Sen. Conrad, Rep. Hensarling on Debt Crisis; Newt Gingrich on Balance of Power

The following is a rush transcript of the December 5, 2010, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, ANCHOR: I'm Chris Wallace, and this is "Fox News Sunday."

Tax cuts and the growing debt crisis -- will the government take a bigger bite out of your paycheck in January? Will Congress find a way to cut the deficit? We'll talk with two key Capitol Hill players, the chairman of the Senate Budget Committee, Kent Conrad, and one of the new House Republican leaders Jeb Hensarling.

Then, as the GOP prepares to take control of the House, we'll ask former speaker and possible presidential candidate Newt Gingrich about the changing balance of power in Washington.

Plus, President Obama makes a surprise trip to Afghanistan, as WikiLeaks reveals what U.S. officials really think of Hamid Karzai. We'll ask our Sunday panel what happens next in the war there.

And our Power Player of the Week, a real-life Dr. House trying to solve medical mysteries, all right now on "Fox News Sunday."

And hello again from Fox News in Washington. With tax cuts and deficit reduction the hot topics in Washington, we're joined by two members of the president's debt commission, Democrat Kent Conrad, chairman of the Senate Budget Committee, and from Dallas, Congressman Jeb Hensarling, one of the new House Republican leaders.

And, gentlemen, welcome back to "Fox News Sunday."

Senator Conrad, let me start with you. You voted for the deficit commission plan which would cut $4 trillion by the year 2020 from the deficit. It didn't pass. But you are the chairman of the Senate Budget Committee. How much of this do you intend to put in your plan this next year? And what do you think the president is going to do?

SEN. KENT CONRAD, D-N.D.: What I think is really necessary now is that there be a summit that involves the president. You know, when Judd Gregg and I first proposed this notion of a commission three years ago, we designed it so the president's people were at the table. The secretary of the treasury was the chairman of the commission. The head of OMB was one of the 18.

When we didn't get sufficient votes in the Senate to advance that proposal, the president, by executive order, created this commission but did not include his representatives.

I think if we're going to reach conclusion, we've got to have the leaders of the House and the Senate, Republican and Democrat, and the president or his representatives at the table. And I think that's the next logical step.

WALLACE: And how much of this do you think could get through?

CONRAD: I think a large part of it could get through. Look, I would prefer to even go further in deficit reduction than this package. I think we need more than is provided for in this package.

But there's certainly a strong beginning. This cuts spending $1.5 trillion over the next 10 years. It has dramatic interest savings. It puts Social Security on a solvent course for the next 75 years.

And perhaps most important, it fundamentally reforms the tax system in this country that is so broken by eliminating or dramatically reducing a lot of the exclusions and deductions so that we can lower rates to help America be more competitive.

WALLACE: Let me just ask you real quickly before I bring Congressman Hensarling in, have you told the White House about this idea of the summit or are you just telling us now?

CONRAD: No, I've told them.

WALLACE: And their response?

CONRAD: I've told them and I've told the leaders in the House and the Senate. I've told the leaders of the commission that...

WALLACE: And what's the president say?

CONRAD: I've not talked to the president, but I've talked to his representatives, and they didn't give me a reaction.

But you know, if you think about where we're headed, we're going to have to do a budget resolution. We're going to have to do a debt limit extension this year. I think it is critically important for the country that we send a signal that we're going to do something serious about this debt.

We are borrowing 40 cents of every dollar we spend. That can't continue much longer.

WALLACE: Congressman Hensarling, let me bring you in. You were also a member of the panel but you voted against the plan. What do you think of -- although, having said that, you say that you support major portions of it.

What do you think of the idea of a summit bringing everybody together and try to get a deal and act this year?

REP. JEB HENSARLING, R-TEXAS: Well, I would -- I would endorse the idea. I believe that Republicans are ready to have a serious adult conversation with anybody who wants to talk about saving our nation from eventual bankruptcy.

I mean, one good thing about the commission is, number one, I think everybody left agreeing there is a crisis, the most foreseeable crisis in American history.

Second of all, I think it was an adult bipartisan conversation of which, frankly, there haven't been many. And somebody like Senator Conrad was a huge contributor to that.

Next, we clearly have had -- we have to have presidential leadership. I hope we get it from President Obama. And we need to do something very, very soon. As Senator Conrad said, we are borrowing almost 40 cents on the dollar, much of it from the Chinese, and sending the bill to our children and grandchildren. That cannot be sustained.

WALLACE: Congressman Hensarling, let's take a look at what happened on the commission, because all three House Republicans voted against the plan, while all three Senate Republicans voted for it.

Senator Tom Coburn, one of the people up there on that graphic, who's such a hardliner on spending he's known as Dr. No, said pass the plan, which would have -- if you passed it by 14 of the 18 votes, it would have forced a vote, an up-or-down vote, in Congress this month to cut spending by $4 trillion. Here's -- take a look at what Tom Coburn said.


SEN. TOM COBURN, R-OKLA.: The time for action is now. The threat is real. It's urgent. We cannot wait for another election. We cannot wait until we get more of what we want.


WALLACE: Congressman, didn't you waste a chance here to back up your rhetoric and force an up-or-down vote that would have maybe not been perfect but would have done substantial -- made substantial progress in cutting the deficit this month?

