Jack Lew defends compromise on birth control mandate; Sarah Palin rates GOP field

Written by Chris Wallace / Published February 12, 2012 / Fox News Sunday

Special Guests: Jack Lew, Sarah Palin

The following is a rush transcript of the February 12, 2012 edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: I'm Chris Wallace.

The Republican presidential race is thrown up for grabs, and a health care controversy creates a Catholic backlash against President Obama.

With the White House compromise on birth control insurance, why the uproar? And is the president's new budget about politics or governance. We'll discuss both with new White House Chief of Staff, Jack Lew.

And she's not running for president but she could have a big say on who wins the nomination. We'll sit down with former vice presidential candidate Sarah Palin. It's a "Fox News Sunday" exclusive.

Plus, President Obama flips on campaign finance and struggles with a mandate on contraception. We'll ask our Sunday panel what it all means for his reelection campaign.

And power player of the week finds a new to celebrate Abraham Lincoln.

All right now on "Fox News Sunday."

And hello again from Fox News in Washington.

Tomorrow, the Obama administration rolls out the budget for next year. But the White House is still trying to put out the fire created by its plan to have Catholic institutions provide health insurance for their employees, including access to birth control.

Joining us to discuss both issues is the White House chief of staff, Jack Lew.

And, Mr. Lew, welcome to "Fox News Sunday."

JACK LEW, WHITE HOUSE CHIEF OF STAFF: Good to be here with you, Chris. Thanks.

WALLACE: Before we get to the president's new budget and I promise we will, I want to clear up some lingering question about the president's revised policy about providing health insurance coverage for birth control to the employees of religious institutions. The president now says that Catholic institutions don't have to provide the coverage but the insurance companies do.

The question -- where does the president get the power to tell a private company they have to offer a product and offer it for free?

LEW: Well, Chris, just to be clear -- the president has the authority under the Affordable Care Act to have these kinds of rules take affect. And the issue with this being for free is quite an interesting one. If you look at the cost of providing health insurance, it actually doesn't cost more to provide a plan with contraceptive coverage than it does without.

So, from the insurance companies' perspective --

WALLACE: Why not?

LEW: Because if you were looking at the actuarial projection, the cost of the plan, it costs more to provide a plan without than it does with. This is one of those --

WALLACE: But let me -- let me just --

LEW: -- very rare cases where it actually does not cost the insurance company money to do it.

WALLACE: But contraceptives cost money, pills, with sterilizations, hundreds of dollars, in fact, for a year.

LEW: To the extent that you look at the cost just on its own, you're right.

But if you look at the overall cost of taking of care of the health of a woman, it doesn't raise the cost of the plan.

What the president did here was consistent with where he's been all along. He has a very deep belief of every woman's right to all forms of preventive health care, including contraception. He also has a very deep belief -- it is one of the core principles of our country, that we have respect the religious liberties that this country is built on. The solution that we reached is consistent with those core principles. That's why he got the support of a range of groups, from the Catholic health association and Catholic charities, to Planned Parenthood.

We think that this is something that should put this issue to rest. The president was expecting this policy to be reached over a longer period of time. We said it would take a year or 13 months to transition. We put it out in a much quicker time frame because clearly, it wasn't helpful to have it lingering out there.

I think a lot of good work was done and hopefully this will now set the issue to rest.

WALLACE: Well, and there are a couple of points on that. First of all, the savings that you talked about that allowed insurance companies to provide it for free. That's because of avoided pregnancies, correct?

LEW: Well, there's a whole range of issues, from the health of the woman because some, there are aspects to taking care --

WALLACE: But you're not solving breast cancer by --

LEW: No, there are many health conditions in woman that are affected by whether or not contraception --

(CROSSTALK)

WALLACE: But here's my point and here's the concern that some religious institutions have. The reason that you're going to get these, quote, "savings" is because of avoided pregnancies from artificial birth control, which is the practice that these religious institutions find objectionable and, in fact, sinful in the first place.

LEW: But let's just be clear: every woman has a right to access all forms of preventive health, including contraception. Religious institutions, churches, are not covered by this. So, they don't have to provide. The issue was --

(CROSSTALK)

WALLACE: Religious institutions, too.

LEW: Catholic universities --

WALLACE: Right, and Catholic charities.

LEW: -- and many employees that are not Catholic, as well as Catholic employees. And this is a solution that actually works, that they are not providing, so they're not offering, they're not paying for it. And women have the choice on their own.

So, we think it's is consistent with the principles that the president set out.

WALLACE: You say it's consistent. The Catholic bishops are clearly not satisfied with it -- if I may, sir. They have issued a statement that says that they view the decision by the president, the revision, with grave moral concern.

Let's put up their statement on the screen.

"Today's proposal involves needless government intrusion in the internal governance of religious institutions, and to threaten government coercion -- government coercion of religious people and groups to violate their most deeply held convictions."

And, sir, they call on Congress to block the president's policy.

LEW: No, I think the president's policy does not do that. It does not force an institution that has religious principle to offer or may for benefits they find objectionable. But it guarantees a woman's right to access. We think that's the right solution.

There are others who opposed women's access to contraception. They have different views than we do. I'm not going to speak to the motives of any of the parties. But it's quite significant that a range of Catholic organizations has embraced this.

We didn't expect to get universal support of the bishops or all Catholics. I think that what we have here is a policy that reflects bringing together two very important principles in a way that's true to the American tradition. And that's what the president is trying to do.

