FTN - 9/9/01

BOB SCHIEFFER: Today on Face the Nation, unemployment is up, the economy's in a slump. Is it time to cut taxes again? And the new debate on immigration.

Last week's unemployment figures were the worst in four years, and Wall Street keeps stalling. Republicans are starting to talk about more tax cuts to stimulate the economy, but is that a good idea? And what is Congress going to do about the budget shortfall?

We'll ask the assistant Republican leader Don Nickles and Democratic Senator John Kerry.

Then we'll turn to immigration. Mexico's President Fox wants the United States to reform its immigration policy by next year. Should there be amnesty for illegal immigrants already here?

We'll have a debate between Senator Phil Gramm of Texas and Congressman Luis Gutierrez of Illinois.

Gloria Borger will be here, and I'll have a final word on our old friend, "Rosie Scenario." But first, more tax cuts on Face the Nation.

And good morning, again.

Joining us now from Brockton, Massachusetts, Senator John Kerry. Here in the studio, the assistant minority leader of the Senate, Don Nickles.

Senator Kerry, it is well known that you're exploring the possibility of seeking the Democratic presidential nomination the next time out. So far, the Democratic answer to the bad economic news is, "Well, it's George Bush's fault, it's up to George Bush to come one an answer."

Let's just fast forward and say you are president right now. If you were, what would be the first thing you'd do about this economic situation?

SEN. JOHN KERRY, D-MA: Well, Bob, let me correct one thing that you said, at least one thing. First of all, I'm running for reelection right now and made no decisions about the future.

Secondly, I think it would be unfair, almost silly for any of us to sit here and say it's all George Bush's fault. I'm not saying that. Clearly there is a cyclical aspect to what's happening in the economy. And some of this began some time ago, and I think there was some anticipation of a change.

But here is the problem with what the president is doing or is not doing. If, as he said, he and Mr. Cheney noticed this was happening as they campaigned - and certainly he began to talk down the economy in November and December after the election - then his response needs to be different. And his response from day one has been simply to have a tax cut, not a plan for how you move the economy.

His tax cut did not contain anything that you would call counter-cyclical. It had no economic stimulus up front. In fact, it was a Democratic proposal to put some economic stimulus up front. And we got the $40 billion that is in the rebate that people have been getting recently.

So I think you have to say, OK, if the economy is now going down and the revenues are not what you thought they were, then you clearly don't want to raise taxes, but you also shouldn't cut spending. You need to continue o stimulate, you need to continue to move.

But the bottom line is this, Bob, and I think Don Nickles would acknowledge it. Unless the president comes to the table and is prepared to do what is necessary to move the economy by restructuring those parts of the tax cut that have not taken effect and by resubmitting a budget that is more realistic in the face of what we now face, there is nothing that we Democrats can do by ourselves because we have only a one-vote margin in the Senate and he has a veto pen.

SCHIEFFER: Well, when you say restructure those tax cuts, is that a nice way of saying we ought to eliminate the tax cuts that haven't taken effect yet? Is that what you're saying, Senator?

KERRY: Well, if you're talking about a counter-cyclical policy, Bob, you have to do something to stimulate the economy now. I'm certainly prepared to consider, if everything is on the table and we're relooking at the current structure, I personally think you've got to be prepared to talk about additional tax cuts now if they're properly directed, if they're properly focused.

For instance, 29 million Americans got no tax cut whatsoever from the president because they were unwilling to deal with some of the issues of people who pay the payroll tax but don't have an income tax.

SCHIEFFER: So, what you're saying is we should perhaps start thinking about more tax cuts, not eliminating some of the tax cuts down the line?

KERRY: Only, only in the context - again, only in the context of a short-term stimulus and only in the context of reviewing all of what has been put on the table today, because the president's numbers will not hold up.

In point of fact, the president is going to add $1 trillion of debt to this country over the course of the next six years and an additional $600 million of interest.

GLORIA BORGER, U.S. News & World Report: Let's let Senator...

KERRY: You have to change that.

SEN. DON NICKLES, R-OK: I think the world of Senator Kerry, but he's entitled to his own opinion, not his own facts.

Under the CBO's budget, national debt - total outstanding publicly held debt comes down over a trillion dollars over the next several years. And I did see...

KERRY: These are CBO numbers.

NICKLES: I'm just telling you, CBO says debt comes down, doesn't go up, over the next several years.

But Senator Kerry leaves something open that I'm intrigued with, because he said maybe we should do something on the payroll tax. We have a surplus right now that's in Social Security. People are paying too high of Social Security taxes. That's the reason why you hear about the Social Security trust funds and so on.

Some of us have thought for a while, maybe we should reduce the Social Security tax. Others have suggested we put maybe 2 percent of it in personal savings account.

