This is a rush transcript from "The Beltway Boys", January 31, 2009, that has been edited for clarity.

MORT KONDRACKE, CO-FOX HOST: Coming up on "The Beltway Boys," President Obama fails in his first big test of bipartisanship on the economic stimulus plan. We'll tell you where he needs to give.

FRED BARNES, FOX CO-HOST: We'll tell you how President Obama's new policy on car emission could further sink the big three automakers.

KONDRACKE: The new president extends a hand of friendship to the Muslim world and tells Iran he's ready to talk.

BARNES: And is the Rod Blagojevich drama finally over?

KONDRACKE: All that is coming up on The Beltway Boys, right now.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I don't expect 100 percent agreement from my Republican colleagues, but I do hope that we can all put politics aside and do the American people's business right now.

(END VIDEO CLIP)

BARNES: I'm Fred Barnes.

KONDRACKE: And I'm Mort Kondracke. We're "The Beltway Boys."

BARNES: Mort, the hot story, Obama drama. We all knew Barack Obama during the campaign, you know, no drama.

KONDRACKE: No drama.

BARNES: No-drama Obama. He's president now and there's a lot of drama. He has a big dilemma. He has to choose between his ideals and promises for bipartisanship, a new way of doing business in Washington, to be a uniter and not a divider, choose between that and congressional Democrats who, so far, don't seem to buy any of that.

Of course, what is at stake is the economic stimulus package. Democrats in the House have passed a bill totally ignoring Republicans, in passing a bill that is $819 billion, not counting all the interest you have to pay on it. And Republicans said they weren't consulted at all on it.

Now we go, next week, to the Senate. Once again Republicans who have met repeated Obama — you have to say one thing for President Obama, has been accessible to Republicans. He's invited them up to their place. He's come down to Congress. There's been plenty of that. They want him to intervene and vindicate his promises in the campaign and give them a role in developing a bipartisan stimulus bill that Republicans will vote for.

Here's what a couple of Republicans said, after all this accessability from Obama.

(BEGIN VIDEO CLIP)

SEN. JOHN KYL, R-ARIZ.: His attempt to reach out to us, I think, is very well received. I'm not sure he had that same lunch with his Democratic colleagues in the House and Senate. It doesn't appear they've been interested in the same kind of bipartisan outreach that the president was.

REP. JEFF SESSIONS, R-ALA.: There's very little likelihood that we'll have a substantial change, so we need to resist this package with every strength we have.

(END VIDEO CLIP)

BARNES: You see the range of Republican views so far in the Senate, from skepticism of Obama to opposition of Obama. Jon Kyl being number two there.

Look, what we need in a bill here is a bipartisan bill essentially does two things, that provides stimulus that really jacks up the economy quickly, and other things that really ameliorate the pain of the resection, extend unemployment benefits, do things to create jobs. Those two things and nothing more.

KONDRACKE: I'm glad you recognize there's pain connected with this recession for ordinary people. I hope that Republicans do as well, but your basic point is fundamentally right, that you have Obama, his attitude anyway, and then you have Nancy Pelosi's attitude.

And here's Nancy Pelosi who, by the way, says that her total attitude is nonpartisan. Watch.

(BEGIN VIDEO CLIP)

SPEAKER OF THE HOUSE NANCY PELOSI: We've reached out to the Republicans all along the way and they know it. They just didn't have the ideas that had the support of the majority of the people in the Congress.

(END VIDEO CLIP)

KONDRACKE: Boom! You know, we don't have to listen to Republicans. I got to say, this is exactly the way the Republicans used to behave toward Democrats when your friend Tom Delay was the boss of the Republicans in the House. Obama did pledge to do things differently, to change the ways of Washington in a way, I might say, that George Bush never did. He never went up to the capital and saw Democratic — spoke to the Democratic caucus and so on.

BARNES: Mort, that stuff is just pleasantry.

KONDRACKE: But...

BARNES: I'll give Obama credit.

KONDRACKE: All right, but Obama has to go and take control of this process, for sure, by the time the bills get out of the Senate and the House, and they go to House-Senate conference, or earlier if possible, because the Republicans do have good ideas. And we are going to get to some of them in a second. One is — that Senate Republicans are talking about is tax credits for home improvements or home purchases, new home purchases, which would help jack up the housing prices.

BARNES: That's certainly true, Mort. It wasn't just Bush not consulting Democrats. Clinton didn't do that in his first two years when Democrats were in control of Congress. It was when Republicans were, and then he got friendly with them.

