MODERATOR: I'm sitting here like the great school teacher letting you both get away with things. Because one did it, the other one did it. May I ask in the future that the rebuttals stick to what the rebuttal is and also, foreign policy will be the next debate. Stop dragging it in by its ear into this one. Now having admonished you, I would like to say to the panel, you are allowed one question and one follow-up. Would you try as best you could not to ask two and three. I know it's something we all want to do, two or three questions as part one, and two and three as part two. Having said that, Fred, it's yours.

REPORTER: Thank you. Mr. Mondale, let me ask you about middle class Americans and the taxes they pay. I'm talking about - not about the rich or the poor. I know your views on their taxes. But about families earning $25,000 to $45,000 a year. Do you think that those families are overtaxed or undertaxed by the Federal Government.

MONDALE: In my opinion as we deal with this deficit, people from about $70,000 a year on down have to be dealt with very, very carefully because they are the ones who didn't get any relief the first time around. Under the 1981 tax bill people making $200,000 a year got $60,000 in tax relief over three years while people making $30,000 a year, all taxes considered, got no relief at all or their taxes actually went up. That's why my proposal protects everybody from $25,000 a year or less against any tax increases and treats those $70,000 and under in a way that is more beneficial than the way the President proposes with a sales tax or a flat tax.

What does this mean in real life? Well, the other day Vice President Bush disclosed his tax returns to the American people. He's one of the wealthiest Americans and he's our Vice President. In 1981 I think he paid about 40 percent in taxes. In 1983 as a result of these tax preferences he paid a little over 12 percent, 12.8 percent in taxes. That meant that he paid a lower percent in taxes than the janitor who cleaned up his office or the chauffeur who drives him to work. I believe we need some fairness, and that's why I propose what I think is a fair and responsible proposal that helps protect these people who've already gotten no relief or actually got a tax increase.

REPORTER: It sounds as if you were saying you think a group of taxpayers making $25,000 to $45,000 a year is already overtaxed, yet your tax proposal would increase their taxes. I think your agent said those earning about $25 to $35,000, their tax rate would go up and their tax bill would go up $100, and from $35,000 to $45,000 more than that, several hundred dollars. Would n't that stifle their incentive to work and invest and so on, and also hurt the recovery?

MONDALE: The first thing is everybody $25,000 or under would have no tax increase. Mr. Reagan after the election is going to have to propose a tax increase. And you will have to compare what he proposes, and his Secretary of the Treasury said he's studying a sales tax or a value-added tax; they're the same thing to hit middle and moderate income Americans and leave wealthy Americans largely untouched. Up until about $70,000, as you go up the ladder, my proposals will be far more beneficial. As soon as we get the economy on a sound ground, as well, I would like to see the total repeal of indexing. I don't think we can do that for a few years but at some point we want to do that as well.

REPORTER: Mr. President, let me try this on you. Do you think middle-income Americans are overtaxed or undertaxed?

REAGAN: You know, I wasn't going to say this at all, but I can't help it: There you go again. I don't have a plan to tax or increase taxes; I'm not going to increase taxes. I can understand why you are, Mr. Mondale, because as a Senator you voted 16 times to increase taxes. Now, I believe that our problem has not been that anybody in our country is undertaxed, it's that Government is overfed. And I think that most of our people - this is why we had a 25 percent tax cut across the board which maintained the same progressivity of our tax structure in the - the brackets on up. And as a matter of fact, it just so happens that in the quirks of administering these taxes, those above $50,000 actually did not get quite as big a tax cut percentage-wise, as did those from $50,000 down. From $50,000 down those people paid two- thirds of the taxes and those people got two-thirds of the tax cut. Now the Social Security tax of '77 - this, indeed, was a tax that hit people in the lower brackets the hardest. It had two features: it had several tax increases phased in over a period of time; there are two more yet to come between now and 1989. At the same time, every year it increased the amount of money - virtually every year, there may have been one or two that we're skipping there - that was subject to that tax. Today it is up to about $38,000 of earnings that is subject to the payroll tax for Social Security. And that tax, there are no deductions, so a person making anywhere from $10, $15, $20, they're paying that tax on the full gross earnings that they have after they have already paid an income tax on that same amount of money. Now I don't think that to try and say that we were taxing the rich and not the other way around, it just doesn't work out that way. The system is still where it was with regard to the progressivity, as I've said, and that has not been changed. But if you take it in numbers of dollars, instead of percentage, yes you can say, well that person got 10 times as much as this other person. Yes, but he paid 10 times as much also. But if you take it in percentages then you find out that it is fair and equitable across the board.

REPORTER: I thought I caught, Mr. President, a glimmer of a stronger statement there in your answer than you've made before. I think the operative position you had before was that you would only raise taxes in a second term as a last resort, and I thought you said flatly that "I'm not going to raise taxes." Is that what you meant to say, that you will not - that you will flatly not raise taxes in your second term as President?

