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CNN CAPITAL GANG

Congress Approves Tax Cut; U.S. on High Alert; Fleischer Resigns

Aired May 24, 2003 - 19:00   ET

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

ANNOUNCER: From Washington, THE CAPITAL GANG.
MARK SHIELDS, HOST: Welcome to THE CAPITAL GANG.

I'm Mark Shields, with Al Hunt, Robert Novak, and Kate O'Beirne. Our guest is Democratic Senator Jon Corzine of New Jersey, the chairman of the Democratic Senatorial Campaign Committee. Thanks for coming in, Jon.

SEN. JON CORZINE (D-NJ), CHAIRMAN, DEMOCRATIC SENATORIAL CAMPAIGN COMMITTEE: Good to be here.

SHIELDS: Good to have you here, Mr. Chairman. Very few Democrats you can call Mr. Chairman now.

Senate and House Republicans agreed on a compromise tax bill with a 10-year revenue loss estimated at $350 billion. Congress met President Bush's demand to finish action before the Memorial Day recess beginning this weekend.

Just before 1:00 Friday morning, the House passed the tax cut by a 30-vote margin. At 9:30 A.M., the Senate deadlocked 50 to 50, thanks to three Republican defections. And Vice President Dick Cheney cast the deciding vote.

(BEGIN VIDEO CLIP)

SEN. TOM DASCHLE (D-SD), MINORITY LEADER: I firmly believe that this bill fails on all counts.

SEN. CHARLES GRASSLEY (R-IA), FINANCE COMMITTEE CHAIRMAN: The problem is here, they don't want any tax relief because they want to spend it.

(END VIDEO CLIP)

SHIELDS: Kate, how can President Bush actually claim victory when he was calling a $350 billion tax cut, quote, "little bitty," close quote?

KATE O'BEIRNE, CAPITAL GANG: Mark, at about 1 percent of the $27 trillion revenue over the next 10 years to the federal government, it's closer to being little bitty that it is huge and reckless, which is what the Democrats are trying to portray it as being. Look, this is a huge victory for the president. Who would have predicted a year ago that there'd be a cut in capital gains tax rate, a cut in the dividends tax rate? It's going to be popular. Every taxpayer gets a boost in take home pay in July. And because he didn't get everything he wanted, he gets to come back pushing for more, which gives him an opportunity to keep being seen tackling the economy.

SHIELDS: Jon Corzine, speaker Denny Hastert kind of let the cat out of the bag when he said to "The National Journal" that this could end up being a trillion dollar bill because this stuff is extendible. It's not 350 we're talking about.

CORZINE: It certainly isn't. This is a charade in accounting, in the sense that with all these extenders, sunsets, if all of this were matched to a 10-year time frame, if all of them existed for 10 years like we're supposed to account for them, it would be Dennis Hastert's $1 trillion, if not more, because there's all kinds of tax sheltering opportunities buried in it. This is going to be a golden age for tax shelters.

O'BEIRNE: Senator, even better. Better than I thought.

CORZINE: Well, (UNINTELLIGIBLE), tax shelters, I think that's a hard one to tell to the American people, that we're creating more loopholes in the tax (UNINTELLIGIBLE).

ROBERT NOVAK, CAPITAL GANG: This...

SHIELDS: Bob Novak.

NOVAK: This, this tax estimating is ridiculous, it's -- Al and I were old "Wall Street Journal" reporters on the tax beat. It was ridiculous then, it's ridiculous now. And you can't have it both ways, Jon. You can't say that, boy, this is going to be sunsetted, it's just a short-term thing, and on the other hand, if you extend it out, it's a trillion dollars.

But as a matter of fact, we know it's going to be extended out if there's a Republican Congress. And the question is, how do you know whether this is good for the economy? I'm sure it will be. But that isn't the question.

Any time you can reduce these horrible, insane, vicious taxes on investment it's a good thing, whether it's good for the economy or not.

SHIELDS: Boy, oh, boy, that just (UNINTELLIGIBLE)...

O'BEIRNE: (UNINTELLIGIBLE) sum it up, Al.

SHIELDS: ... (UNINTELLIGIBLE). Al?

AL HUNT, CAPITAL GANG: This is an Enron bill. It is totally, totally fraudulent. Course it's going to be extended. The key vote was George Voinovich of Ohio, who said, Boy, I'm for fiscal discipline. Next time I negotiate a mortgage, I want to negotiate it with George Voinovich. He's the Neville Chamberlain in the fiscal hawks.

SHIELDS: Ooh!

HUNT: The guy just caved.

It's a big political victory for George Bush, Kate, you're absolutely right about that. And if it works in the short term, and it provides jobs, we get 2.5, 3 million jobs, this administration starts to emulate the Clinton economic record, then it will be a boon for him politically. If not, I don't know who he's going to blame.

Economically long term, it's a disaster. It's going to exacerbate the income gap between rich and poor, it's going to add to the budget deficit, which causes interest rates to go up, and it's going to mean less money for Medicare, Social Security, and prescription drugs. That's a given.

SHIELDS: Let me just remind my panel, my colleagues here, of Herb Stein, one of my very favorite Republicans, who was chairman...

NOVAK: Not one of my favorite Republicans.

