, like his mentor, the late Deng Xiaoping, Jiang wants to remain as an elder statesman, wielding power behind the scenes.

To achieve that goal, he needs the support of a hard-line, anti- American military, which controls the detained U.S. air crew and their plane, and has urged a tough approach to the current standoff. He must also maintain credibility with a highly nationalistic population, furious over the loss of a Chinese pilot. At the same time, Jiang Zemin knows that China has a huge stake in its American relationship.

ROSS: He has to balance two sets of interests. He does not want to appear weak. In the U.S. embassy aftermath, there was much discussion of how China was weak, its leadership was weak, and Jiang had to establish his credentials. He doesn't want to have to go through that again. On the other hand, he needs to manage the cooperation with the United States.

CHINOY: And he must do so when he's facing other difficulties. Reports from Beijing say Jiang faced criticism at a recent high-level Communist Party meeting over his handling of the government's harsh but unsuccessful crackdown on the Falun Gong spiritual movement, and a spate of high-level corruption scandals, even as popular discontent about unemployment and the other dislocations of economic reform continues to mount.

(on camera): Jiang Zemin must, therefore, deal with this crisis while walking a political tightrope, aware that in terms of his future standing in China, he cannot afford to make a mistake.

Mike Chinoy, CNN, Hong Kong.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

MAJOR GARRETT, CNN WHITE HOUSE CORRESPONDENT (voice-over): This is Major Garrett at the White House. President Bush is walking a tightrope of his own. The avoidance of offense, a constant leveler as the White House weighs every word.

From the president, a hint of optimism.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: We are working hard to bring them home through intensive discussions with the Chinese government, and we think we are making progress.

GARRETT: But details were few, lest they poisoned the atmosphere, and there was no talk of the endgame.

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: I am reluctant to put any type of timeframe on it, like final, such as that. It's ongoing. And it's intense, it continues, and I think that it's important to allow them to continue their important work.

GARRETT: While the president offers soothing words publicly, privately, the administration is taking a tougher line.

LEE HAMILTON, FORMER U.S. REPRESENTATIVE: If Bush uses a very harsh, bellicose language, threatening language, that will make it more difficult for the Chinese to make moves to resolve the situation and to return the crew and the plane.

GARRETT: Diplomatic niceties even prevented the White House from challenging the Chinese allegation that the U.S. plane swerved into the Chinese jet, endangering his crew and mission and causing the mid- air collision.

FLEISCHER: The president is, again, he is focused on the diplomacy that is under way to bring our men and women home. And he's less interested in assigning blame.

GARRETT: Later, a senior official told CNN that, quote, "given the sensitivity of the negotiations, for now, we're going to look away" from the inflammatory Chinese allegation.

The White House has issued no public threats, but made no secret, privately, of options available to punish China. They include opposing its bid for the 2008 Olympics, canceling Mr. Bush's fall trip to Beijing, selling sophisticated destroyers to Taiwan and revoking China's preferred trade status.

(on camera): White House officials believe time is on the president's side, as long as two current conditions hold, that there is a regular access to the crew, and the diplomatic conversations continue at a high level. Regular access to the crew will make them look like hostages, and diplomacy will prove Mr. Bush's restraint is paying off. But if either condition deteriorates, aides say Mr. Bush will be under more pressure to get tougher.

Major Garrett, CNN, the White House.

(END VIDEOTAPE)

WOODRUFF: And joining us now: Senator Paul Sarbanes, he's a member of the Senate Foreign Relations Committee. He was among the group that met with the Chinese ambassador yesterday. Senator Sarbanes, how close do you believe the two sides are to resolving this?

SEN. PAUL SARBANES (D), MARYLAND: Well, that's very hard to predict. I do agree with the president's statement that they are making progress. I think the president and the administration are handling this matter the way it ought to be handled. They are in very intense discussions.

Our ambassador in -- in Beijing is in constant contact now with the Foreign Ministry there, and we are just hopeful that in the very near future they'll be able to reach some understanding, which will enable our 24 men and women that are detained now in China to come out and return home.

WOODRUFF: Let me ask you, senator, about two of the obstacles that our White House correspondent John King cited a moment ago. One has to do with the Chinese asking for an end to these surveillance flights, spy flight, whatever you want to call them, near the Chinese border. What should the U.S. do about that?

SARBANES: Well, I wouldn't expect that we would respond affirmatively of that. This flight was 70 miles off the coast of China, clearly in international airspace and over international waters. This is a practice that we have engaged in around the world. Other countries engage in it as well, to be very blunt about it. But we were clearly over international waters. In fact, the Chinese have admitted as much. They don't assert that the flight pattern went into Chinese airspace.

