JIM LEHRER: Good evening. On behalf of the Commission on Presidential Debates I am pleased to welcome you to this first presidential debate of the 1988 campaign. I'm Jim Lehrer of the MacNeil-Lehrer NewsHour. My colleagues on the panel are John Mashek of The Atlanta Journal-Constitution; Ann Groer of The Orlando Sentinel; and Peter Jennings of ABC News. For the next 90 minutes we will be questioning the candidates for president of the United States following a format designed and agreed to by representatives of the two candidates. The candidates are Vice President George Bush, the Republican nominee; Governor Michael Dukakis, the Democratic nominee.

Our questions this evening will be about equally divided between foreign and domestic policy matters. The first question by agreement between the two candidates goes to Vice President Bush. It is a domestic question. You have two minutes for an answer, sir. The polls say the number one domestic issue to a majority of voters is drugs. What is there about these times that drives or draws so many Americans to use drugs?

BUSH: I think we've seen a deterioration of values. I think for a while as a nation we condoned those things we should have condemned. For a while, as I recall, it even seems to me that there was talk of legalizing or decriminalizing marijuana and other drugs, and I think that's all wrong. So we've seen a deterioration in values, and one of the things that I think we should do about it in terms of cause is to instill values into the young people in our schools. We got away, we got into this feeling that value- free education was the thing. And I don't believe that at all I do believe there are fundamental rights and wrongs as far as use. And, of course, as far as the how we make it better, yes, we can do better on interdiction. But we've got to do a lot better on education, and we have to do, be tougher on those who commit crimes. We've got to get after the users more. We have to change this whole culture. You know, I saw a movie - "Crocodile Dundee." And I saw the cocaine scene treated with humor, as though this was a humorous little incident. And it's bad. Everybody ought to be in this thing. Entertainment industry, people involved in the schools, education. And it isn't a Republican or a Democrat or a liberal problem. But we have got to instill values in these young people. And I have put forward a many-point drug program that includes what I would do as president of the United States; in terms of doing better on interdiction; and in terms of better in the neighborhoods. But I think we're all in this together, and my plea to the American people is values in the schools.

LEHRER: Governor, you have one minute to respond.

DUKAKIS: I agree with Mr. Bush that values are important. But it's important that our leaders demonstrate those values from the top. That means those of us who are elected to positions of political leadership have to reflect those values ourselves. Here we are with a government that's been dealing with a drug-running Panamanian dictator. We've been dealing with him; he's been dealing drugs to our kids. Governors like me and others have been trying to deal with the consequences. I remember being in a high school in my own state as we were organizing something we call the Governor's Alliance Against Drugs, and a young 16 year old girl coming up to me, desperate, addicted, dependent, saying, Governor, I need help. We're providing that young woman with help. But I want to be a president of the United States who makes sure that we never again do business with a drug-running Panamanian dictator, that we never again funnel aid to the contras through convicted drug dealers. Values begin at the top, in the White House. Those are the values I want to bring to the presidency and to the White House beginning in January of 1989.

LEHRER: Governor, a follow-up question. You have two minutes to answer it. Are you suggesting, sir, that President Reagan is one of the causes of the drug problem in this country?

DUKAKIS: I'm saying that those of us who are elected to positions of political leadership, Jim, have a special responsibility, not only to come up with programs, and I have outlined in detail the very important, very strong program of enforcement as well as drug education prevention. And Mr. Bush is right - the two go hand in hand. But if our government itself is doing business with people who we know are engaged in drug profiteering and drug trafficking, if we don't understand that that sends out a very, very bad message to our young people, it's a little difficult for me to understand just how we can reach out to that youngster that I talked about and to young people like her all over the country, and say to them we want to help you. Now, I've outlined in great detail a program for being tough on enforcement at home and abroad, doubling the number of drug enforcement agents, having a hemispheric summit soon after the 20th of January when we bring our democratic neighbors and allies together here in this hemisphere and go to work together. But we also have to take demand seriously. You know, we have five percent of the world's population in this country. We're consuming 50 percent of the world's cocaine. doing better in the neighborhoods. But I think we're all in this together, and my plea to the American people is values in the schools.

LEHRER: Governor, you have one minute to respond.