Look, Republicans lost the vote in the House on the stimulus package and they will lose in the Senate if Democrats want to ram through another egregious partisan bill, and that may happen.

KONDRACKE: The Bush way. That's what Bush did. 50-plus-one, that was all he cared about.

BARNES: Mort, you have to move on. He's not president any more.

(LAUGHTER)

Look, the Republicans, I think, won the argument that the bill in the House was too partisan, too big. It had too much pork in it and not enough stimulus. I think they won the argument. They don't have the votes but they won the argument. In fact, the bill there and the Senate bill in the beginning too, are ones that are so bad even you and I could agree on a lot of specific ways to change the bill.

So here are the things we think should be added to the stimulus bill. One, more spending for the military because it could hit the economy quickly. Second, cut payroll taxes for employers and employees. Again they would feel that very quickly. And third, postpone the hike in tax rate on capital gains and dividends which would spur investment.

Here's what we think should be taken out of bill, among other things, all spending that is supposed to take place after the year 2010. The problem is, now, we need to stimulate the economy, now, not in 2011. The $650 million set aside for the digital television converse program, which obviously will not reach people by the February 17th deadline for converting. and $198 million in payments to Philippine vets of World War II, most of whom live in the Philippines, not the U.S.

Mort, those are just an example of a lot of bad things in there. There's probably more we could agree on.

KONDRACKE: Look, Obama should act as if he has a line-item veto and tell the Democrats to get a lot of this junk, like the Filipino veterans, out of this bill.

But for sure, he should rule out any tax increases of any kind while we are in a recession.

On the issue of — you know, the Republicans have been dead against the idea of refundable tax credits for people who pay payroll taxes but don't pay income taxes. The idea of eliminating the payroll tax or having a payroll tax holiday that the Republicans come up with as an alternative is a good one. That's something that Obama could accept easily.

I want to play you something that Mitch McConnell, the Senate Republican leader, said to the Republican National Committee. Watch this.

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL, (R), MINORITY LEADER: The Republican party seems to be slipping into a position of being more of a regional party than a national one. Now in politics, there is a name for a regional party, it is called a minority party.

(END VIDEO CLIP)

(LAUGHTER)

(CROSSTALK)

KONDRACKE: He might have added what the Republicans have become is the old people's, white people's southern party, and not very well educated southern party as well.

If Obama does reach out to them and is willing to cut deals and the Republicans continue to ask for the whole loaf, they are going to continue to be the minority party, because the country is fed up with this old- fashioned partisanship. You know, it doesn't help.

McConnell also said there is no way that the Republican Party is going to come back if they don't do better among Hispanic voters. Guess what, last week they had a debate on extending children's a health insurance initiative. And the Republicans made a big fuss. Practically every single Republican voted against denying these benefits to legal, legal immigrants. They are going to kick away the Hispanic vote once again.

BARNES: That's demeaning to Hispanics that all they want are hand- outs.

(CROSSTALK)

KONDRACKE: What do you think the Hispanic community — looks at this and says the Republicans hate us.

BARNES: Let's argue that later. You are wrong about Republicans. You dislike them more than I thought, with a few exceptions.

Look, their unanimous vote against the Democratic stimulus bill in the House exhilarated Republicans, embarrassed Democrats and put pressure on Barack Obama to do the right thing and impose the bipartisanship he talked about in the campaign. It was a week in which Obama was put under pressure. I think I would give him a "B."

KONDRACKE: I'd give him a "B" too. Matter of fact, maybe even a "B- ." The House bill is full of embarrassments. And he was in favor of it.

BARNES: Mort, you are a hard grader.

Coming up, the Obama administration strikes a decidedly conciliatory tone toward Iran. Good idea or just naive? We'll debate it, next.

(COMMERCIAL BREAK)

(FOX NEWS BREAK)

BARNES: Welcome back to "The Beltway Boys." It is time for the "Ups and Downs."

Down, the big three automakers, G.M., Chevy, Chrysler — I guess Chevy is G.M. — G.M., Ford and Chrysler.

KONDRACKE: Ford.

BARNES: There's only three. You'd think I could get it right.

Anyway, a new order by the Obama administration will let California and 13 other states set stricter limits on green house gas emissions from cars and trucks, opening the way for tighter fuel efficiency standards nationwide.

You would think the big three had trouble enough. Right now, there's a national standard. States that want to have higher standards, like California, cannot impose them. But Obama will now let them do that.