There are others who want to have a clash over it. We want to bring these two principles together.

WALLACE: But you say you're not going to get universal support. There are others -- this is the conference of Catholic bishops. This is the most powerful statement by the Catholic Church in this country. They deal with grave moral concern and they say it should be turned around.

LEW: I can't speak to the differences within the Catholic Church.

WALLACE: How do you respond to their statement that this government coercion?

LEW: I would point to the statement put out by the Catholic Health Association, which knows a fair amount about what it requires to health care in this country. They thought this was a very good solution. They understand what the policy is.

WALLACE: So, the bishops --

(CROSSTALK)

LEW: I think our policy is the right policy. I think that there's broad support, but they're not universal support for it. And we think this is right way to go.

WALLACE: So, you're not going to change despite what the bishops say.

LEW: Our policy is clear.

WALLACE: Your policy is clear. Meaning, no revisions to the revisions?

LEW: We have set out our policy.

WALLACE: And that's it?

LEW: We're going to finalize it in the final rules. But I think what the president announced on Friday is a balanced approach that meets the concerns raised both in terms of access to health care and in terms of protecting religious liberties. And, you know, we think that that's the right approach.

WALLACE: Mr. Lew, I think it's fair to say this is precisely why so many people and I understand, you can argue whether it's the majority or minority -- but why so many people are opposed to Obamacare, because they are concerned with the idea that the government can mandate what people have to do, what private businesses have to do, what even religious institutions have to do.

LEW: I think the notion that this is about should we provide basic health care to all Americans is not the issue. You know, there are differences to whether or not the Affordable Care Act is the right approach. We think providing coverage to tens of millions of Americans and making sure that we have a health care system that provides the kind of care that people need that will help drive down the cost of health care in this country is a very important thing.

This is -- this question of the impact on religious institutions is something we took very seriously right from the start. That's why when the policy was announced, we said it would take 13 months to transition it in a way that would be respectful of those differences.

So, I think we've addressed that. I think that this concern is one that people can disagree, you know, on the margins about. But we have addressed the core issue -- no institution that has, non-profit institution that has religious principles that we violated has to pay for or directly offer these services. But women have access to the kinds of care that they are entitled to.

We think that's the right approach.

WALLACE: Let's turn to the budget. I'm sure you'll be happy to hear.

You officially release it tomorrow, but we already know the outlines -- and let's go through them. You would cut the deficit by more than $3 trillion over the next decade. Half of that would come from spending cuts, half -- more than $1.5 trillion from new taxes on corporations and wealthy. There are no structural changes to entitlements.

Here's how Congressman Paul Ryan describes it?

(BEGIN VIDEO CLIP)

REP. PAUL RYAN, R-WIS.: It seems as if the president is doing little more than class envy and the status quo, which is the greatest threat to our health security, our retirement security, our national security and our economic security.

(END VIDEO CLIP)

WALLACE: Question: isn't this the same plan the president proposed in September that Congress has already rejected?

LEW: Well, this is the plan that's very similar. We put out a very detailed plan for $4 trillion and not $3 trillion of deficit reduction because it's built on the $3 trillion of savings that's already been agreed to.

WALLACE: But it's $3 trillion in new cuts.

LEW: The goal is $4 trillion. This gets us to the goal. You know, we can't keep moving the marker.

WALLACE: I know. But you are taking the trillion that was already agreed to as part of the budget deal in August.

LEW: We have implemented the trillion that was agreed to and that means making a lot of tough decisions. And I think that's part of this budget.

LEW: So, this $4 trillion of savings, for every dollar of revenue, there's $2.5 of spending cuts.

WALLACE: But that's only because you are including the other trillion.

LEW: I think that's the real that trillion dollars is having real impact on all of these in terms of the government. It is something that --

(CROSSTALK)

WALLACE: In terms of new deficit reduction, it's $1.5 trillion in spending cuts and $1.5 in new taxes.

LEW: Well, we can quarrel to whether or not we should reset the bar each time, but we set out in the beginning -- last year to get $4 trillion in savings and this plan gets us there. It gets us there in a way that is consistent with a blueprint that we're building an economy that can last in the future. It will make sure we have manufacturing base. It will make sure we have American with the skills we need for the future. And it will make sure that we have an energy program that gives us independence and the ability to generate energy.

And it will do it in a way that's consistent with American values, which means everybody has a fair shot, his or her fair share, and plays by the same rules. That's very important.

I think that the notion that $4 trillion in deficit reduction is not serious is a little bit hard to accept when Congress has been unable to even implement $1 trillion of savings mandated by the budget agreement.

WALLACE: All right. But let me ask you about those questions of not serious. You are claiming $850 billion in savings, spending savings over the next decade by ending the wars in Iraq and Afghanistan, $850 billion. As the former director, as you were until a few weeks ago, of the Office of Management Budget, isn't that a classic Washington gimmick that you're going to claim savings from money that you weren't going to spend anyway instead of cutting real problems?

LEW: Chris, I actually don't agree with that.

I think that the policy to get out of Iraq, to reduce or eliminate our military presence was very real. I think that if we don't lower the caps that permit that spending, there will be a natural process of seeing military spending grow. We have $450 billion in savings in the Defense Department over -- and the security area over this 10-year period.

