JIM LEHRER: Good evening. Welcome to this 3rd and final debate among the 3 major candidates for president of the U.S. Governor Bill Clinton, the Democratic nominee, President George Bush, the Republican nominee, and independent candidate Ross Perot.

I am Jim Lehrer of the MacNeil-Lehrer Newshour on PBS. I will be the moderator for this debate, which is being sponsored by the Commission on Presidential Debates. It will be 90 minutes long. It is happening before an audience on the campus of Michigan State University in East Lansing.

The format was conceived by and agreed to by representatives of the Bush and Clinton campaigns, and it is somewhat different than those used in the earlier debates. I will ask questions for the first half under rules that permit follow-ups. A panel of 3 other journalists will ask questions in the 2nd half under rules that do not.

As always, each candidate will have 2 minutes, up to 2 minutes, to make a closing statement. The order of those, as well as that for the formal questioning, were all determined by a drawing.

Gentlemen, again welcome and again good evening.

It seems, from what some of those voters said at your Richmond debate, and from polling and other data, that each of you, fairly or not, faces serious voter concerns about the underlying credibility and believability of what each of you says you would do as president in the next 4 years.

Governor Clinton, in accordance with the draw, those concerns about you are first: you are promising to create jobs, reduce the deficit, reform the health care system, rebuild the infrastructure, guarantee college education for everyone who is qualified, among many other things, all with financial pain only for the very rich. Some people are having trouble apparently believing that is possible. Should they have that concern?

GOVERNOR CLINTON: No. There are many people who believe that the only way we can get this country turned around is to tax the middle class more and punish them more, but the truth is that middle-class Americans are basically the only group of Americans who've been taxed more in the 1980s and during the last 12 years, even though their incomes have gone down. The wealthiest Americans have been taxed much less, even though their incomes have gone up.

Middle-class people will have their fair share of changing to do, and many challenges to face, including the challenge of becoming constantly re-educated.

But my plan is a departure from trickle-down economics, just cutting taxes on the wealthiest Americans and getting out of the way. It's also a departure from tax-and- spend economics, because you can't tax and divide an economy that isn't growing.

I propose an American version of what works in other countries -- I think we can do it better: invest and grow.

I believe we can increase investment and reduce the deficit at the same time, if we not only ask the wealthiest Americans and foreign corporations to pay their share; we also provide over $100 billion in tax relief, in terms of incentives for new plants, new small businesses, new technologies, new housing, and for middle class families; and we have $140 billion of spending cuts. Invest and grow.

Raise some more money, spend the money on tax incentives to have growth in the private sector, take the money from the defense cuts and reinvest it in new transportation and communications and environmental clean-up systems. This will work.

On this, as on so many other issues, I have a fundamental difference from the present administration. I don't believe trickle down economics will work. Unemployment is up. Most people are working harder for less money than they were making 10 years ago. I think we can do better if we have the courage to change.

LEHRER: Mr. President, a response.

PRESIDENT BUSH: Do I have 1 minute? Just the ground rules here.

LEHRER: Roughly 1 minute. We can loosen that up a little bit but go ahead.

BUSH: Well, he doesn't like trickle down government but I think he's talking about the Reagan-Bush years where we created 15 million jobs. The rich are paying a bigger percent of the total tax burden. And what I don't like is trickle down government. And therein, I think Governor Clinton keeps talking about trickle down, trickle down, and he's still talking about spending more and taxing more.

Government -- he says invest government, grow government. Government doesn't create jobs. If they do, they're make-work jobs. It's the private sector that creates jobs. And yes, we've got too many taxes on the American people and we're spending too much.

And that's why I want to get the deficit down by controlling the growth of mandatory spending. It won't be painless. I think Mr. Perot put his finger on something there. It won't be painless but we've got to get the job done. But not by raising taxes.

Mr. and Mrs. America, when you hear him say we're going to tax only the rich, watch your wallet because his figures don't add up and he's going to sock it right to he middle class taxpayer and lower, if he's going to pay for all the spending programs he proposes.

So we have a big difference on this trickle down theory. I do not want any more trickle down government. It's gotten too big. I want to do something about that.

LEHRER: Mr. Perot, what do you think of the governor's approach, what he just laid out?

PEROT: The basic problem with it, it doesn't balance the budget. If you forecast it out, we still have a significant deficit under each of their plans, as I understand them.

Our challenge is to stop the financial bleeding. If you take a patient into the hospital that's bleeding arterially, step one is to stop the bleeding. And we are bleeding arterially.

