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CNN CAPITAL GANG

Bernard Kerik withdraws as homeland security secretary nominee/Soldiers headed to Iraq ask Secretary Rumsfeld why their vehicles aren't armored/Intelligence reform bill passes in the Senate and House

Aired December 11, 2004 - 19:00   ET

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


ANNOUNCER: Live from Washington, THE CAPITAL GANG.
MARK SHIELDS, HOST: Welcome to THE CAPITAL GANG. I'm Mark Shields, with Al Hunt, Robert Novak and Margaret Carlson. Our guest is Republican senator George Allen of Virginia.

It's good to have you back, George.

SEN. GEORGE ALLEN (R), VIRGINIA: It's good to be with you all.

SHIELDS: Thank you.

Former New York City police commissioner Bernard Kerik suddenly withdrew last night as President Bush's nominee to be secretary of homeland security.

(BEGIN VIDEO CLIP)

BERNARD KERIK, FORMER HOMELAND SECURITY SECRETARY DESIGNEE: I became aware of what I thought may be a problem in some tax filings on a housekeeper and nanny that I had working for us in my home. This is my responsibility. It was my mistake. It wasn't a mistake made by the White House.

(END VIDEO CLIP)

SHIELDS: Earlier in the week, President Bush ended 10 days of suspense by retaining John Snow to be secretary of the treasury. He then nominated treasury deputy secretary Samuel Bodman to be secretary of energy and ambassador to the Vatican Jim Nicholson to be secretary of veterans affairs.

Margaret Carlson, was the Kerik nomination a major blunder, or is he a victim of the system, another victim of the system.

MARGARET CARLSON, CAPITAL GANG: Another victim. On a couple of fronts, it was a blunder. Listen, he wasn't a good candidate, and the nanny is the least of it. At about 6:00 o'clock last night, "Newsweek" discovered that there was an arrest warrant in New Jersey, and at 8:30, Kerik withdrew his nomination. He wasn't good on homeland security. He'd gone to train the troops, and three months were up, he said, Oh, I need a vacation. And we know how the troops have been trained. When he was with the police department, he misused homicide detectives, two cops, to write his memoirs. He declared bankruptcy. There's a foundation. They don't know where the money is. He was just a disaster.

Here's the problem with it. It's not Kerik because he'll fade away. Rudy Giuliani's judgment is called into question. And what kind of FBI do we have vetting someone this badly that he got this far?

On John Snow, they literally virtually fired the guy until they realized that you better have somebody coming in. They couldn't find anybody who could add who wanted to be in Bush's cabinet and be treasury secretary. So then they had to wipe the egg off their faces and keep John Snow.

SHIELDS: Bob Novak, you reported on the Snow thing. That -- I mean, that -- he was hanging painfully, slowly in the wind for 10 days.

BOB NOVAK, CAPITAL GANG: Yes?

SHIELDS: And the speculation was who's going to be his successor.

NOVAK: And you haven't had the president come out and put his arm around him and say...

SHIELDS: Like Don Rumsfeld.

NOVAK: ... This is my guy.

SHIELDS: Yes.

NOVAK: The problem was that a lot of people, some of them in the administration, felt he -- John Snow's a good guy, but he can't be something he isn't. He's not an expert in international affairs. He's not an expert on the Hill. He's not -- doesn't have big authority on Wall Street. He was a -- he was a railroad lobbyist, really, for most of his time, very loyal to the president, pushes his program. But they started looking at people who were just the same as John Snow. They were afraid to put somebody like Phil Gramm in, who would be an independent kind of person. So they said, Hell, if we're going to have a (UNINTELLIGIBLE) John Snow, we might as well have him in. But not putting his arm around him -- I disagree completely with Margaret on Kerik.

SHIELDS: On Bernard Kerik?

NOVAK: I think he was the most interesting guy in the cabinet. He was a good cop. I know you're a police expert, Margaret, know all that kind of stuff. But everybody...

SHIELDS: You've had a lot of run-ins with the police.

NOVAK: Yes, I have.

(LAUGHTER)

NOVAK: I know more about it. Kerik has done a -- Kerik did a good job, and I think that this whole business of the -- I don't think the nanny was the least of his problems, but I think the president -- it's too bad they couldn't stick with him, but apparently, he had a lot of problems.

SHIELDS: Al, it is funny, though, the Nanny thing. We had Linda Chavez, secretary of labor, Zoe Baird, going back, AG. I mean, that was one that kind of dropped out.

AL HUNT, CAPITAL GANG: Well, yes. Mark, look, I don't know about the other problems, but if you don't pay Social Security and Medicare taxes on a regular employee, that's cheating, and that disqualifies you from any government-appointed post. Pure and simple. Anyone, Democrat or Republican. He shouldn't be -- you know, he should have withdrawn.

