Sens. Kyl, Durbin Talk Lame Duck Agenda, Gov. McDonnell on Health Care Overhaul Fight

The following is a rush transcript of the December 19, 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."

Crunch time on Capitol Hill -- with time running out on the lame duck Congress, what happens with the new START treaty, "don't ask, don't tell," and other key legislation? We'll get answers from two Senate leaders, Democrat Dick Durbin and Republican Jon Kyl.

Then, a Virginia judge rules a key part of health care reform is unconstitutional. Where does the legal battle go next? We'll ask Virginia governor Bob McDonnell.

Plus, as the books close on the 111th Congress, we'll ask our Sunday group who are the political winners and losers.

And our Power Player of the Week honors our nation's fallen heroes during the holiday season, all right now on "Fox News Sunday."

And hello again from Fox News in Washington. From extending tax cuts to repeal of "don't ask, don't tell," this lame duck session of Congress is doing a lot in a hurry. The Senate is working this weekend, and Fox News correspondent Jim Angle has the latest on where they stand in both the House and Senate, with lawmakers anxious to get home for the holidays.


CORRESPONDENT JIM ANGLE: Good morning, Chris. The Senate made history this weekend by repealing "don't ask, don't tell," so that those who are openly gay can now serve in the military.


SEN. JOE LIEBERMAN, I-CONN.: ... and repealing "don't ask, don't tell" is the right thing to do whether you're liberal, conservative, Democrat, or Republican. It's consistent with the best American values.


ANGLE: But a former military man was not persuaded.


SEN. JOHN MCCAIN, R-ARIZ.: I've heard from thousands -- thousands -- of active duty and retired military personnel. I've heard from them. And they're saying, "Senator McCain, it isn't broke and don't fix it."


ANGLE: Meanwhile, Republicans stopped the DREAM Act which would have allowed children who illegally entered the country with their parents to qualify for citizenship. Opponents see it as a form of amnesty and want better border enforcement first.

Democrats vowed to keep trying, noting it helps Democrats win more Hispanic votes than Republicans.


SEN. CHARLES SCHUMER, D-N.Y.: I don't think any political party can succeed writing off such a large percentage of America. That's why.


ANGLE: The START treaty limiting the nuclear arsenals of the U.S. and Russia remains intact despite its efforts -- despite efforts to amend it. President Obama sent a letter to Senate leaders urging its approval, and it's moving toward a final vote probably early next week.

The Senate also passed a temporary measure to keep the government running until Tuesday when the House returns. The Senate's working on one to keep federal spending at current levels -- end of February when the new Congress could tackle federal spending and a fresh start.


WALLACE: Jim Angle reporting from the capital.

Jim, thanks for that.

Joining us now, two Senate leaders, the number two Democrat, Dick Durbin of Illinois, and his Republican counterpart, Jon Kyl of Arizona.

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

SEN. JON KYL, R-ARIZ.: Thank you, Chris.

WALLACE: Senators, before we talk about issues that have gotten a lot of attention, I want to ask you about one that hasn't, and let me begin with you, Senator Kyl.

Will you vote this week for the 9/11 bill that would guarantee health care for the first responders who went to Ground Zero?

KYL: I don't know if that bill is going to come before us, but Dick tells me just a moment ago that he thinks that it will. First question is, is it amendable, or is it a take it or leave it proposition? The bill hasn't been through committee. There are problems with it.

And I think the first thing Republicans will ask is do we have a chance to fix any problems that may exist with it. And it's a lot of money, and so I -- my early response is that I am skeptical about that bill.

WALLACE: Senator Durbin, Republicans in addition to Senator Kyl say -- Republican critics say that you're creating a $7 billion entitlement, and that the way you pay for it is a corporate tax increase.

SEN. DICK DURBIN, D-ILL.: Chris, I can tell you that Senators Kirsten Gillibrand and Chuck Schumer have been working nonstop for the last several weeks with Republicans to try to find the best way to approach this. These first responders literally risked their lives when they went to Ground Zero. They came from all over the United States. And now many of them are struggling with health problems that are clearly directly related to that experience. To turn our backs on these brave people is the wrong thing to do.

Will it cost money? Yes. Is it the right thing to do? Yes. We've got to find a way to fund it that's acceptable to Republicans and Democrats.

WALLACE: Well, but let me ask you about that, Senator Durbin. If this 9/11 bill is so important, why is it that the Democratic- controlled Senate never held a vote on this bill until the lame duck session and that President Obama, the best we can tell, has never said a word about this bill in public?

DURBIN: I can't tell you where the White House stands. I hope they support it. I will just tell you this. This is like an airport that has a runway closed down. We have aircraft stacked up trying to land.We have bills stacked up over the Senate because of the nonstop filibusters that we faced this year.

I wish we could have done things more efficiently and more directly. But we've lurched from one 30-hour delay to another 30-hour delay to more Senate quorums. This Senate could be much more efficient. It should be. And it should be much more bipartisan than this.

WALLACE: Will this bill pass?

DURBIN: I think this bill will pass, and I do believe that Senators Gillibrand and Schumer are working night and day to make that happen.

WALLACE: Senator Kyl, one of your objections is -- he was blaming you for the filibusters. One of your objections is that Harry Reid put too many items on the agenda in this lame duck session.

I want to play what you said and then how one of the first responders who now has cancer reacted. Let's watch.


KYL: It is impossible to do all of the things that the majority leader laid out without doing -- frankly, without disrespecting the institution and without disrespecting one of the two holiest of holidays for Christians.