WOODRUFF: But senator, the Chinese are not doing similar flights that close to the United States, are they?

SARBANES: Well, there's a matter of capacity and the ability to do them, and that may explain the difference.

WOODRUFF: And as I understood the other obstacle John King cited, senator, it had to do with the United States acknowledging that the U.S. plane had landed illegally on Chinese soil?

SARBANES: Well, they sent out a mayday, and under international law, they're entitled then to come in for a landing. They received no response to that mayday. Whether in fact it was received by the Chinese authorities on the ground, you know -- presumably we'll find out in subsequent inquiry.

But the fact of the matter is, as you know, we have these 24 people there that are detained. They ought to now come home, and we ought to engage in an inquiry to discover exactly what happened. I see no problem with a joint inquiry on the part of both countries, and in fact, there's some procedures that have already been established in the maritime agreement entered into between the United States and China three years ago, that could, in a sense, be implemented in this instance in order to help work through this matter.

WOODRUFF: Well, senator, if this is a matter that can be worked through, and may well be worked through in the next few days, why the decision -- you were planning to go to China yourself, I believe, over the weekend, a trip for the Aspen Institute, why apparently is that trip now not on?

SARBANES: Well, you used the word "maybe worked through," and that's the right expression to use. And we hope that it will be worked through. I reached the conclusion that I didn't want to go into China while our people were still being detained there. I mean, it seems to me that that's a fairly obvious way to react to this situation.

WOODRUFF: But should Americans feel free to go to China as soon as -- assuming it's resolved, as soon as this incident is behind us?

SARBANES: Well, they'll have to make that judgment for themselves. But I would -- first of all, if you treat this as an accident and as an incident, and not as a crisis, and if the two countries are successful in coming to some bottom line understandings about it, then we will move on with a relationship between the two countries.

There are a lot of outstanding issues between the two countries, but you are not going to able to get at those issues if they don't communicate with one another. Now, everyone's working very hard. Certainly on our side, and presumably, I think, also on the Chinese side. And not to turn what has been termed an incident into a crisis. And in fact, the Chinese president may well have continued his trip to Latin America in order to help make the point that this was not a crisis, which would require him to have canceled that trip and to have remained at home.

WOODRUFF: And your point is that it's not a crisis yet, and it may well be resolved, but we'll just have to wait.

SARBANES: Yeah, we don't want it -- we don't want it to become a crisis, and the president and Secretary Powell to their credit, I think, are working very hard and I think with some success in achieving that result.

WOODRUFF: Well, Senator Paul Sarbanes, we thank you very much. We appreciate it.

Still ahead on INSIDE POLITICS, the blackout situation in California grows darker with a major utility filing for bankruptcy protection. We'll have the latest. And we'll ask our regular Friday roundtable if Californians are blaming Governor Gray Davis for the mess. Stay with us.

(COMMERCIAL BREAK)

WOODRUFF: California's largest utility filed for bankruptcy protection today. Pacific Gas & Electric Company says its unreimbursed energy costs are now running at more than $300 million a month. As we have reported, the power crisis may have a serious effect on political power in California as well.

For more on today's action, let's turn to CNN Financial News correspondent Casey Wian. He's in Los Angeles.

Hi, Casey.

CASEY WIAN, CNN CORRESPONDENT: Judy, that's right, and while Pacific Gas & Electric's bankruptcy has been a possibility for months, the chapter 11 filing still sent shockwaves throughout California. The state's largest utility covers 70,000 square miles of Northern and Central California, with more than 12 million customers, or about 5 percent of the nation's population.

The company says it took the step because the court offers a better chance now for a solution to its debt problems, and of course, the bankruptcy filing lists the utilities 20 largest creditors. They include banks, the state power grid and power suppliers. Together, they're owed more than $8 billion.

Pacific Gas & Electric says it eventually expects to pay all those debts in full. It also says customers will not be affected by the bankruptcy process. However, it's likely the utility will seek additional rate hikes in court to cover its debt.

PG&E executives in a conference call with reporters earlier today made no secret of who they blame for the situation, and that's California Governor Gray Davis. Davis and state lawmakers have been working on plans to rescue utilities from bankruptcy, which the governor outlined last night.

(BEGIN VIDEO CLIP)

GOV. GRAY DAVIS (D), CALIFORNIA: Unlike the PUC, my plan includes funds to restore the utilities to financial stability if they agree to three main conditions: They must provide low-cost regulated power to the state for 10 years; agree to sell us their transmission system; and dismiss their lawsuits, which seek to double your electricity rates.