I want to go to John Snow. Bob, I give you credit. You really captured John Snow in your columns this week. They did have him twisting slowly in the wind. And what the White House has done with this man now is they've totally devalued any currency he has on Capitol Hill, in foreign capitals and on Wall Street at a time that the Bush White House has the most ambitious economic agenda of any president since FDR. The dollar is in a near free-fall. Wall Street -- the Wall Street investment community is getting -- is getting more and more anxious. And they have a guy now who just doesn't have any -- any credibility as a top economic spokesman for this administration.

The Bush gang that was such a well-oiled machine a month ago now looks like the economics gang that can't shoot straight.

SHIELDS: George, come to the rescue here! This Bush White House -- I mean, seriously, you're -- he's getting skewered from all sides here!

ALLEN: All sides. Let me give you my perspective, is all. On Kerik, when one looks at the Department of Homeland Security, it's a lot of different agencies involved. I think he would have brought a great deal of credibility in the interaction with local law enforcement, obviously understanding what homeland security initiatives and how they affect local law enforcement. So he would have been good there.

On the other hand, they also have immigration. And it doesn't hurt -- it doesn't help much in credibility that you have an immigration problem, and that -- that, obviously, is harmful.

John Snow -- John Show is knowledgeable. He is well respected. I think John Snow was an outstanding choice when the president brought him in. I have a great deal of affection and respect for John Snow. He had served in previous administrations. Having been head of CSX, which also had barges and also steamship lines, when it had sea lines, John Snow understands the economy, understands world trade. He is well liked and well respected, and I'm really glad that the president renominated him, so to speak.

I do take issue, though, with allowing that -- that statement from whomever the unnamed source was, to allow any of this question to come up. And John Snow...

CARLSON: But he wasn't -- he wasn't freelancing. That was put out there. And the problem is, there's no one of any stature who wants to come into an administration that is going to require that you be a cheerleader...

NOVAK: And George...

CARLSON: ... for policies that no financial expert's in favor of.

(CROSSTALK)

ALLEN: Well, he was -- he was an outstanding leader and got through the dividend tax cuts, capital gains tax cuts. And I also think when we get to the energy bill, which I think's going to be a vitally important matter to finally get through for our country, John Snow will also be able to weigh in on that issue, as well.

NOVAK: But they lost...

(CROSSTALK)

CARLSON: ... the way they've treated him.

ALLEN: Well, but ultimately, the president says, Here's the man I want on my team, and he's going to stay on that team.

NOVAK: But they've also leaked that they asked two people who said no. That -- that kind of hurts...

(CROSSTALK)

ALLEN: ... not with me.

HUNT: George, he's a good guy, but he doesn't have the stature of George Shultz, Jim Baker or Bob Rubin. And you know that as well as I do.

ALLEN: I like his views a whole lot better than Bob Rubin's.

NOVAK: I do, too. I'm...

(CROSSTALK)

HUNT: ... best treasury secretary since Alexander Hamilton. Go ahead, Mark.

SHIELDS: Since Alexander Hamilton? I don't know. Fish (ph) was good. Last word, Al Hunt.

(CROSSTALK)

SHIELDS: George Allen and THE GANG...

ALLEN: ... good hunter. SHIELDS: ... will be back with Rumsfeld on the grill.

(COMMERCIAL BREAK)

SHIELDS: Welcome back. In Kuwait, secretary of defense Donald Rumsfeld took questions from U.S. soldiers about to head to Iraq.

(BEGIN VIDEO CLIP)

SPC. THOMAS WILSON, U.S. ARMY: Why do we soldiers have to dig through local landfills for pieces of scrap metal and compromised ballistic glass to up-armor our vehicles? And why don't we have those resources readily available to us?

DONALD RUMSFELD, DEFENSE SECRETARY: You go to war with the army you have, not the army you might want or wish to have at a later time. If you think about it, you can have all the armor in the world on a tank and a tank can be blown up.

(END VIDEO CLIP)

SHIELDS: That exchange produced reassurances from President Bush and Democratic calls for Secretary Rumsfeld's removal.

(BEGIN VIDEO CLIP)

GEORGE WALKER BUSH, PRESIDENT OF THE UNITED STATES: The concerns expressed are being addressed. If I were a soldier overseas wanting to defend my country, I'd want to ask the secretary of defense the same question.

REP. NANCY PELOSI (D-CA), MINORITY LEADER: Secretary Rumsfeld has still not done what is necessary. No CEO in America would retain a manager with so clear a record of failure, and neither should President Bush.

(END VIDEO CLIP)

SHIELDS: Earlier, "The New York Times" reported the appraisal of the situation in Iraq by the CIA's Baghdad station chief. Quote, "It warned that the security situation was likely to get worse, including more violence and sectarian clashes, unless there were marked improvements soon on the part of the Iraqi government in terms of its ability to assert authority and build the economy," end quote.

Bob Novak, did an ordinary soldier's question bring into the open a major failing in the way this war is being fought in Iraq?