(UNKNOWN): I'm here to say that you won't find a single New York City firefighter who considers it a sign of disrespect to work in a New York City fire house on Christmas Eve or Christmas Day.


WALLACE: Senator, everyone -- everyone -- praises the first responders as heroes. You say you're skeptical about this bill. Why not find a way to give these heroes peace of mind when it comes to health care?

KYL: Well, first of all, they should have peace of mind when it comes to health care. The question is what and how.

And when you try to do it, as you said in your introduction, in a hurry, in the lame duck session, without a hearing, without understanding what the ramifications are and whether we can amend the bill, you're doing it in the worst way.

For example, there's already been a settlement for a lot of these people, a fund that has been set up for them to receive funding. Will the people that are supporting this legislation be able to participate in that fund? Nobody has been able to say. Why $7 billion? What will the requirements for qualification be for the money?

Nobody wants to deny care to people who -- and by the way, these are primarily people who helped to clean up the site in the aftermath of 9/11, and there weren't adequate precautions taken in some cases to deal with potential health issues. And to the extent that they've become ill, they do need to be taken care of.

It's one thing to make an emotional appeal, to say we need to care for somebody who did something good. It's another to do it in a sensible way. And that's all we're asking for. You bring it up in the lame duck session with no opportunity to amend it, and you're probably going to make bad legislation.

WALLACE: Let me move to...

KYL: All of this could have been done earlier, I might add.

WALLACE: Let me move to another subject. The Senate voted yesterday to repeal "don't ask, don't tell," the ban on gays serving openly in the military.

Senator Kyl, you voted against the measure. Do you really think that it is going to hurt the ability of the U.S. military to fight in the two wars they're -- we're currently involved in? And what's the difference between this and racial integration of the military 50 years ago?

KYL: Well, from a constitutional standpoint, this is not a constitutional right or a constitutional issue, as was the issue of racial segregation.

On the first question, I frankly have to follow the lead of people like the commandant of the Marine Corps, like my colleague John McCain, who say that when it comes especially to the small units who do the fighting on the ground -- the U.S. Marine Corps, the Army combat troops, who, according to the survey taken by the Pentagon, were 60 percent opposed to this -- it could disrupt unit cohesion and, as the commandant said, cost lives. That means a lot to me.

WALLACE: What about, though, on the issue of fairness? You point out the Constitution. But on the issue of fairness, what's the difference between this and racial integration? And Lord knows, back then in the '40s there was plenty of objection, and had been for decades, about what this was going to do to the military if you let black and whites serve in the same units.

KYL: Well, that may have been, and they were wrong, obviously. But the question of fairness is one which we would deal with in a school or in a community group or in some kind of organization that -- where fairness is a big issue.

With regard to the U.S. military, it's got one function, and that is to fight and to fight well and maybe to die. And the people who are responsible for that need to make the judgment about whether this will inhibit their ability to carry out that ultimate job that we ask them to do.

And as I said, I look at those who are on the -- who have been surveyed relating to the combat fighting, the units on the ground, not the guy sitting behind a desk here in Washington, but the guys on the ground, and they say this could cost lives.

WALLACE: Senator Durbin?

DURBIN: Each political generation has very few, but a few, opportunities to extend justice in America. That was our chance yesterday in repealing "don't ask, don't tell." And I am proud that my political party and eight really strong and courageous Republicans stood up and said, "We'll join you." This should be bipartisan.

It is beyond a question of fairness. These are men and women who are willing to risk their lives in defense of their country. And the fact that their orientation -- sexual orientation's been held against them is a blot on our nation's reputation.

And I'll tell you this, Chris. This administration, this president, went to great lengths before they moved to implement this. They surveyed and found that 70 percent of those military and families asked said they were prepared to accept this.

The number, incidentally, when those in the military were asked about integration some 60 years ago, was 20 percent. This shows me that America has come to a point where it understands that sexual orientation should not be used against you. And honesty in the service of our country is going to make us a stronger nation.

WALLACE: Meanwhile, let's talk about outstanding issues. The Senate will vote this week one way or another on the START arms control treaty with Russia.

Senator Durbin, do you have the 67 votes, the two-thirds majority in the Senate that you need, to ratify this treaty?

DURBIN: I think we do. We had 66 votes for those who wanted to move to this debate, and I think that we have had a debate now. We're in our fifth day. A couple of the days I will concede to Jon have been interrupted with other issues, like "don't ask, don't tell" and the DREAM Act.

But the fact is we've moved forward, and in the next several days it'll be one of the longest period of time that we've ever put on an important treaty. I think Jon has had -- Jon I respect very much on this issue -- has had ample opportunity to express himself, to file any amendments he thinks may be necessary.

As of today, on the fifth day of debate, we voted on one amendment.There'll be another raised this afternoon. I think we need to bring this to a vote.

WALLACE: Senator Kyl, President Obama sent a letter to the Senate yesterday saying that he pledges that he is -- you smile, but he says that he pledges that he will construct a full missile defense in Europe and will continue on missile defense as long as he's president. Is that enough for you?

KYL: Oh, absolutely. Look, tell it to the Russians. Send a letter to the Russians. In fact, change the preamble to the treaty, which would eliminate any doubt about this issue.

The problem here is that the United States in the past has kept missile defense off the table when talking about reducing strategic offensive weapons. That was the big issue at Reykjavik, Iceland when Gorbachev made what was a very enticing offer to President Reagan. President Reagan said, "No, I'm not going to give up U.S. missile defense for that." And we've kept it off the table in the meantime.