(END VIDEO CLIP)

WIAN: But according to PG&E, there have been no negotiations with the governor's office in more than three weeks. And so far, today, there has been no reaction from Californian Governor Gray Davis. But what is clear, Judy, is this failure to keep the state's largest utility out of bankruptcy or to secure a deal to keep it out of bankruptcy is likely to have serious political consequences for the governor for quite some time -- Judy.

WOODRUFF: Casey, and what are the prospects for a deal?

WIAN: That's up to the bankruptcy judge. A bankruptcy judge has very broad powers to order everything from rate hikes in this case to asset sales. The utility is hoping that he can serve as sort of a moderator, maybe an instigator, to get a deal done with the governor and state lawmakers, the deal that they've been able -- that they've been unable to put together for months now.

WOODRUFF: All right. Casey Wian reporting from Los Angeles, thanks.

When we return, we will talk more about power, about politics and diplomacy with our Friday roundtable guests.

(COMMERCIAL BREAK)

WOODRUFF: And now to our weekly roundtable. Today, CNN senior analyst Jeff Greenfield, Ron Brownstein of "The Los Angeles Times," and Clarence Page of "The Chicago Tribune."

Jeff, let's begin with California's power crisis. Before I ask you about any effect on Governor Gray Davis, what about nationally? Are there national political repercussions potentially here?

JEFF GREENFIELD, CNN SENIOR ANALYST: Enormous, because the prediction is that things like rolling blackouts may spread out of California in the West, may come as far east as New York City. And there is nothing that changes -- that will change people's minds about their condition, about who's in charge than a direct blow to the solar plexus like a rolling blackout. You just have to remember what happened during the gasoline shortages to know that. So I think the potential implications of this story dwarf anything else we'll be talking about.

WOODRUFF: But Clarence, we're not really talking about anything immediate here, are we?

CLARENCE PAGE, "CHICAGO TRIBUNE": No, but the cloud is looming, and remember that George W. Bush has taken days of beatings over his days of assaults on the environmental issues that are so important to folks out there who care about environmental preservation. The power crisis is the biggest threat to that issue and the biggest boost that George W. Bush has in terms of saying, hey, our energy needs are more important than saving the environment. So I think there are great implications here.

WOODRUFF: Ron Brownstein, who or what do you think is vulnerable on the national scale?

RON BROWNSTEIN, "LOS ANGELES TIMES": Well, look at it on both levels. I mean, the fact that Bush has been so hands off on this to me is an indication after spending $15 million in 2000 and reducing the Democratic margin of victory in California all the way from 13 points to 12, they probably see very little prospects there in 2004. They're not reacting in a way that would -- that would suggest that they see much more there.

What they have been doing is trying to use this as justification for the agenda they formulated really before the crisis was there. I mean, what they've done is basically say that the energy crisis in California is a reason why we need to expand domestic production, expand domestic generating capacity, and basically do all the kinds of things we wanted to do otherwise.

The real risks, though, really are at the state level and probably for the governor, Gray Davis.

WOODRUFF: Jeff Greenfield, do you agree with that?

GREENFIELD: I do. I think this is way beyond, you know, electoral votes in California. I mean, we talk a lot about everything affecting politics. And that's what a daily show about politics does.

But when people's daily lives are disrupted, I think it just makes everything else secondary.

I have been in California a fair amount. I was in there -- in that state during one of the rolling blackouts, relatively benign. And if you picture that happening in major places around the country this summer when it's hot and humid and people turn on their air conditioners, this is not theoretical. This is not something where different experts debate about tax cuts or policy. This goes right to the heart of how people live, and I think people turn and blame whoever is in power anyway.

So, yeah, Gray Davis is up -- is up right now, but I think potentially this affects the whole political climate, no pun intended.

WOODRUFF: And Clarence Page, you're agreeing that Gray Davis may be all right in the polls right now, but that -- that may not last?

PAGE: From what I hear, Gray Davis' approval ratings are sinking, but his fund-raising ability is going up. So politics are a funny thing.

I don't know if I'm predicting rolling blackouts across the country the way Jeff appears to be doing, though. I tend to lean toward that school that says the California problems were brought about by a combination of things -- political, economic, et cetera -- that are unique to California.

I personally will be very surprised if we see blackouts in the rest of the country.

Are you going to hold me to that, Judy?

WOODRUFF: I've got your quote right here, a transcript.

Ron Brownstein, let me turn you now to today's budget vote in the Senate. The Democrats are saying they won this, the president lost. The Republicans are saying it's a victory for the president. Which is it?

BROWNSTEIN: Unfortunately, they're both right. I mean, you can look at this from one of two angles. Clearly, Bush has shown the capacity of the president to change the parameters of the possible in Washington.