SHIELDS: ... chairman Richard Nixon's Council of Economic Advisers, who said once, We either have to get rid of the federal deficit or get rid of the notion of getting rid of the federal deficit. Have Republicans given up on the idea of the federal deficit?

CORZINE: They absolutely have. We just -- the same day we're passing this Enron-like tax cut, we are doing increases in our federal deficit by $984 billion. By the way, we did the $99.09, 95 cents, so we stayed under a trillion dollars. The fact is, we are going to lay on every single American 3,500 additional debt...

NOVAK: (UNINTELLIGIBLE) it's...

CORZINE: ... in the next year.

NOVAK: ... it's -- in a $4 trillion economy, you know what you -- what I call that? Peanuts. Peanuts. I wish I had some pop, some peanuts to put on the table.

O'BEIRNE: It could also be...

(CROSSTALK)

O'BEIRNE: ... it'll also be far worse if the Democrats were able to get all the spending programs they want. There's no plan on the part of the Democrats to reduce government, thereby reduce the deficit. And what the Republicans are arguing is, this tax cut will boost growth, with actually increases revenues and has a better chance of reducing the deficit than anything the Democrats have ever come up with.

HUNT: Well, that will be offset by whatever happens in the states, because the states are basically bankrupt right now. But I want to ask Jon Corzine, as the only person on this panel who's ever created jobs and added value...

NOVAK: Well, I've created jobs.

HUNT: ... the only person on this panel who...

(CROSSTALK)

NOVAK: (UNINTELLIGIBLE), what do you mean?

HUNT: ... (UNINTELLIGIBLE) -- the only -- I mean, I love Kathleen and Stephanie (ph), but two versus a couple million...

NOVAK: Three.

HUNT: Three, I'm sorry. Jon, you've actually created jobs. You've created value. Is this bill going to do that?

CORZINE: Taking cash off a balance sheet of a company, which is what dividends do, when you pay them out, they take cash off. There's no way that that is going to create the ability of companies to hire people, invest in plant and equipment, and you might give me some five-year or 10-year reallocation of capital that's going to be better. It does nothing to create jobs. There's no economic analysis that says it's going to be very powerful...

NOVAK: (UNINTELLIGIBLE)...

CORZINE: ... in that area.

NOVAK: Just a, just a...

HUNT: That's good enough for me, Mark.

NOVAK: ... just a, just a (UNINTELLIGIBLE)...

HUNT: Isn't that good enough for you?

NOVAK: Jon, Jon is a liberal Democrat, he's the chairman of the liberal Democratic campaign committee...

O'BEIRNE: (UNINTELLIGIBLE).

NOVAK: That's what I think the name of it is. And so, you know, I'll take that in all stride.

(CROSSTALK)

NOVAK: But I just want to tell you, there were two very impressive performances this week. One was by President Bush. They were ready to argue and go over the holiday and into June, and he said, We going to have this in -- on my desk by Memorial Day. And he got it.

The other was Bill Thomas. Bill Thomas really is a (UNINTELLIGIBLE) -- an elemental force.

O'BEIRNE: Wrong. The second one was Dick Cheney, who sat behind closed doors...

(CROSSTALK)

O'BEIRNE: ... this out, no, no, and I would take Bill Thomas off your list.

SHIELDS: We've had, we've had it, we've had it...

HUNT: Mark, Mark, can we just point out that Jon Corzine was the chairman of Goldman Sachs, not just a liberal Democratic senator (UNINTELLIGIBLE)...

O'BEIRNE: An awful lot of people in his former life in Wall Street...

(CROSSTALK)

O'BEIRNE: ... disagree with (UNINTELLIGIBLE)...

NOVAK: And I'll tell you, I'll tell you something else...

(CROSSTALK)

NOVAK: ... Goldman Sachs, the -- any coincidence between the way Goldman Sachs, rules for Goldman Sachs and the rules for the federal government are purely coincidental.

HUNT: Well, like you're going to teach Warren -- when you teach Warren Buffett about economics, would you add Jon to it (UNINTELLIGIBLE)?

NOVAK: (UNINTELLIGIBLE) class.

(CROSSTALK)

SHIELDS: Let me just make one point. The estimated cost of the combined tax cuts of George W. Bush is more than three times what it would take to make Social Security solvent for the next 75 years.

NOVAK: Oh, that's nonsense.

SHIELDS: It's a matter of choices...

CORZINE: It's a tradeoff.

SHIELDS: ... choices and tradeoffs. And that's...

NOVAK: Karl Marx.

SHIELDS: ... (UNINTELLIGIBLE) the first segment. Groucho Marx. Harpo, (UNINTELLIGIBLE), Harpo Marx, for God's sake, (UNINTELLIGIBLE).

Jon Corzine and THE GANG will be back as we ask why the U.S. is back on high alert against terrorism.

(COMMERCIAL BREAK)

SHIELDS: Welcome back.

As America prepared for Memorial Day weekend, Homeland Security officials returned the country to orange, that is, high alert.

(BEGIN VIDEO CLIP)

ASA HUTCHINSON, UNDERSECRETARY OF HOMELAND SECURITY: For all Americans, we recommend that you continue with your plans for work or leisure. The purpose of this announcement, of course, is to alert our law enforcement community primarily, and then secondly to advise the American public of this increased alert level...

(END VIDEO CLIP)

SHIELDS: The move was prompted by terrorist attacks in Saudi Arabia and Morocco.