In the last arms control treaty with Russia in 2002 we absolutely separated the two issues. Condoleezza Rice, former secretary of state who actually would otherwise support the treaty, said that we have to fix this problem in the ratification process. She calls it a worrisome issue, the reconnection of missile defense and strategic offense.That's in the preamble.

And the McCain amendment yesterday to just remove those words was defeated, Senator Kerry leading the effort on the Democratic side. "We will not permit an amendment to the treaty," he said.

Well, what are we going through this exercise, then, for? We're just a rubber stamp for the administration and the Russians, the administration that for the first time wasn't willing to stand up to the Russians and say, "You're not going to implicate our missile defenses."

That's why I say talk to the Russians. Don't send a letter to Mitch McConnell.

WALLACE: So briefly, because I want to move on to one other subject, are you saying that if there are no changes to the treaty itself, the preamble or the treaty -- are you saying, one, that you're going to vote against it? KYL: Absolutely, yes. This treaty needs to be fixed. And we are not going to have the time to do that in the bifurcated way or trifurcated way that we're dealing with it here, with other issues being parachuted in all the time.

WALLACE: Do you disagree with Senator Durbin that they don't -- whether or not they have the 67 votes to ratify?

KYL: I think whether there are the votes to ratify will depend upon how much the Senate is jammed on the issue -- that is to say, not able to deal with the requisite number of amendments that are needed to be dealt with.

WALLACE: And how long would that take? Could it -- can it be done in the lame duck?

KYL: Not in the way that we're doing it. As Dick alluded to, we keep parachuting other issues in -- the DREAM Act, the 9/11, the "don't ask, don't tell." We still have to do the resolution to fund the government. That was the one thing that the Congress had to do in the lame duck session, and we still haven't gotten around to doing that.

Now, fortunately, we stopped that omnibus appropriation bill, but that took up a lot of time, too, and that was after the tax legislation, which took a lot of our time.

So trying to do all of these things at once -- I predicted a couple of weeks ago that we would not have time to do this adequately, and I think my prediction's coming true.

WALLACE: Finally, I want to ask you about something -- about the next Congress, the 112th Congress.

Senator Durbin, there is talk that the Democrats are going to try to change the rules on the filibuster when you come back for the new Congress in January. I want to put up the record on the screen.

So far in this Congress, there have been 91 cloture votes to cut off filibusters. There were 112 votes in the last Congress. And prior to that the Senate record was 61 votes in the Congress of 2001 and '02.

Question: Will you change the rules? Will you vote in January when the new Senate starts to change the rules on the filibuster? And given the fact that Democrats are going to end up in the minority at some point again, how big a change are you considering?

DURBIN: Chris, there's been active bipartisan discussion about this rules change in the Rules Committee. I serve on it. We have had hearing after hearing to discuss how to make the Senate more effective and more constructive. The numbers you put up on the screen tell the story.

We just lurch from one quorum call to another, 30 hours of doing nothing to another 30 hours of doing nothing -- more filibusters then ever in the history of the Senate. It's a clear abuse of what was supposed to be a rare and rarely used procedural option.

Here's what I think. We ought to put an end to secret holds in the United States Senate. That is archaic. It's wrong. We need more transparency.

Second -- and I'm going to quote my friend Bob Casey of Pennsylvania. If you want to pursue a filibuster, I believe, and he does, too, you need to earn it and own it. Stand up and say, "I'm willing to stop the Senate from moving forward. I'm willing to take the floor and express myself and really be accountable for the fact that I've called for a filibuster."

WALLACE: Meaning that the 40 senators who are supporting a filibuster, the 41, would have to be there day and night?

DURBIN: That's not the requirement we're talking about, nor should it be. But we do believe that for someone to basically stop the business of the Senate and then head off to the Senate gym, back to their office, off for dinner, while the Senate just sits there idly by is wrong.

If you believe passionately that this issue is so important that you want to file a...

WALLACE: Meaning somebody has to stay on the Senate floor.

DURBIN: Well, certainly. The idea that I think should be pushed in the Senate is if it is important to you as a matter of principle, then have the courage to stand up and take ownership of this filibuster.

WALLACE: We have less than a minute left, Senator Kyl. I know Republicans hated it when you were in the majority and the Democrats were filibustering. Can you envision some change that you would sign onto?

KYL: Chris, the very first vote that I took as a senator -- I think the first one; if not, one of the first one or two -- was to join all Republicans -- I believe there were 55 of us -- to vote against a rule change at that point. That would have been to our advantage, because we could have just rammed through anything we wanted. We were unanimous in rejecting it because we understand the importance of preserving minority rights in the U.S. Senate.

The kinds of things that Dick talked about are the kinds of things we could talk about, because they don't need -- I mean, because that doesn't result in a fundamental change to the protection of the minority's rights. So as long as we don't get rid of that, I'm happy to visit with Dick and others about the other kind of changes...


WALLACE: And what about the possibility of reducing the number from 60...

KYL: No, that would be the fundamental change that the Senate dare not, I think, go to.

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

Senator Kyl, Senator Durbin, we want to thank you both so much for coming in today. And we hope you get home for a very merry Christmas.

DURBIN: Thank you, Chris.

KYL: Thank you, Chris.

WALLACE: Up next, the legal challenge to health care reform -- we'll talk with Virginia governor Bob McDonnell about his state's effort to take the fight to the Supreme Court.


WALLACE: This week a federal court in Virginia struck down as unconstitutional the individual mandate of the new health care reform law that compels Americans to buy health insurance.

Joining us now from Richmond, Virginia, one of the men leading the fight against "Obamacare," Republican governor Bob McDonnell.

Governor, three federal judges have ruled so far on this issue. The two appointed by Democratic presidents voted to -- ruled to uphold the individual mandate.