You had Senate 15 Democrats vote for a tax cut more than twice as large as Al Gore ran on last summer, and clearly, that is not something that would have happened if this photo-finish election had gone on the other way. So on a variety of issues, I think, Bush has moved the debate in his direction.

But Judy, I think this vote also showed us that in a 50/50 Congress and a 50/50 country, Bush does not have the leverage to simply impose his dictate and get everything he wants. He suffered, make no mistake, a significant reversal here in the Senate. The apples-to-apples comparison is he wanted 1.6 trillion in tax cuts over 10 years. He got 1.18 trillion, a 27 percent reduction. There's another 85 billion in a one-year rebate plan.

But the fact is that he was forced to give a lot of ground, probably because he chose a hard-line strategy of trying to pass this solely with Republican votes, left himself very little margin of error. And in the end, he just didn't have the votes and had to give a lot of ground.

WOODRUFF: But Jeff Greenfield, the steamroller approach worked in the House. What's to stop the president from continuing to try to use it?

GREENFIELD: Well, the Senate is not the House. One of the things about senators is they tend -- they tend to display a much more independent streak.

And I think this does represent, I actually think for the first time in the 80-something days of this administration, the consequence of having won in what was in effect a tie. I mean, 20 years ago when Ronald Reagan put down his tax cut proposals, he did it in the wake of a landslide election victory that unseated an incumbent president. Nobody could argue against his -- a mandate. He ran on that issue.

I think in this case what was really remarkable was the unanimous party discipline in the House, and as Ron says, in a 50/50 Senate, you know, he only had two defections on the Republican side and that was enough to trim it down.

I also believe it shows how smart the Bush administration was to come in with that hard approach, because if they had started with a trillion-two, it probably would have been cut back to something under a trillion.

I mean, that -- you know, starting with the full measure of the tax proposal, I think they got most of what they wanted.

WOODRUFF: Well, that said, Clarence Page, is there a lesson here for the president?

PAGE: Certainly, the lesson is in your early days go for everything you can, and he had a very good opportunity and he took it. Across the country, the public is going to read this as a victory for Bush. I don't think the details of it are of a whole lot of interest to folks outside of those of us who specialize in these matters.

He campaigned heavily on getting a tax cut. He was beat up by various sides who wanted it bigger or wanted it smaller or wanted alternatives, and he's getting what he wants right now.

WOODRUFF: Let me just quickly ask all three of you -- we have less than a minute here -- about China. Is there a limit to public patience in terms of waiting for this crew, this spy plane crew to be released and sent home safely? -- Ron.

BROWNSTEIN: Public patience and congressional patience. Bush is lucky Congress is going home today for two weeks. One White House official said to me last night if somehow by the time they come back this is still going on, the situation will look a lot different in terms of pressure from the right for Bush to get more assertive.

WOODRUFF: Jeff?

GREENFIELD: There's a limit, but if this thing wraps the way it looks like it's going to be wrapped up, I think this thing will be -- will have all the political clout of -- what did McConnell say about campaign finance reform? Static cling.

I think it's only if this thing becomes an ongoing crisis and the cable networks begins to do their, you know, five times a day update of day 16 to day 50, then it gets serious. Right now, I think this doesn't seem to me have any political clout if this thing is resolved within like a week or 10 days.

WOODRUFF: And Clarence?

PAGE: As of this moment, Bush and Colin Powell look good that they've been moving this away from the Chinese demand for an apology and toward negotiation over language that both sides can agree on. And both sides do have an interest in making deals, not war. At this point, they both look good. Certainly, if it does drag on, everybody looks bad.

WOODRUFF: Well, there's nothing bad about the three of you. We're delighted to see all three of you on this Friday roundtable.

Thank you, Clarence Page, Jeff Greenfield, Ron Brownstein. Thank you all.

PAGE: Thank you.

WOODRUFF: The tax cut vote is in, but the debate over that vote is just getting started, as you heard. Was today's vote a victory for the president or for his opponents? And what does it mean for taxpayers? We'll take a look when INSIDE POLITICS continues.

(COMMERCIAL BREAK)

WOODRUFF: There's optimism, but still no breakthrough in the standoff between the United States and China. Secretary of State Colin Powell says the two sides are exchanging ideas and moving forward. Crew members from that grounded U.S. surveillance plane remain in China, but they were allowed to meet with U.S. diplomats again today, and President Bush says they are in good health.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: They are housed in officers' quarters, and they are being treated well. We're proud of these young men and women who are upholding the high standards of our armed forces. We know this is a difficult time for their families, and I thank them for their patriotism and their patience. We're working hard to bring them home through intensive discussions with the Chinese government. And we think we're making progress.