HENSARLING: Well, Chris, number one, the deficit is the symptom. Spending is the disease. There's a number of elements about this plan that I liked. But at the end of the day it still, unfortunately, represents a roughly $2 trillion tax increase on the American people and does not fundamentally address the key driver of our national fiscal crisis, and that is health care.

And so yes, I want to do something soon. I've been working for eight years, ever since I came to Congress. I've co-sponsored a spending limit amendment to the Constitution. I've co-sponsored Paul Ryan's road map for America's future, solutions that would ensure that the next generation doesn't have to have a lower standard of living.

And so, listen, I think I could have give Senator Coburn's closing speech. He probably could have given mine. We just came to slightly different conclusions about this package.

And if I could, Chris, there's nothing magical about 14 votes. If the speaker and the Senate majority leader want to bring this provision before the Congress, they can. And I would encourage them to do it. Whether it received 18 votes, four votes or one vote, they have the power to bring this to the Congress today.

WALLACE: Senator Conrad, I want to pick up on some of the objections that Congressman Hensarling has on this, because they represent what a lot of critics say. And obviously, Congressman Hensarling speaks for the new Republican majority that takes over in the House at the beginning of the year.

First of all, he says, and a lot of Republicans say, that this would -- this plan, the deficit plan, would have increased revenue $2 trillion over the next decade. True or false?

CONRAD: Well, I don't agree with that assessment. It would have increased revenue, by the commission's estimates, by a trillion dollars over 10 years.

But how would it have done it? It would have done it by dramatically reducing tax expenditures, using the vast majority of the money to lower tax rates to make America more competitive, including lowering the top corporate rate from 35 percent to 28 percent, which most economists say would help us be more competitive...


CONRAD: ... and would help us create more jobs.

WALLACE: Let me ask you about the other aspect, and this is a criticism you hear from a lot of people -- is that this bill didn't get serious about the single biggest cause of government spending, which is health care.

CONRAD: Well, I really respectfully disagree on that as well. First of all, we've just done a health care reform bill that is going to reduce the deficit, according to the CBO...

WALLACE: Well, you know, there's disagreement about that.

CONRAD: Well, then -- no, no, no. There's no disagreement by the official scorekeeper, which is CBO.

WALLACE: I understand.

CONRAD: They say that the health care reform bill will reduce the debt by over a trillion dollars over the next 20 years. It needs to have more done. And this bill -- this proposal from the commission does more.

First of all, it deals with the most important thing most economists tell us, which is to change the tax treatment of health care, phasing out the deductions, number...

WALLACE: The tax exemptions. Let me just...

CONRAD: The tax exemptions.

WALLACE: ... because we are going to run...


WALLACE: ... out of time here, and I want to get into taxes.

Congressman Hensarling, your response both on the revenue side and also about the health care?

HENSARLING: Well, back to the commission plan, it depends on whose baseline you use, which is Washington-ese for whose set of assumptions. The commission decided to use the president's assumptions. We respectfully disagree and believe that it represents a $2 trillion tax increase.

Be that as it may, yes, health care continues to be a contentious debate in Washington. I mean, I think it is instructive that the Congressional Budget Office, that probably gave the health care plan its most glowing score, did not change their long-term cost estimates.

And if you talk to the actuaries at the Centers for Medicare and Medicaid Services, they actually say it will increase the national health care bill.

And so until we change the architecture of the health care plan that was recently passed by Congress and reform Medicare for future generations, grandfathering all the grandparents, you just don't get there from here. I don't see any road to fiscal sanity without doing that.

And although this plan of the commission does many great things with respect to trying to flatten the tax code, save Social Security for the next couple of generations, its fatal flaw is its failure to deal with the single largest driver of fiscal insanity, and that is our health care program.

WALLACE: Gentlemen, let me move to the other big subject in Washington right now. While the deficit commission, and you on it, were talking about the debt crisis and cutting the deficit, there are negotiations going on between the president and congressional leaders of both parties about a compromise plan that would greatly increase the deficit, and let's put that up on the screen.

Extending all the Bush tax cuts would add $115 billion to the deficit just in the first year. But the president is now threatening a veto unless Congress also extends other tax cuts for lower income families and small businesses, and extends jobless benefits for another year. And the cost of all that would be $150 billion.

Add it up and we're talking about another $265 billion and more debt the first year, and as much as $800 billion over two years.

Senator Conrad, even in Washington, those are big numbers. I know we've got a weak economy, 9.8 percent unemployment as of Friday for the last month. Would you support that compromise? And how do you square the idea of adding another quarter trillion dollars to the deficit at the same time you're trying to reduce the deficit?

CONRAD: Because what's clear is we've got to think of this economy in two different ways, the short term and the longer term. In the short term, I think it's imperative that we extend the tax cuts, at least for the middle class, because the economic consequences of a failure to extend the tax cuts are severe.

We could see economic growth cut in half if the tax cuts, especially those for those for low -- for the middle-income people are not extended. We could see economic growth cut in half next year. So it's simply got to be done.

But that doesn't take away from the fact we then have to pivot and have a longer term plan to control the debt and bring it down.