There's only one way out of this, and that is to stop the deterioration of our job base, to have a growing, expanding job base, to give us the tax base -- see, balancing the budget is not nearly as difficult as paying off the $4 trillion debt and leaving our children the American dream intact.

We have spent their money. We've got to pay it back. This is going to take fair, shared sacrifice. My plan balances the budget within 6 years. We didn't do it faster than that because we didn't want to disrupt the economy. We gave it off to a slow start and a fast finish to give the economy time to recover. But we faced it and we did it, and we believe it's fair, shared sacrifice.

The one thing I have done is lay it squarely on the table in front of the American people. You've had a number of occasions to see in detail what the plan is, and at least you'll understand it. I think that's fundamental in our country, that you know what you're getting into.

LEHRER: Governor, the word "pain" -- one of the other leadership things that's put on you is that you don't speak of pain, that you speak of all things -- nobody's going to really have to suffer under your plan. You've heard what Mr. Perot has said. He's said it's got -- to do the things that you want to do, you can't do it by just taking the money from the rich. That's what the president says as well.

How do you respond to that? They said the numbers don't add up.

CLINTON: I disagree with both of them. For one thing, let me just follow up here. I disagree with Mr. Perot that the answer is to raise -- put a 50-cent gas tax on the middle class and raise more taxes on the middle class and the working poor than on the wealthy.

His own analysis says that unemployment will be slightly higher in 1995 under his plan than it is today.

And as far as what Mr. Bush says, he is the person who raised taxes on the middle class after saying he wouldn't. And just this year, Mr. Bush vetoed a tax increase on the wealthy that gave middle class tax relief. He vetoed middle class tax relief this year.

And furthermore, under this administration, spending has increased more than it has in the last 20 years and he asked Congress to spend more money than it actually spent. Now, it's hard to out-spend Congress but he tried to for the last 3 years.

So my view is the middle class is the -- they've been suffering, Jim. Now, should people pay more for Medicare if they can? Yes. Should they pay more for Social Security if they get more out of it than they paid in, they're upper income people? Yes. But look what's happened to the middle class. Middle class Americans are working harder for less money than they were making ten years ago and they're paying higher taxes. The tax burden on them has not gone down. It has gone up. I don't think the answer is to slow the economy down more, drive unemployment up more and undermine the health of the private sector. The answer is to invest and grow this economy. That's what works in other countries and that's what'll work here.

LEHRER: As a practical matter, Mr. President, do you agree with the governor when he says that the middle class, the taxes on the middle class -- do your numbers agree that the taxes on the middle class have gone up during the last --

BUSH: I think everybody's paying too much taxes. He refers to one tax increase. Let me remind you it was a Democratic tax increase, and I didn't want to do it and I went along with it. And I said I make a mistake. If I make a mistake, I admit it. That's quite different than some. But I think that's the American way.

I think everyone's paying too much, but I think this idea that you can go out and -- then he hits me for vetoing a tax bill. Yes, I did. And the American taxpayer ought to be glad they have a president to stand up to a spending Congress. We remember what it was like when we had a spending president and a spending Congress, and interest rates -- who remembers that? They were at 21.5% under Jimmy Carter, and inflation was 15. We don't want to go back to that.

And so yes, everybody's taxed too much and I want to get the taxes down, but not by signing a tax bill that's gonna raise taxes on people.

LEHRER: Mr. President, when you said just then that you admit your mistakes and you looked at Governor Clinton and said -- what mistake is it that you want him to admit to?

BUSH: Well, the record in Arkansas. I mean, look at it, and that's what we're asking America to have? Now look, he says Arkansas's a poor state. They are. But in almost every category they're lagging. I'll give you an example. He talks about all the jobs he's created in one or 2 years. Over the last ten years since he's been governor, they're 30% behind, 30% -- they're 30% of the national average. On pay for teachers, on all these categories, Arkansas is right near the very bottom.

You haven't heard me mention this before, but we're getting close now and I think it's about time I start putting things in perspective. And I'm going to do that. It's not dirty campaigning because he's been talking about my record for a half a year here, 11 months here. So we've got to do that. I gotta get it in perspective.

What's his mistake? Admit it, that Arkansas is doing very, very badly against any standard -- environment, support for police officers, whatever it is.

LEHRER: Governor, is that true?

CLINTON: Mr. Bush's Bureau of Labor Statistics says that Arkansas ranks first in the country in the growth of new jobs this year, first.

BUSH: This year.

CLINTON: 4th in manufacturing jobs, 4th in the reduction of poverty, 4th in income increase. Over the last 10 years we've created manufacturing jobs much more rapidly than the national average. Over the last 5 years our income has grown more rapidly than the national average. We are 2nd in tax burden, the 2nd lowest tax burden in the country.