(END VIDEO CLIP)

WOODRUFF: CNN senior White House correspondent John King has been following today's developments. John, we know that the Chinese ambassador was just at the State Department. Are we hearing anything about how close we are to resolving this?

KING: Judy, we're going to listen first to President Bush in Milwaukee, I hear.

(JOINED IN PROGRESS)

BUSH: ... the great state of Wisconsin. I'm looking forward to tossing out the first ball today. I haven't decided if I'm going to go with a rising fastball, split-finger, or a breaking pitch. But nevertheless it's going to be a great honor to be there. Miller park will be a proud part of Milwaukee's landscape. But there is another key structure that is an important part of the life of this city: The Daniel Webster Hone Bridge.

For the last several months a lot of effort has gone into helping repair the Hoan Bridge but the job is not yet complete. So I'm here to tell the good people of Milwaukee that fixing the Hoan Bridge is a priority of my administration. I brought along the secretary of transportation here to identify the quickest way to rebuild this critical artery for Milwaukee. The Hoan Bridge is eligible for funding from the Department Of Transportation.

We look forward to partnering with the state of Wisconsin to complete the rebuilding of the Hoan Bridge. Today, Secretary Mineta and I have received an application for federal funds from the governor of Wisconsin, and I plan to make this project an important priority. Almost 100,000 people live in areas...

KING: Well, Judy, the president there, rewarding his Secretary Of Health and Human Services if you will, Tommy Thompson, the former governor of Wisconsin, convincing the president a little help for a public works project back in his home state would be a good thing for the president to announce as he lands in Milwaukee. Later tonight he will help open the new Milwaukee Brewer's baseball park by throwing out the first pitch.

Now you were asking about what we know about the diplomacy. We don't know much about the latest developments. We know there was a great sense of optimism heading into that meeting. The Chinese ambassador to the United States was at the State Department at 5:00. He left. He was there less than an hour. We have not received a readout yet. I spoke to an administration official just a few minutes ago, who said they were awaiting a call from the State Department.

That official said they wouldn't read anything into this one way or the other, that sometimes, in such cases the ambassador comes to visit only to relay information that has already been told to U.S. diplomats on the ground in Beijing, or perhaps there was a counterproposal and the ambassador needs to take it back to his people. We just don't know yet. But we do know, heading into that meeting, there was a great sense of optimism.

Administration officials acknowledging progress was being made: In private discussions, acknowledging that drafts of a joint agreement to end this stalemate were being handed back and forth between the two governments, but also acknowledging there were a few hang-ups that they hope to resolve, and some officials who have been briefed, some government officials have been briefed by senior administration officials saying there is a cautious sense of optimism that all this will be over by the weekend. But again, we've seen no public evidence, as yet, of any breakthrough.

WOODRUFF: John, is there any concern, any fear there at the White House, that if the president's approach of stressing diplomacy doesn't result in progress right away, and this thing does drag on, that he'll be seen as having too soft an approach?

KING: Eventually yes, not now, is the administration's view. They believe right now that the number one concern of this president and the American people is winning the release of that crew. That's why you've seen the president walking a line. He's been quite forceful and stern at times saying the Chinese government must act, it must return the crew, it must release the plane. At the same time he said he understands the Chinese government needs time, and he wants to work through diplomatic channels.

The president, on the one hand, speaking to the American people and ensuring he's pushing for the release of the crew, and on the other hand, trying to work through diplomatic channels and acknowledging it takes a bit of a time to work your way through the Chinese government. The risk, administration officials believe, would come if this dragged on through the weekend and if there was no resolution then, that the American people would say the diplomatic approach hasn't worked. What next, Mr. President?

WOODRUFF: All right, John King reporting from the White House, thanks.

Well the president was spending a great deal of time on the China standoff today, but he also was keeping an eye on Capitol Hill. By a 65 to 35 vote, the Senate passed a compromise measure to cut taxes by $85 billion this year, and about $1.2 trillion over the next 10 years. That's considerably lower than the $1.6 trillion cut that had been proposed by president and passed by the House Of Representatives.

Mr. Bush claims that today's Senate vote is still a victory.

(BEGIN VIDEO CLIP)

BUSH: When the House and Senate complete their work they will have paved the way so the American people can receive an across-the- board income tax reduction. A doubling of the child credit, relief from the marriage penalty, and the elimination of the death tax. This budget also wisely increases spending on education, funds priorities like Medicare and Social Security, and pays down a record amount debt.

(END VIDEO CLIP)

WOODRUFF: Now let's ask CNN's congressional correspondent Jonathan Karl about all this.

John, the first I want to ask you about the role that Vice President Cheney played in all this?