Closing down this back door is part of making sure we got those savings. It's very real. I guarantee you that if we don't take the action that's been proposed, there will be leakage, and that money will end up being spent.

If there's going to be discipline in the budget, you have to lower the amount of money that could be appropriated in that area.

WALLACE: Here's the bottom line, in February 2009, President Obama, one month after he took office, made a promise. Let's take a look.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Today, I'm pledging to cut the deficit we inherited by half by the end of my first term in office.

(END VIDEO CLIP)

WALLACE: But these are the numbers. The deficit that year that he was talking about was $1.4 trillion. And your new budget, you project deficit for 2012, the end of the president's term, will be $1.3 trillion.

Mr. Lew, the president isn't close to keeping his promise to cut the deficit in half.

LEW: The plan that the president is going to be sending to Congress tomorrow will reduce our deficit to the point that over the period covered by this budget, the deficit as a percentage of GDP would be less than 3 percent, which means that we will stop having new spending adding to the deficit, that's a hugely important accomplishment that will reduce the debt as a percent of your GDP so that we stabilize ourselves in terms that all of the international financial institutions are looking for.

WALLACE: But would you agree --

LEW: I think --

WALLACE: -- he didn't keep his promise to cut the deficit in half?

LEW: When the president took office, we were losing jobs at a rate of 750,000 a month. Last month, we gained 250,000 jobs. That means that we had to take a lot of action in the Recovery Act. It means that the economy was softer than anyone knew at the time, and we had less revenue coming in. And it means that, you know, there was a deeper hole to dig out of than anyone could have envisioned in January 2009. WALLACE: Well, actually, this is February when you already say you knew about the fact that the deficit was worse. Would you agree that he didn't keep the promise?

LEW: No. I would say that as the 2009 and 2010 went on, we all learned more about the deep of the recession we inherited, which we have very -- worked very hard to dig out of. We are at a place where we have momentum and the economy is growing, not enough -- it's -- there aren't enough jobs, and there's not economic growth. We're heading the right decision.

The question is: is Washington can be part of the solution or part of the problem? That's why it is important for Congress to pass the payroll tax this month. It's why it's so important that we not have the kind of dysfunction that last year became part of the uncertainty that held back the economy.

We can be either part of the solution or part of the problem. The president has proposed a plan that would be a big part of the solution.

WALLACE: I'm going to ask one last question, we are running out of time.

The slaughter continues in Syria. The Assad government has reportedly killed 7,000 opponents of the regime, but the president refuses to work with the allies to arm the rebels, impose a new drive zone, or a humanitarian corridor for refugees.

Here's what Mr. Obama said last March about Libya.

(BEGIN VIDEO CLIP)

OBAMA: To brush aside America's responsibility as a leader and more profoundly our responsibilities to our fellow human beings under such circumstances would have been a betrayal of who we are.

(END VIDEO CLIP)

WALLACE: If turning a blind eye to atrocities, which is how President Obama put it then, is a betrayal of who we are -- why is it not the same betrayal to stand on the sidelines and watch the slaughter in Syria?

LEW: Chris, I think that's not an accurate description of what we're doing.

WALLACE: Are we arming the rebels?

LEW: Since August, we have been bringing pressure to bear. Syria's financial pressure and the government Syrian is feeling it. You can see the lack of control in Syria -- that's partially a result of that.

WALLACE: Mr. Lew, the slaughter has intensified.

LEW: You see most of the international community come together in that -- importantly, the Arab League and our allies.

WALLACE: May I ask you a question, has it stopped the slaughter?

LEW: No, the transition from tyranny to democracy is very hard. The Syrian people have to handle this in a way that works in Syria. And the brutality of the Assad regime is unacceptable. It has to end. There is no question that this regime will come to an end. The only question is when. We are pursuing all avenues that we can to try and bring pressure to bear.

WALLACE: But we're not arming them. We're not imposing a no drive zone.

LEW: With the allies, to support the opposition and to deal with the human rights problems from it.

But the last thing that is needed in Syria now is more violence.

WALLACE: So, we can't stop the violence because that would create more violence?

LEW: I think that there's a lot of pressure being brought to bear and I think that it's been effective and it will be effective. This regime will come to an end.

WALLACE: Mr. Lew, we have to leave there. I want to thank you so much for coming in and answering all our questions. Please come back, sir.

LEW: My pleasure.

WALLACE: Up next: with the GOP presidential race more scrambled than ever, we'll ask former Governor Sarah Palin who she thinks has the best chance against President Obama this fall.

(COMMERCIAL BREAK)

WALLACE: In 2012 Republican presidential politics, Mitt Romney scored a double win Saturday. He took the Maine caucuses with 39 percent of the vote. Ron Paul came in a close second with 36. And at CPAC, the annual gathering of conservative activists here in Washington, Mitt Romney won the straw poll with 38 percent. Rick Santorum came in second with 31.

At CPAC, Sarah Palin blew the lead off the conference with a fiery keynote speech and she joins us now here in studio.

Governor, welcome back to "Fox News Sunday", for the first time here in Washington, D.C.

FORMER GOV. SARAH PALIN, R-ALASKA: In the belly of the beast. Thank you.

(LAUGHTER)

WALLACE: All right. While you blistered Barack Obama in your speech -- and we'll get that -- you also had a message for the Republican establishment here in Washington and the crony capitalism and bring the Tea Party into the congressional leadership.

What's your point?

