Rep. Mike Rogers on deepening crisis in Ukraine; Rep. Darrell Issa talks IRS investigation; Sen. Rob Portman, Rep. Chris Van Hollen preview Obama's new budget

Written by Chris Wallace / Published March 02, 2014 / Fox News Sunday

Special Guests: Rep. Mike Rogers, Rep. Darrell Issa, Rep. Chris Van Hollen, Sen. Rob Portman

This is a rush transcript from "Fox News Sunday," March 2, 2014. This copy may not be in its final form and may be updated.

CHRIS WALLACE, ANCHOR: I'm Chris Wallace.

The crisis in Ukraine deepens as the U.S. warns Russia not to try to split the country.

(BEGIN VIDEOTAPE)

PRESIDENT BARACK OBAMA: The United States will stand with the international community in affirming that there will be costs for any military intervention in Ukraine.

WALLACE: Russian troops move into Crimea as Ukraine's interim government accuses the Kremlin of an invasion. What happens now? We'll have a live report.

And the chair of the House Intelligence Committee, Mike Rogers, joins us with the latest, only on "Fox News Sunday."

Then, a new investigation into IRS targeting of conservative groups. We'll talk with house oversight committee chair who is calling back former IRS officials Lois Lerner who has refused to testify. It's a "Fox News Sunday" exclusive.

And President Obama prepares to unveil his new budget, with domestic spending increases, defense cuts and no entitlement reform.

SPEAKER OF THE HOUSE JOHN BOEHNER, R-OHIO: His budget apparently will make no effort to address the drivers of our debt and our deficit.

WALLACE: We'll sit down with leaders of the Congressional Budget Committee, Republican Senator Rob Portman, and Democratic Congressman Chris Van Hollen.

Plus, Arizona Governor Jan Brewer vetoes a bill that would protect religious freedom over gay rights. But other states may take up similar measures. Our Sunday panel weighs in.

And our Power Players of the Week -- they are making those "please don't touch" signs at museums a thing of the past.

All, right now, on "Fox News Sunday."

(END VIDEOTAPE)

WALLACE: And hello again from Fox News in Washington.

We begin with a fast moving developments in Ukraine. President Obama spoke with Russian President Putin and said the U.S. will suspend planning for the G-8 summit in Sochi this summer. Britain and France have just joined the U.S.

But Putin got approval from the Russian parliament to send troops into Ukraine. And the Russians have seized control of the Crimean peninsula without firing a shot. Ukraine's government says we are on the brink of disaster and is asking the U.S. and Europe for help.

Let's get the latest now from Fox News national security correspondent Jennifer Griffin -- Jennifer.

JENNIFER GRIFFIN, FOX NEWS NATIONAL SECURITY CORRESPONDENT: Chris, military historian say this could be the most dangerous situation in Europe since the Soviet invasion of Czechoslovakia. President Obama spoke by phone with Russian President Vladimir Putin for 90 minutes Saturday, demanding Moscow withdraw its forces back to bases in Crimea.

The president offered to send international monitors to Ukraine. Ukrainian officials say thousands of Russian troops have flooded into Crimea, convoys left the naval base surrounding and disarming Ukrainian forces. Yet, the only real action about it U.S. is to threaten to pull out of preparatory meetings for a G-8 summit set to be hosted by Russia in Sochi this June.

Ukraine closed its air space to non-civilian aircraft and withdrew its coast guard vessels from two Crimea bases. Ukraine's prime minister said his country is on the brink of disaster, warning this could be the beginning of war. Pro-Russian protests broke out in four cities in Eastern Ukraine, where Russian speaking Ukrainians asked Moscow to defend them, a virtual invitation to Putin, whose parliament authorized him to use force in a unanimous vote.

Meanwhile, Ukraine has called up all men under the age of 40 to prepare to fight. Weak warnings by U.S. officials did not deter Russia from occupying Crimea.

(BEGIN VIDEO CLIPS)

CHUCK HAGEL, DEFENSE SECRETARY: I'm closely watching Russia's military exercises along the Ukrainian border.

JOHN KERRY, SECRETARY OF STATE: The intervention would in our judgment be a very grave mistake.

(END VIDEO CLIPS)

GRIFFIN: The supreme allied commander told reporters Thursday NATO had no military contingencies prepared for Ukraine. The Pentagon says the same. An emergency meeting of the North Atlantic Council is scheduled for today -- Chris.

WALLACE: Jennifer, thank you.

For more on what happens now, we want to bring in the chair of the House Intelligence Committee, Mike Rogers.

And, Chairman Rogers, welcome back to "Fox News Sunday."

REP. MIKE ROGERS, R-MICH.: Thanks, Chris.

WALLACE: What is the latest intel? What is happening on the ground in Crimea? And from your sources, how far does Putin intend to go?

ROGERS: Well, I think he certainly established that the Crimea is something he does not want to lose his influence over and is willing to commit military troops. So, we know he has special shock type troops that are trained and especially trained. And we believe there are some regular units now on the ground in Crimea.

WALLACE: What's your sense? Does Putin intend to take back Crimea? Does he intend to go further into eastern and southern Ukraine, which is also very heavily oriented towards the Russians? Or he is just using this territory now as leverage over whatever the final deal is in Ukraine?

ROGERS: Yes. I think this is the most important territory to Putin himself. And there is an old expression that Russia without the Ukraine is a country, and Russia with the Ukraine is an empire.