(BEGIN VIDEO CLIP)

ROBERT MUELLER, DIRECTOR, FBI: The reports that we received indicated that those two attacks overseas might be a prelude to an attack in the United States, but we have no specificity as to targets or specific time...

(END VIDEO CLIP)

SHIELDS: Bob, why, if President Bush says the terrorists are clearly on the run, this raising the alert right now?

NOVAK: Well, I think they've been on the run ever since they were cleared out of Afghanistan. But I, frankly, have never quite understood this whole alert business. I think this particular alert, like most of them, was not done on intelligence information, it's done on external events, this time the attacks in Saudi Arabia and Morocco, which was admitted by federal FBI director Mueller.

They had no specific targets. Whether this is enough to tell the local law enforcement agencies they got to spend a lot more money to guard installations or not, I don't know. But putting it out to the public and worrying people, and I know people who've canceled trips, who are terrified that they're going to catch their lunch this weekend.

I have some doubt whether this is a good public policy or not.

SHIELDS: Good public policy, Al Hunt?

HUNT: You know, I empathize with them. I think it's very hard. I don't know if this is terrorism's last gasp, or it's an escalating danger. And I don't disagree with Bob. On the other hand, if they don't say something, and something bad happens, then they're going to pay a price for it. The other thing I must say is, I have had -- argued with Robert Novak about foreign policy for a number of years on this show. I basically believe in a more activist, a more muscular foreign policy. But when you look at where all we have troops now...

(CROSSTALK)

HUNT: ... we have troops now in Iraq, in Afghanistan, in Philippines, in Colombia, in Georgia, and now East Africa, boy, I'm worried about us...

NOVAK: (UNINTELLIGIBLE)?

HUNT: ... getting overextended. I did, (UNINTELLIGIBLE).

NOVAK: (UNINTELLIGIBLE).

SHIELDS: Overextended?

HUNT: Yes.

SHIELDS: Jon Corzine, as you look at this, it's one more added burden, in all fairness, to the states...

CORZINE: (UNINTELLIGIBLE).

SHIELDS: ... that are really hurting, aren't they?

CORZINE: First of all, I think it's good public policy. I think that you need to make sure that people are aware that there are risks. And it really does put local law enforcement and our state first responders on call. I think that's good.

What's not good is that we don't invest in allowing them to do their jobs in a first-rate basis. And I think it's a big mistake that the administration hasn't gotten behind real support for homeland defense in putting our money where our mouth is in this process.

In other words, you know, it costs, I don't know, what is it, $5 or $6 million a week for the city of New York, that's already running a $3.5 billion budget deficit. It costs about $500,000 in the state of New Jersey.

This is a real problem for state and local governments. And I think we ought to come back and actually invest in protecting the American people, not just scaring them with these raises...

SHIELDS: Kate, Kate...

CORZINE: ... in alerts.

SHIELDS: ... just one question here, and that is, as you look at this, each time there's a warning, people become just a little less...

NOVAK: (UNINTELLIGIBLE). SHIELDS: ... in spite of Bob, yes, a little bit of the boy who cried wolf. I mean, you know, I think the first time we went to orange, there was kind of a (UNINTELLIGIBLE) almost a palpable anxiety and concern. And you can almost feel, in spite of Bob's...

O'BEIRNE: (UNINTELLIGIBLE) little less so...

SHIELDS: ... point about (UNINTELLIGIBLE)...

O'BEIRNE: ... that might not be all bad either, Mark, given that there is so little we can do as individuals. Federal officials believe that the heightened security, the heightened alert, actually has a disruptive effect.

(CROSSTALK)

O'BEIRNE: It's logical...

NOVAK: ... on what?

O'BEIRNE: On possible planning, that it throws -- we have sleeper cells here in the United States, Bob. They're present here. It makes sense post-Iraq that al Qaeda would want to make another strike. I think it's clear that they're on the run and they've been disrupted, that they've only been able to hit soft targets, not here, many -- some of which have been counterproductive, because it's awakened the Indonesia and Morocco to the threat they face.

But Senator Corzine and his Democratic colleagues have to be careful about the kind of complaints and criticisms they level against the president. CBS-"New York Times" poll this week showed 86 percent of the public believes the president's making good progress on the war on terrorism. Who do you trust to fight this war? Fifty-eight percent Republican, 18 percent Democrat. Ouch.

And especially when the Democrats' line of attack is, We have to spend more money, spend more money, spend more money. They're pretty (UNINTELLIGIBLE)...

NOVAK: That's, and that's what, that's what you find with, with the Democrat. Let me just make two quick points. I don't really know whether making (UNINTELLIGIBLE) in police departments spend more money because of these alerts makes it safer.

The other thing was, I live in the inner city, and I was on the way to dinner last night, and I saw a suspicious-looking guy. You know, I'm thinking, We're supposed to -- I'm supposed to call the FBI? He was kind of lurching around the street. What am I supposed to do? What -- how are you supposed to (UNINTELLIGIBLE) alert, Jon?

SHIELDS: Jon Corzine, you've heard Bob Novak's born-in-a-log- cabin, ghetto-kid story. We've heard it before. Probably your first time hearing it. It's -- how do you answer that?