WALLACE: Congressman Hensarling, as I've laid it out, where you would have a temporary extension of all the tax cuts, but you would also extend at least for a year jobless benefits and also some of the, if you will, Obama tax cuts that were in his stimulus plan, could you accept that compromise?

HENSARLING: Well, we'll have to see how the negotiations unfold, but I think our position is quite clear. We don't want no tax increases on nobody. Now, that may be poor grammar, but it's great economics.

Ultimately, the cost of government is what it spends, not what it taxes. We have a spending problem in Washington. The cost of government has averaged 20 percent of the economy in the post-war era, and over the course of the next generation it's due to double.

We don't need any more taxes, number one. Taxes are already baked into the system. Under CBO's analysis they're going to increase roughly 10 to 12 percent over the course of the next generation.

WALLACE: But let me -- but if I may...

HENSARLING: But it's spending that's due to double. Yes?

WALLACE: Congressman, let me ask you one last question, because we're just almost out of time. There are some people who say, "Hey, look" -- here Republicans are saying, "If we're going to extend unemployment benefits for people who are out of work and have been out of work for months, the government has to cover that," but they don't have to find a way to make up for the difference when you're going to extend all of these benefits which is -- or, rather, all of these Bush tax cuts, which is going to cost a lot more.

I take your point that allowing people to keep their money is a cost, but it have an effect on the -- or is not a cost, but it does have an effect on the deficit.

HENSARLING: Well, I agree. But again, the deficit is the symptom. Spending is the disease. And I fundamentally reject that we're talking about tax cuts. What we're talking about is preventing tax increases, something that even Keynesian economists would warn against in this particular economy.

I mean, we have to have spending restraint, not tax increases. It's that simple.

WALLACE: I'm going to give the final 15 seconds to Senator Conrad.

Go ahead.

CONRAD: You know, the disease is the disease. The disease is a runaway debt. The fact is spending is the highest it's been in 25 years as a share of the economy, or 50 years. Revenue is the lowest it's been as a share of the economy in 50 years. You've got to work on both sides of the equation if you're going to reduce deficits and control debt.

WALLACE: All right. We're going to have to leave it there.

Senator Conrad, Congressman Hensarling, we want to thank you both so much for coming in today to discuss the challenges you're facing. Good luck to both of you gentlemen.

CONRAD: Have a good day, Jeb.

HENSARLING: Thank you.

WALLACE: Up next, as Republicans prepare to take control of the House, we'll talk about the changing balance of power and presidential politics with former speaker Newt Gingrich.


WALLACE: Joining us now is former speaker of the House and possible presidential contender Newt Gingrich.

And, Mr. Speaker, welcome back to "Fox News Sunday."


WALLACE: You've been through one of these big shifts of power in Washington before, back in 1995 when the Republicans, led by you, took over the House. What advice do you have for speaker-to-be Boehner?

GINGRICH: Well, I think he's doing a good job. In fact, I think he's avoiding most of my mistakes. And actually, I give him higher marks than I would have given myself for the same time period.

He has focused on real reform in the House. He has focused on keeping his word to the American people. He's focused on spending cuts. I think he understands that jobs come first, controlling spending and the deficit comes second, and repealing "Obamacare" comes third.

And I think you're going to see him stay in a -- he's a very disciplined team leader, and that's been his back ground. I think he'll be very effective as speaker.

WALLACE: You talk about the mistakes you made and that he's not repeating them. I think it would be fair to say the conventional wisdom is that when you became speaker in '95 you tried to do too much. But you say that that's the wrong lesson and that, in fact, that Boehner and this new generation of House Republicans should be even more aggressive.

GINGRICH: Well, what I would say is that I was too aggressive in public relations. I was too willing to lead with my chin in debating with the president, which I thought was essential to fill a vacuum at the time.

But I think -- I don't think Boehner has to do that. I think what Boehner should do is decide what the voters who led to a landslide, the biggest shift in House power since 1948 -- what is it they really want? What is it he owes them as a legitimate part of a free society? And he ought to calmly and methodically get that done. I think he has so far. I mean, you know, his reaction has been to try to get the president to understand there was an election, which the president still seems to be confused about, and to try to communicate in a calm way that -- if they don't pass the tax bill before the end of this month, my guess is the Republicans in the House will pass no tax increase on anyone no later than the 15th of January.

WALLACE: Let's -- you talk about the president -- because I want you to try to analyze this from his point of view. You said the other day that you think that right now, that this period between the midterms and his State of the Union -- this is the defining moment for this presidency.


WALLACE: How so?

GINGRICH: ... look. Every president can redefine themselves every 30 days. I mean, the presidency is so powerful and so central to our society that presidents have huge ability to regenerate themselves. But he has an opportunity to stop -- I just read David Plouffe's book, which I recommend very highly.

WALLACE: That was...

GINGRICH: The campaign manager.

WALLACE: ... the campaign manager in...

GINGRICH: He's about to go back into the White House. And I was very impressed with it. It was a very clear statement of what they did, and how they did it, and what they were trying to accomplish.

And I thought, "Boy, there is such a gap between the clarity and focus of that campaign and the confusion of the presidency." And my advice to the president consistently since the election has been slow down, take some time off and think.

He just suffered a stunning defeat, and yet he's behaving as though nothing has changed. He's -- they're bobbing and weaving. Look what Reid's trying to do in the Senate. It's the same baloney. I mean, nothing has changed.

