This is a rush transcript from "On the Record," July 22, 2011. This copy may not be in its final form and may be updated.
MARTHA MACCALLUM, FOX NEWS GUEST HOST: This is a "Fox News Alert." We are live with the very latest tonight on the debt talk breakdown. It is hot on this summer Friday night in Washington, D.C., and we're not talking about outside, folks! In a very dramatic moment, House Speaker John Boehner says that after weeks of personal talks with the White House, he is done. There is no deal. And right now, all bets are off.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I just got a call about a half hour ago from Speaker Boehner, who indicated that he was going to be walking away from the negotiations.
REP. JOHN BOEHNER, SPEAKER OF THE HOUSE: There was an agreement with the White House at $800 billion in revenue. It's the president who walked away from his agreement and demanded more money.
OBAMA: Here's the one thing that we got to do. At minimum, we've got to increase the debt ceiling. At minimum. I think we need to do more than that. I am confident simply because I cannot believe the Congress would end up being that irresponsible.
BOEHNER: I want to be entirely clear. No one wants to default on the full faith and credit of the United States government. And I'm convinced that we will not.
OBAMA: It is hard to understand why Speaker Boehner would walk away from this kind of deal. And frankly, if you look at the commentary out there, there are a lot of Republicans that are puzzled as to why it couldn't get done.
BOEHNER: They refused to get serious about cutting spending and making the tough choices that are facing our country on entitlement reform. So that's the bottom line.
OBAMA: We were offering a deal that called for as much discretionary savings as the "gang of six." We were calling for taxes that were less than what the "gang of six" had proposed.
BOEHNER: Let me just say that the White House moved the goalposts. There was an agreement on some additional revenues until yesterday, when the president demanded $400 billion more, which was going to be nothing more than a tax increase on the American people.
(END VIDEO CLIP)
MACCALLUM: There you have it, right? So that's why we are where we are tonight. And I'm Martha MacCallum, in this evening for Greta van Susteren.
So now President Obama is demanding an emergency meeting 11:00 o'clock sharp tomorrow morning at the White House. He says he expects all of the leaders to be there. Speaker Boehner's already said he will be there. House Minority Leader Pelosi, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell.
So joining me right now is Senator Mike Lee, a Republican from Utah. He's the author of the new book "The Freedom Agenda."
Senator, welcome this evening. It is a busy night in Washington. Nobody's starting their weekends quite yet, a lot going on. What's your reaction to what we just saw?
SEN. MIKE LEE, R-UTAH: Well, it's disappointing, but it's not terribly surprising. This is one of the things that happens when you try resolve a complex problem that needs input from all 535 members of Congress with only five people. And look, this has failed in the past. We had no assurance that it would be more successful this time.
But what's most galling, Martha, is the fact that we have one legislative proposal that has been moving through Congress, that was passed by the House of Representatives just Tuesday night. And it came up in the Senate today, only to be shut down by Senate Majority Leader Harry Reid, who is unwilling even to have debate and discussion and an open amendment process on that legislation.
This was our best opportunity -- right now, it's our only opportunity to get the debt limit issue addressed. This is the only show in town, and the Democrats refuse to address it.
MACCALLUM: Yes, you're obviously referring to "cut, cap and balance," which passed in the House and is a plan that the other five people who you referred to seem to feel does not have any legs. Why do you think that they have rejected that plan that passed in the House -- 217 members, I believe, voted for "cut, cap and balance" in the House. Why are they rejecting it out of hand?
LEE: Well, they rejected it by saying it can't pass, but without addressing it ever on the merits. The reason they didn't address it on the merits is because they know that they will lose. When the American people were asked about it on the merits by CNN, they responded by saying overwhelmingly that they support it to the tune of about 66 percent.
The central feature of this plan is, of course, the balanced budget amendment, which 75 percent of all Americans support, according to the same CNN poll released just yesterday. So this was about one simple fact. The Democrats just didn't want to address a plan that had been brought forward by Republicans, even though this is the only plan that addresses the problem in a real, structural, permanent, binding way.
And for reasons that I've explained in my book, "The Freedom Agenda," we have to amend the Constitution in order to change the way Washington spends money, or else we'll continue doing the same things over again that go us into this mess.
MACCALLUM: All right, so what's happening now, when you hear the discussion -- you heard her the tensions between the president and John Boehner, and a lot of talk today from a lot of very influential people who basically are pointing the finger at you all and people who are supported by the Tea Party and saying that, you know, you're basically being intransigent and cantankerous and that, you know, you need to get in line. What's your reaction to that?