KARL: Well, Vice president Cheney played a central role all week during these budget negotiations. He was here every day, all of the five days that the Senate was debating the budget. As a matter of fact, he's got his little office right off the Senate floor. Democrats have nicknamed that office Cheney's torture chamber. That was a place where a lot of the arm-twisting was going on, a lot of the effort to woo the moderate Republicans and the moderate Democrats to support the president's full tax cut: Something, in the end, Cheney was not successful at doing.

Cheney also cast two tie-breaking votes during the course of the week, and that's interesting because Vice President Gore during his entire eight years as vice president cast only four tie-breaking votes. So, here you have, in the space of one week, Cheney casting two: A very central role, not always very successful.

I mean, Cheney was the one who was pressuring Ben Nelson of Nebraska, the Democrat, to try to come over and support the president's tax cut. He had also been pressuring Jim Jeffords. They came to no agreement there. But he was here every day, and his lieutenant, Nick Callio, also here every day working with those swing votes.

WOODRUFF: Jonathan, the White House didn't get what it wanted exactly. Do they have a plan B?

KARL: Well, clearly Republicans up here do. They believe they got, you know, at least $1.2 trillion over 10 years. They think that's not bad. It's, after all, very close to what the president campaigned on. He campaigned on a $1.3 trillion tax cut. But they believe they can get, by the end of this year, up to that 1.6 number in a couple of ways. One: When they go to conference with the House and come up with some kind of an agreement between the House and the Senate tax cuts, they believe they can inch it up a little bit there.

But also, they plan to attach little tax cuts to other bills the Senate will be debating, such as a minimum wage increase, patients' bill of rights. They plan to be proposing, as amendments, smaller more modest tax cuts that are politically popular, perhaps tax cuts like the elimination of the marriage penalty, if they are unable to do all of that with this tax cut that just passed.

WOODRUFF: All right, Jonathan Karl, thanks very much.

And we are joined now by the chairman of the Democratic National Committee, Terry McAuliffe. Thank you for being with us.

TERRY MCAULIFFE, CHAIRMAN, DEMOCRATIC NATIONAL COMMITTEE: Judy, great to be with you.

WOODRUFF: The president didn't get everything he wanted clearly, but neither did Democrats. They started out with 500 billion last year, and then it was 900 billion. But today 15 Democrats voted with the president. He got 1.2 trillion.

MCAULIFFE: This was a stinging political defeat for President Bush. He has said consistently over the last two months that this tax cut of 1.6 trillion, which really was over $2 trillion, was the cornerstone of his economic plan. It was defeated, and it's moved down to be a more fiscally responsible tax cut, which is what the Democrats want.

We want a bill, Judy, that will pay down the debt, that is fiscally responsible, that protects Medicare, education priorities, not what President Bush. So this is a big loss for him today.

WOODRUFF: Now, your party, the Democrats, pretty much held the line. There were only three defections in the House when they voted on the tax cut, but in the Senate, it's a different story. Fifteen out of 50 Democrats voted with the president. What do you do about that?

MCAULIFFE: Well, listen, we're moving in the right direction. We got $400 billion off. We've moved it to where the Democratic Party wanted it to be, and what we have talked about and consistently fought for. Our problem all along with this tax cut was that it was entirely too large, and it did not protect the priorities that are key to the Democratic party, and to America's working families.

WOODRUFF: But the Democrats are not speaking with one voice on it.

MCAULIFFE: Well, we're speaking with a pretty good voice, because we've knocked it off by $400 billion. Listen, George Bush said that his $1.6 trillion tax cut was of critical importance to his plans. We defeated that. That has gone down in flames, this was a major defeat.

You know, it's not been a good week for President Bush, I'll tell you, Judy. You know, he's gone 0 for 2. He tried to defeat the McCain-Feingold campaign finance legislation. He's lost his tax cut. He is stepping up to the plate, here we are, opening week of baseball, he's gone 0-2, and he's stepping up to the plate with his special interest slugger behind him and he can't do it.

WOODRUFF: Well, baseball analogies aside, good try.

(LAUGHTER)

WOODRUFF: Let me ask you about McCain-Feingold, because there are a number of Democrats, most of them privately, some publicly, saying they're worried about what that's going to mean for your party. Certainly, what it's going to mean for the National Democratic Committee, that it's going to put you at a distinct disadvantage when it comes to raising money. Now, assuming that it is passed in pretty much the same shape it's in now.

MCAULIFFE: Let's not forget that 38 Republican senators voted against McCain-Feingold. President Bush has come out publicly against it. Governor Gilmore, my counterpart, chairman of the RNC, sent a letter to the Republican senators, saying we must stop this.