PALIN: Well, those Tea Party members of Congress now, they have fulfilled their promise to the people who hired them. They had promised that they would do all that they can to rein in the growth of government and in some ways they've actually been punished for fulfilling their promises. They've been ostracized. They've been dismissed. They've been lied about by the president.

And we would hope that the leadership in Congress, especially within our own party, that they would start at least accepting and really appreciating what these Tea Party members have done. And I would like to see them in party leadership position.

WALLACE: Who is you talked about that the Republican Party establishment? Who is the establishment? And are -- is John Boehner part of the establishment? Is Mitch McConnell part of the establishment? And are they part of the problem?

PALIN: I consider anyone part of the establishment, those who today are fighting to keep the status quo, those who are allowing government to grow, who are allowing the president that plastic credit card, that increasing debt. And they are not engaging in a sudden and relentless reform that we need in order to defend our republic, in order to get us off of this road towards bankruptcy.

WALLACE: So, for instance, the folks that agreed to raising the debt ceiling, the folks who agreed, tied the government over with one of these continuing resolutions, they are part of the problem?

PALIN: And maybe not one specific vote that they have taken, say, to increase the debt ceiling, but that culmination of votes and support for bigger government. They are part of the problem. And much of that does have to do with an establishment that doesn't want to see a lot of change in Washington D.C., in our federal centralized government because they are doing just fine with the way things are going, even though the American people aren't doing just fine, they're hurting, and they do want to see a change.

WALLACE: What do you think of White House Chief of Staff Jack Lew just had to say about the birth control flap and specifically about the idea of a health care mandate?

PALIN: I was shocked at the spin in his message. He sounded like the press secretary.

And I don't know why we're not arguing yet the whole basic premise of this mandate. Regardless of faith-filled Americans who are offended by the assault on their freedom of religion, and the basic premise of this is government again mandating to private employers and to insurance companies what they must provide, what gives government the right to tell us what we must consume, what we must purchase, what we must provide our employees.

WALLACE: Right. But let's take a look at the overall picture, because you really were very critical of Obama yesterday in your keynote speech. The economy is improving. The unemployment rate has dropped five months in a row and is down to the lowest point in three years.

And as a result, public approval of the president -- you can see it up on the screen -- is up to 48 percent, the highest since last June.

Are things turning around and does he have to be favored to win reelection?

PALIN: I argue those unemployment numbers, by the way, that have been released, where we're looking now at 8.3 percent unemployment, when really the fact is, people have dropped out of the search for employment right now. The numbers have changed I think a lot of it has to do with people just kind of giving up on finding a job right now. And I think that true numbers would reflect that.

Real unemployment is above 10 percent, according to the experts, the economist who are really crunching the numbers. So, I do argue what those numbers are.

But, you know, you asked 13 million Americans who still can't find a job. You ask the 46 million Americans who are living in poverty and the 23 percent increase in government dependency that has really made our country suffer because we are eliminating the opportunity for all to rise and to succeed in the private sector successfully because of this government growth and this dependency. You ask those people if things are turning around and getting better.

And I bet you will hear from the average every day American, that's not part of kind of the political bubble, but is really being impacted by poor policies and failed policies of our president. And they're going to tell you that, no, this president and his failed policies should not be favored to win reelection and continue down the road, four more years, of what we've just seen.

WALLACE: Let's turn to the Republican contest, the race for the nomination.

What do you think of Mitt Romney?

PALIN: I think he is a great candidate.

I honestly I think that we have a good plate of candidates, the four of them all with the individual strengths, Chris, and each of them I believe they are getting stronger, they're getting better and that's what competition provide and that's why I want to see the competition continue.

WALLACE: Well, it's interesting because a couple of people said to me when I, you know, I told them that I was going to talk to you, and after watching your speech. In your speech, you had to say this, that the party needs a candidate and I want to get the words right -- who instinctively turn to constitutional conservative principles, it's too late to teach that.

PALIN: Yes.

WALLACE: Do you trust that Romney is an instinctive conservative?

PALIN: I trust that his idea of conservatism is evolving. And I base this on a pretty moderate past that he has had, even in some cases a liberal past. Here, he agreed with mandating on a state level what his constituents needed to be provided, needed to purchase in the way of health care and Romneycare, which, of course, was the precursor to Obamneycare -- to Obamacare. Now, that's a problem. But -- yes, Obamneycare.

(CROSSTALK)

PALIN: Yes, we'll coin that one.

So, it is evolving. But what I want to see is that candidate and I believe that most voters in the GOP and independents, we will want to see that candidate whom we can trust will just inherently, instinctively turn right, always err on the side of conservativism, which means smaller, smarter government, more empowerment for the individual, for the private sector.

WALLACE: But it sounds like at this point, you're not convinced of --

PALIN: I am not convinced and I don't think that the majority of GOP and independent voters are convinced. And that is why you don't see Romney get over the hump. He's still in the 30 percentile mark when it comes to approval and primary wins and caucus wins. He still hasn't risen above that yet because we are not convinced.

WALLACE: But, Governor, he's been running for five years.

PALIN: And he has spent millions and million and millions of dollars and he hasn't risen yet.

WALLACE: So, what does he have to do to convince you?

PALIN: He still needs to be able to articulate what his solutions are to the challenges facing America -- but not just Mitt. All four of them. They need to quit beating each other up.