REAGAN: Yes, I had used - last resort would always be with me. If you got the Government down to the lowest level that you yourself could say it could not go any lower and still perform the services for the people. And if the recovery was so complete that you knew you were getting the ultimate amount of revenues that you could get through that growth, and there was still some slight difference there between those two lines, then I had said once that yes, you would have to then look to see if taxes should not be adjusted. I don't foresee those things happening. So I say with great confidence, I'm not going to - I'm not going to go for a tax. With regard to assailing Mr. Bush about his tax problems and the difference from the tax he once paid and then the later tax he paid, I think if you looked at the deductions, there were great legal expenses in there. It had to do possibly with the sale of his home and they had to do with his setting up of a blind trust. All of those are legally deductions - the deductible in computing your tax. And it was a one-year thing with him.

MODERATOR: Mr. Mondale, here we go again; this time for rebuttal.

MONDALE: Well, first of all, I gave him the benefit of the doubt on the House deal. I'm just talking about the 12.8 percent that he paid - and that's what's happening all over this country with wealthy Americans. They've got so many loopholes, they don't have to pay much in taxes. Now, Mr. President, you said: "There you go again." Right. Remember the last time you said that?

REAGAN: Um hmm.

MONDALE: You said it when President Carter said that you were going cut Medicare. And you said: "Oh, no, there you go again, Mr. President." And what did you do right after the election? You went out and tried to cut $20 billion out of Medicare. And so when you say, "There you go again," people remember this, you know. And people will remember that you signed the biggest tax increase in the history of California, and the biggest tax increase in the history of the United States. And what are you going to do? You've got $260 billion deficit. You can't wash it away. You won't slow defense spending; you refuse to do that.

MODERATOR: Mr. Mondale, I'm afraid your time is up.

MONDALE: Sorry.

MODERATOR: Mr. President.

REAGAN: Yes. With regard to Medicare, no. But it's time for us to say that Medicare is in pretty much the same condition that Social Security was, and something is going to have to be done in the next several years to make it fiscally sound. And, no, I never proposed any $20 billion should come out of Medicare. I have proposed that the program - we must treat with that particular problem. And maybe part of that problem is because during the four years of the Carter-Mondale Administration, medical costs in this country went up 87 percent.

MODERATOR: We can't keep going back for other rebuttals. There'll be time later. We now go to our final round. The way things stand now we have time for only two sets of questions and by lot it will Jim and Diane and we'll start with Jim.

REPORTER: Mr. President, the economic recovery is real but uneven. The Census Bureau just a month ago reported that there are more people living under poverty now - a million more people - than when you took office. There have been a number of studies, including studies by the Urban Institute and other non-political organizations, that say that the impact of the tax and budget cuts in your economic policies have impacted severely on certain classes of Americans - working mothers, head of households, minority groups, elderly poor. In fact, they're saying the rich are getting richer and the poor are getting poorer under your policies. What relief can you offer to the working poor, to the minorities and to the women heads of households who have borne the brunt of these economic programs. What can you offer them in the future in your next term?

REAGAN: Some of those facts and figures just don't stand up. Yes, there has been an increase in poverty but it is a lower rate of increase than it was in the preceding years before we got here. It has begun to decline, but it is still going up. On the other hand, women heads of household, single women, heads of household, have for the first time - there's been a turn down in the rate of poverty for them. We have found also in our studies that in this increase in poverty it all had to do with their private earnings. It had nothing to do with the transfer payments from government, by way of many programs. We are spending now 37 percent more on food for the hungry in all the various types of programs than was spent in 1980. We're spending a third more on all the programs of human service. We have more people receiving food stamps than were ever receiving them before - 2,300,000 more are receiving them even though we took 850,000 off the food stamp rolls because they were making an income that was above anything that warranted their fellow citizens having to support them. We found people making 185 percent of the poverty level were getting Government benefits. We have set a line at 130 percent so that we can direct that aid down to the truly needy. Sometime ago Mr. Mondale said something about education and college students and help of that kind - half, one out of two of full-time college students in the United States are receiving some form of Federal aid, but there again we found people that there were - under the previous Administration - families that had no limit to income were still eligible for low-interest college loans. We didn't think that was right. And so we have set a standard that those loans and those grants are directed to the people who otherwise could not go to college, their family incomes were so low. So there are a host of other figures that reveal that the grant programs are greater than they have ever been, taking care of more people than they ever have - 7.7 million elderly citizens who were living in the lowest 20 percent of earnings, 7.7 million have moved up into another bracket since our Administration took over, leaving only 5 million of the elderly in that bracket when there had been more than 13 million.