WALLACE: Well, but let me ask you about that, because I understand what Pelosi and Reid did with passing this -- or trying to pass these tax cuts extensions just for the middle class, which obviously was something of a statement or a stunt but had no chance of really passing.

On the other hand, in terms of the backroom negotiations, it does seem that this president is very close to a deal to extend all the tax cuts temporarily. You see him in his focus talking more about putting START and ratification of the START treaty ahead of "don't ask, don't tell" and the DREAM Act for children of illegals.

Are those indications to you that maybe he is beginning to get it, is moving to the center? And if so, does he need to worry at all about blowback from the left?

GINGRICH: Well, he does have to worry about blowback from the left. I mean, he's caught in a dilemma, which Bill Clinton was faced with. And I gave Clinton a certain amount of cover because he could always say to the left, "At least I'm not Newt."

And so -- you know, so Clinton could sign welfare reform, for example, which we thought he'd find very painful, and the left just said, "Fine, do whatever you have to, we just got to beat Gingrich," you know, and -- and Boehner's not going to give him that kind of cover.

Plus, in a lot of other fundamental ways he's disappointing the left, from Afghanistan, to not dealing with immigration, to a host of other things.

The challenge for the president is he either has to move to the center and try to find a way to work with Republicans, which is going to enrage the left, or he's got to pretend that he's Harry Truman, decide to take the Congress head on for two solid years, have the left happy and hope he can make the case to the country.

The challenge he's got is -- and I was really stunned with this Friday morning. When you go up from 9.6 to 9.8 percent unemployment, and you pick class warfare over getting something done, you're taking an enormous risk with this country.

I mean, the American people are not going to tolerate -- if we're still at 9 or 10 percent unemployment in 2012, this is a one-term president no matter how articulate he is.

WALLACE: Let's talk about this possible compromise on taxes that is out there. Should -- I mean, Republicans have the leverage, as you say. If they do nothing, if nothing happens, everybody's taxes are going to go up. The Democrats are going to get blamed. And the first order of business in the House is that the Republicans, the new majority, will pass an extension, as you say, in the first weeks of January.

So given that they have the leverage, should Republicans accept a temporary extension, as opposed to a permanent extension? And should they -- you know, because the president is now supposedly threatening a veto. Should they agree, "OK, we'll extend the unemployment benefits and also some of your stimulus tax cuts?"

GINGRICH: Look, the number one challenge in America is jobs and paychecks. What Republicans ought to do is say to people who create jobs, "How many years does the tax code have to be extended for you to make an investment decision?"

I mean, the goal is not to have an annual extension of the current tax code and have every business in the country trapped, saying, "Well, I don't know. You know, I want to make a 20-year investment in a factory," or a 10-year investment.

WALLACE: But if it's -- let's say it's -- the compromise were two years or three years, would you sign on for that?

GINGRICH: There is a number. But I would have the business leadership of the country describe the number. I mean, it wouldn't be hard to do.

I would say let's go out and find out from American -- if you're a small business, how much do you have to have security about your future taxes, particularly a time when we haven't repealed "Obamacare" and "Obamacare" is freezing hiring by small businesses?

WALLACE: And would you agree to extend the unemployment benefits as part of that deal?

GINGRICH: I would agree to a short-term extension of unemployment. But I have proposed, since we spent $134 billion last year in unemployment, that we change the entire program into a worker training program and not give anybody money for doing nothing.

WALLACE: If you were a member of the president's deficit commission which just put out this plan, $4 trillion in deficit cuts over the next decade, would you have voted for it?

GINGRICH: No. It's the wrong commission on the wrong topic. The number one topic is jobs, because if you're at 4 percent unemployment, you just cut the deficit in half.

Second, I am against any tax increase on capital gains or on dividends because it makes us less competitive with China, Germany and India.

WALLACE: But you would have had a huge decrease in the corporate tax rate. You would have had a huge decrease in income tax marginal rates.

GINGRICH: But the net is a tax increase. Even if you accept the liberal version, it's a trillion-dollar tax increase. And if you -- and if you agree with Congressman Hensarling, who's doing a great job, it's a $2 trillion tax increase.

I am against tax increases. This government is too big. I helped balance the budget for four straight years. We did it while cutting taxes because we controlled spending. We didn't raise taxes on the American people.

WALLACE: All right. I need to talk a little 2012 politics with you, because that's what we do.


WALLACE: You keep dropping these little crumbs, and I was thinking it's a little like Hansel and Gretel with the bread crumbs -- and that didn't work out so well, because the birds ate the bread crumbs -- that you may be running for president in 2012. And in fact, you keep going a little further. Is this just a big tease?

GINGRICH: No. I mean, I -- Calista and I will make a decision probably at the end of February, beginning of March. And I think, you know, we recognize this is an enormous challenge, and we think the country is faced with very fundamental choices about our future as a people and as a nation.

WALLACE: Are you -- I mean, are you 50-50? Are you leaning more towards...

GINGRICH: No, I think we're much more inclined to run than not run. And I think we -- everything we've done over the last year, talking to friends, thinking things through, has made us more inclined to believe that it's doable.

WALLACE: And briefly, how would you handicap the field now of potential contenders? Where do you think you stand?