We have the lowest per capita state and local spending in the country. We're low spending, low tax burden. We dramatically increased investment and our jobs are growing. I wish America had that kind of record and I think most people looking at us tonight would like it if we had more jobs and a lower spending burden on the government.

LEHRER: Mr. Perot, if you were sitting at home now and just heard this exchange about Arkansas, who would you believe?

PEROT: I grew up 5 blocks from Arkansas. Let's put it in perspective. It's a beautiful state. It's a fairly rural state. It has a population less than Chicago or Los Angeles, about the size of Dallas and Forth Worth combined.

So I think probably we're making a mistake night after night after night to cast the nation's future on a unit that small.

LEHRER: Why is that a mistake?

PEROT: It's irrelevant.

(Laughter)

LEHRER: What he did as governor of Arkansas is irrelevant?

PEROT: No, no, no, but I could say, you know, that I ran a small grocery store on the corner, therefore I extrapolate that into the fact that I can run Wal-Mart. That's not true.

(Laughter)

I can't protect an Arkansas company, you notice there, Governor.

LEHRER: Governor?

CLINTON: Mr. Perot, with all respect, I think it is highly relevant, and I think that a 4-billion budget of state and federal funds is not all that small, and I think the fact that I took a state that was one of the poorest states in the country and had been for 153 years and tried my best to modernize its economy and to make the kind of changes that have generated support from people like the presidents of Apple Computer and Hewlett-Packard and some of the biggest companies in this country, 24 retired generals and admirals and hundreds of business executives, are highly relevant. And, you know, I'm frankly amazed that since you grew up 5 blocks from there you would think that what goes on in that state is irrelevant. I think it's been pretty impressive.

PEROT: It's not --

CLINTON: And the people who have jobs --

(Applause)

The people who have jobs and educations and opportunities that didn't have them 10 years ago don't think it's irrelevant at all; they think it's highly relevant and they wish the rest of the country had them.

BUSH: I don't have a dog in this fight, but I'd like to get in on this.

CLINTON: Well, you think it's relevant.

(Laughter)

BUSH: Governor Clinton has to operate under a balanced budget amendment -- he has to do it, that is the law. I'd like to see a balanced budget amendment for America, to protect the American taxpayers, and then that would discipline not only the executive branch but the spending Congress, the Congress that's been in control of one party, his party, for 38 years. And we almost had it done.

And that institution, the House of Representatives -- everyone is yelling "Clean House!" One of the reasons is we almost had it done, and the speaker -- a very, able, decent fellow, I might add -- but he twisted the arms of some of the sponsors of that legislation and had them change their vote. What's relevant here is that tool, that discipline, that he has to live by in Arkansas, and I'd like it for the American people. I want the line-item veto. I want a check-off, so if the Congress can't do it, let people check off their income tax, 10% of it, to compel the government to cut spending. And if they can't do it, if the Congress can't do it, let them then have to do it across the board. That's what we call a sequester. That's the discipline we need, and I'm working for that -- to protect the American taxpayer against the big spenders.

LEHRER: Mr. President, let's move to some of the leadership concerns that have been voiced about you. And they relate to something you said in your closing statement in Richmond the other night about the president being the manager of crises. And that relates to an earlier criticism, that you began to focus on the economy, on health care, on racial divisions in this country, only after they became crises.

Is that a fair criticism?

BUSH: Jim, I don't think that's a fair shot. I hear it -- I hear it echoed by political opponents. But I don't think it's fair. I think we've been fighting from day one to do something about the inner cities. I'm for enterprise zones. I have had it in every single proposal I've sent to the Congress. And now we hear a lot of talk, oh, well, we all want enterprise zones, and yet the House and the Senate can't send it down without loading it up with a lot of, you know, these Christmas tree ornaments they put on the legislation.

I don't think in racial harmony that I'm a laggard on that. I've been speaking out since day 1. We've gotten the Americans for Disabilities Act, which I think is one of the foremost pieces of civil rights legislation. And yes, it took me to veto 2 civil rights quota bills because I don't believe in quotas, and I don't think the American people believe in quotas. And I beat back the Congress on that, and then we passed a decent civil rights bill that offers guarantees against discrimination in employment.

And that is good.

I've spoken out over and over again against antisemitism and racism, and I think my record as a member of Congress speaks for itself on that.

What was the other part of it?

LEHRER: Well, it's just that -- you've spoken to it. I mean, but the idea, not so much in specifics, but that it has to be a crisis before it gets your attention.

BUSH: I don't think that's true at all. I don't think that's true, but you know, let others fire away on it.