The Democrats -- we are where we are today with McCain-Feingold, Judy, because the Democratic party has consistently pushed it. So let's not let anybody kid themselves. We have been out there for it. The Republicans in the Senate tried to stop it, we're going to get it. But it's good for the Democratic party.

WOODRUFF: Are you worried, though, as chairman of the party, the person who needs to worry about your candidates getting the money they need to win, that you are going to be able to raise the money that you need under a new structure that the bill would set up?

MCAULIFFE: I'm actually very excited about it. When you take special interest money out of the system, this White House, we've learned has been totally run by special interest -- let it be putting more arsenic in our water, allowing more CO2 emissions into our air, rolling back worker safety standards -- if you could eliminate all that, we will always be outspent by the Republican party. They outspend us 3-1.

But you know what? We have the issues on our side. The American people are with us. All I have to do, and the Democrats have to do, is mobilize the grassroots of our party, energize them. We don't need as much money. But we clearly are going to have enough federal money to do what we need to do to be successful because the issues are with us. It's exciting, let's get this thing passed. WOODRUFF: Quick look back to the election from last year. "The Miami Herald" newspaper, "USA Today" did an extensive study of the so- called undervotes in the state of Florida. As you know, they showed, among other things, that if the standard that Vice President Gore preferred, the so-called looser standard had prevailed, George Bush still would have won the state of Florida and would have won the presidency. Isn't it time to move on with concern about the election?

MCAULIFFE: I know the Republicans keep saying: "Terry's got to move on and get off the last election." But listen, Judy, I raised the issue, and Democrats raise the issue, because it is clear that many people who went to the polls last November, their vote was not counted. There were people who were turned away from the polls, and what "The Miami Herald" did not count are the overvotes, where they voted twice, and we're going to hear about that soon. Only a third of the votes are counted right now.

The clear message coming out of this is we need electoral reform in our country. Thirty-six years ago, Lyndon Johnson signed the voting rights act. Individuals' right to vote right now is still not secure. We need to make sure that people can go into the ballot booth and their votes will be counted. We need to keep the pressure up.

Just this week, George Bush cut out over $5 million for the FEC. What kind of leadership is that? People have a right to vote. Their vote ought to be counted, and I continually raise the issue to make sure that we have true electoral reform in this country. Let's pass electoral reform.

WOODRUFF: All right. Well, we are going to -- there is much more to talk about there, Terry McAuliffe...

MCAULIFFE: Thank you, Judy.

WOODRUFF: ... but we're going to have to leave it there. We thank you very for joining us.

MCAULIFFE: Thank you.

WOODRUFF: Appreciate your coming by.

And just so you know, we do expect to talk next week with the chairman of the Republican National Committee, Governor Jim Gilmore.

Still ahead, partisanship, a split Senate, and a political play of the week.

(COMMERCIAL BREAK)

WOODRUFF: This week, the battle over the president's budget plan put a spotlight on the evenly-divided Senate, and on the importance of party loyalty.

Joining us now, our own Bill Schneider -- Bill.

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Judy, you know, a 50-50 Senate gives every single senator incredible bargaining power, particularly senators who are willing to buck their party's leadership. Hold out for what you want, and you just might get it. And the political play of the week, besides.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): On Tuesday, President Bush's $1.6 trillion tax cut faced a crucial test. Democrats tried to pass an amendment diverting some of the tax cut money to a prescription drug benefit plan for seniors. One Democrat, Zell Miller of Georgia, voted no; one Republican, Lincoln Chafee of Rhode Island, voted yes -- a perfect tie. Vice President Dick Cheney to the rescue. Cheney cast the tie-breaking vote, and the president's tax cut was saved. For a day.

On Wednesday, another test. This time, Democrats proposed slashing the president's tax cut by nearly a third to provide more funds for education and debt reduction. In order to prevail, Democrats needed another Republican defector. Enter Senator Jim Jeffords of Vermont, a surviving remnant of the nearly extinct species, liberal Republican. Jeffords has a special interest in funding for special education.

SEN. JIM JEFFORDS (R), VERMONT: I come here, just having left negotiations, in hopes of being able to reach a compromise on what is most important to me, and has been for some 26 years, since I sat in a conference committee and we wrote the law, IDEA, to try and make sure that the states and local governments would have a partner in being able to handle the cost of special education.

SCHNEIDER: Jeffords knew how to leverage his influence.

QUESTION: Are you going to vote against the president's budget?

JEFFORDS: Well, unless a miracle occurs, I fear that I am in that -- bending in that direction.

SCHNEIDER: Pow! The president's tax cut goes down for the count! Down, but maybe not out.

