This is a rush transcript of "Special Report With Brit Hume" from January 13, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

SENATE MAJORITY LEADER HARRY REID, D-NEV.: Timothy Geithner is a person that is extremely well qualified to be one of the finest secretaries of the treasury this country has ever had.

And there is a few little hiccups, but that's basically what they are. I am not concerned at all.

(END VIDEO CLIP)

BRET BAIER, HOST: Late in the day you saw Senate Majority Leader Harry Reid responding to a question about Timothy Geithner, the pick for the Obama administration to become treasury secretary.

It has been learned that he failed to pay $34,000 in taxes from 2001 to 2004. He paid most of the past-due taxes before his nomination in November, but a couple of other "hiccups," as the Senate majority leader calls them, in a late meeting on Capitol Hill.

Some analytical observations about this and also the Hillary Clinton nomination confirmation hearing from Fred Barnes, executive editor of The Weekly Standard, Mara Liasson, national political correspondent of National Public Radio, and Mort Kondracke, executive editor of Roll Call — FOX News contributors all.

Mort, let's start by explaining this, what the potential problems are. I do want to point out that Chuck Grassley, the ranking member, a top aide, said "It is serious. Whether it is disqualifying is yet to be determined."

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Which means that Geithner is going to get grilled about it, was grilled today, presumably will be grilled in public when his confirmation hearings take place.

Look, he worked for the International Monetary Fund, and he was required to pay self-employment taxes, which are often, I guess overlooked by some people. But, in any event, he got audited. His income tax returns were audited in 2006. And then he paid up what he owed for 2003 and 2004.

And when he paid the 2005 and his 2006 taxes, he paid, but he did not go all the way back to 2001 and 2002, and he left those tax bills unpaid until November, when he was nominated.

Now, that's the question, you know, did he knowingly dodge two years of self-employment taxes?

BAIER: And there is a household employee as well.

KONDRACKE: Yes, who apparently overstayed her Green Card. But I don't know if that's technicality or not.

BAIER: Mara?

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: The reason all sorts of alarm bells went off all over Washington when this was disclosed is because it reminded people a lot about some of the confirmation scandals that occurred at the beginning of the Clinton administration with both taxes, but particularly household help. A number of Clinton administration nominees had these.

I really feel that the bottom line is this is kind of a shadow of those kinds of problems. First of all, he did pay the taxes that—we don't know about those two years, but this is a problem that's already been corrected.

The difference is that during Clinton, these were problems that were uncovered during the nomination, the confirmation process, and they weren't problems that had already been corrected.

As far as the household help, the Green Card expired or her papers expired while she was in his employ for about three months. She eventually did get a Green Card. So there was a lapse.

My gut feeling on this is that this is going to be a hiccup. He will be grilled, but this will not derail him.

BAIER: Fred?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: I think it is more than a hiccup. Obviously, Geithner has a couple of things working for him. One, he's Obama's nominee. And Obama is going to be president, and it's a Democratic Congress.

The second is that Republicans like him. He is personally popular with most of them. They think getting this guy to be Obama's treasury secretary, they were surprised that it would be somebody they liked that much.

On the other hand — look, he didn't pay his taxes. This is the guy who is going to be the head of IRS, the Internal Revenue Service. And I think that makes it a little worse than Harry Reid might let on.

I think it depends on one thing — if there is a huge public reaction to this against him, well, he might go down. But short of that, I agree, he will probably be confirmed t is serious.

But it is serious. It's more than a hiccup.

BAIER: Confirmation hearing also today in front of the Senate Foreign Relations Committee for Hillary Clinton. Let's go down the line and get impressions of this hearing and potential hiccups there, if there were any.

BARNES: Potential hiccup? A potential takeover of the entire government by Hillary Clinton. She wants money from the Defense Department. She wants to horn in on the Treasury Department.

When, I thought perfectly innocently, Senator Lugar of Indiana, the ranking Republican on the Senate Foreign Relations Committee, said maybe you should go a little further with your husband's foundation and just agree not to have him raise any foreign money while you're secretary of state.

She brushed that off. She didn't seem to like that idea either. "We already have an agreement," and so on.