BORGER: So you're saying a cut in the Social Security payroll tx?

NICKLES: I think that would be a good idea. It would be one way to be able to take Social Security, all this idea is there a trust fund, not a trust fund, and should we use payroll taxes to be paying down debt, which is basically what we're doing right now.

I think, you know, Senator Moynihan talked about a couple years ago, some of us have been intrigued by it. Maybe we should have a temporary reduction in Social Security taxes. That would allow - that's a middle-income tax cut, that's for anybody who makes up to $80,000. It would be for them and for their employers. It would help the economy. So that's something we could do.

Or we could set up personal savings accounts and have that money go into their own account. It's where they would actually own it, control it, save it. I think there's some possibilities there.

BORGER: Senator Kerry, a cut in the Social Security payroll tax?

KERRY: I would not be prepared to entertain any discussion of any cut yet until the president is prepared to submit a budget that has numbers in it that are real and until the president acknowledges that the tax cut, as currently structured, is going to bleed the surplus in an irresponsible way over the course of the next 10 years.

You can't begin - you won't even have the latitude to do some of the things that you want to try to do unless you begin to look at the longer-term fiscal picture.

I mean, we Democrats, in 1993, expended enormous political capital to create a surplus in this country.

NICKLES: Raise taxes.

KERRY: We're the ones who - on 1 percent of America, Don, 1 percent of Americans. And the result was we had the best economy this country has seen ever, and we created enormous wealth for almost all Americans. So what we...

NICKLES: What really Senator Kerry is saying, is that we greatly increased taxes and they increased taxes on anybody that bought gasoline. Anybody that received Social Security, they raised their taxes as well. They raised tax rates, maximum rate, from 31 percent to 39.6 percent, and then taxed all income on Social Security. So they had a massive tax increase, including a gasoline tax increase. We don't want to do that.

And also, he says, we want to revise the president's tax package. Really what he's saying, we want to eliminate the future tax reductions that we have on the books. In other words, they want tax increases. This president will never sign that. That's a non-starter; it's not going to happen.

We can do some things to revitalize the economy. We can and could, and I believe should, cut capital gains tax from 20 percent to 15 percent. That would help the market; that would really rejuvenate the economy. When we cut capital gains rates from 28 to 20 percent, it raised a lot more money than people anticipated. It helped the economy. We said it would and it did. I think, likewise, if we had a further reduction, it woulalso help the economy.

SCHIEFFER: Senator Kerry, am I not correct that you also endorse the cut in capital gains taxes under certain conditions, did you not?

KERRY: Well, only under certain conditions, and those conditions apparently are not being met.

I mean, again you've got to come back to a package, and you've got to do this in a responsible way.

I mean, Don talks about those increase in taxes. The fact is that the Social Security tax was increased under Reagan, as he recalls, most significantly. And the fact is, that's what created the surplus for these last years.

The Republicans are willing to ride on the surplus. They're now even willing to spend the Social Security surplus, but they don't want to do it acknowledging that there are other responsibilities, and they don't want to even change the long-term transfer.

When you spend the Social Security surplus the way they're doing it, Bob, you're taking money from the payroll tax, which is the most onerous tax in America, and you're transferring it and giving it away to people who are the wealthiest and have done the best.

NICKLES: Right now...

SCHIEFFER: Let's give Senator Nickles a chance to respond.

NICKLES: ... all that's been happening with the Social Security surplus is it's used to pay off debt. And what I suggest today is maybe we just reduce the Social Security tax period, and it's...

KERRY: Don, that's not what's happening. Under the Bush budget...

NICKLES: Under anybody's...

KERRY: ... (inaudible) Social Security in order to meet his budget numbers.

NICKLES: That is absolutely false. Under the Bush budget, under the Bush budget, all the Social Security money is used to pay down debt. Not any of it's used for any other spending, period.

KERRY: That's not accurate.

NICKLES: That's for the next year. I know that's factual. I happen to be on the Budget Committee, I'm working on that.

But we could take that Social Security surplus and say, hey, let's give it back to the workers. Let's not make them pay it for a couple of years, for a few years. That would help the economy.

BORGER: What about the idea of automatic across-the-board spending cuts if it looks like you're going to have to dip into the Social Security surplus? Would you be in favor of that?

NICKLES: Well, it's something we'd look at. I don't think we have to spend Social Security money so we can have other spending priorities. I don't think we could, I don't think we should.

KERRY: Could I just...

NICKLES: And we don't have to next year. Some people say, oh, you're going to have to really dip in there. I don't think so. I think we can make other reductions or just slow the rate of growth of spending . In some areas, spending's been growing unbelievably fast.

BORGER: Well, that's...