What this means is the state with the highest standards is the ones that will become the national standard, because Detroit can't make different cars for different states. This will not be easy to do. It will make Detroit's problems greater than they are now. It is crazy. The word that popped in my mind was "counter productive." I think it will mean, since the job of recovering will be harder for the big three, it will mean more taxpayer bailouts.

KONDRACKE: Look, this standard requires a 40 percent reduction in tail pipe emissions by 2020. That is not an impossible standard for Detroit to meet. And it ought to be a national standard. There shouldn't be a patchwork standard.

Look, every auto company in the world going to have to meet the same standard, G.M. along with the others. G.M. is — the big three in the United States, resisted seat belts. They resisted padded dashes. They resisted lead emission standards and stuff like that

BARNES: Air bags.

KONDRACKE: Air bags, that too. Come on, it is time for them to meet world standards.

BARNES: They can't do it and be...

KONDRACKE: By 2020, I think they can.

BARNES: No, not this way.

KONDRACKE: Up, diplomacy. President Obama is making good on his campaign pledge to open up diplomatic channels with rogue nations like Iran and is making a concerted effort to repair relations with the Muslim world.

Here's Obama on the Arabic language channel, al-Arabiya, earlier this week.

(BEGIN VIDEO CLIP)

OBAMA: Communicating a message to the Arab world and the Muslim world that we are ready to initiate a new partnership, based on mutual respect and mutual interest. Then I think we can make significant progress.

(END VIDEO CLIP)

KONDRACKE: Some people like, our friend Charles Krauthammer, said this was overly defensive, you know, the new partnership and all that, was kind of an apology for George Bush. Look, what he's doing...

BARNES: Do you know why Charles said that? It was true.

KONDRACKE: Look, what Obama is trying to do is to playoff of George Bush's unpopularity, justified or not justified, and his own popularity, to try to create fresh relations with the Arab world. And he's reaching out to them, the way he is to Republicans, for example. They may bat him back, and I suspect the Iranians have already started. But I was very encouraged as to whether Obama is going to cave toward countries like Iran, by something that Hillary Clinton said, secretary of state, that it is up to the Iranians to demonstrate whether they are ready to cooperate with the international community. In other words, onus on the Iranians.

BARNES: We know the answer to that. They are not ready to cooperate. They want a nuclear weapon. That is pretty clear.

Look, I thought the most important part of that whole interview was outreach to Iranians. So what does he get in response? We want to you to apologize and make amends of 60 years of being mean to us and conspiring against us and all this stuff. In other words, they pocketed his nice remarks and said here's what more you need to do. That didn't help.

All right, coming up, President Obama and House Democrats definitely not on the same page when it comes to prosecuting alleged crimes by the Bush administration. We'll explain, next.

(COMMERCIAL BREAK)

KONDRACKE: Welcome back to "The Beltway Boys." We're continuing with the "Ups and Downs" for the week.

Down, now former Illinois Governor Rod Blagojevich. His media blitz didn't win supporters in the Illinois Senate, which summarily booted him from office Thursday.

Here's Blago's last-ditch appeal.

(BEGIN VIDEO CLIP)

ROD BLAGOJEVICH, (D), FORMER GOVERNOR OF ILLINOIS: It is painful and it is lonely. But I want you to know, I want you to know, I never, ever intended to commit a criminal act. I never, in any conversation, intended to violate any criminal law.

(END VIDEO CLIP)

KONDRACKE: I never intended, no criminal intent — that's obviously his defense for when the feds go after him.

If he really thinks that he was trying to sell a Senate seat for campaign cash, and there was no criminal intent involved, that justifies my long-standing diagnosis of Blagojevich — sociopath.

BARNES: Whatever happened to the notion of being considered innocent until proven guilty? I'll tell you, that is true for a court of law. When you are an elected governor involved in stuff, it is a matter of politics. He was voted down 59-0, I think, in the Senate, losing that.

But look, Democrats in Illinois, for years, winked at his transgressions even when it was well-known he was under federal investigation. But when it got truly embarrassing and egregious, they stepped in and booted him out. I don't know what he's going to do for a living now but, Mort, if you are going to be away some week...

(LAUGHTER)

Just kidding.

Up, Attorney General-designate Eric Holder. He's on track to be confirmed by the full Senate Monday. GOP opposition softened when it leaked out that Holder gave private assurances to a key Republican senator that he doesn't intend to prosecute Bush administration officials for engaging in so-called enhanced interrogation techniques. This is the only reason why I would give Eric Holder an up arrow — you know, the coveted "Beltway Boys" up arrow — is because he did this because it would be horrible for America to be prosecuting Bush administration officials, who actually protected the country from a further terrorist attack after 9/11.