She's going to be tough. And anybody else who thinks they're going to horn in on foreign policy, whether it's Joe Biden, and maybe even the national security advisor, they better watch out.

LIASSON: I agree. I think that she established herself as the preeminent foreign policy person in the administration.

And I don't think she has a lot of rivals. I don't think it is going to be Jim Jones. But she does feel that this matter of her husband's foundation is closed, finished, resolved.

And I think that was really the only serious questioning she got. Otherwise, I think she is going to pretty much sail through.

And it is going to be interesting to see how she expands the scope at the state department.

KONDRACKE: I agree with all that. I think that Lugar, who is about as fair-minded a person as exists on this planet, to suggest that the Clinton Foundation not take foreign money is perfectly reasonable. And it seems to me that if the Democrats on that committee had any backbone, they would insist that that be the policy of the foundation as well.

BAIER: OK.

The president elect has plenty of other potential political problems when it comes to trying to get Congress to release two huge pots of money. We will talk about that when we come back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PRESIDENT-ELECT BARACK OBAMA: I will give American businesses a $3,000 tax credit for every job they create right here in Ohio, right here in the United States of America.

I will propose an additional temporary business tax incentive through next year to encourage new investors.

SEN. CHARLES SCHUMER, D-N.Y.: The jobs creations tax credit didn't — I do not know any single member who is favorable to it.

(END VIDEO CLIP)

BAIER: There you see New York Senator Chuck Schumer reacting to the fact that this business tax credit that candidate Barack Obama talked about on the campaign trail has been dropped from the stimulus package.

We're back with the panel. Mara, how about this?

LIASSON: I don't know. I guess Schumer was looking around to see if there was somebody for it behind him.

First of all, it's great in a campaign to talk about tax credits for businesses to create jobs. What could be more American than apple pie?

This was part of the package of tax credits that were going to get Republican votes for this. But Republicans did not seem that enthusiastic about it. First of all, it's almost unworkable. Can you imagine a business deciding to lay off 10,000 people and then hire back a couple hundred to get a tax credit? It was just nonsensical in many ways. But, do you know what? To their credit, the Obama team, when they got pushback on this, it wasn't selling, they dropped it. They are pragmatic, they're flexible. This wasn't some kind of a centerpiece of their plan. There are a lot of Democrats who wish there weren't any tax cuts in this package at all.

But this was aimed at Republicans, and Republicans don't seem too sorry to see it go. I don't think this is a major derailment of the stimulus package, but it was a not great idea, and that is how it was received, and now it's off.

BAIER: It got a lot of coverage on the campaign trail.

KONDRACKE: It did. But what Obama should do now is replace whatever the cost of this was with another business tax cut. In other words, a lot more expensing of plant equipment or lower the corporate tax by as much in order to make sure that Republicans are still on board with this thing.

He has promised $300 billion promised in tax cuts as part — 40 percent of the stimulus package, and now this is going to be a pullback from that, so he ought to replace it with something else to keep the Republicans attracted.

BARNES: When I say Schumer, that was so great. I was thinking "Now he tells us."

And I do not know. Mara seems to give Obama credit for being pragmatic in getting rid of this thing. He promised it. It was a terrible idea. Everybody knew it was totally unworkable. You hire somebody, but was that somebody you were going to hire anyway? Who knows?

It was a non-starter. Republicans didn't like it, and I'm glad to hear Democrats didn't like it.

Mort is on to something—permanent, across-the-board tax cuts, cutting the corporate rate, would help a lot. That would be a greater stimulus than any of these so-called "shovel-ready projects." On infrastructure, there is no such thing as a shovel-ready project.

BAIER: But there has been major pushback from Democrats on Capitol Hill about the whole tax credit package that's been talked about, right?

LIASSON: If Obama wants the big majorities that he seems to want, 70 votes in the Senate, he is going to have to have a big percentage. He said 40 percent of the stimulus package would be tax cuts.

Democrats want more money for energy instead of the tax cuts. He is willing to do that. I do not know if it is a good thing or a bad thing, but the thing of the stimulus package, it just can expand forever to satisfy everyone until he gets the votes he needs.

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