GINGRICH: No, there -- look, there are a lot of terrific contenders out there. I mean, Mitt Romney's probably the frontrunner. Huckabee may well be ahead in most polls. Palin is a phenomenon in her own right. You have to look at somebody like a Mitch Daniels, a Tim Pawlenty, a...

WALLACE: So where are you?

GINGRICH: ... Haley Barbour, a John Thune. I'm somewhere in that bunch. I mean, I think, you know, I'm competitive, but I don't think -- you know, if I were picking a frontrunner, I'd say that structurally Romney's the frontrunner and in popularity probably Huckabee's the frontrunner.

WALLACE: Finally, how has this White House handled WikiLeaks over the last year, because there's been a succession of these leaks? And how do you think -- if you were in charge, how would you handle Julian Assange and the website?

GINGRICH: First of all, I'm very deeply shaped by the fact that my father spent 27 years in the Army. So I approach this taking warfare very seriously.

Information warfare is warfare, and Julian Assange is engaged in warfare. Information terrorism, which leads to people getting killed, is terrorism, and Julian Assange is engaged in terrorism. He should be treated as an enemy combatant. WikiLeaks should be closed down permanently and decisively.

But even more, how can we have gone through the last year and not figured out how did all these documents get released? Who's responsible for security?

WALLACE: Well, we think we know, don't we? I mean, supposedly it's this private in Iraq.

GINGRICH: How do you have a system so stupid? I mean, you and I have credit cards, and if the credit card is used here and in Belize the same day, they call you and say, "Gosh, were you really there," OK? You have a private first class who downloads a quarter million documents, and the system doesn't say, "Oh, you may be over extended?" I mean, this is a system so stupid that it ought to be a scandal of the first order. This administration is so shallow and so amateurish about national security that it is painful and dangerous.

WALLACE: Speaker Gingrich, it's always interesting to talk to you. Thanks so much for coming in, and please come back, sir.

GINGRICH: We'll do that.

WALLACE: Up next, our Sunday panel on the debate over tax cuts and those huge deficits. Are Democrats and Republicans in the mood to compromise?





WALLACE: That was debt commission co-chair Erskine Bowles declaring Washington is finally ready to get serious about our growing debt crisis.

And it's time now for our Sunday group: former Bush White House press secretary Dana Perino; Nina Easton, from Fortune magazine; former State Department official Liz Cheney; and Fox News political analyst Juan Williams.

And Nina, as we said, the debt commission did not get the supermajority it needed, 14 of the 18 votes, to pass and force an up- or-down vote on its plan to cut $4 trillion over the next decade. But is Erskine Bowles right? When you see everybody from a liberal like Dick Durbin, on the left, to a conservative like Tom Coburn, on the right, supporting this, will Congress pass big chunks of this plan?

NINA EASTON, FORTUNE MAGAZINE: In this environment, that's political momentum. So I think there is some momentum behind it that needs to move forward. But I think you cannot talk about the debt, Chris, without also looking at what -- another piece of news that came out Friday, which was the unemployment statistic, 9.8 percent, at a time when the economy is rebounding in retail sales and real estate, corporate profits are up.

We have to start asking ourselves, why is there this long-term unemployment? We're going to add to the debt by extending unemployment benefits. Fine. But are we hitting our head against the wall constantly?

Job vacancies have surged by 37 percent this year, and yet unemployment continues to go up. There is a mismatch between skills, training, and the jobs that are open. There's a very small disincentive on the part of some people on unemployment benefits to find jobs that aren't necessarily the jobs that they want.

We've got to start looking more long term, because when you create -- one way to go after the deficit is to create more revenues, as we've talked about that, and that means creating more taxpayers. We've got to address that long-term unemployment problem.

WALLACE: But you also, Dana, have this problem that you have spending at an all-time high and revenues at an all-time low. Part of that is the economy, some would say it's also because of various tax cuts.

I mean, what Kent Conrad talked about is he said that we can sort of do two things at one time. We can have a short-term stimulus coming either from government programs or, more importantly, from the tax cuts, continuing the tax cuts, and long-term deficit.

Do you agree with that?

DANA PERINO, FMR. WHITE HOUSE PRESS SECRETARY: I do. And I think that that's what the Senate is doing right now in talking to the White House and trying to figure out this compromise. And I don't disagree with Nina that you can't divorce the short term from the long term in terms of what people are dealing with right now, to what they're worried about what their kids and grandkids are going to have to face in the future.

On the debt commission, I thought it was interesting that there was actually more support than originally expected. You know, they held off the vote for three or four days, and they gained some more support.

It's not a panacea. It's not going to be all things to all people. But what is interesting is how it has created innovation from other people with new programs and new ideas.

And so with all of that momentum, as Nina said, I do think there is a possibility. But that rests on whether President Obama is willing to make a severe pivot and stop sort of the head-butting penalties against American businesses and American job creators, and I think that that opportunity exists, and that might be what they were talking about at the vice president's House last night.

WALLACE: Well, I was going to say, Liz, I mean, if the president is accepting -- and it sure seems like he's going to -- an extension of all the so-called Bush tax cuts for two or three years, isn't that a significant pivot? I mean, it's also a recognition of reality of the midterm elections.