Judge Henry Hudson, a federal judge in Virginia this last week who was appointed by President George W. Bush, voted, of course, to strike down the individual mandate. Have all the judgments so far by these judges, in effect, been political?

GOV. BOB MCDONNELL, R-VA.: No, I don't think so. I think there's differences in the federal judiciary about interpreting the United States Constitution. This is a novel question.

And the question is whether or not the United States Congress, under the tax and spend clause or the commerce clause, can force a citizen in Virginia or any other state to buy a good or a service -- in this case, a health insurance policy and, if you don't, to exact a penalty, a fine.

And Judge Hudson -- and this is the first case brought by a state, Virginia. The other cases were private sector folks that brought the actions. He said that no, choosing to not participate in commerce -- that is, to not buy an insurance policy -- is not commerce. And in fact, the fine that's enacted is a penalty, not a tax, and so Congress can't do it.

I think Judge Hudson is right. And I certainly hope he'll be vindicated by the U.S. Supreme Court as this moves along. There are many other cases, but I think this is the first one they've got it right.

WALLACE: We're going to get to the practical effects in a -- in a moment. Judge Hudson ruled against, as we say, the key provision of health care reform. And Republicans are promising once they take control of the House that they're going to do everything they can to block the implementation, spending for the implementation, of health care reform. Given all of these different tracks, how much trouble is "Obamacare" in right now?

MCDONNELL: Well, I think it's in a fair amount of trouble. But the big trouble right now, honestly, is for the governors in the states, Chris. We've had provisions we've already had to implement over the last four or five months. We've done that because it is the law of the land.

But over the next three years, getting ready for the major implementation in January of 2014 -- there's three years plus of work that we need to do to implement health care exchanges and all these other things that cost tens of billions of dollars -- millions of dollars to the states. So that's why I think this thing needs to get done.

I am strongly in support of having this fast-tracked to the United States Supreme Court. Let's create finality for businesses, for citizens, and for everybody about is it constitutional or not, so everybody knows how to govern themselves.

So that's the big issue for me, is get it resolved quickly by fast-tracking it to the United States Supreme Court. I've written letters to every governor in the country asking them to join us in fast-tracking this and any of the other cases so we can get it to the Supreme Court. Everybody knows they're the final arbiter of the Constitution. That's where it's going to end up.

WALLACE: I mean, we might want to point this out for people who have not been following it closely. You are pressing to skip going to the intermediate step, the Fourth Circuit...


WALLACE: ... Court of Appeals, and go straight to the Supreme Court, which would speed this up by a matter of years. The Justice Department...


WALLACE: ... announced, however, right after they want to go through the normal process and go to the Fourth Circuit. Is this really a battle about whether or not you're going to be able and other opponents are going to be able to kill "Obamacare" before it gets rolling?

MCDONNELL: No. I think this is a question about whether or not we should have certainty and finality and predictability for the American people.

I mean, why tie this up with three years of litigation if we can have a joint motion between the Justice Department, the Commonwealth of Virginia, and the other cases to have the U.S. Supreme Court resolve this as the final arbiter of the United States Constitution?

Because it's going to take a tremendous amount of money that could be wasted in the states and by the federal government in setting things up that ultimately might be stricken. So this should not be political.It's about finality that everybody wants, Chris, because there's disagreement about the underlying policy.

Let's let the U.S. Supreme Court say is it constitutional or not. I think that's fair, and I hope most people would like to get this done and not tie it up in another year and a half or two of litigation that could be avoided.

WALLACE: Governor, let's talk about the practical effect now. The White House says if you end the individual mandate, because that would provide for a lot more customers that would obviously give money to the insurance company -- if you end the individual mandate then insurance companies will not have the money they need to stop things like denying coverage to people with preexisting conditions or charging different rates to people who have different states of health.

Do you really want to block those kinds of reforms that a lot of people support?

MCDONNELL: Well, this legal case, Chris, is not about the underlying policy. It's about whether or not when you adopt a policy can you do it in a way that's unconstitutional. And the answer is clearly, clearly no.

Listen, every governor, I think, supports these ideas of finding a way to increase access, reduce costs, and do something about the one-sixth of the American people that have no insurance. But you can't do it in a way that violates the tax and spend clause or the commerce clause of the Constitution.

So that's why the Republicans in Congress are saying, "Let's go back and repeal and then reauthorize in a way that makes sense." And that's up to the Congress to figure out how to do that. We've got other initiatives we've working at the state level...

WALLACE: But let me...

MCDONNELL: ... but ultimately you've got to follow the law.

WALLACE: But let me ask you -- I know -- I take your point. The Constitution is the Constitution. But let me ask you as a practical matter, about a million people in Virginia are uninsured. That's about 15 percent of your state's population.

If you kill what is called "Obamacare," how do you get those million people coverage?

MCDONNELL: Well, the numbers are actually -- when you strip it down to -- into people that choose not to do it, or have individual medical savings accounts, or on other types of programs, on Medicaid or different things like that, the numbers actually go down quite a bit.

We are working on a number of free market solutions that we can use to improve the number of people in individual medical savings account.We think the Congress ought to pass a bill to allow more portability across state lines. We ought to have more flexibility in the Medicaid program instead of all these mandates.

"Obamacare" is going to cost us $2 billion, Chris, by 2022 in unfunded mandates -- same thing with other states, significant...


MCDONNELL: ... things, so...

WALLACE: ... you know, the individual...

MCDONNELL: ... we need to have flexibility for the states.