DUKAKIS: I agree with Mr. Bush that values are important. But it's important that our leaders demonstrate those values from the top. That means those of us who are elected to positions of political leadership have to reflect those values ourselves. Here we are with a government that's been dealing with a drug-running Panamanian dictator. We've been dealing with him; he's been dealing drugs to our kids. Governors like me and others have been trying to deal with the consequences. I remember being in a high school in my own state as we were organizing something we call the Governor's Alliance Against Drugs, and a young 16 year old girl coming up to me, desperate, addicted, dependent, saying, Governor, I need help. We're providing that young woman with help. But I want to be a president of the United States who makes sure that we never again do business with a drug-running Panamanian dictator, that we never again funnel aid to the contras through convicted drug dealers. Values begin at the top, in the White House. Those are the values I want to bring to the presidency and to the White House beginning in January of 1989.

LEHRER: Governor, a follow-up question. You have two minutes to answer it. Are you suggesting, sir, that President Reagan is one of the causes of the drug problem in this country?

DUKAKIS: I'm saying that those of us who are elected to positions of political leadership, Jim, have a special responsibility, not only to come up with programs, and I have outlined in detail the very important, very strong program of enforcement as well as drug education prevention. And Mr. Bush is right - the two go hand in hand. But if our government itself is doing business with people who we know are engaged in drug profiteering and drug trafficking, if we don't understand that that sends out a very, very bad message to our young people, it's a little difficult for me to understand just how we can reach out to that youngster that I talked about and to young people like her all over the country, and say to them we want to help you. Now, I've outlined in great detail a program for being tough on enforcement at home and abroad, doubling the number of drug enforcement agents, having a hemispheric summit soon after the 20th of January when we bring our democratic neighbors and allies together here in this hemisphere and go to work together. But we also have to take demand seriously. You know, we have five percent of the world's population in this country. We're consuming 50 percent of the world's cocaine. And in my state I'm proud to say we've organized a drug education and prevention program which the Federal Drug Enforcement Administration says is a model for the country. We're helping youngsters; we're reaching out to them. And we're beginning with drug education and prevention beginning in the early elementary grades in every elementary school in our state, and that's the kind of effort we need in every elementary school in the United States of America. And we've got to begin early, in the first, second and third grade, before our youngsters begin to experiment with these very, very dangerous substances. I guess the question I would ask of Mr. Bush is how we instill those values, how we create this environment for the drug free schools that we want in this country. If he or representatives of the administration are either with or involving people like Noriega in our foreign policy, or don't pursue that connection in a way that makes it possible for us to cut it off and to be an example to our kids all over the country.

LEHRER: A minute to rebut, Mr. Vice President.

BUSH: Well, the other day my opponent was given a briefing by the CIA. I asked for and received the same briefing. I am very careful in public life about dealing with classified information. And what I'm about to say is unclassified. Seven administrations were dealing with Mr. Noriega. It was the Reagan-Bush administration that brought this man to justice. And as the governor of Massachusetts knows, there was no evidence that governor - that Mr. Noriega was involved in drugs, no hard evidence until we indicted him. And so I think it's about time we get this Noriega matter in perspective. Panama is a friendly country. I went down there and talked to the president of Panama about cleaning up their money laundering, and Mr. Noriega was there, but there was no evidence at that time, and when the evidence was there, we indicted him. And we want to bring him to justice. And so call off all those pickets out there that are trying to tear down seven different administrations.

LEHRER: All right, the next question will be asked by John Mashek. It goes to Governor Dukakis, and you'll have two minutes to answer.

MASHEK: Governor Dukakis, another troublesome issue for voters this year is the bulging federal deficit. In a Dukakis administration, you say taxes will be raised only as a last resort. Would you identify for us then please three specific programs that you are willing to cut to bring that deficit down?

DUKAKIS: Yes, I've been very specific about those, John. And let me lay out for you my own strategy for bring that deficit down, because as a chief executive that's balanced ten budgets in a row, I've had to make those tough decisions and those tough choices. First, I've suggested that there are certain weapons systems which we don't need and we can't afford. Mr. Bush has been critical of me for that, but I think those are the kinds of tough choices you have to make. I've also suggested that there are weapons systems that we should proceed on, and I've outlined those in detail. Secondly, we've got to invest in economic growth in this country, in every part of this country. Building that kind of growth expands revenues and helps to bring down that deficit. Thirdly, we have to bring interest rates down, and we will as we come up with a good, solid plan with the Congress for bringing that deficit down. And, finally, we've got to go out there and collect billions and billions of dollars in taxes owed that aren't being paid to this country. It's very unfair to the average taxpayer who pays his taxes and pays them on time to permit these monies to go uncollected. I've also suggested that on the domestic side there are areas where we can make some cuts. We ought to be able to come up with an agricultural policy in this country that gives our farm families a fair price and a decent future without spending $20-25 billion a year, which is what we've been doing under this administration. We can help people to live better lives, and at the same time save money by helping hundreds of thousands of families on welfare to get off or welfare, and to become productive citizens again. The thing I don't understand about Mr. Bush's approach to this is how he could possibly be serious about bringing that deficit down given what he says he wants to do. He seems to want to spend a great deal of money on just about every weapon system; he says he's against new taxes, although he's broken that pledge at least times in the last year that I know of; he wants to give the wealthiest taxpayers in this country a five year, $40 billion tax break. He also wants to spend a lot of money on additional programs. If he keeps this up, he's going to be the Joe Isuzu of American politics. (Laughter)