I do believe Putin understand that's. But the most important part for him is military and strategic and both economic impact is the Crimean peninsula. So, I think that's why you see such an aggressive, forceful attempt now to at least build the case for the Crimea to allow them to go into the Russian Federation.

WALLACE: Go into the federation?

ROGERS: I believe it will.

We had an interesting thing happen. The upper chamber in Moscow laid out a bill that would allow them to take any part of that -- their portion of any portion of Ukraine into Russia. That is a dangerous standard indeed. And I think that's probably more bluster. I think clearly that they want the Crimea.

WALLACE: So, we're talking annexation?

ROGERS: I believe that they've allowed them -- I think the way they phrased that was to say that if they want to go into the Russian Federation, they would take them. So, it wouldn't be a direct annexation from Russia, it would be the Crimea saying they want to come into Russia and they would allow them to do that. That's the way they structure it.

WALLACE: In his statement on Friday, President Obama talked about unspecified costs if there was any further intervention. We understand from the 90-minute phone call yesterday from the Oval Office, between the president and Vladimir Putin, that he talked -- specifically said that U.S. is suspending its involvement in preparatory talks for the Sochi economic G-8 Summit this summer.

Is any of that going to get Putin's attention?

ROGERS: Not even a little bit. If any of that would have gotten his attention, he wouldn't have been there in the first place.

So, this is not an isolated incident. If you -- they're expanding their border. They, Russia, in (INAUDIBLE), has moved out the borders from 11 kilometers in Georgia, nobody said a word. This is direct relation to what's happened in Syria, the negotiations there. They thought they did well. They're holding their position. So, if you look at a series of events, Russia believes that there is nothing going to stop them, which is why they've been so aggressive in Crimea. There is not a lot of options on the table. And candidly -- and I'm a fairly hawkish guy -- sending more naval forces to operate in the Black Sea is not a good idea given that we know that that bay has long passed. Unless you're intending to use them, I wouldn't send them.

And so, you've got now only economic options through the E.U. I would use those and we shouldn't let the Ukraine get the E.U. and the United States into a civil war in the Ukraine. But there are lots of really good options leading up to.

That I would just cancel in Sochi. I wouldn't talk about the planning session. I would cancel it and I would go into a very aggressive posture on how we help the Ukraine financially.

If they can get through the financial troubles, they could survive.

WALLACE: OK. So, let's sort of talk big picture. How do you think President Obama has been handling relations with Russia versus how Vladimir Putin has been handling relations with the United States?

ROGERS: Well, I think Putin is playing chess and I think we're playing marbles. And I don't think it's even close.

So, if you look at the nuclear negotiations, we got our fanny handed to us. They took tactical nukes out of the equation. Huge mistake, especially for our allies in the Baltic.

When you move down the list in Syria, the Russians got everything that they needed, they believe they needed in Syria. And so they've been running circles around us. I think it's the naive position on a National Security Council and the president's advisors that if we just keep giving things to Russia, they'll finally wake up and say, boy, the United States isn't all that bad.

That is completely missing the motivation of why Russia does what Russia does. And, again, they have an interest in expanding their buffer zone by influence, I don't think by Russian occupation, but by influence in cases like the Crimea, I think Moldova next, and other places, that it's in their interest to continue to push out that buffer zone.

And, by the way, the big one that started this was the absolute retreat on our missile defense system in Poland and Czechoslovakia. It caused huge problems for our allies and emboldened the Russians. And it really has been a down hill slide.

WALLACE: Let's talk about the sanctions. You said sending U.S. ships to the Black Sea doesn't make sense. You say that we should just boycott the G-8 summit in Sochi.

Would you kick Russia out of the G-8? How tough would you get in terms of economic trade and commercial transactions with Russia?

ROGERS: I clearly would start the process of removing them from the G-8, and I would do it in a public way, with milestones that they could meet or lose their opportunity to continue serving in the G-8.

I don't believe Russia believes that's always in their number one best interest. They still have leverage. I know people say they lost their leverage on gas and energy. Don't believe that's exactly true. They still have that.

So, yes, that would be something that would be a little bit embarrassing to Putin along the way. They ought to start that process now. They ought to be very aggressive about it.

You have Russian troops in the Crimea. That's a serious problem. It's a serious problem for the stability of the Ukraine and I argue other parts of Europe. So we have to be aggressive now. And those are the kind after aggressive things that can you do that doesn't involve the U.S. Navy.

WALLACE: If the president fails to move aggressively as you would have him do, should Congress move on its own to start to impose some of these sanctions?

ROGERS: I think we should. I think we're obligated to do that and we ought to -- we should put packages together that ramp it up.

If you recall, all of the sanctions that happened on Iran happened in Congress. The president acquiesced. He didn't support but acquiesced at the end. I think congress is going to have to play a very important role in this if we believe it's important to tone down the military options of civil war in the Ukraine.

WALLACE: Finally, looking at President Obama, looking at Vladimir Putin, how do you see this ending? What's going to happen in Ukraine?

ROGERS: Well, you know, nobody has that magic ball. I would believe that Russians would love to see the Crimea as part of the Russian Federation. It was there until 1954 when it was given to the Soviet Republic of the Ukraine at the time. I think they'd like it back. It's strategic for them militarily and economically.

WALLACE: You don't see Putin backing down?

ROGERS: I don't believe that there's a good solution unless he can maintain his influence. He'll withdraw his troops if he can maintain his influence the way he did in South Ossetia, and that way he's done in Moldova and other places.