LIZ CHENEY, FMR. STATE DEPT. OFFICIAL: I think it is a significant pivot, actually. And I think that as we go forward here, the debt commission recommendations I would applaud.

I mean, clearly, I don't agree with all of them, I don't know that anybody agrees with all of them. But I think they have in fact added to this discussion. And I think Erskine Bowles and Alan Simpson, both of them, reminding people of the urgency of this is critical.

I think that one of the problems of the debt commission though, frankly, is that they expect that the Obama health care plan will actually continue. And that's one of the biggest places I think Republicans seek potential cost savings, is if we're able in fact to repeal that. Some estimates say we could save as much as $2 trillion over 20 years through that repeal.

So I think that, you know, you'll see --

WALLACE: But that's something that isn't going to happen, at least until 2013, with a new president. I mean, didn't they have to sort of accept that because otherwise nothing gets done?

CHENEY: I don't think so. I think, frankly, you know, you will see the Republican Congress, after January -- the House, anyway -- begin to in fact repeal some sections of it. Obviously, the president has still got a veto. It's clear we need a Republican president to get the whole thing repealed, but I don't think that you can just assume that that's a given as your basis for going forward.

The other interesting thing this commission did was they recognized how important it is to cut taxes to get the economy going. And it's interesting that the president's own debt commission, in fact, recognizes something that has been at odds with the president's economic policy, and that is the need for fundamental tax reform, lowering those top rate.


JUAN WILLIAMS, FOX NEWS CONTRIBUTOR: Well, I think the president has cut taxes, payroll taxes, and I think he wants to cut taxes for people earning less than $250,000 -- couples earning less than $250,000. And I think he's with the majority of the American people.

There's a new poll out that indicates, clearly, a majority of the American people are exposed to extending tax cuts for those who make more than the $250,000. In fact, most Republicans don't even support it.

You would think, given the Republican rhetoric in this town, that it's overwhelming, everybody says extend the tax cuts for everyone permanently. It's just not true.

So what we're in is a situation where the president, after the midterm elections, is not bargaining very hard. And this has sparked an uproar on the left where people are saying, you know, this guy doesn't have a center. We're not clear what he stands for, what he is willing to do.

In these negotiations, he says, OK, let's extend the tax cuts if you allow some of these tax credits that came out of the stimulus package to be extended for working --

WALLACE: And also the unemployment benefit.

WILLIAMS: And the unemployment benefits. OK. But in terms of standing by principle, in terms of saying the rich don't need another tax break, where is this president? That's what the concern is on the left. I understand what you're talk about though on the right. And I think the political reality is the Republicans have won this fight.

CHENEY: You know, I thin it's not surprising that Juan and I read different polls, but I think one of the really interesting things is if you look at how the White House views taxes -- and perhaps I'm a nerd, but I did watch Austan Goolsbee's White House White Board recently, where he talks about not raising taxes as a gift. Basically, we cannot give this money to the American people because we're going to have to borrow to do it.

I think most Americans out there would say that's fundamentally backwards. That, in fact, not raising taxes means you let people keep the money that they've earned. And that if as a government, you're in a situation where you cannot let people keep their own money, where you have to raise taxes, or you've got to borrow, your problem is a spending problem, it's not a tax problem. And they'd like to see the government, in fact, look at the revenue side of things and get the spending side of things to match up to that.

WALLACE: Nina, I have been around this town a while, and I just see -- and maybe I'm wrong about this, but I just see us headed to the State of the Union speech in which this president is going to become the champion of deficit reduction. I mean, am I wrong in that?

It seems to me it would be such a -- it seems to be to an issue when you have got Tom Coburn to Dick Durbin all supporting it, that you have a broad swath of the American political spectrum, and it would be such a dramatic way for him to say, I get it and I'm moving to the center. I mean, it would change his image as a tax-and-spend traditional liberal Democrat.

EASTON: So you're having a 1995 flashback right there.

WALLACE: Yes. Well, you'd be surprised how often that happens.


EASTON: I think it would be a good -- it would be -- I mean, he needs a next big ball in his court. He needs to go with the next big thing.

And spending, I think doing any program that involves spending, whether it's an energy spending program or so on, is just a dead letter right now. So I do think the deficit -- going after the deficit and using this as a basis to go after it is something that will earn him marks.

WALLACE: Dana, I'm going to give you the last word. Is that where you see these guys headed?

PERINO: Well, I think it's interesting. If you think back to last year's State of the Union, one of the things he said in the rhetoric of the speech was, "I'm going to focus like a laser beam on job creation." And then they spent the next five months working on health care. And then they said in August they're going to focus like a laser bean on job creation.

And so, a State of the Union can be great for rhetoric, but if you don't back it up by actions, then you just leave people wanting more and more.

WALLACE: All right. We'll take a break here, but when we come back, the president's trip to Afghanistan. Is he committed to victory there?



PRESIDENT BARACK OBAMA: We will never let this country serve as a safe haven for terrorists who would attack the United States of America again. That will never happen.


WALLACE: The commander-in-chief, during a surprise trip to Afghanistan Friday, telling U.S. troops success is within reach.

And we're back now with the panel.

