This is a rush transcript of "Special Report With Bret Baier" from February 3, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT OBAMA: I think Tom is an outstanding person. I think this was an unintentional mistake on his part, but a substantial one. And there's no excuse for the mistake. He took responsibility for it.

Ultimately, I have to take responsibility for a process that resulted in us not having an HHS Secretary at a time when people need relief on their healthcare costs.

(END VIDEO CLIP)

BRET BAIER, HOST: President Obama speaking with Chris Wallace this afternoon, talking about former Senate Majority Leader Tom Daschle, who withdrew his nomination for Health and Human Services Secretary after it was revealed that he failed to pay more than $120,000 in taxes.

What about the fallout from all of this? Let's turn to our panel. Some analytical observations from Fred Barnes, executive editor of The Weekly Standard, Lynn Sweet, Washington bureau chief for The Chicago Sun-Times, and syndicated columnist Charles Krauthammer.

Charles, the fallout?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, it looks bad, but I think Obama handled it rather well.

Look, he came in with two attributes — competence and cleanliness. And he ran a campaign that has a reputation of being flawless. He pulled off a miracle. And on the competence issue he has taken a lot of hits. He has withdrawn a lot of nominees, and he's looked bad.

But he preferred to take a hit on competence rather than on cleanliness, because that was the great attraction he had over the last year in the campaign. He was the guy who was from the outside. He would undo the ways of Washington. He would redo them and clean them up.

I think what killed Daschle was, obviously, his taxes, but, as Mike Kinsley once said, the scandal in Washington is never what is illegal. It's what is legal. Geithner, at least, had a history of being a humble civil servant who got medium wages and worked for a living. Well, Daschle had been out of office for four years. He made a huge amount of money.

And how did he do it? He worked for a firm, a law firm, in which he made over a million dollars. He's not a lawyer, and he didn't register as a lobbyist.

So what did he do? Obviously, he didn't instruct the partners on how a markup happens in the Senate. He picked up the phone and he peddled influence.

And that's what Obama came into town to abolish. He couldn't have a guy like that in his cabinet.

BAIER: Lynn?

LYNN SWEET, WASHINGTON BUREAU CHIEF, THE CHICAGO SUN-TIMES: The surprise thing here is that the process failed the Obama administration. They either knew about the Daschle problems and misread the political temperament to think that they could get this through without any comment, or they did not know. Either one is not good.

Now, we heard so much during the campaign, as all of you did, that this is the "No drama" Obama, and now just look at how much drama we have had with these nominees in the last few weeks, and it's all on this income tax problem.

I think it's something that the Obama administration will survive because they do have much bigger problems. I'll tell you, if you could trade saving the economy, if a guy who can do it has a tax problem, I think they would be pragmatic about it. But this episode shows that somebody in the Obama shop had a tin ear as to how this would play out, or just didn't do the vetting right, and that's surprising.

And it also shows that if anyone needs an example of how pragmatic Obama is and how he just wants to cut distractions, cutting Daschle loose is a this example. He was with him way early way in the beginning, and this had to be a hard one for him.

BAIER: Fred?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: Look, this is a bigger blow than I think Charles and Lynn have said. The bloom is simply off the rose with Obama after two weeks. It's amazing to me how quickly this has happened.

You have Daschle, who is exactly the classic Washington type that he campaigned against, the guy that came to town to do good and wound up doing extremely well. You have the lobbyists he has hired. You have the other people, the woman at OMB who had to step down because she hadn't paid taxes —

BAIER: Nancy Killefer.

BARNES: Nancy Killefer had to step down. You had Geithner. At least Geithner didn't actually owe the taxes. Daschle really did owe them. Geithner didn't have to pay.

You had waivers for the lobbyists and all those things. You have the stimulus package. If there is anything that is old politics, it's the stimulus package. It is all packed with goodies for interest groups and it's infrastructure that governors like, which won't produce jobs for a long time.

I mean, all this stuff is Washington as usual. He promised just the opposite. And when this many things pile up, the image can change. Remember, in politics, first impressions really matter. Obama is changing the first impression of himself, what he campaigned for.

BAIER: Was there a sense that Democrats were shifting here, that the tide had turned, Charles, up on Capitol Hill on Daschle?

KRAUTHAMMER: And also in the liberal intelligentsia. When you an editorial in The New York Times, which apparently had a lot of clout with Daschle, I think, and in The Chicago Tribune and The L.A. Times, it looks as if the zeitgeist had turned against him.

And I would just add to Fred in defense of my equanimity, you're the one who declared that the Obama presidency failed a week ago, Thursday. We heard it again, but we're still only two weeks in.

BAIER: Quickly, Lynn, I want to ask you, who do you think they turn to now? Any names? Howard Dean is floated out there.

LYNN: It's interesting, because that came up in the briefing today. And Gibbs ran away from any kind of speculation in the briefing, where he had a tough time today trying to explain what happened with Daschle.