WALLACE: Chairman Rogers, thank you. Thanks for coming in today. And, of course, we'll be continuing to monitor developments in Ukraine. Thank you, sir.

ROGERS: Thank you.

WALLACE: For the record, we invited Secretary of State Kerry to join us today. But although the White House put him out on all the other broadcast Sunday shows, they declined to make him available to us or you.

Up next, former IRS official Lois Lerner refused to testify about the targeting of conservative groups. Now, House Oversight Committee chair Darrell Issa wants to question her again based on new information he's uncovered. We'll have an exclusive interview.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

LOIS LERNER, FORMER IRS OFFICIAL: After very careful consideration, I've decided to follow my counsel's advice and not testify or answer any of the questions today.

(END VIDEO CLIP)

WALLACE: Former IRS official Lois Lerner refusing to testify last May about her role in the targeting of conservative groups seeking tax exempt status. This after the Treasury Department inspector general found 298 applications had been singled out for special review, including 100 percent of groups with "Tea Party" or "patriot" in their name, but only 30 percent of groups with "progress" or "progressive."

Now, Republican Congressman Darrell Issa, chair of the powerful House Oversight Committee, wants Lerner to testify again Wednesday based on new information he has.

Chairman Issa, welcome back to "Fox News Sunday."

REP. DARRELL ISSA, R-CALIF.: Well, thanks for having me back and thanks for covering what we believe is going to be a good fact-finding hearing.

WALLACE: All right. Let's talk about that because when you recall Lois Lerner under subpoena to testify again this coming Wednesday, her lawyers said can you call her but she is not going to testify. She's not going to answer any questions, continue to take the Fifth. But I understand you have some late breaking news.

ISSA: We do. Her attorney indicates now that she will testify. We've had a back and forth negotiation. But quite frankly, we believe that evidence that we've gathered causes her in her best interest to be summoned to testify.

WALLACE: But let me make sure -- Lois Lerner, former IRS official, who took the Fifth last night, will testify before your committee?

ISSA: According to her attorney.

WALLACE: This will be on Wednesday?

ISSA: Will be on Wednesday. WALLACE: What changed her mind? Was it -- did you give her immunity for her testimony? Was she frightened by the possibility of contempt? What changed her mind?

ISSA: Well, we really don't know. What we do know is that during the intervening period, we interviewed all the people around her to build a case for why she is at the center of this targeting, why it wasn't Cincinnati as you said in your opener. It wasn't liberal and conservative groups. It was groups targeted first by their name, "Patriot" or "Tea Party," and then later at Lois Lerner's insistence, by some objective statements. But for the most part, it continued to target conservative groups.

WALLACE: A couple of quick housekeeping questions. You did not offer her immunity. She is not going to get immunity for this testimony?

ISSA: We did not.

WALLACE: Is it your understanding that she will answer all questions that you and the committee have about her involvement in the targeting of conservative groups?

ISSA: That's our understanding. As you know, our committee did vote that she had waived her Fifth Amendment rights when she made verbatim statements under oath about not having broken any rules and regulations and authenticated other statements.

WALLACE: All right. Let's get to where the rubber hits the road. What questions do you have for Lois Lerner? What are you going to ask her? What do you hope she's going to tell you?

ISSA: Well, Chris, we know what she did in most cases. What we don't know is why she did it. What we do understand, of course, is this is someone who came from the Federal Election Commission. She came with a bias towards groups having to disclose.

501C4s are different in that because they don't primarily do electioneering, if you will, they don't have to disclose donors. And that seems to be one of the questions that could lead us to understand why a liberal individual who favored disclosure wanted to make sure that Tea Party groups had to disclose who their donors were.

WALLACE: Now, when you say you want to know why she did it, does that mean you want to know does this end with her or does it go higher up than her?

ISSA: That's certainly a big part of it. We know a lot of people she coordinated with, some of the things she said, how they either acquiesced or chafed against the things she was asking them to do. We do really want to know that burning question of who else knew about it? Who else coordinated?

And candidly, I think the American people want to know that it won't happen again. And that's going to be the harder part for Ways and Means Committee and others to do is to put in checks and balances so that no one person, if it is in fact one person, can ever leave the targeting of somebody for audits or for this kind of treatment of not giving them a fair yes or no on an application.

WALLACE: Let me ask you, obviously when she testifies Wednesday, you're going to know more about this. Do you think it's possible that it's just one person that this targeting that began didn't end -- but began with Lois Lerner?

ISSA: Well, there were other people who knew or should have known better and went along it with. But certainly, she was in a powerful position and very well could have been mostly acting on her own.

But again, there should have been safeguards to see this. The accumulation of not just some but every single application of it includes Tea Party or patriot, that flies in the face of managers doing their job to oversee somebody at the IRS. You've got to hold people accountable knowing that they're human, that there will be people doing wrong in government. There have to be checks and balances. And if it's the IRS, you'd better believe the American people, from the ACLU to the NRA, across the spectrum, want to make sure that politics stay out of the IRS.

WALLACE: Now, we have received a draft copy of a report that's been written by the House Republicans on your committee. I want to put up part of that.

In the executive summary you, the House Republicans say, "She was keenly aware of acute political pressure to crack down on conservative-leaning organizations."

Congressman Issa, pressure from whom?

ISSA: That's one of our questions. She says things like they put pressure. So e-mails indicate that there was pressure. We don't know whether it was the president shaking his fingers at the House, the Senate, and the Supreme Court over Citizens United or whether it was --

WALLACE: During the State of the Union Address?