We already know that the left and the media allies to the left are going to beat up our candidates. They're going to attack their reputations, attack their families.

We don't need to do that job for them. We need to hear from our candidates, the solutions, what is their plan to get us back on the right road in America. We haven't heard that yet. The discussion needs to continue until we hear that.

WALLACE: How do you compare -- you've been very honest about Romney. How do you compare Gingrich and Santorum?

PALIN: Against one another?

WALLACE: Yes.

PALIN: The two of them? Again, everybody does have their strengths.

Santorum has been quite bold about social issues that he truly believes in and he hasn't shied away or not backed off from his true foundational beliefs. And I respect that. Most people respect that.

Newt has that historical perspective of how America was built, how we became so prosperous and safe, and voluntarily generous, how we became an exceptional nation. That historical knowledge can be put to good use as we go forward. We have to know about our past in order to successfully (INAUDIBLE) to the future. He brings that with him.

Everybody has their strengths. I'm not going to go into their negatives because as I say, they're already pointing out each other's negatives and the left will do that, too. They all have something to offer and that is why it is a good democratic process in our republic.

WALLACE: HBO -- I love getting those look in your face.

PALIN: Yes.

WALLACE: HBO has a moving coming out next month for "Game Change" about the 2008 campaign. And Julianne Moore plays Sarah Palin.

Let's watch.

PALIN: Must we?

(BEGIN VIDEO CLIP)

JULIANNE MOORE (as Sarah Palin): You know what they say the difference between a hockey mom and a pit bull -- the stick.

(END VIDEO CLIP)

WALLACE: Does she do a good Sarah Palin?

PALIN: I think we're going to call that a Sarah Palin employment act and you guys need to thank me for employing more people probably in their imitations of Sarah Palin than the president has put Americans to work.

WALLACE: So, it's a stimulus act.

PALIN: It is a stimulus act, yet. But goodness gracious, you know, I'm really not too concerned about a HBO movie based on a false narrative when there are so many other things that we need to be talking about.

WALLACE: Well, I want to ask you one more question about this because there is a more serious side. And I want to give you an opportunity to respond because you're right. The movie echoes the book in pursuing this narrative that you went into a funk during the campaign leading up especially to the debate. And I want to just show you some clips because this is going to be out there. Take a look.

(BEGIN VIDEO CLIP)

MOORE: It was not my fault. I was not properly prepped. I miss my baby, I miss sleeping with my baby.

UNIDENTIFIED MALE: She's on the verge of a complete nervous background.

MOORE: Telling me what to say, what to wear, how to talk. I am not your puppet.

(END VIDEO CLIP)

WALLACE: Millions of people are going to see that. Is it...

PALIN: Well, I'm sorry that millions of people are going to waste their time, and I'm sure that they have more productive and constructive things to do.

WALLACE: Is there any truth to that story?

PALIN: I was never in a funk. Thank God I have the right perspective on what really matters in life, Chris. And there's no need to ever be in a funk when you know what right priorities are and what really matters in this...

(CROSSTALK)

WALLACE: Are you angry? Are you upset that this story is going to get told and it will get told to a much bigger audience?

PALIN: I am ambivalent about it. I honestly will not waste my time watching it and I encourage others to find something else more productive to do.

WALLACE: On a much more positive note, you have a wonderful article, I must say, that touched my heart in the latest issue of Newsweek magazine -- you can see it up on the screen -- about life with Trig, your little boy who is almost four now -- my gosh -- and has Down syndrome. And you say, when he wakes up every morning, he applauds?

PALIN: He teaches us more than we're ever going to be able to teach him. And that is one thing that he does. He looks around, and it seems to me that he's saying, despite what the world's going to throw at him and anybody else who may be considered disadvantaged, he applauds the day, like, come on world; show me what you got and I'm going to handle it.

And I wrote that article -- I was asked to by Newsweek -- in response to what Rick Santorum did in publicly showing us what really true, good priorities are when he got off the campaign trail in order to spend time with his special-needs daughter. And I thought that was a beautiful gesture and a wonderful public testimony of -- of putting family first that Rick did.

WALLACE: You say you don't teach him. He teaches all of you...

PALIN: Oh, he teaches us.

WALLACE: ... and that he is blessing.

PALIN: He -- he teaches us. And, Christ, Todd and I and Trig's siblings -- we went from quite a fearful time not knowing what to expect to this -- this time in our life that couldn't be any better, when we see and touch and are surrounded by such love coming from this child that, again, keeps us grounded, keeps everything in perspective and allows just, kind of, all the rest of the stuff on the periphery to just go away and not matter so much, when we get to focus on this blessing.

WALLACE: Governor Palin, thank you.

PALIN: Thank you.

WALLACE: Thanks for coming in. It's good to have you inside the Beltway in the real America.

PALIN: In the real America. Well, happy Abraham Lincoln's birthday to you, and may we remember what he thought about Washington and how he wanted to change Washington into a voice for the people. Let us do that today.

WALLACE: And we should say yesterday was your birthday, so happy birthday right back to you.

PALIN: Thank you, appreciate it.

(LAUGHTER)

WALLACE: OK. Coming up, the Sunday panel on President Obama's U-turns on birth control and campaign finance.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: I understand some folks in Washington may want to treat this as another political wedge issue. But it shouldn't be. I certainly never saw it that way.

(END VIDEO CLIP)

WALLACE: President Obama talking about his revision this week of a policy that Catholic institutions must provide birth control insurance for their employees.