CORZINE: Well, I don't think that the issue of Democrats not standing on homeland defense or that we are somehow fighting or resisting the president. I'm more interested in what Kate said, because the fact is that homeland security initiatives were invented by Joe Lieberman, and we're...

O'BEIRNE: They were blocked, and then blocked by his colleagues.

CORZINE: ... (UNINTELLIGIBLE) -- They were not blocked by his colleagues. We supported it all the way. And all we're saying is, make sure that we give the resources so that we can protect the American people.

I think that's more important than the issue of whether we're looking around the corner at...

O'BEIRNE: If you (UNINTELLIGIBLE), if you got to move...

CORZINE: ... some suspicious dude.

O'BEIRNE: ... move to a better neighborhood, Bob.

SHIELDS: Yes, and so what you've said is that what Bob said was less interesting, less important.

That's the last word, Jon Corzine.

Next on CAPITAL GANG...

(CROSSTALK)

SHIELDS: ... is there a Bush administration jail break?

(COMMERCIAL BREAK)

SHIELDS: Welcome back.

White House press secretary Ari Fleischer announced his resignation.

(BEGIN VIDEO CLIP)

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: I believe deeply in President Bush, the man and his policies, but it is my time to go.

(END VIDEO CLIP)

SHIELDS: Soon thereafter, Christine Todd Whitman quit as environmental protection administrator.

(BEGIN VIDEO CLIP)

CHRISTINE TODD WHITMAN, ENVIRONMENTAL PROTECTION ADMINISTRATOR: I'm not leaving because of clashes with the administration. In fact, I haven't had any.

Now is really the time, if you don't go now, you need -- you owe the president to stay through the reelection...

(END VIDEO CLIP)

SHIELDS: Al Hunt, are they really leaving only because they don't want to be stuck for the entire reelection campaign?

HUNT: Mark, there are only two people in this administration who would merit a headline if they left, Karl Rove and Colin Powell. Ari Fleischer, actually, I thought was perfect for this White House, which is the most secretive, tightly controlled White House in our memory. Some press secretaries are conflicted about their role with the president versus their role with the public's right to know and the press.

Ari never had any conflicts.

As for poor Christie Whitman, trying to create an environmental policy in this administration is like being a pacifist in the Pentagon.

SHIELDS: Boy. Was she the Bertrand Russell of...

NOVAK: (UNINTELLIGIBLE)...

SHIELDS: (UNINTELLIGIBLE).

NOVAK: ... being the EPA director in the -- in a Republican administration's a tough job. The problem is that Republican presidents keep naming environmentalists to the job. I wouldn't do that. I'd name an investor list. And right now, I have a candidate, Josephine...

SHIELDS: Who's that?

NOVAK: ... Cooper, the chief lobbyist for the auto industry, John Dingell, Congressman John Dingell, Democrat of Detroit, is pushing her. She'd be really good.

As for press secretary, I think the job is really exploded all out of proportion, (UNINTELLIGIBLE) policy, giving policy questions on economics and foreign policy. I remember when I first came here, they used to tell you what time the president left the next morning, and that was, that was about it.

And with Scott McClellen coming in, nobody knows him, maybe he could -- we can whittle that job down so he doesn't have to make all these tremendous pronouncements that Ari was forced to make.

SHIELDS: Kate, any political significance here?

O'BEIRNE: No, Mark, I think it's as both individuals stated. This is an opportunity now, as they're heading into election season. Otherwise I think you are committed to stay for the election.

Look, all of the media, myself included, were frustrated at this virtually leakproof White House. And some of that frustration's taken out on Ari Fleischer, who I think did a splendid job for the president. He showed a disciplined loyalty to the president, which I know the president appreciates.

And the president liked the fact that Ari Fleischer was tight- lipped. And he doesn't seem to have paid any price with the public for treating the press that way.

SHIELDS: Jon Corzine, your home state of New Jersey, Christine Todd Whitman was the governor. The old line about in the land of the blind man, the one-eyed man is king, she was the green person in this Bush administration, not noted for its concern for...

CORZINE: Is that when she was reviewing the arsenic in the water and...

SHIELDS: Yes, I think the arsenic in the water...

CORZINE: ... (UNINTELLIGIBLE)...

SHIELDS: ... was probably an...

CORZINE: ... (UNINTELLIGIBLE)...

SHIELDS: ... unfortunate moment. But, I mean, was it just...

CORZINE: When we reversed the...

SHIELDS: ... a bad (UNINTELLIGIBLE)...

CORZINE: ... Clean Air Act and the drift...

SHIELDS: Well, was it, was it a bad, was it a bad...

CORZINE: ... of pollution from the Midwest...

SHIELDS: ... marriage from the beginning?

CORZINE: I think it was a bad marriage from the beginning. I think she was in a very tough position, and I would not want to be there.

I think actually we ought to be talking about the 2 million jobs that have been lost, not the two that have been lost in Washington, because that, I think, is really the issue that is most singeing to me, and I think that we ought to figure out how that gets fixed. And I don't think this administration's off to a good start on that.

And I think it'll be good to see somebody else other than Ari Fleischer talk about that.

O'BEIRNE: If you want to see job loss, of course, all you have to do is implement some of the job-crippling environmental regulations that the green lobby would want to see.

You know what? The problem, of course, I agree with Bob, putting these moderate and liberal Republicans in jobs like the EPA, even the most defensible positions of the administration's on the environment are not defended by their candidates. NOVAK: See, I think...