So there are a lot of people out there who could be considered, no one - but what we need to watch is whether or not the next appointee, like Daschle, has two roles as the White House healthcare czar and running HHS.

BARNES: They will miss Daschle, though. He was perfect for this job.

LYNN: Two jobs!

BAIER: Next up, the president pushes the stimulus, warts and all.

(BEGIN VIDEO CLIP)

OBAMA: The main pressure I have is, is it going to put people back to work? And I think it actually will.

(END VIDEO CLIP)

BAIER: The panel weighs in on that after the break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SENATE MAJORITY LEADER MITCH MCCONNELL, R-KY.: The House bill is an embarrassment. The Senate bill on the floor is not markedly better. Our goal will be to pare it down and to target it right at the problem.

CHRIS WALLACE, 'FOX NEWS SUNDAY' HOST: Is the February 16 deadline firm?

OBAMA: Yes, because nobody disagrees with the idea that if we keep on putting this off, that we're going to end up seeing more months with half a million people losing their jobs each month. We can't afford to wait.

(END VIDEO CLIP)

BAIER: Senate Minority Leader Mitch McConnell talking about the economic stimulus bill, and, as you saw from Chris Wallace's interview, President Obama saying February 16, the date to get that done, is firm.

Take a look at some of the newest poll numbers. Gallup has a poll out about the economic stimulus bill — stimulus doubts — 85 percent doubt it will help this year, 38 percent support it as proposed, 37 percent want major changes, 17 percent reject the plan outright.

We're back with the panel. Fred, is the support slipping?

BARNES: Slipping?

BAIER: It's going out the basement.

BARNES: The support is cratering. In a week it dropped from 50 percent to 38 percent, and then you have the 37 percent that want — maybe I have those numbers backwards, but something like over 70 percent(sic) want it to be changed in major ways or they don't like it, or whatever.

I mean, it's a terrible bill. The Senate bill is bad, too. Republicans have won the argument on this, although their alternative isn't so great, either.

And I would say I would be the one person who disagrees with President Obama. I don't know what the great urgency is to pass some bill that isn't going to have much impact in the short run anyway.

Harry Reid and the president have both said they will get all the pork out of it. Let's wait and see, because there's a lot in there. That will take a lot of time. They got the Hollywood thing out today, but there's a lot more.

And when you have a stimulus bill, when the public thinks it isn't going to help in the first year, this is when you want the help. We're in a recession. You want the help now. It's not in that bill.

SWEET: One of the things that so surprises me is why Obama decided to wait to do a housing bill separate. The mortgage foreclosure crisis is something that is happening now. Each day that goes by more people are losing homes. There was talk about lowering mortgage rates.

I just think, strategically, the decision to keep the foreclosure issues out of this bill is a tactical mistake, because that is something that when people lose their homes and neighborhoods go, it is hard very had to bring them back. And that is not abstract.

BAIER: Do you think it's out for good?

SWEET: I think he wants to do it as a separate bill, and that makes it harder to sell the stimulus.

Some of the stuff in there I think will be something that happens — unemployment, food stamps, weatherizing, though it's hard to think the winter will be over by the time anything happens.

Everyone knows that you can't spend the money this fast anyway, so I wouldn't be surprised if they pared down the bill just to get something done that people can understand.

Obama is starting a campaign-style drive to get this passed. I don't know if you need that as much as you just need to let people understand what's in it — 647 pages is a lot to digest even if you have no problem with some of the stuff in it.

You know, the argument of should we have tax cuts or direct spending is a good one to make. I think just explaining what's in there is the first step. They haven't done it.

KRAUTHAMMER: Explaining what's in there and understanding what's in there is precisely why public opinion is turning against it. It's having a look inside the sausage factory, which has disgusted the vast majority of the American people.

Obama is being hurt on this more than he is on his appointments. And the reason is that the bill that came out of the House is essentially deceptive. It uses an emergency where everybody is saying, "OK, spend as you will. You're not going to have to account for any of this spending. It's going to be something new, but it's an emergency."

And when you then look in the bill and you see all the stuff that Democrats in the House have shoehorned in, which is nom stimulus at all, it ends up as an act of deception in a time of national emergency.

And that, I think, is what's hurting Obama, because he has his name on the bill.

The only answer is to do what Alice Rivlin, who worked in the Clinton administration, who advocated stripping out the stimulus, add that as a separate bill that is perhaps a fifth of the bill. It's manageable, it's understandable, and it would have support, and do all the other stuff on a longer, slower track.

BAIER: Lynn, clearly the president wanted to pitch his stimulus plan today when he did this round robin of interviews. He didn't want to talk about Tom Daschle.

Can he turn public opinion with this bill in the short time that he is given?

SWEET: I don't know how. This was supposed to be — I was in the White House pressroom when this whole parade of anchors came by, and absolutely not what they wanted to come out of this interview was him saying the mistakes he made.

They could only turn it around if they can explain it. I don't know if they have enough time if they want that deadline met.

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