ISSA: During the State of the Union, where she felt the pressure. Only she can tell us where she thought that pressure was.

WALLACE: The report also cites a newly discovered e-mail from September 16th, 2010, in which Lerner discusses how to check whether groups seeking tax exempt status are engaged in improper political activity. This is an e-mail to other people in the IRS.

And she says, quote, "We need to have a plan. We need to be caution so it isn't a per se political project."

What do you think that e-mail shouts?

ISSA: It's a series of e-mails. And when you read them in context, what you realize is she's trying to walk back any kind of ability for someone to look at the record and say, aha, this was political targeting. And, yet, it clearly is political targeting.

WALLACE: Now, there is a new effort under way, the IRS promulgated a regulation under which it would impose new boundaries on what these 501c4s, that's under the tax code. These are social welfare groups applying for tax exempt status, new limits on how much political activity they can be involved in. And the administration and IRS sold this as a reaction to the scandal, like this is what we're doing to try to clear up the scandal.

I gather you've gotten information that this began long before the scandal broke.

ISSA: Exactly, Chris. Lois Lerner was part of the project of targeting conservative groups delaying and cracking down on existing ones. And then, this rule change was worked on all the way back at that point to a great extent we believe this is the result of citizens united. This is their attempt to get what they don't have and couldn't get at the SEC through the IRS.

WALLACE: On Super Bowl Sunday, Bill O'Reilly asked President Obama about the IRS targeting of conservative groups. And here is that exchange.

(BEGIN VIDEO CLIP)

OBAMA: There were some bone-headed decisions --

BILL O'REILLY, FOX NEWS HOST: Bone-headed decisions --

OBAMA: -- out of -- out of a local office.

O'REILLY: But no mass corruption?

OBAMA: Not even mass corruption, not even a smidgen of corruption, I would say.

O'REILLY: OK.

(END VIDEO CLIP)

WALLACE: Now, there are six current investigations going on of the IRS scandal -- four inside Congress, two inside the administration. One in Treasury, one in the Justice Department.

A couple of questions: one, have any of those investigations been completed and cleared the IRS of wrongdoing? And what do you think of the president stating there there's not a smidgen of corruption?

ISSA: Well, he'll have to define smidgen and corruption for all of us because there certainly is real evidence that there was wrongdoing and that wrongdoing was not in Cincinnati but in fact, in Washington, D.C.

WALLACE: Let me just point out just quickly that when you talk about Cincinnati, there was the initial allegation that this was a rogue office, an IRS office in Cincinnati, and that they were responsible for all this. Go ahead.

ISSA: Exactly. And that's where the president is reintroducing things that have already been disproven. But let's understand this is the administration that wants to have you believe a video launched the Benghazi murders when in fact that was disproven. And even after it was reintroduced by this administration again and again, including by this president, Senator Feinstein in the select intelligence committee in the Senate led by Democrats made it clear that the factors that led to that had a lot more to do with terrorism than it ever would a video.

WALLACE: All right. That brings up my final question for you, because you have come under fire both in the IRS and Benghazi and other investigations of your committee for political witch hunts. They point specifically to a speech you gave to GOP fund-raiser in New Hampshire in February about the Benghazi terror attack. Here's a clip.

(BEGIN VIDEO CLIP)

ISSA: Why there was not one order given to turn on one Department of Defense asset? I have my suspicions, which is Secretary Clinton told them to stand down.

(END VIDEO CLIP)

WALLACE: But "The Washington Post" fact checker cited that bipartisan report you mentioned, the Senate Intelligence Committee, that there were no stand down orders, and there is also no evidence that Clinton ever spoke to Leon Panetta, then defense secretary, that night. And for the second time, they gave you four Pinocchios, which is their highest level of falsehood.

How do you respond to that, sir?

ISSA: Well, first of all, the first one was for quoting something that was in somebody else's report, believing that it was true, which is an unusual way to get four Pinocchios.

But in this case, the secretary of state was responsible for this normalization policy that existed in Benghazi. Witnesses have told us that they asked for help. The president himself implied that he told Leon Panetta, then secretary of defense, to use what efforts they could and what we know for a fact is not one aircraft, not one rescue of DOD was launched to get there in that 8 1/2 hours.

WALLACE: But to be honest, do you not have any evidence that Secretary Clinton told Leon Panetta to stand down.

ISSA: Well, the use in answering questions in a political fund- raiser, that was in response to a question, the term "stand down" is not used in some sort of an explicit way, but rather the failure to react, the fact that only State Department assets and only assets inside the country were ever used, that members of the Armed Forces, gun carrying, trained people were not allowed to get on the aircraft to go and attempt to rescue. Those kinds of things through State Department resources represent a stand down. Not maybe on the technical terms of "stand down, soldier," but on what the American people believe is a failure to respond what they could have.

WALLACE: All right. Congressman Issa, thank you. Thank you so much for coming in today.

And again, we want to point out the big news, and the big news is that Lois Lerner, according to her attorney, is going to waive her Fifth Amendment rights and will testify before Issa's House Oversight Committee this week.

Thank you for the news. And we'll be following the hearing.

ISSA: Thank you, Chris.

WALLACE: Also this week, the White House releases its budget with controversial proposals for domestic spending increases, but big defense cuts. We'll discuss it with two budget leaders, Senator Rob Portman and Congressman Chris Van Hollen.