NOVAK: I don't believe that this war is going to hinge on how much armor there is on trucks, that -- it's something that the media seized on. A couple of things. As we all know, the soldier's question was prompted by a reporter. He fed it to him, an embedded reporter. That's OK. I don't think that's unethical, but it's a fact of life.

Secondly, this is -- these are reservists. Reservists are not happy. The Tennessee reservists, they're not happy being there. I don't think you'd get that kind of a reaction from the regulars.

And finally, the -- Don Rumsfeld has a tin ear politically. He's a very smart guy, but the reason he always wanted to be president but could never even get up to the starting line is he says things like -- he says -- yes, those were -- those were politically maladroit comments that he made.

But people who never liked this war, and particularly people in the media, make an enormous fuss over it. This war is not going to be won by the -- by the fact of how much armor you have on a truck going in.

CARLSON: Mark, the war may not hinge on it, but soldiers' lives hinge on it. And Bob, you're always criticizing us when we criticize the president for that being criticism of the troops. Well, the troops have a right to equipment. And Rumsfeld answered that question, a smart question, with a dumb answer, as if he's back in the Pentagon press briefing room, where you can dis reporters all you want. He doesn't need to lecture these guys on what the Army is. They know what the Army is. They are in it.

SHIELDS: George Allen.

ALLEN: The salience of this question is that all of us care about the safety of our troops. During this holiday season, we're grateful for the men and women who are serving us, whether they're in Afghanistan, Iraq or elsewhere, on the seas or lands around the world. And we all care about their safety -- body armor, armored Humvees, bulletproof glass. Those things are all very important. And so all of us want them to have that equipment for their safety when protecting our freedoms. And so that's why I think that was an issue that everyone could understand. It wasn't a tactical issue or some technology that folks didn't understand.

The key to it all is the reaction of all us, as let's make sure they do have it. This was a salient issue in the campaign, how John Kerry voted against body armor for the troops. And we want them to have that best equipment. And I think you're going to find bipartisan support. As much as people try to make this into a political issue, we want to make sure our troops have the best equipment, the best armaments for their safety.

SHIELDS: George, that's a great point, but after Pearl Harbor, this country produced 350,000 airplanes in the first year. We produced a quarter of a million tanks. We are now producing 450 a month Humvees that are armored. Over half the American casualties, wounded and dead, come from improvised explosive devices. They could be turned off with a radio scanner that every congressman has when he goes over there. His party does. He's in an armored vehicle. He's got an armored vehicle behind him and in front of him -- fully armored. And yet our own soldiers don't have those radio scanners. They cost $10,000. And they are -- they're riding over -- half of them are riding in unarmored trucks and vehicles.

Al Hunt? HUNT: Well, I want to go to the broader point. I think when you preach to your kids about personal responsibility and accountability, the poster child for what not to be is Donald Rumsfeld, the ill- designed to eliminate two Army divisions back before 9/11, the catastrophic post-Saddam planning in Iraq, Abu Ghraib and now ill- equipped fighting forces. Not my fault, says Don Rumsfeld. You go to -- you go to war with the army you have, which may not be the army you want. This was a war of choice. And if he went to war with the army he didn't necessarily want, he ought to be fired for that. And then he didn't tell those troops the truth about the equipment when he said, This is a matter of physics, not money. You know, it's tough to get this stuff. Bloomberg News Service, which I'm happy to say, went to the president of the sole supplier of those -- of those protective devices, George, and he said, you know, the minute the Pentagon let -- you know, lets us know we can start, in a couple months, we can increase that production by 22 percent.

ALLEN: Well, actually, the company in northern Virginia that is making the bulletproof glass getting letters from soldiers saying, This bulletproof glass, which was put in, which is better glass than what they had, has saved lives. And so look, do you actually think that Secretary Rumsfeld, the president or anybody really doesn't want to make sure...

(CROSSTALK)

HUNT: I think the planning for this -- the post-Saddam...

(CROSSTALK)

HUNT: It's a year-and-a-half after the invasion. We shouldn't be having these debates. You said it was debated in the 2004 election. It was debated in the 2000 election...

NOVAK: Al, nobody...

HUNT: ... when George Bush...

NOVAK: Nobody comes -- nobody is driven into the combat zone in an unarmored vehicle. The unarmored vehicles are put on -- on armored trucks. There's a lot of -- there's a lot of exaggeration going on.

Let me tell you something about GIs complaining. I was -- I was in the Army. I was not in combat. I was in the Army at the tail end of the Korean war, and I guarantee you, if Secretary of Defense Robert Lovett had ever talked to the troops, they would have been a lot rougher. They wouldn't have given him a standing ovation, as they gave Don Rumsfeld in Kuwait, because they hated Truman. They weren't getting the -- they weren't getting the weapons. They weren't getting the materials. And -- but soldiers from the time of Napoleon, or before, of the Roman empire, always complain! That's the way a soldier's life is!