SCHIEFFER: Senator Nickes, let me ask you this, because there's some concern in Washington. Do you think the president understands the seriousness of this economic situation?

NICKLES: Oh, absolutely. I think President Bush - one, he has private-sector experience, so he understands it from the private sector economy, where, really, the jobs are generated and where the jobs are having a tougher time today. And so does many of his Cabinet people, including the vice president. He's got an outstanding team, economic advisers; probably never been a better OMB director than Mitch Daniels. I mean, he's got a good team.

The economy is going down. Well, you know it's been going down - if you look at the stock market, since a year ago March or April, it's been really on a rough ride. It probably was over-inflated. Now, maybe, hopefully it's starting to bottom-out in the not-too-distant future.

But I think we have a president that understands it, and he's willing to say, wait a minute, what can we do to help the economy?

I think a reduction in capital gains may be a more realistic depreciation schedule. We did accelerated depreciation back in 1981, and it really helped the economy. Maybe we should be looking at that as well.

SCHIEFFER: Gentlemen, I'm sorry, we're going to have to...

KERRY: Bob?

SCHIEFFER: Senator Kerry, I'll give you 20 seconds, Senator.

KERRY: Well, I just wanted to point out that the CBO numbers themselves show that under the president's plan, he will use $500 billion of Social Security money just for the items in his own budget and that Congress has already passed in the budget resolution. And there is $1.1 trillion to $1.9 trillion in things that are almost automatic that Congress will want to do that they don't even account for.

They are not telling the truth when they say they are not going into Social Security.

NICKLES: I disagree with that. I just don't think that's factual.

SCHIEFFER: Senator Nickles challenges that. We simply have to stop there, gentlemen.

We'll have a debate on immigration when we come back.

Thank you, both of you.

(COMMERCIAL BREAK)

SCHIEFFER: And with us now, Texas Senator Phil Gramm, and from our Chicago bureau, Congressman Luis Gutierrez, who co-chairs the Democratic caucus's immigration task force.

We're going to talk a little bit about immigration.

Senator Gramm, I want to ask you first, though. Here you have your assistant Republican leader in the Senate, Don Nickles, suggesting this morning that perhaps it would be a good idea to cut payroll taxes, that that might be a way to stimulate the economy. You are one of the financial experts in the Congress. What's your take on that?

SEN. PHIL GRAMM, R-TX: Well, there's no doubt about the fact that it would have a positive impact in the short term on the economy.

I think our best bet, Bob, is to cut the capital gains tax rate I think in the end that we'll get bipartisan support for it. I think we'll do it.

I think the economy is going to recover anyway. The question is, what can we do to speed it up? Cutting the capital gains tax rate will speed it up. It'll mean that the economy will grow quicker, faster, and I think it makes sense to do it.

SCHIEFFER: Well, do you think there's any chance that they might cut the payroll taxes?

GRAMM: I think, if you had a real slowdown, I think it's something you might get to. My guess is that, given all the talk about the Social Security surplus, which, as everybody knows, is phony, because every penny of it is being used to pay down debt, none of it is going to invest in Social Security - and to listen to Bob Kerry talk, the Democrats never, ever had a Social Security surplus when they had a majority. Only when Republicans had a majority did it happen.

SCHIEFFER: OK, let's turn to the subject we invited you here to talk about, immigration.

Congressman Gutierrez, you heard the president of Mexico. He calls for immigration reform in this country. What's your take on that, and what should the policy in this country be on immigration?

REP. LUIS GUTIERREZ, D-IL: Well, I think that President Fox's visit to Capitol Hill and to our nation was very well-received, because he is raising an issue which many of us have raised, which is that we need to have a new immigration policy to deal with the millions of undocumented workers that work and toil and sweat and whose talent we benefit from each and every day. So I think his visit was very, very timely.

What do I think? I think we need an immigration policy, a new immigration policy that says, if you're in the United States undocumented, but if you're working, if you're contributing, if you're paying taxes, and if you followed all of the rules and laws of our land, then it is time to give you something which comes along with all of that hard work, which is a legalization process.

BORGER: Senator Gramm, what the congressman is talking about is some form of amnesty. You oppose that. Why?

GRAMM: Well, first of all, if you're in the country illegally, you didn't follow all the rules.

Remember this: In 1986, when we adopted a blanket amnesty, the Congressional Budget Office estimated that 565,000 people would be given amnesty. 2.7 million people were given amnesty. INS estimated that about 280,000 people would come illegally each year for five years thereafter. 716,000 came. We had 3 million illegals then. We have 9 million illegals now.

One thing we know is that if you reward people who violate the law, if you give amnesty to people who violated the law in coming into the country, you're going to put a neon sign up that the whole world can see which says, "Come to America illegally, and stay long enough and we'll let you stay."