And be sure to tell us what you think about the president's budget on Facebook, and share your favorite moment from today's show with other "FNS" fans.

(COMMERCIAL BREAK)

WALLACE: On Tuesday President Obama unveils his 2015 budget calling for an end to the era of austerity. And while we've just seen an outline so far, there is already a fierce debate here in Washington. Joining us now members of both Congressional Budget Committees, from the Senate, Ohio Republican Rob Portman and from the House, Maryland Democrat Chris Van Hollen. In his new budget, President Obama moves away from deficit reduction calls for new spending or investment as he calls it. Let's put some of the details on the screen. He proposes $56 billion job training, manufacturing hubs and early childhood education and $300 billion for new infrastructure projects. He would pay for all this through closing corporate loopholes. And here is how he will sound.

(BEGIN VIDEO CLIP)

OBAMA: As Democrats, we believe that instead of more tax breaks for the few, we should make investments to grow the economy for everyone.

(END VIDEO CLIP)

WALLACE: Senator Portman, what do you think of the new budget?

SEN. ROB PORTMAN, R-OHIO: Well, I think if that's correct, Chris, it's really sad. Because we're looking at two things right now. One is incredibly slow economic growth. The slowest recovery we've had since World War II. We just saw that the fourth quarter numbers were adjusted downward. So we know that last year's growth was far below the year before. We also know that unemployment is extremely high. We know that we have record number of people on long term unemployment. So, our economy is hurting. The last two months jobs numbers were the worst we've had in three years. So we need economic growth, not new taxes. Because new taxes are going to make it harder to grow the economy. Second we know, because the Congressional Budget Office just told us a week or so ago that we have record levels of debt and growing levels of debt. Another $10 trillion added to our debt in the next ten years. And we get backed up to a trillion dollars a year in deficits during that time period. So we know those two things. And, yet, the president saying, no, we're going to put more taxes on the economy. And we're not going to deal with the debt and deficit.

WALLACE: Let me bring in, because we have got limited time, let me bring in Congressman Van Hollen. The president - one of the reasons he says we can afford new spending, even though this is paid for it, because the deficit is going down. But congressman, that only tells part of the story. According to the non-partisan Congressional Budget Office, the deficit does drop this year and next. But then if you look in the out years, it starts to go up again and reaches over $1 trillion again by 2022.

REP. CHRIS VAN HOLLEN, D-MD.: Well, that's right. I can just say a quick word on the Ukraine, Chris. In response to the earlier section. I think we're 48 hours in an international crisis. I would hope Americans would focus on condemning the actions of Putin rather than knee jerk way again criticizing the president of the United States. Let's stand together on this.

With respect to the president's budget, he does exactly what we should be doing. Right now as Rob said, we have seen economic growth. But we're not nearly where we want to be. We need to be ticking on all cylinders. Which is why the president has said let's end some of the tax breaks that actually encourage U.S. companies to move jobs overseas, use those savings to invest in infrastructure here at home. Let's build the backbone of our infrastructure, our roads, our ports, our airports, our broadband. That's what we need to compete. The president recognizes that we've got to deal with the long term deficit issues, which is why his budget is as they've indicated will reduce those long term deficits to below two percent of GDP. So, it will be growing slower and ...

WALLACE: And then it goes back up? And then it goes back up.

VAN HOLLEN: Now, they're on a downward trajectory at the end of that ten-year period.

WALLACE: No, it is as we just showed, it goes up over a trillion dollars in 2020 ....

(CROSSTALK)

VAN HOLLEN: No we're talking about the deficits. We're talking about the deficits at the end of the ...

WALLACE: I am talking about the deficits. The deficits go up.

VAN HOLLEN: The president will submit his budget in a couple of days. And no one is actually seeing it.

WALLACE: I'm sorry, what were you going to say, Senator Portman?

PORTMAN: No, Chris, look, we clearly have a growing debt problem. And everybody says this is the most predictable economic crisis in the country's history. And we've got to deal with it. The president refuses to. If you look at his budget last year, it barely had deficit reduction relative to what would happen otherwise. In other words, there was a slight decrease in the deficit. You would hope there would be a significant one. But the only reason there was, was because he had a provision in there about a more accurate measure of inflation under the CPI and Social Security. We now hear that he's actually going to take that out of the budget at a time when Social Security has a $63 billion shortfall every year, at a time again when we were told by this nonpartisan Congressional Budgets Office things are getting worse, not better. So, if he takes that out as, apparently, he's going to do based on the leaks because it's a partisan political year, he's not going to have any deficit reduction. In fact, he's going to increase the debt and deficit. So, if that's true, boy, again, this is not responsible. This is not responsive to what is really happening.

WALLACE: Let me bring in Congressman Van Hollen again, because what we're talking about here is the biggest part, by far the biggest part of the budget. And that entitlements. Mandatory spending. Last year as part of the budget, the president included chained CPI, which is a slower measure of inflation for Social Security. This year, he's taking that out. Now regardless of the rest of the economy, the fact is that the entitlements are running out of money and you're taking out a way to save money.

VAN HOLLEN: Well, two things on that. I find it curious that right now as we speak many Republicans are telling the president and CMS that we should not end some of the overpayments to the private insurers and the Medicare system, which will drive up long term deficits. And by the way, they had included the savings ...

(CROSSTALK)

WALLACE: Can we speak on chained CPI?