CARLSON: Well, Mark has told us what this country could do after Pearl Harbor. And Donald Rumsfeld has refused to accept that the insurgency is -- we were not prepared for it, and he's resisted facing up to it. And the convoys are where the trouble is, and they are not armored. And it is not -- it is not happening, Bob. And troops -- these troops are not complaining about something just to be whining.

SHIELDS: I'd just point out the one factor, and that is that 46 percent of the American military personnel in Iraq are reservists and National Guard people.

ALLEN: We're going to have to build up our active military.

SHIELDS: Well, I mean, but -- so I mean, it -- they aren't just...

NOVAK: But there is a difference!

(CROSSTALK)

NOVAK: There is a difference between them, their attitude toward being there and how -- how...

CARLSON: And getting their...

(CROSSTALK)

CARLSON: And getting their limbs shot off.

SHIELDS: You talk to people who are still there on stop-loss orders, and you won't get much difference.

CARLSON: Yes.

SHIELDS: Next on CAPITAL GANG: Does the intelligence reform bill make -- really make America safer?

(COMMERCIAL BREAK)

SHIELDS: Welcome back. The intelligence reform bill passed Congress with big bipartisan majorities in both houses.

(BEGIN VIDEO CLIP)

BUSH: It is a necessary piece of legislation. It's a piece of legislation that is important for the security of our country.

SEN. JOE LIEBERMAN (D), Connecticut: To keep the status quo going is to invite the kind of failure that will bring about more attacks. We can't accept that. We've given some tough new powers to this national intelligence director.

(END VIDEO CLIP)

SHIELDS: But the reform bill also drew serious criticism.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), ARIZONA: The dirty little secret of this whole issue of intelligence reform is congressional oversight, which is a vital aspect of any reform, has been completely ignored.

SEN. ROBERT BYRD (D), WEST VIRGINIA: As I say, it's outrageous for senators to read and understand this 600-page bill in less than 24 hours.

REP. JAMES SENSENBRENNER (R-WI), JUDICIARY COMMITTEE: I will introduce legislation on the first day of the 109th Congress, January 4, to place into law the key provisions that were stripped from the conference report on the intelligence bill.

(END VIDEO CLIP)

SHIELDS: Al Hunt, is this reform bill truly a flawed product?

HUNT: Well, first, Mark, Senator Byrd has a point, that we should expect members of Congress to read bills before they become legislation. But that's not the way it works anymore, unfortunately.

I think there are probably good things and bad things about this bill, but the real question now is who is going to be the national intelligence director. Joe Lieberman talks about granting broad new powers to this person, but I'll tell you this much. Our friends at the Pentagon aren't going to willingly cede a lot of powers to that person. And if they want to get someone who is really effective, he or she has got to be tough. They've got to be resourceful, got to be smart, and they got to have the full confidence of the president. And I got to tell you, it doesn't look like there are any such candidates on the list right now.

SHIELDS: What about Bernie Kerik?

(LAUGHTER)

NOVAK: This whole thing, I thought, was a bogus operation. The idea that unless you pass this thing in December and you don't pass it in the spring, we're going to be attacked -- I thought there was a lot of demagoguery by the respected people from the independent commission. I love to find something I agree with Senator Byrd on. It doesn't happen very often. But he's right. I don't even think that Al Hunt read that whole bill.

HUNT: No, I didn't.

NOVAK: And I sure didn't. And none of the members of the Senate did.

HUNT: Only one member at this table has read the whole bill.

(LAUGHTER)

NOVAK: And I give credit -- I think Congressman Sensenbrenner was a big winner here. He's -- they're going to have to do something about protecting -- on the immigration entry next year in the Congress. I think Sensenbrenner's become a national figure, and he's a guy who tells the truth, too.

SHIELDS: On page 437 of that bill, George, I have one question.

(LAUGHTER)

SHIELDS: No. Tell us what you thought.

ALLEN: Look, I think it is an improvement. Key aspects of this bill -- one is getting a director of intelligence, getting all the different sources that you get intelligence from, whether it's CIA, Defense Intelligence, FBI and others -- getting that all coordinated. That's important. The counterterrorism center is important, and that's really an add-on or -- coming off of the terrorism threat integration center, which I thought was the most important part of the effort in creating the Department of Homeland Security and making sure all these agencies are sharing information and also using technology to analyze the volumes of information they get, connect the dots, so to speak.

Now, the key personnel, though, in my view, that we need is not just this individual, but is getting human intelligence. Technology's great. I love it. But we need people to infiltrate these yellow- jacket nests, and they're going to be scoundrels. And we don't have the human intelligence. It's great to have folks that speak French and German, but we need people who can speak Arabic and Farsi and get in there. And they're going to be unsavory individuals, but that's what's key in the future.

And so while this is a step in the right direction, don't look at all the boxes but look at those people who have to be infiltrating, getting us that information. to infiltrate these terrorist cells and organizations around the world.