And it's time now for our Sunday group, Bill Kristol of The Weekly Standard; Mara Liasson of National Public Radio, Kimberley Strassel from The Wall Street Journal and former Democratic Senator Evan Bayh.

Bill, how badly did the White House handle this whole birth control/ health insurance issue?

And do you think that the president's revision that he announced on Friday gets them out of the political mess?

BILL KRISTOL, WEEKLY STANDARD: No, because the revision is more of a doubling down. He did not fundamentally back off on what he thinks the federal government should require employers and/or insurance companies that employers use to provide.

And I think it's a huge issue. It's going to get bigger, not smaller, I believe. And it wasn't just a mistake of communication. It goes to the heart of what Obamacare is about and what President Obama's vision of the role of the federal government is about.

And I think conservatives and Republicans have a real opportunity which they haven't quite taken advantage of yet of really framing this as a -- as a big moment, not just making it about let's have more exemptions for more Catholic institutions but explaining this is -- do you believe in limited government or do you believe that the government should tell us routinely how to conduct every aspect of our lives?

WALLACE: Mara, does the revision fix it?

MARA LIASSON, NATIONAL PUBLIC RADIO: I think that, if you're talking about the big argument about religious liberty and government mandates, yes, the Republicans have a chance to do something with it.

However, from the White House point of view, I think this does fix it. You could say they could have fixed it this way months ago. The fact that they let the culture wars bloom again by -- by waiting so long was a real mistake on their part. But if they can keep the argument about contraception, not about religious liberty and government mandates, then I think they're on strong grounds.

Because they believe that the majority of women, even Catholic women, are on their side when it comes to should contraception be available. Now, Catholic women, even unconservative ones, don't like to see their church or church institutions forced to do something they don't want to do, but this compromise or accommodation appears to fix that.

WALLACE: Kimberley, I want to pick up on something that Bill said at the beginning. And it's also something that I discussed with Jack Lew, the White House chief of staff.

It seems to me perhaps the most damaging part of this controversy is it reminds a lot of people what it is they don't like about Obamacare. And that is the idea the government can tell you you have to buy insurance; it can tell a private company they have to provide a product for free; it can tell -- it can decide which Catholic institutions are exempt and which aren't?

KIMBERLY STRASSEL, WALL STREET JOURNAL: Yeah, I mean, Bill is right in that Republicans have missed this, a little bit, in that they're suggesting that this is somehow a controversy specific to this president and that he made this decision and therefore he is at fault. There's an element of that that's true.

But the bigger point is, if you have government-directed health care, this is the sort of controversy you will have day in and day out. Because, basically, government-directed health care says we will tell what kind of health service you get at what quantity, at what price, who delivers it. If it offends your religious conscience, too bad. If it's not best for your health or your family's health, sorry.

And -- and this is the kind of problem. And Obamacare ranges from something like this, a religious liberty question, all the way up to the individual mandate, government telling you what to do.

WALLACE: Senator?

FORMER SEN. EVAN BAYH, D-IND.: Well, there's no question, Chris, it was mishandled, but they finally arrived at a better place. More than half the states currently have this compromise in place and there's been no -- no groundswell for repeal. If you look at polling, even the majority of Catholics agree with the compromise that have tried reconciled access to women's health care with religious freedom. And ultimately for the Republicans, Chris, if Mitt Romney is the nominee, Romneycare looks like Obamacare so what is the argument they make?

The final two things are, this could bubble up again this summer when the Supreme Court rules on the individual mandate. That could put it right back to square one. And so this is not going to go away any time soon, but the administration has arrived at a better place.

WALLACE: I want to talk about another issue some would say a revision and flip this week, Bill, the president changed position on another issue which is the question of whether or not he supports private contributions to these big Super PACs, unlimited contributions to the so-called independent Super PACs which can raise unlimited money to back candidates.

Here is what the president said in 2010.

(BEGIN VIDEO CLIP)

OBAMA: Thanks to a Supreme Court decision called Citizens United they are being helped along this year by special interest groups that are spending unlimited amounts of money on attack ads, that is not just a threat to the Democrats, that's a threat to our Democracy.

(END VIDEO CLIP)

WALLACE: Well, it may have been a threat to the democracy, but this week, the president announced that the administration and the campaign will support donations on limited donations to those Super PACs and that White House officials will participate in some of the fundraiser.

KRISTOL: I am shocked.

President Obama, the greatest fundraiser in American political history, decides you know what, here's a chance to raise more money for my campaign and I'm going to do it. He busted through the public financing limits in 2008, something he had supported as a senator and said he would abide by. Of course, he's going to take full advantage of the Super PACs and he would raise the ton of money and Republicans who think they can beat him by out spending him and out organizing him will be proven wrong.

Which to get back to the previous issue is why Republicans need to frame this as a fundamental choice between two visions of America, not who is going to raise $972 million as opposed to $921 million.

WALLACE: But what about the argument, Mara, look I don't agree with it, but it is the law, the Republicans, the Republican Super PACs raised four times as much in 2011 as the Democratic Super PACs and, this was the Obama argument, we can't unilaterally disarm.

LIASSON: I think the reason he did it were two numbers, 91 and 19 -- $91 million is what Crossroads and all of the Republicans in fact raised, and $19 million is what the Democratic Priorities USA and those groups have raised. They were being -- I disagree with Bill. I think the Republicans and all of the affiliated Super PACs are well on track to out spend -- out raise and out spend whatever the president...