WALLACE: But if I may, Governor, the CBO, the Congressional Budget Office, talks about -- this basic Republican plan you're talking about would only extend coverage to 3 million people, as opposed to the 30 million under "Obamacare."

MCDONNELL: The fact is a lot of people that don't have insurance are getting it right now. They're not denied in the emergency rooms. They're generally not denied by doctors. It's not a pretty system, but the idea that people are not getting health care particularly for critical needs is just -- is just not the case.

I think we do need to improve the system, but let's do it with more free market decisions and not with federal mandates on the states that take away our flexibility and violate the Constitution. That's the problem, and I think that hopefully Congress -- going back with a new Congress and a split legislature can find a bipartisan way to get this done in a better way.

WALLACE: Finally, let's talk about the legal issue, the underlying legal issue that's involved here. You argue, and Justice -- or, rather, Judge Hudson agreed, that the government can't force an individual to buy a private product, that you can't legislate or mandate inactivity, if you will.

MCDONNELL: Right. That's right.

WALLACE: Supporters of health care reform, though, say that nobody is a bystander when it comes to health care reform because eventually everybody is going to need it, and so by going without health insurance and having either eventually to pay for it out of pocket or to shift the cost through uncompensated care to all the rest of us, that is, in fact, an economic activity.

MCDONNELL: Yeah. Well, they're flat wrong. Chris, if this decision doesn't go the way I think Judge Hudson has ruled, there are no limits, I think, left to federal power.

If you say that you must buy -- if the federal government can tell a citizen of the United States, "You must buy a product of insurance," or a car, or a watermelon, or whatever it happens to be, "and if you don't, we're going to fine you," then what are the limits left on the commerce clause?

I think Judge Hudson's got it -- got it correct. The irony also is the Justice Department is now saying, "Well, it's a tax," which of course the president and the Congress said, "No, it's not a tax, it's a -- it's a -- it's a penalty." And of course, now they argued in the legal briefs that it's a tax for purposes of a legal argument. Judge Hudson said, "No, it's not. It is, in fact, a penalty."

So I think it fails on both of those arguments. And to the -- enact the laudable goal of expanded coverage at lower cost, let's just do it in a way that's bipartisan and that's constitutional, and not force these billions in unfunded mandates on the states. That's the problem.

WALLACE: Governor McDonnell, we're going to have to leave it there. We want to thank you so much for coming in today. And we will stay on top of this story, sir.

MCDONNELL: OK, Chris. Good to be on with you.

WALLACE: Up next, our Sunday panel on the lame duck session of Congress that has turned out to be surprisingly active.



SENATE MAJORITY LEADER HARRY REID, D-NEV.: Some have said this is not the time to repeal the policy. And they're right. It should have been done yesterday.



SEN. LINDSEY GRAHAM, R-S.C.: I don't think it's going to be appreciated by the men and women who are going to have to live under this kind of change. Does that matter? Apparently not.


WALLACE: Reaction to Saturday's historic vote in the Senate to repeal "Don't Ask, Don't Tell." And it's time now for our Sunday group: Bill Kristol of The Weekly Standard; Mara Liasson of National Public Radio; Kevin Madden, a Republican strategist who was Mitt Romney's spokesman during his presidential campaign; and Fox News political analyst Juan Williams.

So, let's talk about this lame-duck session which really has been, I think, surprisingly -- I don't know if I'll say productive, because you can argue about that, but certainly active and busy and got a lot done.

Let's start with this historical appeal of "Don't Ask, Don't Tell" bill which will now allow gays to serve in the military. It kept looking like this was going to die, and yet, in the end, it seems there was too much momentum behind it.

BILL KRISTOL, THE WEEKLY STANDARD: Well, and large Democratic majorities and public opinion had changed in 17 years. No question about it.

I think there was still genuine concerns, are genuine concern about their integration into the military, and especially into combat forces. And I think that will have to be monitored closely both by the Defense Department and by Congress over the next year as they try to make this go in a way that doesn't hurt our fighting forces on the ground. But public opinion changed since "Don't Ask, Don't Tell," since 1993, and Congress reacts to public opinion.


MARA LIASSON, NATIONAL PUBLIC RADIO: Yes. And I also think the military is going to implement this in a way that's going to cause the least possible disruption. They have studied this carefully. And I think in the end, this is going to be one of those things that is going to cause a lot less disruption than its opponents think.

WALLACE: And they also had the problem, and some of the military said it, is the fact that the courts were moving to repeal it anyway. And the Pentagon said we'd much rather have Congress decide this.

LIASSON: Sure. This was heading in this direction, and I think this was kind of inexorable change. And as Bill said, public opinion has shifted on this, and this is a huge change. But -- and it got Republican votes.

It couldn't have happened just without Democratic votes. And that tells you -- and some of those Republicans could be challenged in a primary in 2012, but they still voted for it.

WALLACE: Kevin, one of the other big developments, and maybe the most interesting in this lame-duck session, was the defeat of the $1 trillion omnibus spending bill with 6,000 earmarks, at a cost of $8 billion.

What do you think the defeat says about the influence of the Tea Party and this new and growing concern about government spending? And are we headed for a real battle of the budget in 2011?

KEVIN MADDEN, FMR. PRESS SECRETARY FOR MITT ROMNEY: Well, I think, first of all, it shows that there is a new level of accountability. The Tea Party was so active in this past election, they're very active right now, and holding Congress' feet to the fire. But I also think it came as a surprise. I think Senator McConnell did a good job of making sure that senators that were more inclined to vote for that omnibus, he brought them over and really held some unity inside the Republican conference.