LEHRER: Do you think that's true, Mr. Perot?

PEROT: I'd like to just talk about issues, and so --

LEHRER: You don't think this is an issue?

PEROT: Well, no, but the point is that's a subjective thing. See, the subjective thing is when does President Bush react? And it would be very difficult for me to answer that in any short period of time.

LEHRER: Well, then, let's phrase -- I'll phrase it differently, then. He said the other night in his closing words in Richmond that one of the key things that he believes the American people should decide between -- among the 3 of you is who they want in charge if this country gets to a crisis.

Now, that's what he said, and the rap on the president is that it's only crisis time that he focuses on some of these things. So my question to you -- we're going to talk about you in a minute --

(Laughter)

-- my question to you --

PEROT: I thought you'd forgotten I was here.

LEHRER: No, no, no, no, no.

(Laughter)

But my question to you is, so -- if you have nothing to say about it, fine, I'll go to Governor Clinton, but --

PEROT: I will let the American people decide that. I would rather not critique the 2 candidates.

LEHRER: All right. Governor, what do you think?

CLINTON: The only thing I would say about that is, I think that on the economy, Mr. Bush said for a long time there was no recession, and then said it would be better to do nothing than to have a compromise effort with the Congress.

He really didn't have a new economic program until over 1300 days into his presidency, and not all of his health care initiative has been presented to the Congress even now.

I think it's important to elect a president who is committed to getting this economy going again, and who realizes we have to abandon trickle-down economics and put the American people first again, and who will send programs to the Congress in the first hundred days to deal with the critical issues that America is crying out for leadership on -- jobs, incomes, the health care crisis, the need to control the economy. Those things deserve to be dealt with from day one. I will deal with them from day 1. They will be my first priority, not my election year concern.

LEHRER: Mr. President?

BUSH: Well, I think you're overlooking that we have had major accomplishments in the first term. But if you're talking about protecting the taxpayer against his friends in the U.S. Congress, go back to what it was like when you had a Democratic president and a Democratic Congress. You don't have to go back to Herbert Hoover. Go back to Jimmy Carter, and interest rates were 21%, inflation was 15%. The misery index -- unemployment and inflation added together -- it was invented by the Democrats -- went right through the roof. We've cut it in half.

And all you hear about is how bad things are. You know, remember the question, are you better off? Well, is a homebuyer better off he can refinance the home, because interest rates are down? Is the senior citizen better off because inflation is not wiping out their family's savings? I think they are. Is the guy out of work better off? Of course he's not, but he's not gonna be better off if we grow the government, if we invest, as Governor Clinton says, invest in more government.

You've got to free up the private sector. You've got to let small businesses have more incentives. For 3 months -- quarters I've been fighting, 3 quarters been fighting to get the Congress to pass some incentives for small business. Capital gains, investment tax allowance, credit for first- time homebuyers. And it's blocked by the Congress. And then if a little of it comes my way, they load it up with Christmas trees and tax increases, and I have to stand up and favor the taxpayer.

LEHRER: I have to -- we have to talk about Ross Perot now or he'll get me, I'm sure. Mr. Perot, on this issue that I have raised at the very beginning and we've been talking about, which is leadership, as president of the U.S., it concerns -- my reading of it, at least, my concerns about you, as expressed by folks in the polls and other places, it goes like this.

You had a problem with General Motors. You took your $750 million and you left. You had a problem in the spring and summer about some personal hits that you took as a potential candidate for president of the U.S. and you walked out.

Does that say anything relevant to how you would function as president of the US?

PEROT: I think the General Motors thing is very relevant. I did everything I could to get General Motors to face its problems in the mid-'80s while it was still financially strong. They just wouldn't do it, and everybody now knows the terrible price they're paying by waiting until it's obvious to the brain-dead that they have problems.

Now, hundreds, thousands of good, decent people, whole cities up here in this state are adversely impacted because they would not move in a timely way. Our government is that point now. The thing that I am in this race for is to tap the American people on the shoulder and to say to every single one of you, fix it while we're still relatively strong. If you have a heart problem, you don't wait till a heart attack to address it.

So the General Motors experience is relevant. At the point when I could not get them to address those problems, I had created so much stress in the board, who wanted to just keep the Lawrence Welk music going, that they asked to buy my remaining shares. I sold them my remaining shares. They went their way. I went my way because it was obvious we had a complete disagreement about what should be done with the company.

But let's take my life in perspective. Again and again, on complex, difficult tasks, I have stayed the course. When I was asked by our government to do the POW project, within a year the Vietnamese had sent people into Canada to make arrangements to have me and my family killed. And I had 5 small children, and my family and I decided we would stay the course, and we lived with that problem for 3 years.