HUNT: Mark, Mark, weren't those...

SHIELDS: (UNINTELLIGIBLE).

HUNT: ... onerous Clinton environmental regulations job-killers in the '90s? Weren't they?

SHIELDS: You know, they really did...

(CROSSTALK)

HUNT: Would you tell me about how bad they were, Mark?

SHIELDS: Well, I think since George W. Bush was president, we've lost 71,000 votes -- jobs every single week. Every single week since he's been in the White House.

NOVAK: (UNINTELLIGIBLE)...

SHIELDS: Now, I don't know (UNINTELLIGIBLE) I guess we would just end all environmental regulations...

NOVAK: There is, there is...

(CROSSTALK)

HUNT: ... did we lose jobs under Bill Clinton, Bob?

NOVAK: There, there is...

SHIELDS: There were 22.9 million jobs in eight years.

(CROSSTALK)

NOVAK: Can I, can I get a word in, please...

SHIELDS: I want you to.

NOVAK: ... between this cacophony? There's a...

SHIELDS: I want you to.

NOVAK: ... there, there, there is, yes, Virginia, there is a business cycle. And I'm interested that Jon Corzine, who's got this tremendous responsibility of electing a Democratic Senate, all -- he doesn't even want to talk about anything except, it's the economy, stupid. And because the Democrats now, as a matter of political reporting, you're a good political reporter, Al, all they can think about, and I hope you're not aiding and abetting them...

HUNT: (UNINTELLIGIBLE), try not to.

NOVAK: ... is, is an economic collapse that, that there's -- that if there's not an economic collapse, they are dead in 2004... (CROSSTALK)

CORZINE: ... collapse of the dollar, the collapse of our budget surpluses into...

NOVAK: I'll tell you, I'll you what...

CORZINE: ... $7 trillion (UNINTELLIGIBLE)...

NOVAK: ... (UNINTELLIGIBLE), I'll tell you what an economic collapse is...

CORZINE: ... (UNINTELLIGIBLE)...

(CROSSTALK)

SHIELDS: I think it's time Republicans faced up to the wisdom and the candor of John B. Anderson in the 1980...

NOVAK: Oh!

O'BEIRNE: Oh!

SHIELDS: ... as a candidate for president, said, How do you cut taxes, double the defense budget, and balance the budget? You do it, ladies and gentlemen, with mirrors, that's how you do it. And it's -- 23 years later...

NOVAK: (UNINTELLIGIBLE), American people really latched onto (UNINTELLIGIBLE)...

SHIELDS: Twenty-three years later, (UNINTELLIGIBLE), a man who speaks the truth...

NOVAK: Yes.

SHIELDS: ... let's keep one foot in the stirrup around here.

Jon Corzine, thank you so much for being here. Have a great Memorial Day weekend.

Coming up in the second half of CAPITAL GANG, our "Newsmaker of the Week" is Mitch Daniels, who is leaving -- another one -- as federal budget director. "Beyond the Beltway" looks at life in postwar Iraq with CNN's Baghdad bureau chief Jane Arraf. And our "Outrages of the Week." That's all after the latest news headlines.

(COMMERCIAL AND NEWS BREAK)

ANNOUNCER: From Washington, THE CAPITAL GANG.

SHIELDS: Welcome back to the second half of CAPITAL GANG.

I'm Mark Shields with Al Hunt, Bob Novak, and Kate O'Beirne.

Our "Newsmaker of the Week" is Mitch Daniels, who's resigning as President Bush's budget director.

Mitchell Daniels, Jr., age 54, residence Indianapolis, Indiana, religion Presbyterian.

Bachelor's degree from Princeton University, law school from Georgetown University. Chief of staff to Senator Richard Lugar and political director in President Ronald Reagan's White House.

Senior vice president, Eli Lilly and Company. Named director of the U.S. Office of Management and Budget, January 2001.

Our own Kate O'Beirne sat down with Mitch Daniels earlier this week.

(BEGIN VIDEOTAPE)

O'BEIRNE: Mitch, the federal budget has increased by about 50 percent since 1995. Are Republicans the party of smaller government?

MITCH DANIELS, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET: Republicans are the party of smaller government, limited government. One thing, of course, that government should be limited with -- limited to is the defense of the American people. That's where increased spending, by and large, has come in this administration.

O'BEIRNE: Excluding increases in defense spending and spending occasioned by homeland security demands, other discretionary spending's significantly up. Is it virtually impossible to control that?

DANIELS: No, it is entirely possible. This president has controlled it in several head-on collisions with Congress. But there are some areas in which he came to office pledging to do more. Education is one example. Now, in his case, additional spending demands additional results and accountability, and he achieved that and is now seeking to implement it.

But by and large, in the categories outside the ones we just mentioned, the growth of federal spending has been brought under control. And starting with this year's budget, under tighter control.

O'BEIRNE: Would the deficit be smaller but for the president's tax cut two years ago?

DANIELS: Not in any way you would really notice. We have a deficit today for very, very obvious reasons, and the facts are plain as day, a recession which this president inherited, the popped stock market bubble, which started nine months before he came to office. And then, of course, all the costs and consequences of 9/11 and war on terror.

We would have had a triple-digit deficit last year and this year if there had never been tax relief in 2001.