I think there were reasons to voter Eric Holder down. But, you know, the Mark Rich pardon and everything. But, having given that assurance, he went through, what, the Judiciary Committee, 17-2. And on Monday, he will easily win confirmation. And under the circumstances, I would vote to confirm.

KONDRACKE: Holder was reflecting Obama policy. Barack Obama does not want witch-hunts to be what this administration is all about. He needs to intervene with his friends in Congress to prevent the likes of John Conyers from conducting witch hunts.

I don't think there should be this other idea of like a truth commission, like there was in South Africa, with public hearings and stuff like that. If they want to check out what happened, they should appoint a blue ribbon commission, like Baker and Hamilton did with the Iraq war, and have a private investigation and a report as to what worked in enhanced interrogation and what didn't. That's the way to handle it.

BARNES: Mort, you have been outspoken on this issue. Very good.

KONDRACKE: Down, free trade. Democrats seem intent to include, and I might add some Republicans as well, a buy-America provision in the economic stimulus bill. The Senate version would require any infrastructure project to only use American-made equipment.

This is a perfect disaster for the world. If we impose trade restrictions on the products that we will buy, what are other countries going to do but retaliate. That is going to reduce world trade across the board, a trade war. Do any of these people read history? Do they remember the Smoot-Hawley tariffs, which made the depression deeper around the world?

BARNES: No, they don't read history. And if they do, they don't care about history because there's a lot of pressure from a huge and influential liberal interest group inside the Democratic Party, and that's organized labor. And they're responding to this. Look, if they could shop around for the best buy, it would mean stimulus would get more bang for the buck, so this is a mistake.

Don't go anywhere. "The buzz" is coming up, next.

(COMMERCIAL BREAK)

KONDRACKE: What's "The Buzz," Fred?

BARNES: "The Buzz" is Michael Steele, the new Republican National chairman. He was the lieutenant governor of Maryland, the head of GOPAC, a prominent figure in the Republican Party for a while. He's a conservative. This was a pretty weak field of people running to be the head of the Republican National Committee, which is a job that becomes more important when you don't have a president in the White House, because then you are basically a lackey of the White House.

And now you have a more independent national chairman. Michael Steele is, by far, the strongest candidate in a weak field. I remember a few years ago when running for national chairman were Haley Barbour, now governor of Mississippi, John Ashcroft, later senator and attorney general, and Spence Abraham, later a senator from Michigan and then energy secretary — a strong field. This one wasn't as strong, but I think Republicans dodged a bullet. Some of the other people running, if they had gotten elected — They got Mike Steele. He'll be very good.

KONDRACKE: Particularly, Katon Dawson, who was the final finisher from South Carolina, who is the Rush Limbaugh-kind of candidate. What the headlines would have been about him is: former member of a segregated country club is elected. I mean, this is — you know, that would have been a disaster for the identity of the — you know, that would have been a disaster for identity of the Republican Party. And he's an exclusionist on immigration. Why don't you just kiss away the whole future?

BARNES: You made your point pretty well.

Now, I want you to watch something about the Super Bowl that was said by President Obama. Watch.

(BEGIN VIDEO CLIP)

OBAMA: I wish the best to the Cardinals. They've been long- suffering. It is a great Cinderella story. But other than the Bears, the Steelers are the team that is closest to my heart.

(END VIDEO CLIP)

KONDRACKE: Well, I guess we know who he's for.

BARNES: At least, he came out for a team and didn't say I'm for both.

KONDRACKE: Like Hillary Clinton, remember famously, both a Cubs fan and a Mets fan or Yankees fan.

BARNES: Yeah.

KONDRACKE: Look, my team was the Titans. You know, I'm — so I don't have a lot of ego in this. But I do like Larry Fitzgerald and Kurt Warner, so I'm going to root for the Cardinals.

BARNES: Yeah, I like Warner and Fitzgerald. The Cardinals are a good story. I particularly like Larry Fitzgerald, who is a self-made great receiver. And have you seen those pictures of him catching the ball with his eyes closed. He knows exactly where it is. He's got radar.

KONDRACKE: I've always thought that wide receivers are the most athletic people anywhere, any sport.

BARNES: He's one of the most athletic one of those.

All right, that's all for "The Beltway Boys" this week. Join us next week when the boys will be back in town!

Watch "The Beltway Boys" Saturday at 6 p.m. ET and Sunday at 1 and 6 a.m. ET

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