'Special Report' Panel on Battle Over President Obama's Budget

This is a rush transcript of "Special Report With Bret Baier" from March 25, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

HOUSE BUDGET COMMITTEE CHAIRMAN JOHN SPRATT, D-S.C.: The budget resolution before you will not turn this big battleship all the way around in one year's time. We will have to revisit this problem multiple times over the next five years.

REP. PAUL RYAN, R-WISC.: Instead of righting the ship, this budget steers it in a radically different direction, straight into the tidal wave of spending and debt that is already building.

(END VIDEO CLIP)

BRET BAIER, HOST: (INAUDIBLE)... the president's budget — $3.5 trillion — and it trimmed about $100 billion from the budget.

The president was up on Capitol Hill today for some face-to-face selling. So how did he do with Democratic leaders? Let's bring in our panel: Mort Kondracke, executive editor of Roll Call; Jeff Birnbaum, managing editor digital of The Washington Times, and Bill Kristol, editor of The Weekly Standard.

Mort, the president tried to sell the American public at that news conference last night and then went up to Capitol Hill today. Is he worried about this budget?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: I don't think. I basically accept the Peter Orszag, Robert Gibbs —

BAIER: The budget director.

KONDRACKE: Yes, and the press secretary's analysis that he is basically getting what he wants.

Look, the House budget is $100 billion out of $3.35 trillion less, right? If my math is correct, about a 2.5 percent reduction.

The Senate budget is about 16 percent lower over a five-year period than the president asked for. It's still got something like $3.8 trillion worth of accumulated deficit over that time.

So that's, you know, that's still a lot. It means that we're going to have to borrow a great deal of money.

And, you know, today, in Great Britain, Great Britain tried to auction some of its debt and it failed and the market went down. We had an auction. There were far less bidders for our auction.

All of this indicates that this borrowing that we have been doing is catching up with us, and foreigners are going to stop borrowing — lending to us if we don't get our house in order.

BAIER: Jeff?

JEFF BIRNBAUM, MANAGING EDITOR DIGITAL, THE WASHINGTON TIMES: I think that the president didn't do as well as his spin machine would like us to believe.

In this budget resolution, dropped from it was the tax cut for low and middle-income people. That's not part of it. He would have liked to have included his energy plan, his climate change plan, which is called a cap and trade system, essentially a carbon tax with a market element to it. That's not part of it.

He is not getting his cuts in farm subsidies — a very important part of his budget proposal. And his health care down payment is also, for the most part, missing here.

The aggregate numbers — and that is basically what this budget resolution is, you have to remember, it's just basically numbers. It's not really the policy. That comes later.

But the numbers may be close, as Mort suggests, and I agree with his numbers. But as for policy, the president asked for an awful lot and didn't get as much.

Now, maybe he planned to reach far and get less and be happy with that, but, in fact, he is getting less. And it is his own Democrats who are trimming him back.

BAIER: Bill?

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: And the biggest thing I think politically that they have trimmed back is the middle-class tax cuts. It helped Barack Obama an awful lot during this campaign. We saw a lot of polling data that showed Democrats were even with Republicans on the tax issue.

And why? Because Barack Obama said time and time and time again, 95 percent of Americans, you will be getting a tax cut, just the rich 5 percent will see tax increases.

Now some of that middle-tax cut went through in the stimulus package, but the Democrats in the Congress have now cut out the middle class tax cut as part of the five-year budget, that's part of permanent law.

So there's no tax cut.

Barack Obama has tax increases on the wealthy. He has some tax increases that will in fact come down below the wealthy and no tax cut. And I think that is very damaging. The last president who ran on middle class tax cuts was Bill Clinton in '92. He didn't come through with that in '93 and they paid a big price in '94.

BAIER: Do you think that there is disappointment, or do you think, as Mort suggests, that they're happy that they get what they get?

KRISTOL: I will say this. If I were Barack Obama, he should fight for his middle class tax cut. I mean, this is — he's fighting for everything else, health care. He can't go four seconds without saying how important his health care overall is. Cap and trade and energy.

He's not making a case for his middle-class tax cut, and I think he's letting Congress take that back. And I think —

(CROSSTALK)

KRISTOL: The Democrats are now the party that is reneging on their promise of tax cuts.

KONDRACKE: What they say is we got two years of the middle-class tax cuts and we're going to figure out how to get some more. They're not giving up on this. They have Paul Volcker trying to figure out how they will do it and maybe have to pay for it.

I don't see any Democratic pullback from the basic Obama agenda, which is health care reform, energy reform, education — that's fully funded, thank heavens, and so on.

George Bush doubled the national debt over an eight-year period, and Obama will double it over a 10-year period.