O'BEIRNE: What part of the president's tax cut bill is most crucial to economic growth? DANIELS: It really is a balanced package, and it's hard to put one too far above the other. I personally believe the acceleration of rates, of lower rates, especially because so many small businesses pay on those rates. But likewise, changing the cost of capital through some reduction in the taxation, the double taxation of dividends, we think, would trigger investment...

O'BEIRNE: You mentioned the president's support for an increase in the budget and role of the federal education department. If you were, say, I don't know, governor of Indiana, would you support Washington, such a role for Washington, in how Indiana educates its kids?

DANIELS: I would certainly support the thrust of that policy, which is to say, Enough! to poor educational performance, to all the excuse-making, to more dollars year upon year with no better results.

O'BEIRNE: What might persuade you to get in that governor's race?

DANIELS: Well, it would have to be the appeal, which I've listened to, of a lot of my fellow citizens at home. It's a little like the job I'm in now. It was the last thing on my mind. I was in business, happily in private life, not in my mind at all to come back to public service. It was never in my mind to run for office of any kind.

But when I get back, I'll make a decision, as by now several hundred people have asked me to do.

O'BEIRNE: President Bush has said that you are the best friend taxpayers have in Washington. Will -- who will be their new best friend?

DANIELS: Well, president Bush is their best friend. And they have friends throughout this administration, and in the majorities in both houses of Congress. There has been tax relief in each of year of this presidency, and when he came to office, President Bush found the highest rates of taxation in postwar history, and virtually in American history.

And that's been curtailed.

(END VIDEOTAPE)

SHIELDS: Kate, if Mr. Daniels came here to limit government, and government spending, wouldn't you have to say that even though we like Mitch, that he's failed?

O'BEIRNE: Mark, given that George Bush didn't claim to be coming to Washington to cut government, I think Mitch Daniels was far tougher on government spending than conservatives have any right to expect. And it was one tough job. He's being very generous to Republicans, far too many of them (UNINTELLIGIBLE) collaborators with the Democrats in increasing spending.

But Hill conservatives, with Mitch Daniels leaving, certainly feel like they're losing an important ally.

SHIELDS: Bob Novak.

NOVAK: He is really hailed among the old bulls of the Republican Party on Capitol Hill, particularly in the House of Representatives, and he's a very nice guy, he's a very smooth political operator. But the peak of the matter is, what that means is, anybody who goes up there wanting to cut pork, to cut spending, is going to make himself unpopular even if he is the most likable, adept politician in the world.

SHIELDS: With the exception of John McCain, notable exception, most Republicans on Capitol Hill are hypocrites when it comes to government spending.

HUNT: I agree, he's an awfully good guy, but fair or not, under his watch, we went from a $5.6 trillion surplus to a deficit that may prove to be just as big.

NOVAK: He did, he did that?

(CROSSTALK)

NOVAK: I didn't know that.

(CROSSTALK)

NOVAK: That's a scoop.

(CROSSTALK)

NOVAK: That's something I didn't understand.

(CROSSTALK)

SHIELDS: ... I'd like to know one thing, I'd like to know one thing...

O'BEIRNE: ... we vote (UNINTELLIGIBLE).

SHIELDS: ... how, when we spend -- the United States spends more than the next 12 countries in the world on national defense combined, at what point do we spend enough?

Coming up on THE CAPITAL GANG, Classic, eight years ago, exactly what was at stake in the tax cut fight?

NOVAK: What's your name, anyway?

(COMMERCIAL BREAK)

SHIELDS: Welcome back.

Eight years ago, just before Memorial Day weekend, the Republican-controlled Senate voted down, better than two to one, a House-passed $350 billion tax cut, with 23 Republican senators voting no. The Senate bill intended to achieve a balanced budget by 2002.

President Bill Clinton said he would balance the budget by 2000 but did not offer a specific plan.

CAPITAL GANG discussed this on May 27, 1995. Our guest was then- Senate Republican whip Trent Lott of Mississippi.

(BEGIN VIDEO CLIP, May 27, 1995)

SHIELDS: Al Hunt, is it true that the president is AWOL in the budget fight?

HUNT: You know, it's worse. He not only is AWOL on the budget, but he lacks the discipline to rhetorically sit on the sidelines. So I guess the worst of all worlds.

NOVAK: The House tax cut may not be the best crafted in the world, but it is better than nothing. And I will tell you this, the soul of the Republican Party is at stake right now. If they do not come up with a tax cut out of this, they are going to be finished.

MARGARET CARLSON, CAPITAL GANG: The Republicans are going to have a fig leaf of a tax cut in that they need that. They've made that promise, they're going to have it. But it is not going to be the House tax cut. It's not going to be. We know that now. That is over. That is done.

SEN. TRENT LOTT (R), MAJORITY WHIP: Almost a unanimous vote of the House Republicans want a significant tax cuts to encourage growth and help families and young people in this country now. And a majority of the Senate Republicans want it. Now, just add that up. We will get a significant tax cut in the final (UNINTELLIGIBLE).

(CROSSTALK)

(END VIDEO CLIP)

SHIELDS: Al Hunt, there was no significant tax cut. Did that end up hurting the Republicans and helping Bill Clinton?

HUNT: I want to apologize to Bill Clinton. The Republicans said in 1995, We need a tax cut to stimulate the economy. Bill Clinton blocked it. Unemployment was 5.6 in 1995...