I think as far as next year, it sets us up for a battle that is particularly good terrain for Republicans to have. The fact that we can now bring President Obama and some of the House Democrats and some of the Senate Democrats on to a fight over spending in a new Congress, which is in an area that really brought us big electoral wins in 2010, that is going to bode particularly good for our political process.


JUAN WILLIAMS, FOX NEWS CONTRIBUTOR: You know, I'm stunned by this, because what Kevin refers to as unity was in fact convincing nine Republicans who had helped to design this bill to defect.

WALLACE: You mean nine Republicans who had earmarks in the bill?

WILLIAMS: No, no. Remember, Republicans like Thad Cochran, yes, he had -- and he's the number one earmarker, by the way, a Republican. But they had helped to design this bill all along.

This was a bill that was bipartisan in nature. Everybody had agreed to it. Everybody understand what was going on.

And then, all of a sudden, they pull their support away, and I guess they do so because of the Tea Party's influence, as you suggested. But that then invites charges of hypocrisy, because not only did they have the earmarks in it, they helped to design the bill. So, how does government work if you are just simply playing politics in order to appease the Tea Party?

KRISTOL: What happens when you have a big election is that a party changes its character. And the incumbents change to accommodate the results of the big election.

There were a lot of Republicans in the Senate in 1979 and 1980 who were Gerald Ford Republicans, go along, get along, slow down the growth of the welfare state. Ronald Reagan won the presidency in 1980, and suddenly these Republicans were supporting the Reagan economic agenda.

2010 was a big election. That's what this lame duck shows.

The tax deal, the president of the United States, who had spent two years, three years, four years during his campaign, screaming about repealing the Bush tax cuts for upper-income individuals, had a view that the estate tax should go up higher -- the estate tax rates should go up higher -- signs a bill continuing the Bush tax cut, and the omnibus appropriations bill gets steamrolled, and now we're going to have a continuing resolution.

It shows what a big election 2010 was.

WALLACE: I want to move on because we are going to run out of time.

The two other issues that are still outstanding for this lame- duck session, in addition to funding the government -- but it looks like that's going to get done for a couple of months to tide it over until February or March. As you know, I asked Senators Kyl and Durbin about the 9/11 first responder bill which has received remarkably little attention here in Washington, but a lot in New York. And I think as people learn more about it, a lot about the country.

Your best guess, Mara? Will the Senate pass a bill to provide health care to the first responders?

LIASSON: I think they will. I think they will. Well, Senator Gillibrand said she had the votes. And that sounds like that might be one of the last things they do, plus the START treaty.

WALLACE: Well, we'll get to START in a second.

Your thoughts? Do you think they're going to pass the 9/11 first responders bill?

MADDEN: I do. I think they're going to get the necessary offsets that they think, and I think there is also a lot of worry on the Republican side that what used to be a New York issue could very quickly become a national issue. So we'll take care of it very quickly, and I think there will be approval.

WALLACE: Let's also talk then -- the other big issue is the START arms control treaty. You heard two very differing views from Kyl and Durbin. Durbin saying yes, I think we have got the 67 votes. Kyl sounding like he's going to put up a lot of obstacles and keep fighting.

And there had been little doubt as to whether he was persuadable. He made it clear, no, I'm against this treaty.

WILLIAMS: Right. And so, in essence, he's taking himself out of the fight at that point, because there is no negotiating with Jon Kyl on this issue. And he has a respectable position, which he's worried about the possibility of Iranian missiles that would come and do damage to the U.S., and wants to make sure that we're erecting some defense.

But President Obama, as he made clear in the letter that was released yesterday, has said there is nothing in this deal that would stop the U.S. from developing further missile defense systems. And that's why it just doesn't make sense. And I think Republicans -- and I suspect Democrats in the House suspect this, that there was a deal all along to make sure that the START vote happens in exchange for getting that tax deal -- the tax cut through, and all that, the vote in the House and the Senate.

So, you know, one thing that I regret, I've got to tell you, Chris, in this is the defeat of the DREAM Act for the immigrants and the immigrant kids. I just think, again, Republicans played politics with real lives, real people, real aspirations, and they leave the immigration issue on the table. And that's the real business of the American people.


KRISTOL: Barack Obama and Harry Reid played politics with us. Do you know how many hearings there were in either house, in the House or the Senate, on the DREAM Act over the past two years? Zero.

This bill was brought to the floor of the House, no amendments passed, brought to the floor of the Senate, no amendments prohibited. They failed to get cloture.

Is that a way to pass serious legislation? Was this bill so perfectly dreamed up, so to speak, three years ago that we shouldn't have a debate on committee on it and the normal markup and the normal testimony from different experts?

It's a complicated matter, dealing with illegal immigration. It was a pure political gambit by Barack Obama and Harry Reid to try to make Republicans look anti-Hispanic, and I don't think it will work. WILLIAMS: And it was a political deal by Republicans to absolutely make devils out of anybody who has come to this country -- and this is a country of immigrants. And the idea that children who were brought here by their parents and who have gone to school and served in our military are not allowed to become citizens? You know, it's almost anti-American, Bill.


WILLIAMS: And the reason they couldn't discuss it was because the talk show hosts in America, the right-wing talk show hosts, would beat up any Republican who supported a realistic effort.

KRISTOL: Usually legislation is passed when there are hearings, there's markup, there are expert witnesses. None of it. It was a pure political attempt to jam this through.

WALLACE: All right. We have to take a break here.

But when we come back, we'll take a different look at the lame- duck session. President Obama came away with a bipartisan compromise on taxes. We'll ask our panel, who are the big political winners and losers of the lame duck?