VAN HOLLEN: Absolutely. I'm glad Rob brought this up. The president included it. I happen to think that on the merits it has - and I have concerns with it, but the president included that in last year's budget as part of an agreement. Part of a package where he said Republicans, you should join me in at least closing some tax loopholes, even one, for the purpose of reducing our long term deficit. Republicans couldn't identify a single tax loophole that they would close for the purposes of deficit reduction. So, I hear - Rob saying that they're all concerned about reducing the deficit. But they wouldn't close one tax loophole coupled with chained CPI.

(CROSSTALK)

VAN HOLLEN: It's not in this budget.

WALLACE: Congressman, I get your point.

VAN HOLLEN: He says the deal ...

WALLACE: I get your point. Let me ask Senator Portman. The fact is the president made it clear when he included chained CPI in the budget last year it was a bargaining chip and the argument is, and there's a point to it, you guys, the GOP, refuse to make the bargain.

PORTMAN: Now look, that's ridiculous with all due respect. Chained CPI actually has huge tax increases in it. Because the change is not only the CPI index for beneficiaries on important programs, again, to a more accurate measure of inflation. But it also changes the way the brackets and the tax code are indexed for inflation. Therefore, it has almost as much tax increase in it as it has, again ...

WALLACE: So, wait a minute. I'm confused. I thought that Republicans were for chained CPI. You are now saying you're against it?

PORTMAN: No. What I'm saying is that Democrats who say you can't touch chained CPI unless you raise taxes should know that chained CPI has within it tax increases because of the indexing of the brackets. And so, this is a - it's a ridiculous argument. This is one that is balanced if you want balance the way the president wants to do, which is to have taxes and some important restraints on spending. Second, look, this president has gotten plenty of tax increases. $620 billion just over a year ago.

WALLACE: Gentlemen, I don't mean to interrupt you both.

(CROSSTALK)

WALLACE: But I'm saying equal opportunity, because I want to cover one last area. And that is - there is one area where there are big cuts, big cuts. And that's for the Pentagon. Defense Secretary Hagel says that he would shrink the Army from a post 9/11 high of 570,000 to less than 450,000, which would be the smallest Army since 1940. Congressman Van Hollen, especially now with you talk about Russian aggression in Ukraine, should we be shrinking the Army to pre- World War II levels?

VAN HOLLEN: I don't think we need an army that as opposed to support two overseas ground wars that we're winning at the same time. I think you can respond to the threats as they arise with the lower army. You still have the Air Force. You still have the Navy. You still have a very large Army to go with it. And the other point I'd make, Chris, is part of the budget agreement that was reached in a bipartisan way calls for reductions in defense spending through fiscal year 2015. The president has actually said he doesn't think that defense spending is enough, which is why he's proposed additional funds, paid for by taxpayers.

WALLACE: OK, now, I've got to call time on you, because we've got less than a minute left for Senator Portman. Smallest Army since 1940?

PORTMAN: It's a problem. And again, you look at what is happening in the Ukraine. But also, look beyond Ukraine and look at what is happening in the South China Sea with China. Look at what is happening in the Middle East. We could not have done the surge in Iraq, in my view, with an Army that size. And so, look, this is a problem. And we need to be sure that these changes and the defense budget are consistent with what we need to do around the world, which unfortunately, the United States is still in the position of having to lead around the world to avoid the kind of instability we see right now in Crimea. So, but this is incredibly important that we get this right. Yes, I agree that we need to be sure we're restraining spending and everything is on the table. Waste, fraud and abuse in every place including the Pentagon. But let's not take the Army to the levels, because I do think it makes it more difficult for the United States to project force around the world.

WALLACE: Senator Portman, Congressman Van Hollen, thank you both. We have got a big show today and we have to squeeze a lot. And thank you both, gentlemen.

PORTMAN: Thank you.

WALLACE: Next up, Arizona Governor Jan Brewer vetoes a bill that would allow businesses to deny services to gays for religious reasons. But it's not dead in other states. Our panel discusses that and the latest from Ukraine. And what would you like to ask the panel? Just go to Facebook or Twitter at "Fox News Sunday." We may use your question on the air.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: Any violation of Ukraine's sovereignty and territorial integrity would be deeply destabilizing, which is not in the interest of Ukraine, Russia, or Europe.

(END VIDEO CLIP)

WALLACE: President Obama on Friday warning Russia of costs if military force is used in Ukraine. And it's time now for our Sunday group. Syndicated columnist George Will, Elise Viebeck of "The Hill" newspaper. Former Republican Senator Scott Brown and former Democratic Senator Evan Bayh. Well, George, what's your sense of how far Putin and the Russians are willing to go in Ukraine and what if anything can President Obama and the West do about it?

GEORGE WILL, SYNDICATED COLUMNIST: I think he will go as far as he needs to go to preserve Ukraine as a sphere of influence, if not actually an integrated part of his country, because it's the key to their great power status. Now what can we do about it? We can begin by recognizing that Russia is a third world country. The Third World country with First World military. But in terms of its economic infrastructure, it's very vulnerable. And we have what they need, which is access to our banking system, credits, and the flow of world capital. That we can influence and that we can do. How important is it? 100 years ago in Central Europe there was a spark that led to conflagration, from which the world is still trying to recover and Europe never will recover, the First World War. Here we have this weekend, this week we've seen armed forces cross an international border in the center of Europe. This is serious business.