HUNT: George, give us a couple of names of people who would be good candidates for that important post.

ALLEN: I don't have any for you offhand.

CARLSON: John Snow?

ALLEN: No, I wouldn't say -- John Snow's in the right position. I think it would be helpful to have somebody who understands intelligence. It's -- I think it would be helpful to have somebody who understands...

HUNT: Is there a name or two that comes to mind, though?

ALLEN: I've been looking at the legislation and what needs to be done, as opposed to worrying about the personnel. The president's going to pick this individual...

SHIELDS: OK.

ALLEN: ... and he or she...

SHIELDS: Margaret?

CARLSON: George, did... ALLEN: ... will be...

SHIELDS: Margaret?

ALLEN: ... thoroughly vetted.

CARLSON: Right.

SHIELDS: Margaret, your take on this? Your take on this bill?

CARLSON: You made an important point, which is that, you know, you can't just change the organizational chart and think things are fixed. And that is one of the problems with this intel reform, which is you move the boxes around, put some guy up there, or woman, and you've fixed it.

NOVAK: It's going to be a woman?

CARLSON: We don't even know -- yes. Imagine that, a czar that's a woman, a czar -- an intel czarina. But you know...

ALLEN: And the war fighters are going to have...

CARLSON: Listen...

ALLEN: ... direct access to their satellites.

CARLSON: Right. But what we...

ALLEN: This is an important component.

CARLSON: ... hope is that the Pentagon isn't running intelligence on the next war the way they ran it on the Iraqi war because they were completely and utterly wrong.

SHIELDS: OK, Margaret. I will say this in response to my good friend, Dr. Novak. And that is, in 40 years in Washington, I have never seen a commission have the kind of impact this commission had on its report...

NOVAK: Scared the hell out of them.

SHIELDS: ... and a sense of urgency...

NOVAK: Scared the hell out of them.

SHIELDS: ... and the families...

NOVAK: Demagoguery!

SHIELDS: ... the families just cowed many of the political...

George Allen, thank you very much for being with us. And we wish you a Merry Christmas.

ALLEN: Same to you. SHIELDS: THE GANG -- coming up in the second half of THE CAPITAL GANG, our "Newsmaker of the Week" is House Ways and Means chairman Bill Thomas on President Bush's priorities, reforming the tax code and Social Security. We'll go "Beyond the Beltway" to New York. The attorney general, Eliot Spitzer, trades in his fighting with white- collar crime for a battle to become governor. And our "Outrages of the Week." That's all after these latest messages and a check-up of the hour's top stories. Stay tuned.

(COMMERCIAL BREAK)

(COMMERCIAL BREAK)

(NEWSBREAK)

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

Our newsmaker of the week is Republican Congressman Bill Thomas of California. As Chairman of the House Ways and Mean Committee he has jurisdiction over the domestic programs emphasized by President Bush in his second term, Social Security and tax reform.

Our own Al Hunt sat down with Chairman Thomas earlier this week.

(BEGIN VIDEOTAPE)

HUNT: Chairman Thomas, Social Security or tax reform, which comes first?

REP. BILL THOMAS (R) WAYS AND MEANS CMTE. CHAIR: I don't know that it has to be "or" and I don't know that saying that we're going to do both means one has to come before the other. It's possible in the legislative process to be considering both (UNINTELLIGIBLE).

HUNT: So, you could take them up in the Ways and Means Committee simultaneously?

THOMAS: Virtually simultaneously, yes, because actually if you examine the two issues they tend to complement each other to a certain extent.

HUNT: Well, let's talk about Social Security first. Has the White House told you what specific Social Security proposals in the broad sense that they're going to send up to you?

THOMAS: No, and I don't know that they actually have them yet but they will.

HUNT: Do you have in your own mind essentially what you'd like to see?

THOMAS: I have an idea of what we can do. One of the things that you have to appreciate is that my job is to make law and other people can put out wish lists and they can create ideal models. What I want to do is actually put a significant adjustment to Social Security solving the financial problem over the next 75 years on the president's desk for his signature.

HUNT: And giving individuals the right what's called sometimes partial privatization to be able to take a percentage of that and invest it themselves?

THOMAS: Well, you sometimes call it partial privatization.

HUNT: You don't like that term.

THOMAS: It's not that I don't like it. It's not accurate. It's a pejorative term which is going to make it very difficult for us to come together in a bipartisan way.

HUNT: Whatever we call it, there are going to be transition costs. I think everyone agrees with that, anywhere from $1 billion to $2 billion. How do you pay for that?

THOMAS: Al, you're thinking too narrowly. What you've already done is accepted an end result and assumed that there was only one way to get there. I have some ideas, which don't necessarily require the kind of pain or heavy lifting. They are clearly adjustments in the system but there are a lot of options available to us.