PRESIDENT BARACK OBAMA: The final product proves when we can put aside the partisanship and the political games, when we can put aside what's good for some of us in favor of what is good for all of us, we can get a lot done.


WALLACE: The president extolling the virtues of bipartisanship as he signed an extension of the Bush-era tax cut even for the wealthy that he fought so hard to kill.

And we're back now with the panel.

So let's talk about the political fallout, the political fallout from the lame-duck Congress. The hot story in Washington right now that everyone is writing is Barack Obama, after the shellacking he took, has gotten his mojo back, he's the comeback kid.

Mara, truthfully, realistically, how good of a couple weeks has it been for Barack Obama?

LIASSON: Well, it was better than the couple of weeks before that.You can say that.


MADDEN: Look, he kind limped across the finish line there after the election. And he had a shellacking, as he said, and everybody wondered, would he be Harry Truman or Bill Clinton? And he, on this tax deal, I think did himself a lot of good.

He knew that Independent voters had deserted him and his party. He needed to get them back. They wanted him to be the post-partisan guy that they voted for in 2008, and he made this deal.

The deal is very popular. The question now is, was it a one-off thing, or is it a model for other deals like this on other issues going forward?

Now, I think there are going to be some real knock-down, drag-out fights where there isn't going to be any common ground. You're not going to be able to hammer this out on a lot of issues. But maybe on the budget and the deficit -- and we're going to have a huge debate about that -- maybe there will be a chance to do this again. But it's a plus for him, no doubt about it.

WALLACE: OK. Let me bring Kevin in.

How successful has Obama been in rebranding, repositioning himself?

MADDEN: Well, look, let's not confuse a moment with a trend. This was a moment, but it was a moment that I think the president had to be dragged kicking and screaming to.

And he was very, very slow to declare victory. We saw him come out and announce the deal, and not even 24 hours later, come out and called Democrats sanctimonious for criticizing him, and then pledged that he was going to --

WALLACE: And Republicans hostage-takers.

MADDEN: Right. And he's pumping his chest at Republicans saying, let's bring it on.

So, I think that we have to see whether or not the president is going to find a level of comfortability in this moment right now and whether or not he's going to find that -- decide not to be a reflexive liberal, and instead find a way towards pragmatic achievement going forward.

WALLACE: All right.

I think, Juan, we would all agree that Senate Leader Mitch McConnell was a big leader in this session. He negotiated the tax cut deal with the president. Some would say he got the better end of it. He persuaded, as we just mentioned in the last part, his fellow Republicans, even those who had big earmarks, to abandon the omnibus spending bill.

Good session for McConnell.

WILLIAMS: Oh, without a doubt. A good session.

I mean, the contrary thought is that the economy is going to do well next year. By all estimates, this package is essentially a stimulus package, which is what brought the objections from Republicans, including the likes of Rush Limbaugh and Sarah Palin.

WALLACE: So you're saying that McConnell took a hit because he actually improved the economy?

WILLIAMS: No. But it's going to improve the economy under Barack Obama's watch. And it's going to accrue to the benefit of Barack Obama's presidential hopes, and I think with Democrats in general. And I think people who are feeling, wait, maybe Mitch McConnell should have been stronger for Republicans and saved some of this for when there's a bigger majority bloc in the Senate and a Republican majority in the House --

WALLACE: To heck with the next few years. Right, Bill?

KRISTOL: Yes, exactly.

No, Republicans are responsible, Juan.


KRISTOL: The president of the United States, President Obama, said this deal is good for all of us. It's a good deal for all of us. That is an amazing concession, that keeping tax rates low and cutting taxes is good for all of us.

The big loser, I would say, from the last week or two is, of course, the left. The sanctimonious left, if I can quote President Obama.


KRISTOL: I've been calling the left sanctimonious for 20 years, but it's good to have Barack Obama agreeing with me and some others on that. No, the left really has had a big defeat, I think.

For the president to move away, to basically endorse the Bush tax cuts, and now on -- they're setting up a spending fight for February and March, earlier than we thought, in the new Congress, when the continued resolution runs out. I think we'll have a big debate on domestic discretionary spending.

There will be cuts in domestic discretionary spending. A big loss for the left and a big win for the Tea Party. I really do believe that.

WALLACE: Let me move on, because the tax cut, Mara, even spilled into Republican presidential politics. Former governor Mitt Romney wrote an article -- you can see it here -- in "USA Today," in which he opposed the compromise, saying the two-year extension of the tax cut just creates more uncertainty and adds another trillion dollars to the deficit.

And we want to show you how another 2012 contender responded.

(BEGIN VIDEO CLIP) SEN. JOHN THUNE (R), SOUTH DAKOTA: It's easy to stand on the sidelines and to criticize this proposal, but let me make one thing very clear, Mr. President. Advocating against this tax cut proposal is to advocate for a tax increase.


WALLACE: Mara, who got the better of that exchange, Romney or Thune?

LIASSON: Well, I think in this case, if you're talking about the primary, which is conducted outside of the U.S. Senate, probably Romney. The Tea Party didn't like this. And when he says advocating for this deal, Mitt Romney doesn't have a vote in the Senate. He doesn't have to vote, and that's why he's able to write an op-ed piece like that.

KRISTOL: Why do you think he didn't like this? I mean, every poll shows that a large majority of conservatives approved of the tax deal, including Tea Party conservatives.

LIASSON: Yes, but -- well, yes, but a lot of people didn't like the spending. You saw Jim DeMint talk against it. There were plenty of conservative Republicans who thought that there could have been a better deal after January, and I think that's what Romney and Sarah Palin are aligning themselves with.