WALLACE: Senator Bayh, on Friday night President Obama spoke to the nation. He talked about unspecified costs if there was military intervention. There now has been military intervention. The president spoke with Putin for 90 minutes on the phone and the only specific thing we've heard is that the U.S. will suspend preparatory talks, not the actual summit, preparatory talks for the G-8 summit in Sochi this summer. Should the president be more specific and much tougher about economic sanctions?

EVAN BAYH, FORMER U.S. SENATOR (D-IN): Chris, there are no easy options here. And you look at what happened in Georgia a decade or so ago when George W. Bush was president and people never accused him of being soft on the Russians or things in general of this nature. There just weren't many things that he could do ultimately. So we have three options. You can do symbolic things and threatening to cancel the G-8 meeting or at least withdraw from the preparatory talks is one of those things. But Vladimir Putin won't care about that. You can do some financial things, which George mentioned. If we could get the cooperation of the Europeans, we could really penalize the Russians. But that would require the Europeans to make sacrifices, which historically they've been very reluctant to do. Or perhaps, and more likely, we can look at other spheres of influence that the Russians care about. Syria, for example, and really step up some of our things there to try and replace the Assad regime. But to directly intervene in Ukraine, there is just realistically, not much we can do that the American people are willing to pay the price for.

WALLACE: Senator Brown? Realistically, what can and should the president and the West, because, obviously this isn't just a U.S. issue. The European Union do to try to stop Putin?

SCOTT BROWN, FORMER U.S. SENATOR (R-MA): Well, you can't do it alone. Obviously, military options are off the table. No one wants another war. When you're looking or speaking to people in just last night I was out and talked to folks. And they say what do you think about what the president is doing with Ukraine? They kind of chuckle because of what we've had and what we've seen with obviously Syria with the red line issues, with Benghazi, with "Fast and Furious,"with Obamacare, there is always these empty threats. So there is a problem of credibility. And I don't think Putin really cares what President Obama says or does. The key, I agree with George and Evan, economic sanctions and economic issues withholding certain opportunities is where you're going to get the best bang for your buck. And we can't do it alone. We need to do it with our European partners.

WALLACE: There was and Ukraine is obviously the central story this week, but there was another big story this week and that was in Arizona where that state's governor Jan Brewer vetoed a bill that would have given businesses the right to refuse services to various people on the basis, largely gays, at least the indications were, on the basis of religious freedom and religious convictions. Here's the governor first and then President Obama reacting to her decision.

(BEGIN VIDEO CLIP)

JAN BREWER (R ), ARIZONA GOVERNOR: I've not heard one example in Arizona where business owners' religious liberty has been violated.

OBAMA: In some states, they're so far in the past they're even pushing laws to legalize segregation based on sexual orientation.

(END VIDEO CLIP)

WALLACE: Well, you can see the president obviously wants to continue this conversation. And the fact is, Elise, conservative groups are pushing similar measures for the one that was vetoed in Arizona in Oklahoma and Missouri, Mississippi, and Kansas. Where do you see this going?

ELISE VIEBECK, THE HILL: Well, we've actually counted ten states that are considering similar legislation to Arizona including Florida where Rick Scott who is running for reelection, in fact, came out and said he would veto the measure this week, which is very interesting from Rick Scott in Florida. I think we're likely to see Democrats try to exploit this in the midterm elections, because it is an issue that's dividing the top from the bottom of the Republican Party, the major interests, business interests. National Republican leaders are divided from the base on this issue, just as they are on many others, including the expansion of Medicaid under Obamacare and raising the debt ceiling. So, I think Democrats see an opening here in an election cycle that's not likely to be friendly to them and they're going to continue to emphasize the issue as a way to boost their viability at the poll.

WALLACE: George, I think it's fair to say that there are deeply felt positions on both sides of this debate, religious freedom versus gay rights. We asked all of you for questions and we got this on Facebook from Dan Fletcher. "With as many taxes that businesses have to pay, how does this government think they have any justification to tell a business who they will and won't serve?" How, George, do you answer Dan and more generally, how do you come down on this issue of religious freedom versus gay rights?

WILL: It's free exercise of religion, clash of rights. Here's how I answer Dan. 50 years ago this year in one of surely the great legislative achievements in American history we passed the public accommodation section of the Civil Rights Act saying if you open your doors to business in the United States you open it to everybody. That's a subtle issue. And the prestige of that law, that just prestige of that laws obtained and I think that's where the American people come down. That's - and this, too, must be said. It's a funny kind of sore winner in the gay rights movement that would say a photographer doesn't want to photograph my wedding. I have got lots of other photographers I could go to. But I'm going to use the hammer of government to force them to do this. It's not neighborly and it's not nice. The gay rights movement is winning. But they should be, as I say, not sore winners.

WALLACE: But having said that, I mean - and I understand your point. You do say that if a gay couple wants to go into a bakery and have a wedding cake, the bakery should have to make the cake.

WILL: Bake the cake.

WALLACE: Bake the cake. Senator Brown? You're thoughts on this?

BROWN: I thought what Governor Brewer did was appropriate to veto the law. There are good people on both sides of these very difficult issues. And I think we need to focus on the things that matter, deficit, taxes, spending, jobs, national security, energy, what's happening in our foreign policy. The Democrats, obviously, want to use this. They clearly want to use it as a divisive issue to use for tactical advantage in the upcoming elections. Because everything that they've done up to this point, especially with the Obamacare rollout and the lack of focusing on the things that matter right now, those items that I listed, people are going to be speaking in '14 election. They're going to hold folks accountable for those - for decisions.