Then I got into the Texas War on Drugs program and the big-time drug dealers got all upset. Then when I had 2 people imprisoned in Iran, I could have left them there. I could have rationalized it. We went over, we got them out, we brought them back home. And since then, for years, I have lived with the burden of the Middle East, where it's eye for an eye and tooth for a tooth country, in terms of their unhappiness with the fact that I was successful in that effort.

Again and again and again, in the middle of the night, at 2 or 3 o'clock in the morning, my government has called me to take extraordinary steps for Americans in distress, and again and again and again I have responded. And I didn't wilt and I didn't quit.

Now, what happened in July we've covered again and again and again. But I think in terms of the American people's concern about my commitment, I'm here tonight, folks; I never quit supporting you as you put me on the ballot in the other 26 states; and when you asked me to come back in, I came back in. And talk about not quitting, I'm spending my money on this campaign; the 2 parties are spending your money, taxpayer money. I put my wallet on the table for you and your children. Over $60 million at least will go into this campaign to lead the American dream to you and your children, to get this country straightened out, because if anybody owes it to you, I do. I've lived the American dream; I'd like for your children to be able to live it, too.

(Laughter)

LEHRER: Governor, do you have a response to the staying- the-course question about Mr. Perot?

CLINTON: I don't have any criticism of Mr. Perot. I think what I'd like to talk about a minute, since you're asking the question, is the General Motors issue. I don't think there's any question that the automobile executives made some errors in the 1980s, but I also think we should look at how much productivity has increased lately, how much labor has done to increase productivity and how much management has done. And we're still losing a lot of auto jobs, in my judgment, because we don't have a national economic strategy that will build the industrial base of this country.

Just today I met with the presidents and the vice presidents of the Willow Run union here, near here. They both said they were Vietnam veterans supporting me because I had an economic program to put them back to work. We need an investment incentive to modernize plant and equipment; we've got to control the health care costs for those people -- otherwise we can't keep the manufacturing jobs here; and we need a tough trade policy that is fair, that insists on open markets and return for open markets. We ought to have a strategy that will build the economic and industrial base.

So I think Mr. Perot was right in questioning the management practices. But they didn't have much of a partner in government here as compared with the policies the Germans and the Japanese followed, and I believe we can do better. That's one of the things I want to change. I know that we can grow manufacturing jobs. We did it in my state, and we can do it nationally.

LEHRER: Mr. President, do you have a response?

BUSH: To this?

LEHRER: Yes.

BUSH: Well, I wondered, when Governor Clinton was talking to the auto workers, whether he talked about his and Senator Gore's favoring CAFE standards, fuel efficiency standards, of 40 miles per gallon. That would break the auto industry and throw a lot of people out of work.

As regarding Mr. Perot, I take back something I said about him. I once said, in a frivolous moment, when he got out of the race: If you can't stand the heat, buy an airconditioning company. And I take it back, because I think -- he said he made a mistake. And the thing I find is if I make a mistake, I admit it. I've never heard Governor Clinton make a mistake.

But one mistake he's made is fuel efficiency standards at 40 to 45 miles a gallon will throw many auto workers out of work, and you can't have it both ways. There's a pattern here of appealing to the auto workers and then trying to appeal to the spotted owl crowds or the extremes in the environmental movement. You can't do it as president: you can't have a pattern of one side of the issue one day and another the next.

So my argument is not with Ross Perot; it is more with Governor Clinton.

LEHRER: Governor, what about that charge? Do you want it both ways on this issue?

CLINTON: Let's just talk about the CAFE standards -- that's the fuel efficiency standards. They are now 27.5 miles per gallon per automobile fleet. I never said -- and I defy you to find where I said -- I gave an extensive environmental speech in April, and I said that we ought to have a goal of raising the fuel efficiency standards to 40 miles a gallon. I think that should be a goal. I have never said we should write it into law if there is evidence that that goal cannot be achieved. The Natl Science Foundation did a study which said it would be difficult for us to reach fuel efficiency standards in excess of 37 miles per gallon by the year 2000.

I think we should try to raise the fuel efficiency. And let me say this. I think we ought to have incentives to do it, I think we ought to push to do it. That doesn't mean we have to write it into the law.

Look, I am a job creator, not a job destroyer. It is the Bush administration that has had no new jobs in the private sector in the last 4 years. In my state, we're leading the country in private sector job growth.

But it is good for America to improve fuel efficiency. We also ought to convert more vehicles to compressed natural gas. That's another way to improve the environment.