WALLACE: With all due respect to both of you, we do have one of Mitt Romney's former --

KRISTOL: Resident experts.

WALLACE: Yes, resident experts, top advisers, wartime consigliere.

Does Mitt Romney -- are you saying that if Mitt Romney were in the Senate, he would have voted against this bill and would have let the Bush tax cuts lapse?

MADDEN: Well, look, I think to be very clinical here, I think this is the difference between being the pragmatist that you have to be when you're in office voting on these, and then being outside of office and being able to take a little bit more of a pure approach.

So I think that that's one of the things that Senator Thune made very clear, which is that, you know, would you want to be one of the senators up there that was the deciding vote that let these things stay in place and essentially everybody gets a tax hike on January 1? No.You can't do that.

And I do think that as far as 2012, as far as any internal (ph) battle amongst Republicans, I don't think there's going to be a whole lot of room between all these folks on taxes that's going to create that much of a difference.

So I do think that the Republicans, at large, I think, are set up very favorably against President Obama, because now President Obama has to spend 2012 defending his own tax cut. And that gives Republicans a very good chance to offer a little more of a clear contrast with the president.

WALLACE: About a minute left, Juan.

Then there are the Democratic congressional leaders who we haven't even mentioned -- Nancy Pelosi, Harry Reid. How do they do in this session?

WILLIAMS: Well, I think Nancy Pelosi had a rough ride here. Obviously, she has lost power, she's no longer going to be the Speaker. But I think what happened on the tax bill, you know, notice she didn't show up for the signing ceremony. Mitch McConnell did. That's a big indicator of winners and losers right there.

But for Nancy Pelosi trying to corral her troops, trying to encourage them, even get some action on this estate tax which they saw as a saving grace, just didn't happen. And so I think for her, it's just feeling that this is going to be a very cold winter, and that the coming next two years with President Obama, he's going to be dealing with Republicans, more and more compromises. And it means that the House Democrats may be out in the cold all alone.

WALLACE: Real quickly -- and we've got about 15 seconds -- Harry Reid, he failed on the spending bill, but he did get "Don't Ask, Don't Tell." At least he got a vote on the DREAM Act, which keeps that campaign promise. And he may get START.

KRISTOL: And he got himself re-elected. Harry Reid had a better six, seven weeks than people expected him to have.

WALLACE: That's true. He's still here and he's going to be here next year.

KRISTOL: And he's going to be the majority leader.

LIASSON: And he's going to be the majority leader, which people forget.

KRISTOL: That's right.

WALLACE: Thank you, 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, one of our favorite "Power Players of the Week."


WALLACE: It's become a Christmas tradition around here to share the story of how one family found a new way 18 years ago to express the holiday spirit. It's a remarkable example of gratitude, generosity, and patriotism. Once again, here is our "Power Player of the Week."


MORRILL WORCESTER, FOUNDER, WREATHS ACROSS AMERICA: We wouldn't have the opportunities if it wasn't the people that fought for us and gave their lives for us.

WALLACE (voice-over): It's that plainspoken wisdom that has driven Morrill Worcester for years on a mission that has touched America's heart. Each December, Worcester places wreaths at Arlington National Cemetery, and thousands of volunteers are there to help him.

WORCESTER: I think a lot of people think like I do. They just want to -- they appreciate the veterans and they want to show it.

WALLACE: This story begins back in 1962, when Worcester, then a 12-year-old paper boy from Maine, won a trip to Washington. What impressed him most was Arlington -- its beauty and dignity, and those rows and rows of graves.

WORCESTER: Every one represented a life and a family and a story. They're not just tombstones. I mean, those are all people.

WALLACE: Thirty years later, in 1992, Worcester was running his own wreath company in Harrington, Maine. But as Christmas approached, he had a bunch left over.

WORCESTER: These wreaths are real fresh, just made. And I just didn't want to throw them away.

WALLACE: He thought of Arlington and all those graves. When the cemetery approved, he and dozen volunteers drove the wreaths down and laid them on the headstones. And so it continued for years, until a few Christmases back, when an Air Force sergeant took this picture which ended up on the Internet.

WORCESTER: It kind of struck a nerve, and people e-mailed it to each other. And it really went around the world.

WALLACE: We were there the next year, as he and his workers at the Worcester Wreath Company loaded up 5,265 wreaths.

Then they embark on what Worcester calls the world's longest veterans parade, a 750-mile journey that, at some points, attracted more than 100 vehicles. And when they got to Arlington, so many people wanted to participate.

UNIDENTIFIED MALE: This ceremony you are about to witness is Army wreath-laying ceremony to be conducted for the Worcester Wreath Company.

WALLACE: For years, Worcester paid for all of this out of his own pocket, and he started Wreaths Across America, sending hundreds to cemeteries and war memorials around the country. But he will need help to reach his new goal.

WORCESTER: I think there are around 2.7 million graves. And that's a tall order, to decorate 2.7 million graves.

WALLACE (on camera): But you would like to do it, wouldn't you?

WORCESTER: I really would, yes, some time. I don't know how, but hey -- you know.

WALLACE: How long are you going to keep doing this?

WORCESTER: I'm going to keep doing it for as long as I work. And then I know my family is going to continue. So it will be here for a long time.


WALLACE: And it keeps growing. This year, 2,000 volunteers placed 24,000 wreaths at more than 500 cemeteries across the country.

And that's it for today. Our guests next week will be Senator John McCain and Washington's new cardinal, Donald Wuerl.

Have a Merry Christmas, and we'll see you next "Fox News Sunday."

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