This is a rush transcript of "Special Report With Bret Baier" from October 29, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES OF AMERICA: The 3.5 percent growth in the third quarter is the largest three-month gain we have seen in two years.

This is obviously welcome news and an affirmation that this is recession is abating and the steps we have taken have made a difference. But I also know we have a long way to go to fully restore our economy and recover from what has been the longest and deepest downturn since the Great Depression.

(END VIDEO CLIP)

BAIER: President Obama and the treasury secretary today refusing to say that the recession is over. We should point out that there is a group, the National Bureau of Economic Research, a group of economists, that officially determines when the recession begins and when it ends. This particular recession began in December of 2007. They will tell us when it ends. There are a number of different factors, but shorthand, two consecutive quarters of growth factors in there, and we are not there yet.

So what about this number and what goes into it? Let's bring in our panel — Steve Hayes, senior writer for The Weekly Standard, Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer.

Mara, you hear the president, and he obviously sounded happy with these numbers but warned about unemployment, because that's the real big factor.

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: That is the real factor. That is the most important political economic indicator. And it is often the case that economic growth precedes job growth by many quarters.

And this is the kind of recovery that many economists have predicted will be a jobless recovery. It is going to take a long time before job growth happens. And that is, I think, the biggest concern to the White House because they are entering the midterm elections, and job growth is how people interpret the company is whether or not they're employed.

BAIER: There was a lot of Washington in this growth, this 3.5 percent, Charles. You look at all the things that factored in to this particular quarter.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: That's why it is a fairly artificial number, the 3.5 percent. It is an encouraging one. The growth is pretty robust given how low we were before.

But let's look at one of the factors. About a point and a half of the three and a half is from autos. And a lot of that is from the clunkers program, which, of course, was a one-time gimmick which stole demand out of the future into the present.

And we know that because when it ended, September saw a collapse of auto demand, which means that if you increase it artificially, as we did, demand in the summer, for autos, it will be lower in the fall, lower in the winter, lower next year, which means that the point and a half added to this year is probably going to be zero added in the next year or even the autos will be a drag on the economy.

So even though it is a healthy number now, it doesn't tell us if it is going to remain healthy.

The larger issue is that, again, a lot of this is from the billions sprinkled on the economy out of Washington. Ultimately it creates a debt that ultimately has to end up being repaid either in higher taxes or in inflation and then higher interest rates, which means we're going to have a drag onto economy.

And the longer you wait, the higher inflation and the bigger the drag.

BAIER: You mentioned cash for clunkers — the car shopping Web site Edmonds.com came out with an estimate that only 125,000 of the 691,000 cash for clunker sales can be tied to government purchase vouchers, putting the per sale cost to taxpayers at $24,000, six times the cost of most of the vouchers.

The White House says the program boosted sales. They dispute the Edmunds.com numbers. Edmunds says they are sticking to it. Steve, either way you look at it, this is an interesting factor.

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: There a lot of people who suggested as much at the time.

Charles is right on the big picture. I think, you know, when you take away the 1.6 percent of the 3.5, you're left with growth of about two percent. Growth is better than negative growth. We can all agree on that. This news is better than other news that we might have gotten.

But it's not the kind of robust recovery that we hoped the economy would shift into, especially given the depths of the recession.

And we're talking about growth into drags or headwinds or whatever phrase you want to put, that I think makes the future look, at least short term, look bleak when you have $1 trillion dollar deficits, continuing unemployment, and a series of things, more government spending, more government control of the economy, policies from the Obama administration that I think many people on Wall Street regard as potential job killers, all of this stuff I think suggests that this 2 percent growth is what we're likely to see for a while rather than 4 percent.

LIASSON: And that's the eel danger. If you have an L-shaped recovery where we have stopped going down any further but we're just bouncing along the bottom, you're not going to get the kind of job growth you need.

And when you think about what is the big engine that's going to provide growth, I mean, World War II did it for the Great Depression, it's hard to imagine what it is that is going to power this economy back up.

KRAUTHAMMER: And the parallel is the second worst recession since the Great Depression, which was in the early '80's in Reagan's first term where he insisted on huge tax cuts. So even though unemployment hit almost 11 percent, when that abated, there was a huge spike in employment and in growth, almost six percent, which, of course, took him into his remarkable and spectacular reelection in 1984.

And that's unlikely to happen because instead of tax cuts and incentive for employment, what we're doing is sprinkling all kinds of stimuli which are going to expire and dissipate, and I'm not sure what we're going to have left at the end of it except a huge hole in the federal deficit.

BAIER: But when you look at the numbers, $173 billion of the $787 billion of the stimulus has been paid out, 73 percent paid out in tax cuts or social spending, only $47 billion spent on projects or loans.

KRAUTHAMMER: There will be a lot of sprinkling next year, especially as Election Day approaches, you can be sure of that.

LIASSON: And hopefully it will make an actual difference.

KRAUTHAMMER: Or it will be temporary and it will help the Democrats.

HAYES: And if tax cuts were effective, it's too bad that we're not talking about doing more in the way of tax cuts, because that certainly would be stimulating.

LIASSON: They cannot have any more stimulus that's in the form of spending. If there is going to be a second round, it has to be tax cuts, and that has been discussed.