BIRNBAUM: I think what we're seeing is a reaction to the massive deficits here. And neither are Democrats nor Republicans want to spend more. That's why the middle-class tax cut has disappeared and why he won't fight for it, because he has no chance of getting it.

BAIER: Please go online with Special Report right after tonight's broadcast, right at the end. As you know from previous weeks, it is an interactive show. We will have more from the panel, some others on some of the hottest political stories of the day. We'll have reactions to your questions and comments. Link up to us, FOXnews.com/sronline.

Tough-talking China talks about dumping the dollar while it builds up its military. The FOX all-stars weigh in on China's monetary and military might next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEOFF MORRELL, PENTAGON SPOKESMAN: The fact that the Chinese continue to build up their arsenal across the straits is somewhat confounding given the fact there has been a lessening in tensions between the two governments post the elections in Taiwan.

(END VIDEO CLIP)

BAIER: A new Pentagon report out today, an annual report about the Chinese military, suggests that China is building up rapidly its military, expanding its global reach.

Also, there are a number of missiles that they're building up right across from the strait of Taiwan, increasing that number.

So what is going on with the Chinese military, and also the talk about the monetary policy. We're back with the panel.

Bill, are you concerned at all by these stats and talk?

KRISTOL: Well, China is an aggressive great power that wants to be a greater great power and wants to throw its weight around the region, would like to reabsorb Taiwan one day, doesn't mind using threats to do so, would like to throw its weight around the world and doesn't mind using its financial clout to do so.

So I think it is a good wakeup call. It would be nice if the Obama administration weren't cutting the defense budget, the only part of the budget that they seem to be exercising some austerity in. And they are cutting precisely the parts that five, 10, 20 years from now will be needed to deter and check China.

BAIER: Beijing calls those missiles across from Taiwan "defensive," but this report says they're "coercive," Jeff?

BIRNBAUM: It's clearly concerning. And it is, I think, an important test for the Obama foreign policy.

When Hillary Clinton made her first world tour, she really spoke very gently to the Chinese, I think, did not really raise human rights issues with them.

And this will be the test of backbone, I think, of the Obama administration, to see if they can at least speak harshly. We heard the spokesman giving words of caution, but not very firm. What will we actually do about all that?

And to switch to the monetary question, Treasury Secretary Timothy Geithner, in an unguarded moment, raised the prospect that the U.S. was open to the possibility of an international currency as suggested by the Chinese government —

BAIER: He quickly corrected himself.

BIRNBAUM: Yes, but not so fast, not so quickly that it didn't cause the dollar to drop, and eventually interest rates to spike and was probably a contributing factor to a massive decline in the Dow Jones Industrial Average. It ended up up, of course, but there was a loss of a couple hundred points in the Dow because of this.

Clearly, the U.S. has to — the Obama administration has to modulate or figure out how to deal with the Chinese, because they probably are the other main world power, and I don't think Obama yet has his grip set on that issue.

BAIER: Mort?

KONDRACKE: What they're doing is they're pushing against the dollar all the time, raising doubts about the dollar. Partly, I think, it's tactical, in order to get the subject of the G-20 meeting, this big international meeting that Obama is going to, not to be the Yuan and the artificial devaluation of the Yuan, but rather focus on the dollar.

But look, the big thing here is that China thinks that it is going to be to the 21st century what we were to the 20th century, and if we don't get our act together and start having our smartest kids go into science instead of finance, and start educating our kids better than we do and start producing more than we consume, China will be the dominant power, because it's growing very fast, and it doesn't care about environment. It doesn't care about labor rights. All it wants is to grow and get richer.

And under those circumstances, they will be an economic power and they will be a military power, too.

BAIER: So what about the Obama administration toward China as you look at this both military build-up and these at least talks about an international currency and concern about the U.S. dollar by the Chinese premier last week?

KONDRACKE: Well, look, I think what we have to do is get our budget deficit down in order that we don't have to borrow as much money and the dollar can stay strong.

BIRNBAUM: There's not a chance of that. I mean, I think even a conservative estimate calls for a trillion dollar a year deficit for the next 10 years or so.

We are at a point where we need to do, I think, what the Democrats on Capitol Hill are trying to do, which is to pull back our budgets a little bit and try to figure out, with the Federal Reserve, how to not be so dependent on the purchase of our securities by foreigners — especially China — because China is giving a signal. I think this international currency is yet another signal by the Chinese that we have gone too far and need to pull back.

KRISTOL: The Democrats are Capitol Hill are defeating Republican resolutions to cut the budget. It's the Republicans who want to spend less. And the Democrats talk about being responsible and they don't cut much at all, if at all.

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