DUKAKIS: But I hope you won't take my five seconds away from me. I will say this -

LEHRER: Your two minutes is up, Governor.

DUKAKIS: If he's serious about what he's saying, then the only place he can go to balance that budget is to raid the Social Security Trust Fund, and he tried that in 1985, and I think he's going to try it again.

LEHRER: You have a minute to rebut.

BUSH: Is this the time to unleash our one-liners? That answer was about as clear as Boston harbor. (Laughter) Let me help the governor. There are so many things there, I don't quite know where to begin. When you cut capital gains, you put people to work. John Kennedy proposed cutting capital gains. Paul Tsongas, a liberal senator from Massachusetts said the dumbest thing I did was to oppose the capital gains cut. It's not going to cost the government money. It's going to increase revenues to the federal government, and it's going to create jobs. So that's one of the things that I think makes a big difference between us. Massachusetts doesn't have an enormous defense budget, but nevertheless, the governor raised taxes five different times. That happens to be a fact. And so let's kind of stay on the issue, and I have made a specific proposal for what I call a flexible freeze. And it permits - economists on the East Coast and West think it's good - it permits the president to sort out the priorities, and we continue to grow because I will not raise taxes.

LEHRER: Your time is up, too. A follow-up, John.

MASHEK: Mr. Vice President, you have vowed not to raise taxes of any kind during your administration and at the same time you've proposed this capital gains cut, you've proposed more incentive breaks for the oil industry. You've suggested new spending programs and even some Republicans say the flexible freeze you just spoke about will hardly make a dent in the deficit. Is the deficit no longer really a concern of yours, the Republican Party or the taxpayers?

BUSH: I think it's the Republican Party and my concern to bring it down. And presidential leadership that I want to provide in this area will bring it down, but we've got to get the Democrats - Congress under control. They do all the spending, they appropriate every dime and tell us how to spend every dime. I'd like to ask the Governor to join in getting for the president what 43 governors have, the line-item veto. He has to operate in Massachusetts under a balanced budget proviso. I would like a balanced budget amendment. But the dynamics of the economy - we cut the taxes and revenues are up by 25 percent in three years. So the problem is - it's not that the working is being taxed too little or the person working out - the woman working in some factory being taxed too little. It is that we are continuing to spend too much. So, my formula says grow at the rate of inflation. Permit the president to set the priorities on where we do the spending. And remember the Federal deficit has come down $70 billion in one year, in 1987. And if we - and the - actually this year Congress is doing a little better in controlling the growth of spending. Spending was only up something like 4 percent. So, it isn't that we're taking too little - from taxpayer - we're spending too much still. And the formula I've given you works, we've put it through a good economic model, we've got good economists on the West Coast, Michael Boskin and Marty Feldstein up there who's a very respected economist in the - Massachusetts. And they agree, that if we can do what I've said, we can get it down without going and socking the American taxpayer once again. Capital gains, one more point on that, please let's learn from history. A capital gains differential will increase jobs, increase risk taking, increase revenues to the Federal Government.

LEHRER: Governor, you have a minute to rebut.

DUKAKIS: Well, I hope all of those Americans out there who are watching us, listening to us and trying to make up their mind about which one of us ought to be president of the United States listen to the Vice President very carefully. What he's proposing after over a trillion in new debt which has been added in the Federal debt in the course of the past eight years, an IOU our children and grandchildren will be paying for years, is a tax cut for the wealthiest one percent of the people in this country, an average of about $30,000 that we're going to give to people making $200,000 a year. Why that's more than the average teacher makes. We've had enough of that, ladies and gentlemen. We've run up more debt in the last eight years than under all the presidents from George Washington to Jimmy Carter combined. It's time for a chief executive who can make tough choices, can work with the Congress, can get that deficit down and begin to build a strong fiscal foundation under this country.