HUNT: When you say that don't involve the pain or heavy lifting that would suggest that you would disagree with our former colleague Senator Lindsey Graham, a big Social Security reform proponent who says, look, we can't finance anything through borrowing. We have to do it with higher taxes in the short term for the longer term gain.

THOMAS: I don't necessarily say that that's what you have to do either and obviously if you're looking at trying to make law you may have to do a combination of things, which allow people to accept on the margin certain things they wouldn't accept if that was the primary way you funded it. We probably need to make adjustments to get back to what the program was supposed to be in the first place.

HUNT: Why do we need tax reform?

THOMAS: We need tax reform because we have a very complicated code and I'll be the first to admit I've help complicate it in the short run. But because we have to constantly compare ourselves to others in the world, what we need to do, everyone is talking about the borrowing we have to do because of the deficit.

We, as a nation, don't save in comparison to most other industrialized countries. We need incentives to save. We need incentives to invest. We've done that partially with the reduction of the tax on dividends and capital gains.

Individuals need money. Consumer demand is what keeps this economy going. They need the cash to do it as well. The government needs revenue to run the system but it shouldn't be gotten from the taxpayers in the most painful way possible and the most complicated. You can get the money to run the system with a simpler system and allow our corporations to compete overseas but you got to change the tax code to do it. HUNT: Which direction would you like to move, flat tax, sales tax, consumption tax and would you like to see any change be a substitute for the income tax or a supplement?

THOMAS: Everyone says they want a simpler system. They also want a fairer system. When you examine it really in terms of the fundamentals, simpler means don't tax me, tax someone else. Fairer means don't tax me, tax someone else.

The clear problem of the alternative minimum tax as it now approaches $1 trillion problem more importantly it involves average taxpayers who were never intended to be hit and it needs to be addressed. That alone is $1 trillion problem.

So, you need to raise revenue to readjust the system even in a revenue neutral structure. So, we need to change the tax code. I believe you can significantly move toward the kinds of tax structures you indicated under the current system.

(END VIDEOTAPE)

SHIELDS: Al Hunt, did you get the impression from Bill Thomas he's on the same track with President Bush and tracking with him on these big issues?

HUNT: Yes, Mark, because both want to get something done and both are flexible. I don't know if he can do it but the Bill Thomas notion of doing Social Security reform and tax reform simultaneously is stunning. It's just staggering.

And I disagree with some of what Chairman Thomas produces, as we've noted on this show before but just as this administration lacks an economic heavyweight they are very, very fortunate to have Bill Thomas, who is one of the most able legislators I've ever known.

NOVAK: Al, it was a very good interview but I still would like to know what's going on inside Bill Thomas' brain. The way I interpreted what he said a lot of the things he was saying about improving our position in international trade, U.S. position in international trade, improvement -- the fact that you need to appeal to the consumer and to the saver all kind of points to me to a consumption tax.

But the really fascinating thing is how you would integrate a tax reform with the Social Security reform and that could be one of the most important pieces of legislation in my time in Washington.

SHIELDS: Margaret Carlson.

CARLSON: You know, he said there'd be no heavy lifting, not as much pain or heavy lifting as you were suggesting but he used the word adjustments four times euphemistically. And there is no way to do it without these adjustments that have to be -- to Social Security which have to be new taxes, borrowing or cuts in benefits.

SHIELDS: Well, I think you probably put your finger on the principal problem with the Social Security reform, Margaret, as you so frequently do.

Coming up, a CAPITAL GANG classic, Speaker-to-be Newt Gingrich launches drug use charges at the Clinton White House ten years ago. Stay tuned for this.

(COMMERCIAL BREAK)

SHIELDS: Welcome back.

Ten years ago incoming Speaker of the House Newt Gingrich charged, get this, that one out of four aides in the Clinton White House staff was a user of illegal drugs.

White House Chief of Staff Leon Panetta told Gingrich to behave and House Democratic Whip David Bonior called for an outside investigation of Gingrich's ethics.

THE CAPITAL GANG discussed this on December 10, 1994. Our Congressman -- our guest was Congressman Tom DeLay of Texas, the then newly-elected Republican Whip.

(BEGIN VIDEOTAPE)

HUNT: Newt is always going to be a divisive figure. The institutional changes that he has made in the last couple of weeks in the House are profound and it will make for a more coherent and more accountable body. So, again, you have a conflict between this brilliant political strategist and a very flawed character.

NOVAK: The thing about the drugs in the White House, among the White House staff, which has been in the press anyway long before he said it, that would have been a one-day story except that Panetta responded to it and made it a two or three-day story. Eliminating the caucuses is a ten strike and I thought that Dave Bonior looks pathetic trying to dredge up those old ethics charges.

CARLSON: Bonior doesn't look pathetic and, in fact, he brought up that Gingrich himself went after Jim Wright for some of the same things and so he looks hypocritical by trying to avoid an ethics investigation.

REP. TOM DELAY (R), INCOMING MINORITY WHIP: It's amazing to me one sentence out of an hour long interview was taken against Newt Gingrich.