BAIER: We will look at the House health care reform bill and its chances for passage after a quick time out.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI, (D-CA) HOUSE SPEAKER: This bill is fiscally sound and will not add one dime to the deficit as it expands coverage, implements key insurance reforms, and promotes prevention and wellness across the health system.

The bill will expand coverage, including a public option to boost choice in competition in the health insurance reform.

ERIC CANTOR, (R-VA) HOUSE MINORITY WHIP: First of all, you got to say here they go again — same debate, different day. This is a gargantuan expansion of government takeover of our health care.

(END VIDEO CLIP)

BAIER: House Democrats held this big alley outside the Capitol. There you see it. It was kind of a campaign-type event, sweeping claims by Speaker Pelosi. Remember the first House bill was $238 billion in the red. This bill is different. To make it look better, Democratic leaders simply took out what was called "the doctor fix," eliminating scheduled cuts in fees to doctors and providers under Medicare that. That costs about $250 billion.

There are some other cuts here and there, and now the bill is less expensive and meets the president demand of not reducing the deficit.

So we're back with our panel — Steve?

HAYES: You could do that, but, I mean, it is a total and complete sham. I mean, it is a gimmick. If is as if I took a credit card and bought a new mountain bike on a credit card for $2,000 and then just didn't show it to my wife or didn't have a discussion. We still have to pay it. You still have to do something with that money.

What happened today is more gimmickry. Cleary this bill tinkers around the edges, but it's going to raise taxes. And there is a very specific tax that it's going to raise, the millionaires' tax, $500,000 on individuals, 5.4 percent on people making over $500,000 annually, $1 million dollars on family who meet that threshold.

And it amazes me that they would introduce something that is such an obvious job killer, potentially, at a time when we have 10 percent unemployment.

It is true that this won't go into effect immediately, but to even have this discussion when you have six in ten of the people who meet that threshold, small business owners, the people that sort of are the engine of the economy and generate these jobs, it is a discussion that I would not want to be having.

BAIER: I said at the beginning not reducing the deficit. I meant not adding to the deficit, obviously, the president's demand that it not do that. And this new bill under its current formulation doesn't add to the deficit.

LIASSON: Right, you can write a bill on paper that meets the CBO criteria. You have to pass the bill, and then eventually I guess you're held accountable for whether it does what you say it is going to do.

BAIER: But Mara, it's important to point out that the CBO, the Congressional Budget Office, they calculate and score what you tell them to calculate and score.

LIASSON: If you say you're going to raise taxes by 300 percent on people, they will say it brings in this amount of revenue.

BAIER: So calculate it up and the numbers...

LIASSON: Yes. Now you have to pass it, and like I said, it has to eventually work.

Today at the White House, the president was talking about health care to small businesspeople who were instrumental in killing Bill Clinton's health care reform effort 16 years ago, and he said 90 percent of you are going to be exempt from the requirement that you either provide health care to your employees or pay a fee if you don't.

Now, Congress hasn't actually explained how they are going to do that. They haven't set the level for small businesses that are going to be taxed.

BAIER: That is a familiar theme. They haven't explained a lot of things.

LIASSON: Yes. But the one thing that I thought the House did that was pretty honest early on in the debate is they actually put the so-called "doc fix" into the bill. That's is why it got up to $1.2 trillion, which was obviously too much for the president, so they took it out.

They didn't actually take it out. They just put it off-budget or for to the side. It is still out there if they pass it.

The Senate refused because it isn't paid for.

BAIER: But can the president sign something that has this massive $250 billion off to the side? It is like a side plate.

LIASSON: Of course he can! Presidents have always signed things like that will add to the deficit.

BAIER: And look everybody in the eye and say this doesn't add to the deficit?

LIASSON: Yes, because this particular bill will be scored, maybe if it gets to his desk. But the CBO is not doing that, then there will be this other thing that does.

BAIER: Charles?

KRAUTHAMMER: We've always had shamelessness, but we've never had it on this galactic scale. This is shamelessness of a quarter billion dollar trick.

And the trick works like this — the bill has in it the assumption which the CBO has to accept, that they will cut a quarter trillion of Medicare by cutting the fees that doctors and others receive.

We know it's not going to happen because the House is going to have a separate bill in which it pays the quarter of a trillion with no offsets out of the borrowed money. So it is a huge hole in the budget, but it is in a separate bill.

The separate bill ought to be called the "pinnacle of cynicism act," because that's exactly what it is. However, in the bill that will be called the National health care Reform Act, it's not going to appear, and that's why it ends up under a trillion, and in fact why it is over a trillion and why it ends up with no deficit whereas it will increase the deficit by about $200 billion.

So that's the black hole at the center of all this.

Secondly, if you step back and say we're, in fact, creating an entitlement of $1 trillion dollars, and even if it is offset with raises and taxes, and lowers, and other revenues, and cuts in other spending, that is $1 trillion that you can otherwise apply to other parts of the treasury and the deficit, which are now going to be $9 trillion over a decade.

So, in other words, you create an entitlement. You steal the possible revenue sources out of other deficit reduction, and in the end you blow a hole in the deficit that is just enormous.

BAIER: And do they get a compromise?

LIASSON: I think in the end they will get a compromise. But he will never sign that $250 billion document, because it won't get passed. The Senate has already rejected it. They will go back to what they were already doing, which is year by year.

KRAUTHAMMER: It will be done year by year, instead of all at once.

LIASSON: Like a patch every year, like the AMT.

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