WALLACE: But I can just see the emails plucking into our Website with people saying, wait a minute, this matters. It matters because I'm genuinely offended that ...

(CROSSTALK)

WALLACE: You know, somebody saying -- by the idea of marriage between two people of the same sex and if I don't want to serve them, participate in a wedding in a sense, I don't want to do it.

BROWN: Listen, I understand that. It's a difficult situation. There is no easy answers on these issues. But if you're talking politics, first of all, there is no issue, because it's not the law of Arizona. It was vetoed. However ...

WALLACE: But it is going to come up as ...

BROWN: That's fine. Everybody has the right to debate and to make their own personal decisions and then they'll play out as they did in Arizona. But if you're talking strictly political, the Democrats want to focus on everything but Obamacare and the economy and that's what they're going to do.

BAYH: Real quickly, Chris. Things must be great in Arizona if this is the most important thing for them to focus on. Number two, substantially, George is right. If you're open to the public, you're open to all the public. If you want to do something less than that, stay private as a club. And number three, it's a political matter. As Elise was saying. This is madness for the Republicans. It divides their - It divides them. It offends moderates. They should focus on the economy.

WALLACE: Thank you, panel. See you next week.

Up next, our Power Players of the Week bringing the Smithsonian not only into your home, but into your hands. It's very cool.

(COMMERCIAL BREAK)

WALLACE: The Smithsonian Institution has been called the nation's attic. 19 museums, nine research centers and the national zoo. Now through the magic of cutting edge technology, you can see highlights from the collection like never before. Here are our Power Players of the Week.

(BEGIN VIDEO CLIP)

VINCENT ROSSI, SMITHSONIAN 3D DIGITIZATION OFFICER: Our 3D program, what we're able to do is sort of take down the walls of the Smithsonian.

ADAM METALLO, SMITHSONIAN 3D DIGITIZATION OFFICER: The museum experience will always be relevant. But now you can compliment that with being able to look at something online or 3D print it and actually hold it in your hands.

WALLACE: Adam Metallo and Vincent Rossi are digitizational officers at the Smithsonian, but their colleagues call them laser cowboys. They capture some of the collection's 137 million objects and put them online in 3D. Allowing you to experience them in ways you can't even in person. Take, for example, this mask of Abraham Lincoln.

ROSSI: I'm at the optimal distance to create a 3D scan.

WALLACE: They take an arm scanner and paint a laser beam across the maps.

ROSSI: So this is all (INAUDIBLE)

WALLACE (on camera): Oh, my gosh. And here it is showing up. That is unbelievable.

ROSSI: So you can see an object like this, like the Abraham Lincoln life mask, we take maybe 15 or 20 minutes to 3D scan.

WALLACE (voice over): Now if you go to the Smithsonian Website, you can manipulate the object and see things you can't see in the museum.

(on camera): You're able to manipulate this just with the regular mouse?

METALLO: Yep. I can actually pull up the two life masks that were taken of Lincoln in office and while he was still alive so on the left here, the one is spinning, thing this was taken in the remaining months of the Civil War. And this is a life mask that was taken just before the Civil War.

WALLACE: And what you can really see is how much he had aged.

METALLO: Exactly.

WALLACE (voice over): They started this program three years ago and so far they put 21 objects online. The original Wright Brothers' flyer, an inter-replica (ph) of limestone Buddha. It's impossible to make out the design in person. But online ....

METALLO: If we zoom in here this is what the stone looks like in real life in the gallery. I can actually remove the color information and then pull out the areas of high curvature. And now you can see everything that's happening.

WALLACE (on camera): So much greater detail than you could if you were a foot away from it. (voice over): And remember the Lincoln mask? You can download the computer image and get an exact copy on a 3D printer in your home or classroom.

ROSSI: It's almost as magical process where you can scan an object without touching it and then bring it back into the real world through 3D printing.

WALLACE: Vincent was a sculptor, Adam a painter. They used to help create exhibits for the collection.

VINCENT ROSSI, SMITHSONIAN 3D DIGITIZATION OFFICER: Sort of on the side in nights and weekends, we started supporting research projects around the Smithsonian.

METALLO: Scanning technology and software that was developed with Hollywood in mind or CT scanners that we developed for the medical industry, we're trying to apply that to the museum world now.

WALLACE: So far, the process is slow and labor intensive. But the laser cowboys have big plans.

ROSSI: Perhaps we're going to start introducing robots and assembly lines into the system. We want to move first to digitizing hundreds of objects at a time and then we can start thinking about thousands of objects per year.

WALLACE: Like I said, pretty cool. To experience Smithsonian x3D go, to their Website, 3d.si.edu.

And that's it for today. Have a great week and we'll see you next "Fox News Sunday."

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On the Show

Sunday December 28, 2014

2014 has seen a number of significant news stories, from the GOP midterm election wave, to the rise of ISIS militants in the Middle East, and a national debate over race and justice. Our Sunday panel discusses some of this year’s biggest headlines in a special “Year In Review” edition of Fox News Sunday. Plus, we’ll look ahead to 2015 and get our panelist’s predictions in politics, economics, entertainment and sports.

The blockbuster “Unbroken” chronicles the story of real-life American Olympian and World War II prisoner of war, Louis Zamperini. The film, which opened on Christmas Day, is based on the book written by bestselling author Laura Hillenbrand, who has her own story of overcoming incredible odds. In a rare interview, we’ll talk with Laura Hillenbrand about the bond she developed with Zamperini while writing “Unbroken.”