I think we've got to reform immigration. I've been working witthe Mexican government and with the Bush administration. I think we can have a workable guest worker program, but we cannot have a blanket amnesty program.

BORGER: Congressman Gutierrez, what would be wrong with a guest worker program, where labor could come into this country, work for a certain period of time legally and then either go back or get citizenship eventually?

GUTIERREZ: I think it's rather ironic, if not hypocritical, to talk about all of the undocumented workers that have come into the country, as Senator Gramm has just done, and at the same time say you want a guest worker program, which admits that we need workers in this country. That's why you want a guest worker program.

So either there are insufficient number of workers or there are too many workers. I think the first is, of course, the fact.

The fact is that it sounds nice, "guest worker." But it really isn't that nice. They come in, they work, they sweat, they toil, and then they're sent away. And they're unable to earn the legalization, which every other immigrant that has come to this country.

You know, Senator Gramm spoke about the immigrants that have come to this country, and he spoke about their numbers very, very eloquently. One of the things that I think is absent in the debate is, let's look at the numbers.

The Urban Institute, for example, estimates that in New York State $1 billion in taxes. Illinois, $1 billion in taxes. And these are undocumented workers. And those are in only two states.

Look at Minneapolis, St. Paul, a study done with scholars there with the University of Minnesota. What they estimate is that, for every four undocumented workers, an American citizen, somebody here legally, gets a job. That's the way the economy works.

You know, when you look at it - there's a recent study just came out in the last couple of weeks. You probably know about it, Gloria, a UCLA study. What does the UCLA study tell us? That the gross domestic products that Mexican undocumented workers, who only maybe make up 35 percent of all of the undocumented workers in this country, contribute $150 to $200 billion a year to our GDP. So, you know, let's talk about what they've earned because of their contribution, because of their work.

And before we say we're against a new legalization program, I would just challenge us all: In the last day, in the last week, in the last month, tell me that we have not eaten a piece of fruit, eaten from a clean plate, walked across a clean floor, haven't had our clothes sewn or pressed or cleaned at the hands of an undocumented worker. As a matter of fact, our life is better because of their contributions.

SCHIEFFER: But another report that has come out, Congressman, are the unemployment figures that show that unemployment now is as high as it's been in the last four years. Is it going to be very difficult to sell amnesty when you have those kind of figures?

GTIERREZ: Well, here's what would I say, Bob. What I would say is we're talking about a legalization program. We're talking about people that are already here in the United States working. We're talking about people that are a vital part of our economy that are doing jobs, quite honestly, that no one else in America wants to do.

The fact is that the $1.2 billion tree fruit industry of Washington state, 80 percent of the workers in that tree fruit industry are undocumented. No one's going to rush to do that job tomorrow.

SCHIEFFER: Unfortunately, we're almost out of time.

Senator Gramm, let me just ask you, from a practical standpoint, will there be any change in immigration policy this year?

GRAMM: I think there will be. I think we'll work out a workable guest worker program. I think we'll let people who are here illegally have an opportunity to join that program. I think we'll give people credit when they do apply, if they do apply, to immigrate for the work they've done as part of a guest worker program.

But in the end, if you listen to Luis, the way to solve the economic problem is just to open the border and let everyone in the world come in. We're not going to do that.

GUTIERREZ: That's not what I said.

SCHIEFFER: All right. Gentlemen, we're out of time. Thanks to both of you. I learned something this morning.

Back in a moment with a final word.

(COMMERCIAL BREAK)

SCHIEFFER: Finally, so Washington took the summer off and the darnedest thing happened: Somebody lost the surplus. All that tax money that the rosy scenarios and economic forecasters told us would be there to pay for tax cuts and missile defense systems, well, sorry, they were wrong. These things happen.

I leave it to another time, the argument over where the money went and the wisdom of the recent tax cut, but my question is this: Why do we continue to believe these economic forecasts in the first place? And worse, why do we use them to plan long-range economic policy? And why are we surprised when they are wrong? Ancient soothsayers reading sheep entrails probably have a better record for accuracy.

Just think about it. Just months ago the politicians were so enamored with the rosy long-range forecast, they passed a 10-year economic plan that included every tax cut known to western man. And consider this: Just a year before they did that, Alan Greenspan, the chairman of the Federal Reserve, was so convinced a runaway economy would set off inflation that he was raising interest rates right and left. Case closed.

If Alan Greenspan can't predict the state of the economy a year down the road, how can a 10-year or a five-year or even a two-year forecast be taken seriously? Yet we continue to take them seriously. Maybe because we just crave good news and those long-range forecasts do have a soothing effect.

Frankly, I think we're better off listening to good music. t's relaxing too, and it has no surprises at the end.

That's the end here . We'll see you next week right here on Face the Nation.

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