(END VIDEOTAPE)

SHIELDS: Bob, we did find out that Newt, the speaker, was banging more than the gavel but was he his own worst enemy starting out as speaker?

NOVAK: No, he had a lot more enemies. That's one thing Newt has never lacked. I thought it was a bad -- I was on "Meet the Press" that day when he brought up the drug thing, I just about fell over. I thought it was a bad way to start off. As Al conceded, he was doing a lot of good things on reform but he did have flaws that he couldn't avoid talking about those kinds of things and I think it hurt his speakership.

CARLSON: Right.

SHIELDS: Margaret.

CARLSON: And his flaws he acted out against Bill Clinton and had the very flaws he was railing against, which is a Greek tragedy.

SHIELDS: Al.

HUNT: His profound political intellect is why the Republicans took back the House in 1994 after 40-some years and his profound character flaws is why he was such an unsuccessful speaker.

SHIELDS: And David Bonior was right.

Next on CAPITAL GANG, Beyond the Beltway, New York Attorney General Eliot Spitzer announced that he will run for governor of the Empire State. We'll talk to Fred Dicker of the "New York Post."

(COMMERCIAL BREAK)

SHIELDS: Welcome back.

Democrat Eliot Spitzer, Attorney General of the State of New York announced for governor.

(BEGIN VIDEO CLIP)

ELIOT SPITZER (D), NY GUBERNATORIAL CANDIDATE: You know that New York has lost its way and our state government has failed to act. We sorely need to reenergize state government, make it smarter, more efficient, responsive and accountable.

(END VIDEO CLIP)

SHIELDS: A Quinnipiac University poll shows Eliot Spitzer 12 percentage points ahead of incumbent Republican Governor George Pataki. That same poll had Secretary of State Colin Powell five points ahead of Spitzer. However, Powell asserted: "I'm not going to be running for office, even in my beloved home state of New York, as flattering as that poll might be."

Joining us now from Albany, from Albany, New York the capital is Frederic Dicker. He's the state editor of the "New York Post." Thanks for coming in, Fred.

FREDERIC DICKER, STATE EDITOR, "NEW YORK POST": Thank you, Mark.

SHIELDS: Fred, by announcing this early is Eliot Spitzer strategically putting some pressure on George Pataki to think about seriously getting out of the race? DICKER: I think he is and, you know, it's being reinforced by the fact, Mark that many Republicans think Pataki is toast, that he can't beat Eliot Spitzer and Republicans are saying privately that they know they've got a problem with this governor and it might be good for them if he got out early too, at least made it clear that he was not going to run again.

SHIELDS: Bob Novak.

NOVAK: Fred, what is the alternative? Rudy Giuliani looks like he's going into the investment banking business. Colin Powell says he's not going to run. Who are these Republicans talking about if it's not Pataki?

DICKER: Well, they really don't have anybody, Bob. It's incredible that the New York Republican Party, which elected a governor back in 1995, defeated Mario Cuomo, elected an attorney general, had Al D'Amato in there, really now is a party without a talent pool. There's no deep bench.

There's no obvious alternative and that's why people like Peter King and John Sweeney, two Congressmen from New York, are speaking out publicly saying the party's lost its way. They don't know where to turn. Their hope is that Rudy would run but I think everybody agrees with you it's very unlikely.

SHIELDS: Margaret Carlson.

CARLSON: Fred, Eliot Spitzer looks like the whitest of white hats, like a real, you know, guy who's -- he's Elliott Ness, a modern day Elliott Ness now. Is there -- does he have any drawbacks? Is there any way to go after him, the (UNINTELLIGIBLE) research guys or is he fairly invulnerable to the kind of negative campaigning we've just seen in the presidential race?

DICKER: He can be attacked around the edges. He's been a little close to Governor Pataki at times, too close to the Republicans. He's faulted for not going after corruption in New York state government, which is now seen as a real problem.

Some people think he's killed jobs in New York by going after some of the big Wall Street firms, Wall Street being to New York what the oil industry is to Texas but that's all marginal criticism, Margaret. Right now he's the overwhelming favorite to win and he is something of a latter day Tom Dewey, a kind of public white knight, as you say.

SHIELDS: Al Hunt.

HUNT: Hey, Fred, let me go back to the Republicans for a minute. You talked about Pataki being toast if he runs for governor. Does he have anyplace to go? Is there anything he can do? And, do you have any doubt that Rudy Giuliani is running for president seriously?

DICKER: Yes, no doubt on the latter. On the former, that's obviously widely speculated on here, Al. His people have talked about him running for president. The response here has been in what party because he's not exactly a true red Republican.

But in terms of what he could do, most people think on the inside that he's most interested in going the Al D'Amato route without losing the way Al D'Amato did, that is going into the private sector as a multimillion dollar a year lobbyist, you know, a guy who can help people with calls to the White House or in New York, whatever, go into a law firm or a lobbying firm, make a lot of money. That's what most people think that Pataki would like to do.