LEE: My reaction to that is that that's pure hypocrisy. Look, they own this now! We gave them an opportunity to raise the debt limit, which was an opportunity that the Democrats in the Senate didn't give George W. Bush, to give him their vote...
MACCALLUM: Let me jump in...
LEE: ... when it was time to raise the debt limit in 2006.
MACCALLUM: ... for a moment, Senator. Let me jump in because one of the issues with the balanced budget amendment, which, as you say, there seems to be a lot of poll support for out there, is that you would need to get two thirds of the states to pass it in order for it to be an amendment. So would you be willing to drop the budget balance part of that agreement in order to move forward with the other elements of your plan in a timely fashion in order to get this done by August 2nd?
LEE: Absolutely not, Martha! That's the most critical element of it. Like I say, the only way we're going to solve this problem is if we have something in place that can permanently bind Congress from one Congress to another. And the problem with a lot of the debate, discussion about raising the debt limit to this point has been that it's focused on cuts that would be stretched out over a period of 10 or 15 years to the tune of $2 trillion or $3 trillion.
The fact is, we can't bind a future Congress to follow through on those cuts. The only way to bind a future Congress is by amending the Constitution.
MACCALLUM: I understand what you're saying, you know, but a lot of folks are looking at this. The ratings agencies are looking at it. They're saying if you don't raise the debt ceiling over the next several days -- there's 11 days before August 2nd -- they're going to start to lower the ratings. That's their job. Their job is evaluate the creditworthiness of a country, in this case, the United States.
If they believe that they're going to have to lower those rates, that's going to affect interest rates for every American across the country. So you have a lot of folks out there, including Bill O'Reilly, who called in to his show tonight because -- you know, that they wanted to get that on live because of these late-breaking developments.
And basically, he's saying, you know, the Tea Party needs to prove that in order to be effective, they are willing to come to the table, they're willing to recognize this emergency situation that's going on, if, indeed, it is an emergency, and it appears that the ratings agencies think it is. And they have to prove that they're able to negotiate and come to the table on this.
What do you say about that?
LEE: The ability to negotiate and compromise is different from a willing to capitulate unconditionally to whatever whim the president happens to have that day before he changes his mind again!
Look, Martha, these same ratings agencies have made that warning, and I understand, and I'm as concerned about that as anyone. But we have to remember that's only half the warning. The other half of the warning is, if you raise the debt limit without putting in place permanent structural, binding spending reform mechanisms, then that's going to be just as bad. In fact, I think that's going to be perhaps even worse...
MACCALLUM: Yes. You're absolutely right...
LEE: ... than not raising it all.
MACCALLUM: ... about that, and that's a point that is very important for people to understand. It's highly possible that we may get some kind of deal even over the weekend that allows the debt ceiling to be raised. And Moody's may look at that deal and say, You know what? There's nothing substantial in here that makes us think that we're not going to be in the same boat three months, six months down the line.
Let me ask you one more thing. Charles Krauthammer says, you know, he would like to see a $500 billion short-term cut that basically forces this issue to come back again very soon so that nobody will be able to put this under the rug, you know, over the next election cycle and that we'll have to, you know, deal with it in a shorter term but that gets us through this deadline.
You are in favor, not in favor, not open to that proposal?
LEE: It's the first time I've ever heard of that proposal. But again, I've said from the beginning, since before I was even sworn into office, that a permanent acquisition of new debt of the amount that we're talking about, perhaps $2 trillion, $2.5 trillion, requires a permanent solution. And the only way you're going to be able to deal with this on a permanent long-term basis is by amending the Constitution because we can't bind a future Congress without that.
MACCALLUM: Yes. One quick question, and then I got to go. But you know, you all are steadfast and you're doing what people elected you to do, which I think a lot people, regardless of how they may feel about how things are going, will commend that because you were sent to Washington to do something and you're doing it.
Do you have any fear that if the -- you know, if this drags us into a deeper financial hole, at least over the near term, that there's going to be backlash against you folks for not -- you know, not negotiating, not coming to the table in a more meaningful way?
LEE: The voters of America got it right in 2010 and they're going to get it right again in 2012 to an even more significant degree. We can't back down now and not do the things, not follow through on the things that the American people elected us to do.
This is our time. This is the fight of a generation. This is why we're here. And we're going to get this done and we're going to get it done the right way.
MACCALLUM: All right, Senator Lee, very good to talk to you tonight. Thank you so much for your time.
LEE: Thank you.