SHIELDS: Right.

HUNT: ... dropped to 4 percent by 2000. The stock market more than doubled from '95 to 2000 without a tax cut. Since we've had a tax cut, unemployment is now back to 6, and the stock market is down 20 percent. So much for the tax cut panacea.

SHIELDS: Bob, I'll tell you this, it may be the soul of the Republican Party, but it's ad medicine for the body politic.

NOVAK: Well, that's ridiculous. If the Republican have done very well as a tax-cutting party and the Democrats have done very badly as a tax-increasing party if we're talking about the body politic.

What's interesting to me is that the -- ended up in that cycle, 1996, with a $20 billion tax cut for 10 years. It was peanuts. It was a disgrace that the first Republican Congress in 40 years, unlike the great 80th Congress of 1949, 1947, '48, they didn't pass a tax cut. And that was absolutely disgraceful. And I would say that only -- that the only -- we want to be proud that we don't have a situation today where 20 Republican senators would vote against tax cuts.

SHIELDS: Kate O'Beirne.

O'BEIRNE: You saw the same thing this year, though, as you well know, Bob, liberal Republicans in the Senate blocked it then, just as they...

NOVAK: Not as many.

O'BEIRNE: ... just -- true -- but just as they blocked the size of the tax cut this time. I'm reminded of how much Bill Clinton was helped by the Republican takeover of Congress. He had been busy raising taxes and spending, and under pressure from Republican Congress, he was able to reposition himself as a tax trimmer and a budget balancer.

And that helped him politically.

SHIELDS: You know, it's interesting, he had that balanced budget achieved, and the Republicans said, Alan Greenspan deserves credit, Bill Gates deserves credit, and the Republican Congress deserves credit.

Well, all I can say is, we still have Alan Greenspan, we still have a Republican Congress, we still have Bill Gates. The only thing missing is Bill Clinton. And the economy, Al Hunt pointed out, it ain't good.

NOVAK: That's a (UNINTELLIGIBLE)...

SHIELDS: Next on CAPITAL GANG...

NOVAK: ... that's a great spin...

(CROSSTALK)

SHIELDS: ... Beyond the Belt -- I'm sorry?

HUNT: You miss that Clinton.

SHIELDS: (UNINTELLIGIBLE). Next on CAPITAL GANG, Beyond the Beltway, is Iraq in chaos?

(COMMERCIAL BREAK)

SHIELDS: Welcome back.

U.S. administrator Paul Bremer announced that Iraq could not begin the process of selecting its own government until July at the earliest but was upbeat about progress in Baghdad under the United States occupation.

(BEGIN VIDEO CLIP)

PAUL BREMER, CHIEF CIVILIAN ADMINISTRATOR: It's very important for people to realize this city is not an entity...

We are making progress in getting basic services back to the Iraqi people. And we are, I find when I go around and talk to people on the streets, that people are generally grateful for what we've done.

(END VIDEO CLIP)

SHIELDS: Joining us now from Baghdad is Jane Arraf, CNN's Baghdad bureau chief.

Jane, do you find the same gratitude among Iraqi citizens that Mr. Bremer disclosed?

JANE ARRAF, CNN BAGHDAD BUREAU CHIEF: Mark, you know, I think people here were really grateful when the American troops rolled in, but that may be wearing a little bit thin. You know, one of the most interesting things I've heard, I was in a line for cooking gas, just talking to people there who had been waiting for hours, cooking fuel that they need to make bread.

And one woman said to me, We wanted democracy, but we've changed our minds. Now what we want is our fill of bread, and for the Americans to leave.

And you kind of hear that a lot, that what people want is electricity, they want safety in the streets, the safety that they had, in an ironic sense, under Saddam Hussein. And they're not too bothered about the rest of it. It's hard to tell whether they really mean it when they say they would prefer to be under Saddam, which we hear a lot of.

But it is a sentiment you do hear now that things are so troubled still in Baghdad, Mark.

SHIELDS: Bob Novak.

NOVAK: Jane, when I went to Baghdad years ago to report there, the one thing I found, it was a very safe city under Saddam Hussein. He was a brutal tyrant, but there was no crime in the streets. When you say they want safety, is there, is there crime? Is it difficult to be loose on the streets of Baghdad right now?

ARRAF: It's a little bit like it was in 1991 in that it's a society that to some extent has come apart at the seams. There's a vacuum of almost everything, including law and order. And that's the one thing I suppose that is so basic, it just hits upon the most basic needs of people. There is a lot of crime. Just very close to here, a few nights ago, there were two people gunned down in a carjacking, and their bodies were left till morning, with people walking by them. That would have been unheard-of, as you say. At least the thing about Saddam Hussein and his regime was that most of the violence came from them. There really wasn't such a (audio interrupt) most of the years of that regime.

Now, there are carjackings, there are murders, there's shootings in the streets. It seems to be improving a little bit. The Americans, the American military officials say it's getting better every day. But still a lot of people here go to bed afraid every night. They go to bed at night in the dark, because there's no electricity, hearing gunshots, and they're genuinely afraid.

SHIELDS: Kate O'Beirne.

O'BEIRNE: Jane, is there a genuine worry on the part of the Iraqi people that they might not have seen the last of Saddam Hussein, given that his fate is unknown?