So, Liz, there has been a lot of criticism from conservatives, I think it's fair to say, over the last year that the president was not committed to victory in Afghanistan, that he talked in the speech a year ago when he announced the troop surge of 30,000 troops, in the next sentence he talked about starting to pull troops out in July, '11. But when you take his comments during this trip, about we will never allow the Taliban to have a safe haven. When you see what he said at NATO, where he is now talking about being there for four more years before we turn things over, are you convinced this president, at least now, is all in, in Afghanistan?

CHENEY: I think he is clearly moving in the right direction. And I think that we ought to praise him for going to visit the troops. Every time a commander-in-chief does that, I think it's an important thing for him to do and important for him to send the message of support back here.

I was very pleased to see this 2014 date out there now, as opposed to just the 2011 date. You know, what I'd like to see, because I do believe that setting the 2011 deadline did cause significant damage to the effort in terms of convincing people that we're committed to be there to win, I'd like to see the president repudiate it.

I'd like to see him say, just let's be clear, we are going to make our decisions based on conditions on the ground, not based on days we set back here in Washington. And that is important not just for what is happening in Afghanistan, it's important for the Pakistanis to hear that as well so that they understand it is not in their interest at all to help to support, provide safe havens to the extent that the Taliban has safe havens in Pakistan. That message is a critically important one, and I'd like to see the president stay conditions-based, and not just deadlines set.

WALLACE: So, it has to be a full-fledged --

WILLIAMS: Boy, I tell you, moving -- you're pleased that he is moving in the right direction. It seems to me he has done everything you could have asked in terms of the Bush-Cheney agenda for Afghanistan. And so I'm surprised that you can't even just -- this wonderful Sunday morning, Liz -- say go, President Obama, you've done a wonderful job. And I know --

CHENEY: I know you'd fall out of your chair if I said that.

WILLIAMS: I think it's give credit where credit is due. But again, Republicans don't like to say when the president has done something --


WALLACE: Do you think it's a good idea that we're going to be in Afghanistan four more years?

WILLIAMS: No, I don't. I don't. But I think that you have got to get the job done.

And I'm admiring of the fact that yesterday, he said to the troops, you know what? We have political debate, Liz and Juan may disagree, but in America, everybody is behind those young people out there fighting the war this morning. But the idea that we are in an extended war at a time when we have issues here at home, at a time when it's not clear that we should be engaged in nation-building, that is a problem for him.

WALLACE: But let me just -- because I need to move on here.

Dana, one of the things the president said when he was in Afghanistan is that we are breaking the momentum of the Taliban, that we are now on offense. You obviously followed this very closely in your time as White House press secretary. Is it your sense that the surge is working and that, under General Petraeus, we're making progress at this point?

PERINO: Well, you hit the nail on the head. And I think that looking at one of the best decisions President Obama has made in asking General Petraeus to go back into the war effort, to lead the troops in Afghanistan, then I don't think he would have said what he said in Afghanistan, meaning the president, if he wasn't hearing that directly from General Petraeus and if that wasn't the advice he was giving.

I think that General Petraeus is a very frank advice-giver, and that he would not have put the president in a position of saying that if he did not think that momentum was on his side. And I also think that this 2014 date was probably something that General Petraeus has helped President Obama come to.

I agree that the 2011 date hurt, but the tough talk that President Obama had was good for Karzai to hear, for the Taliban to hear, and also for our allies to hear.

WALLACE: Nina, let me pivot a little bit here, because we have had this document dump from WikiLeaks over the last week, 250,000 State Department cables. And specifically on Afghanistan, we hear American diplomats talking about how rampantly corrupt the government is, and about this man, Hamid Karzai, how unstable he is, split personality.

Can we ever succeed in this war if our Afghan partners are so unreliable?

EASTON: Well, when you talk to people whoa re in the middle of this, they say we don't have a choice. I mean, the options aren't there.

And the corruption of Karzai is something our government has known.We've known -- you know, basically known, but the WikiLeaks, of course, brought it home to the public. And I think this is where the president has the biggest political challenge moving forward, is showing the American public that we have also -- we have got to commit to this war in spite of Karzai, not with his help.

And we heard that from the president in Lisbon a couple weeks ago, when he did that tough talk to Karzai -- this isn't helping our war effort. So he has been very willing to come out up front and stand up to Karzai, but I don't think the options, from what I understand talking to people in the middle of this, there just aren't a lot of good options out there.

WALLACE: But Liz, is this just an obstacle, or is this a fatal -- perhaps fatal problem? I mean, if we're expending blood and treasure to clear areas and blunt the momentum of the Taliban, and we turn those areas over to an Afghan government that is incapable of governing, that's a problem, isn't it?

CHENEY: I think there is a difference between corrupt and incapable of governing. And I think it's critically important that we do everything we can to fight corruption. I think it's critically important that we put programs in place that can help increase transparency, and we're doing that.

WALLACE: But it isn't just corruption. They also talk about the fact that we clear an area, and then they're going to supposedly bring government in a box, and there is no governance. .

CHENEY: Well, and I think that that's clearly part of the counterinsurgency strategy that General Petraeus has put into place. I mean, the whole basis of countersecurity is that you have got to be able to provide security for the people so that you can, in fact, have a governance, have government in place. And I think we are seeing that.

WALLACE: And are you satisfied that Karzai can do the job?