JEFFORDS: I think the 1.6 trillion, or the $2.5 trillion tax cut, as it was originally proposed, could be officially proclaimed as dead. Of course, these days, with modern medicine, everything could be revived...

(LAUGHTER)

JEFFORDS: ... and I suppose there's always that chance.

SCHNEIDER: Republicans saw betrayal.

SEN. ROBERT BENNETT (R), UTAH: This is raw politics aimed at the president's political standing.

SCHNEIDER: Democrats saw heroism. SEN. EVAN BAYH (D), INDIANA: You know, there was a book written about the United States Senate, called "Profiles in Courage," about different votes that were decided by a single vote by senators going against the majority of their own party. I think we've seen another chapter in that book written today.

SCHNEIDER: Senator Jeffords saw the makings of a deal.

JEFFORDS: So I am not precluding the hope and belief that when the president fully understands what this means, and what my amendment would mean, that we will hopefully have a change in attitude.

SCHNEIDER: A 50-50 Senate gives every senator the power to hold out. Jeffords took it, and it was the political play of the week.

(END VIDEOTAPE)

SCHNEIDER: In the end, Jeffords wouldn't budge, so the best Republicans could do today was pass a bipartisan compromise. Now, is that a victory for the president? Not exactly, because you know what? It wasn't President Bush's compromise -- Judy.

WOODRUFF: All right, Bill Schneider. Thanks very much.

SCHNEIDER: Sure.

WOODRUFF: And just ahead on INSIDE POLITICS, forget about tax cuts, budget plans, and policy -- we're going to show you a whole different kind of presidential pitch. Don't miss it.

(COMMERCIAL BREAK)

WOODRUFF: As we saw earlier, President Bush has landed in Milwaukee on his way to the ballpark. He'll throw out the first pitch for the Brewers' season opener against the Cincinnati Reds. The president says he's always been close to baseball, idolizing ballplayers as a boy, and owning a major league team, the Texas Rangers, as an adult.

Our Bruce Morton has more now on the relationship between presidents and the national pastime.

(BEGIN VIDEOTAPE)

BRUCE MORTON, CNN CORRESPONDENT (voice-over): "If you build it," the saying goes, "they will come." Milwaukee has built Miller Park, 42,500 seats, with fans, they say, closer to the action than ever before in the city. And they will come -- exhibition games last weekend, first real game tonight -- with the president throwing out the first pitch. He loves the game.

BUSH: Are you a baseball fan?

UNIDENTIFIED MALE: Oh, yeah.

BUSH: Me, too. MORTON: His father, the first President Bush, played first base on a Yale team that twice went to the College World Series, though they didn't win it. This Bush says, "I peaked in little league."

But he has a hero.

BUSH: I fell in love with Willie Mays. I always wanted to grow up to be Willie Mays until the ball started to do something other than go straight.

MORTON: And he found happiness and success as the lead owner of a baseball team, the Texas Rangers. Went to lots of games, loved it. Met Mays and Mickey Mantle.

BUSH: And I began to appreciate what the life of a famous ballplayer is like, what a responsibility it is when so many youngsters look up to you.

MORTON: He told the Hall-of-Famers, at the White House, the game will be played there -- sort of.

BUSH: So for the next four seasons, we're going to invite kids here from the area to play T-ball on the south lawn of the White House.

MORTON: This "throw out the first pitch" stuff started, by the way, with William Howard Taft. Here are Woodrow Wilson, Herbert Hoover. Here's Harry Truman -- had a little snap on it, don't you think? Ronald Reagan, not a lot of heat, but while he announced baseball games, football was the sport he played.

UNIDENTIFIED MALE: And a left-hander delivers, and Pendleton (ph) up with the grab!

MORTON: Bush Sr., and he did look as if he'd been out there before.

UNIDENTIFIED MALE: The president of the United States, Bill Clinton!

MORTON: Bill Clinton in Cleveland one year. A golfer, not a ballplayer. Still, what do you think? Got it there, anyway.

And now it's Bush II's turn. We've seen him with a bat. We know that as an owner he could make mistakes. Got rid of Sammy Sosa.

BUSH: And I appreciate my fellow Texans who are here. A lot of Chicago folks thanking me for the Sammy Sosa trade.

(LAUGHTER)

MORTON: So, people will be watching his first pitch in Milwaukee. Bush once said baseball was a great training ground for politics and government. "The bottom line in baseball is results, wins and losses." It's still the first inning of his presidency, early for wins and losses, but the score keepers, mostly self-appointed, are counting up balls and strikes, hits and errors, this new season.

Bruce Morton, CNN, Washington.

(END VIDEOTAPE)

WOODRUFF: Batter up. That's all for this edition of INSIDE POLITICS. I'm Judy Woodruff. "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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