ARRAF: Absolutely, Kate. It's really hard to underestimate the grip that he has on this country. I mean, we know what a grip he had on the country in general, but on the level of psychology of the people, this was someone that they lived with in a sense and feared almost every day of their lives, many Iraqis.

And they really will not believe he's gone until they see a body. Some people here genuinely believe that he had supernatural powers to begin with, otherwise how could he have stayed in power so long? They won't believe he's dead unless they see that body. And even then, a lot of people won't believe it.

And it is a problem. It means that people are not getting over the regime. They're still afraid of Ba'athists coming back. And that's another problem. The administration, the interim administration here says they want to eradicate every trace of the Ba'ath Party and of the Saddam Hussein regime, but there are many people here who say there were good things to the Ba'ath Party.

And it's just not going to happen, to be able to get rid of that completely and forever, Kate.

SHIELDS: Al Hunt.

HUNT: Jane, over the course of the next year, are we going to be able to reduce significantly American forces in Iraq? Or if we want to make it a calmer, less problem-ridden country, are we going to have to increase the number of forces in Iraq?

ARRAF: Certainly in the short term, they are looking at increasing them. You really have to, especially here. Now, officials say that most of the south and the center of Baghdad -- sorry, the south and the center of Iraq, apart from Baghdad, is considered safe enough now, for instance, that the U.N. can drive aid convoys through there without military patrols. In Baghdad, it's still quite tenuous, and there are places like Kirkuk in the north where things are unsettled. There are trouble spots still.

Now, they're bringing more American military presence into the capital because really there is a vacuum here. So in the short term, there are going to have to be more troops. In the longer term, certainly the aim is to decrease those troops, because the longer they stay, the longer a certain significant percentage of the Iraqi population will begin to resent them and feel that they are being occupied on an indefinite basis, rather than being liberated.

SHIELDS: Jane, we're down to our last minute, but I wanted to ask you, even Republican supporters of the administration acknowledge that the White House and the administration itself did not prepare the United States people for a long stay there. How long a window of opportunity remains before the -- to restore chaos and some sense of order and maybe even democracy before the United States loses the peace?

ARRAF: Well, restoring chaos and some sense of law and order in the near term, that's beginning to happen. We're beginning to see it. Really, it requires those very specific steps. They're happening perhaps a little more slowly than people thought. A police force is coming in shape.

The Iraqi army just today was dissolved by the order of the American provisional government, the coalition. It will take a while to get an Iraqi army to replace it, a while to get those people who are unemployed, who have guns, who have nothing to do, back at work. That's going to take a bit of time.

But what really is going to take the most time is that idea of democracy. We've already seen this conference that was to lead to some form of initial interim government, an Iraqi government, set back by a couple of months. It's just not an easy process. I think you're absolutely right that the U.S. was not prepared for this, the U.S. people weren't prepared for it.

And perhaps Iraqis weren't prepared for exactly how difficult and how complex this will be, rebuilding a country.

SHIELDS: Jane Arraf, thank you so much for being with us.

THE GANG will be back with the "Outrages of the Week."

(COMMERCIAL BREAK)

SHIELDS: Now for the "Outrage of the Week."

Where is House majority leader Tom DeLay when the Second Amendment, the right to bear arms, is under threat from the United States government?

After Tom DeLay announced that the Republican House would allow the federal ban on assault weapons to expire in the United States next year, federal authorities in Baghdad, U.S. authorities, began confiscating automatic weapons from law-abiding Iraqi citizens.

Now, where is the conservative outrage? With Republicans in total control of Washington, can the right to own and operate an AK-47 to hunt down Bambi be abridged that easily?

Bob Novak.

NOVAK: Disgraced "New York Times" reporter Jayson Blair lashed back at the newspaper's editors who hired, promoted, and protected him. In an interview with "The New York Observer," he taunted his former bosses as idiots who couldn't even detect his lies and evasions. And he played the race card, saying that his diversity- conscious liberal superiors at "The Times" actually are racist.

The biggest outrage, his plans to cash in on his disgrace by writing a book about it. Is a movie next?

SHIELDS: Kate O'Beirne.

O'BEIRNE: U.N. officials now admit that they allowed Saddam Hussein's regime to steal $2 to $3 billion from the so-called oil for food program it so-called managed. The program was intended to provide medicine and food to the Iraqi people from the sale of its oil. But the Security Council permitted Iraq to dictate what crooked companies would buy from it and kick back bribes.

That would be the same Security Council that wants a big role in running the liberated Iraq.

SHIELDS: Al Hunt.

HUNT: Mark, last week we found that important federal resources, including the Homeland Security Agency, were devoted not to tracking terrorists but to finding Democratic Texas legislators who were resisting a Republican redistricting plan.

Two new discoveries this week. House Republican leader Tom DeLay, after denying complicity, was forced to admit his office called the Justice Department to get them on this case. And the Texas Department of Public Safety was ordered to destroy all records of this illicit activity.

When people start lying and destroying records, what are they trying to cover up, Mark?

SHIELDS: Good question, Al.

This is Mark Shields saying goodbye for THE CAPITAL GANG.

Coming up next, "CNN PRESENTS: Devil Docs." At 9:00 P.M., "LARRY KING WEEKEND," with Robert Kennedy, Jr. And at 10:00, the latest news on CNN.

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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