CHENEY: I think we're clearly seeing progress, and I think that we're seeing a situation in which the Taliban no longer has as many places to hide. I think General Petraeus' strategy is working.

And I think it's really important that we keep our eye on our primary objective here, which is we cannot allow Afghanistan to become a safe haven again. To do what Juan suggests, which is basically just to say, this is too hard, let's walk away --

WILLIAMS: I didn't say that.

CHENEY: -- I think ignores what happened at the end of the 1980s, throughout the 1990s, when, in fact, we had a victory and then we did walk away. I think we have got to be able to make this work. And I think that as flawed as the current situation in Afghanistan may be, it is light years better than when it was a safe haven for al Qaeda.


WILLIAMS: Well, the first thing to note is that Karzai is an unstable partner. It makes it difficult to get back to Chris' question for us to sell our efforts both at home and to the Afghan people. He's saying, in fact, that Petraeus' strategy is not legitimate, that it's disrupting the lives of Afghans, and that the U.S. troops are intruding on their nighttime operations and killing -- I don't think he is good partner for General Petraeus, President Obama, or the American people.

CHENEY: Well, they disagree with you, Juan, frankly.

WILLIAMS: And secondly -- well, I don't who "they" is.

CHENEY: General Petraeus disagrees with you. And I think, frankly --

WILLIAMS: No, General Petraeus is trying to pursue his effort legitimately.

CHENEY: Who's your alternative, Juan?

WILLIAMS: I don't know that we have an alternative. But I'm saying we've got to stay in there. And I didn't say pull out immediately.We've got to achieve a goal of making sure we stop al Qaeda from ever coming back to this country.

WALLACE: I'm glad we solved all of that. Thank you, all, panel. See you next week.

And don't forget to check out "Panel Plus," where our group picks right up with the discussion on our Web site, And we'll post the video before noon Eastern Time.

Up next, our "Power Player of the Week."


WALLACE: Medical mysteries are one of the staples on television. We found out this week the real thing may not be as dramatic, but it's a lot more interesting.

Here is our "Power Player of the Week."


DR. WILLIAM GAHL, DIRECTOR, UNDIAGNOSED DISEASES PROGRAM, NIH: Patients have been to many other places, and have been through a lot of testing and haven't come to a diagnosis.

WALLACE: So it's still a mystery.

GAHL: It is a mystery, for sure.

WALLACE (voice-over): William Gahl is director of the Undiagnosed Diseases program at the National Institute of Health. And his team is often the last hope for people with baffling illnesses.

GAHL: The critical element in accepting patients is whether or not we think it's a new disorder, a true medical mystery, and whether we think that we have a clue to pursue additional investigations.

WALLACE: All this may remind you of another famous doctor.


HUGH LAURIE, ACTOR: Stop hiding. I'm asking you if you want to live or die. You can't even say that.

UNIDENTIFIED FEMALE: What do you want me to do, cry?



WALLACE (on camera): You have been compared to TV's Dr. House. How do you plead?

GAHL: Not guilty. I'm not drug-dependent except for caffeine. And I'm not a sociopath.

WALLACE (voice-over): There is another big difference -- real life is much more complicated.


LAURIE: In the final stage of African trypanosomiasis, almost all the parasites are inside the brain. It's possible it wouldn't show on smears.


GAHL: We take years and still fail, and he's always successful in an hour.

WALLACE: The numbers tell the story. Sixteen hundred people have applied since the program started two and a half years ago. Only 300 have been accepted.

And when Dr. Gahl meets a new patient, he doesn't sugarcoat the odds.

GAHL: Good to see you.

You know we're not very successful. Our success rate is something like 20 percent or so.

WALLACE: And that's the patients they're able to diagnose. They find treatments for only one or two of 100.

GAHL: Excellent! Excellent, man. That's good.

WALLACE: Four-year-old Caden (ph) came to the program with an enlarged liver and suffering from seizures.

GAHL: Sometimes there can be a relationship between liver disease and neurological disease.

WALLACE: People spend a week at NIH undergoing a series of tests and seeing different specialists. All research funded by the taxpayer.Even if they can't find a cure, Gahl says, by studying rare diseases they learn how to treat common illnesses.

And then there's the human side --

UNIDENTIFIED FEMALE: It's been a long journey. We have waited 31 years to come here.

WALLACE: -- for patients who have spent years unable to find out what is making them sick.

UNIDENTIFIED MALE: Nobody has ever been able to tell me exactly what the problem is.

GAHL: They're just glad that they now know what it is. And even if the diagnosis made the prognosis terrible, they'd still rather know than not know.

WALLACE: As we talk, Dr. Gahl grew emotional about a reality far more gripping than anything on TV.

GAHL: My patients are dying. And there isn't a damn thing I can do about it most of the time.

WALLACE (on camera): And so when you can? Or when you can even reach out to them?

GAHL: Both of the times that we have to keep thinking about and not think so much about the times we fail.


WALLACE: Dr. Gahl says one big advantage his patients have when they come for testing is he doesn't have to get insurance approval for anything. Since the government picks up the tab, he says he can do all the tests in one week that might take a year in the real world.

And that's it for today.

Next Sunday, our guests will include Supreme Court Justice Stephen Breyer.

Have a great week. And we'll see you next "Fox News Sunday."

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