KRISTOL: Do you think that will make a difference, really?

LIASSON: I don't know how much difference it will make, but I think that what is motivating this change, what Chris was talking about.

WALLACE: Oh, it's certainly...

LIASSON: The disparity was so great in this election and a close election which I think this one will be neither camp is going to give it up...

WALLACE: And so the threat to Democracy argument?

LIASSON: The threat to democracy will have to wait for another day.

WALLACE: The threat to the campaign is the first priority.

All right, we have to take a break here, when we come back, the Republican presidential race takes another new turn. We'll talk about the results this week and where the campaign stands now.

(COMMERCIAL BREAK)

WALLACE: Still to come, the power player of the week presidential historian Richard Norton-Smith is one of the driving forces behind a $25 million museum on Lincoln's legacy.

RICHARD NORTON-SMITH, PRESIDENTIAL HISTORIAN: It is a museum about an after life.

WALLACE: Stay tuned, our panel will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MITT ROMNEY, REPUBLICAN PRESIDENTIAL CANDIDATE: I believe I am the one person in the race who actually can beat the president. I believe it is essential we beat the president. We take America back. And that we keep America as it's always been the hope of the Earth.

(END VIDEO CLIP)

WALLACE: Mitt Romney back on the winning track Saturday, taking the main caucuses in addition to winning the CPAC straw poll.

And we are back now with our panel.

Kim, it has been quite a week in the Republican race. Rick Santorum has scored three big upsets on Tuesday, now Mitt Romney comes back with victories in Maine and a hotel room in Washington, D.C..

Where is the race now?

STRASSEL: It is open, because the electorate has not made a decision. And that is what was behind the soar Rick Santorum in those three races this week. They have not settled on Mitt Romney. They are resolutely rejecting, resisting this Mitt Romney narrative. He had a good couple of days. But he's fundamentally going to have to figure out how to sell this deal to voters. And to do that he is going to have to stop talking just about himself. This is a me, me candidacy. It's all about his biography, it's all what he's done and what people are waiting to hear his ideas. And if he has them, how is he going to fix the economy, what is he going do?

Now he's going to have this speech later in this month in Michigan. And there's talk he's going to come up with a new economic plan. We'll see where that takes them.

WALLACE: Senator, Romney tried to score up his at conservative credentials at CPAC in a 25 minute speech. And this is the kind of thing reporters do, he apparently mentioned the word conservative 25 times. But there was one ad-lib that struck an off note. Let's take a look at that.

(BEGIN VIDEO CLIP)

ROMNEY: I fought against long odds in the a deep blue state, but I was a severely conservative Republican governor.

(END VIDEO CLIP)

WALLACE: Someone said, Senator, it is as if Romney he has a English dictionary, English to conservative, but he can't quite get the translation right.

BAYH: This reminds of the old Ann Richards line, poor Mitt he was born with a silver foot in his mouth, kind of reprise the attacks she had on George Bush.

But it does raise an underlying problem, this was a great week for the Obama campaign. And I disagree a little bit with what Sarah Palin had to say, Chris, the longer this goes on, the more it harms the Republicans, because it confronts the Romney campaign with a dilemma. What they have to do to appeal to the base may be off putting to the independents they need in the fall. And so the longer that goes on, the harder the healing process will be.

It also raises the issue, perhaps most fundamentally, of any successful presidential campaign has to be about more than tactics, more than money, more than organization, more than inevitability, more than even anger at Obama, it has to be about an underlying cause that you are passionate about. He just has trouble articulating that in a authentic way.

And the final thing, the longer this drags on with the possible alienation of some parts of the Republican base, the greater the chance of a third party candidate in the fall, perhaps under the American's Elect banner. If that were to happen, that would be the end of the Republican chances for regaining the presidency.

WALLACE: Bill, let's switch to the other candidates in the field -- from Romney to Santorum had a very big week, three upsets in Minnesota, Colorado, and Missouri. He now leads Gingrich in the polls, in delegates, in victories four states to one state. Is he now the conservative alternative to Mitt Romney?

KRISTOL: Yes. I mean, yes. This is a race from shouldn't say anything definitive about because god knows it's so unpredictable and volatile and fluid, but yes, I believe that Rick Santorum now has a real chance if he beats Gingrich and maybe even Romney of course in Arizona and/or Michigan February 28th and then does well on March 6, which I think right now Santorum is on track to do, I think he becomes the conservative alternative to Mitt Romney, Ron Paul stays in and gets his 10 or 15 or even 20 percent of the vote. And I think Santorum is a good chance to beat Romney one-on-one.

I really don't know why Washington still thinks that, well, Romney's hitting all these speed bumps, but ultimately he's going to win. I'm not so sure ultimately he's going to win.

WALLACE: Let me raise another interesting development this week with you, Mara. The narrative has been that Republicans are fired up, champing at the bit to beat Barack Obama, but take a look at the turnout in the GOP contests so far. This was very interesting. Turnout was up in Iowa, in New Hampshire, and especially, as you can see, in South Carolina, but it's been down sharply recently in Florida, Nevada, and Minnesota, and, in fact, all the races on Tuesday night. Why aren't Republicans showing up to vote?