SHIELDS: Fred, after Enron, after WorldCom and all those scandals and Wall Street as well, Eliot Spitzer emerged really as the one major public figure who did go after them and he was, you know, he was sort of the crusader, if anything.

And, I'm just wondering looking at those firms, those Wall Street firms and major investment houses, many of which loathe him, are they going to do, as Margaret suggested, contribute to the opposition research? Are they going to pony up and say, hey look, this guy is going to win. We better get on his good side?

DICKER: I think so, although, you know, they're constrained by the SEC as to how much money they can really give. There's going to be hostility from Wall Street but what will that be 1,000 people, 10,000 people? Right now, Eliot Spitzer has $9 million in the bank. His family has $500 million.

He's got the overwhelming support of Democrats in New York, big labor unions. Most remarkably in this Quinnipiac poll, upstate voters are supporting Spitzer over Governor Pataki.

It's an astounding figure because Governor Pataki beat Mario Cuomo ten years ago on the strength of the upstate vote. Right now Democrats are winning upstate, which is a traditionally Republican area.

SHIELDS: Bob Novak.

NOVAK: Fred, a lot of people watching this program in the red states may never have heard of Eliot Spitzer but I hear that his friends and he really think that he is going to be the first Jewish president of the United States or at least make a tremendous effort. Is this a long term thing that you go from Albany to Washington as some people have done in past years?

DICKER: Well, I think Chuck Schumer would like to be the guy who is the first one on that front but he gave up his chance to go to Albany. Al -- or rather, Bob, what you're talking about is being talked about in Albany, is being talked about by Spitzer's people. He's a remarkable guy.

Some people believe he's brilliant. He's accomplished a great deal here in New York and many people say that if he could be as effective as governor as he's been as New York's attorney general, why shouldn't he become the first Jewish president in American history?

SHIELDS: Boy. Margaret Carlson. CARLSON: Hey, Fred, is Rudy Giuliani's judgment as bad as it seems when he's promoted Bernie Kerik the way he has and given not just nannies but, you know, ten, 12 things that Bernie has done wrong?

DICKER: Margaret, you know, you make a very good point. I mean Rudy Giuliani in my view is a brilliant guy, a very accomplished politician but people forget that right before 9/11 he was a very unpopular political figure in New York, so that was for a reason. He can make mistakes. He is human after all and, in this case, I think we've probably seen some of the bad judgment that he's capable of.

SHIELDS: Fred Dicker, you have been terrific and thank you for joining us.

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

(COMMERCIAL BREAK)

SHIELDS: And now for the Outrages of the Week.

Those in power at my alma mater, the University of Notre Dame, who led the rush to fire head football coach Tyrone Willingham, chose to disregard that Willingham runs a scandal-free program. He graduates his players and is a totally admirable human being.

Notre Dame ranked second in the country in athletes' graduation rates among all 117 division one colleges and universities. Eighty- seven percent of Notre Dame student athletes and 76 percent of the school's African American football players graduate.

Compare that to the African American athlete graduation rates at Southern Cal, 52 percent, Oklahoma 35 percent, Texas 33 percent, Utah 31 percent. Ty Willingham's record made Notre Dame a winner. Bob Novak.

NOVAK: Democratic Congresswoman Darlene Hooley of Oregon at age 65 is a knee jerk liberal and professional politician.

For six years she's consistently voted the straight liberal line against defense spending yet she was prominent on this network, CNN, this week professing concern over lack of armor for U.S. troops in Iraq.

In truth, she voted against the use of force in Iraq and against money to finance the war. It's a definition of hypocrisy to complain about lack of armor on trucks after voting against giving the troops any trucks at all.

SHIELDS: Margaret Carlson.

CARLSON: Mark, remember when Bush dramatically announced he was embarking on a mission to Mars? That was before the third tax cut, of course. Now, the country doesn't even have a Mars bar for the two crewmen of the International Space Station. They've been told to cut their calories or they may have to abandon ship for lack of food. What else is there to do out there but recreational eating? Watering down the Tang is symbolic of so many of this administration's shortfalls, armor, flu vaccine, troops. The South Space Diet is just one more indignity.

SHIELDS: Al Hunt.

HUNT: Mark, Maryland Governor Bob Ehrlich has banned state employees from talking to two "Baltimore Sun" reporters. The governor doesn't like the paper's coverage, although apparently the only real factual error seems to be an incorrect map about a proposed scam land deal, which the paper corrected.

More important, Bob Ehrlich has forgotten the constitutional law he learned at Wake Forest Law School. The governor can refuse to talk to anyone he wishes but when he instructs state employees to follow such a ban that's a violation of the First Amendment.

SHIELDS: This is Mark Shields saying goodnight for THE CAPITAL GANG. Thank you for joining us.

(NEWSBREAK)

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