LIASSON: Well, I think they're not thrilled with their candidates. There's another way to look at those statistics, too, because if you weed out all the independents, just talk about Republican turnout, it's down in some of those other states, too. But I think it's a problem. This was going to be the year that they had the big enthusiasm gap working on their side.

The other thing we've learned in the last couple of races is Mitt Romney seems to win when he spends millions of dollars obliterating his opponents with lots of negative attack ads. When he doesn't spend a lot of money, like on Tuesday, he loses.

So that, I think, underscores what Kim is talking about, which is he's got to present a positive, affirmative vision, not just an attack on Obama and not just, "My resume and experience shows that I can fix the economy." And that makes -- and it's even more urgent, because the economy looks like it's turning around. And you don't want to be the pessimistic candidate out there saying, "Oh, it's really not good," when people like Clint Eastwood in that famous halftime ad are telling you it's coming -- it's looking up.

WALLACE: But that was non-political. That was just about selling cars.

LIASSON: That was not political, but that -- yes, but the point is, he has to do two thing in the coming weeks. He has to, obviously, secure the nomination and beat off Rick Santorum, but he also has to fill in the blanks and do something more than biography, really put out some big, bold...

(CROSSTALK)

WALLACE: Kim, what do you make of the turnout numbers? STRASSEL: Well, Chris, look at them. They almost exactly correspond. You get to Florida, and it's when Mr. Romney and Mr. Gingrich have started beating on each other. And this has very much disturbed a lot of primary voters.

I think the overall enthusiasm is good. You look at those numbers that Mara cited going to outside groups. This is a Republican electorate that does want to beat this president. But they don't necessarily like all the negativity, and this is something that is about to get thrown on Rick Santorum coming out.

WALLACE: So do you think -- we got about 30 seconds left -- is it the negativity of the campaign? Or is it people just aren't excited about these candidates?

BAYH: It's the lack of a passionate vision or a cause animating the Romney campaign. That said, ultimately -- and the enthusiasm gap is a problem. That said, they ultimately will be motivated to vote against Barack Obama.

What George Bush understood was that it was all about the independents. That's where he came up with his compassionate conservatism. The "severe conservatism" is much too limiting and doesn't really address the challenge in the fall, which is that 5 percent or 6 percent that can go either way. That's the sweet spot he ultimately needs to get to. The longer the nomination process lasts, the longer it takes to get there.

WALLACE: All right. We got to go. Thank you, panel. See you next week.

Don't forget to check out Panel Plus, where our group picks right up with this discussion on our website, foxnewssunday.com. and we'll post the video before noon Eastern time.

Up next, our power player of the week.

(COMMERCIAL BREAK)

WALLACE: Abraham Lincoln was born 203 years ago today. But while literally thousands of books have been written about one of our greatest presidents, the debate continues over the meaning of his life. Here's our power player of the week.

(BEGIN VIDEOTAPE)

SMITH: He seems much more accessible than a Washington or a Jefferson, the fact that he was born in a log cabin, that he embodies the American dream.

WALLACE: Presidential historian Richard Norton Smith is talking about America's enduring fascination with Abraham Lincoln. Smith is one of the driving forces behind a new $25 million museum on Lincoln's legacy that opened this week directly across from Ford's Theater, where Lincoln was killed 147 years ago.

SMITH: It's a museum that looks at our evolving relationship with Lincoln, not only the historical Lincoln, but the Lincoln of myth.

WALLACE: Smith gave us a tour of the Center for Education and Leadership. It begins with what happened after Lincoln died, a replica of the railway car that took the president's remains on a mournful 20-day journey through a dozen cities.

SMITH: I mean, it's just an extraordinary pageant of grief.

WALLACE: But that's where the story begins. The center chronicles how presidents ever since have embraced Lincoln.

SMITH: They all took Lincoln as a source of inspiration. Richard Nixon, when he was 12 years old, hung Lincoln's picture over his bed. Barack Obama was sworn into office on the Lincoln bible.

WALLACE: The centerpiece is this 35-foot-tall sculpture of books that have been written about Lincoln, Smith says more than about any other person who has ever lived.

SMITH: These are some of the 15,000 volumes that have been written to date, and as we speak there's no shortage of scholars out there adding to the list.

WALLACE: Why the fascination with Lincoln? Smith says, beyond the fact he was one of us, his presidency confronted so many issues that still consume the country, war and peace, civil liberties, and our continuing struggle with race.

SMITH: The American Communist Party has claimed Lincoln. Believe or not, there used to be Lenin-Lincoln Day dinners. You know, Lincoln has been appropriated, sometimes abused in the name of just about every cause you can imagine.

WALLACE: That's one of the things they will study at the center, the nature of leadership. It's a study that fascinates Richard Norton Smith, who has run five presidential libraries, from Lincoln's to Reagan's.

SMITH: If you look at presidents who are memorialized on the mall, each in their own way made America a little bit more democratic.

WALLACE: Smith hopes visitors to the center will come away with the same understanding of Lincoln as all those historians who contributed to the tower of books, that the last word will never be written.

SMITH: It's a museum about an afterlife, and it addresses that issue, that ongoing question of, why does Abraham Lincoln matter? Why, 150 years later, is he still so important to us?

(END VIDEOTAPE)

WALLACE: More than 750,000 people a year visit Ford's Theater. Now with this new center, they think many more will come to see what they are calling a Lincoln campus in the heart of Washington.

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

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