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Special Report

Fallout From President Obama's Tax Cut Compromise

This is a rush transcript from "Special Report," December 7, 2010. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: I think it's tempting not to negotiate with hostage takers unless the hostage gets harmed. Then people will question the wisdom of that strategy.

In this case, the hostage was the American people. And I was not willing to see them get harmed. Again, this is not an abstract political fight. To my Democratic friends, what I success is let's make sure we understand this is a long game. This is not a short game.

(END VIDEO CLIP)

BRET BAIER, ANCHOR: President Obama today defending the compromise deal he's worked up, framework with the deal of Congressional Republicans. But Democrats reaction on Capitol Hill was pretty forceful.

House Speaker Nancy Pelosi said today in the Democrat caucus on the House side there is significant unease. The estate tax deal is, quote, "a bridge too far." Then you have Majority Leader Steny Hoyer saying he doesn't think that house Democrats were fully participant in these compromise negotiations and had some reservations as well from the Democratic point of view.

So what about all of this? Let's bring in our panel, Fred Barnes, executive editor of The Weekly Standard, Erin Billings, deputy editor of Roll Call, and syndicated columnist Charles Krauthammer.

Before we get to president and how he performed, let's talk about the specifics of getting the deal through the Congressional Democrats with all they said today about it. Are the votes there?

ERIN BILLINGS, DEPUTY EDITOR, ROLL CALL: Today, no. But I think they will be. People are trying to digest this, and they're also trying to posture a little bit. They want to send the right message to the base.

And people are trying to leverage to see if there is way to tweak this or room for changes. I don't think there are but I think that is what the Democrats are looking at now.

So I think they will start it in the Senate because I think that is where they have a chance to get it done. There will be 60 votes. They start with 41, 40 Republicans. Get 20 Democrats on board. Get it done, send it to the House and say take it or leave it.

BAIER: And in the House, the president and the administration relying on blue dog Democrats many of them are defeated and not coming back in January. So he's asking them to cast another vote for him.

BILLINGS: That's right. But what do they have to lose? You heard Nancy Pelosi and Steny Hoyer, did they say no? Did they say they opposed it? No. That is careful they're not saying no. They don't like everything in the deal but I think ultimately a lot of guys will vote yes.

BAIER: Fred, the president's performance today, your thoughts of the news conference?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: I have been to lots of press conferences as you have, and I've seen dozens, scores on television over the years, and I've never one like this where the president is obviously I think unprepared for press conference, but also testy and defensive. He thought he was dissed by Democrats after all he's done for them, like the health care bill he got done. He's unhappy about that and he was extremely defense.

Then he attacked both parties. You don't see that a lot either, obviously calling the Democrats who criticized him for not getting enough in the deal with the Republicans, calling them "sanctimonious," which is not a thing you want to say about your own party, even though he's right about that, it's true.

But the stuff he said about Republicans was much worse. "Hostage-takers." We know what the analogy is to that. It's not hard to figure that out. He said they opposed, opposed any middle class tax cut. That is not right at all. Of course they are for a middle class tax cut. They are also for those who are above the middle class, the wealthy, they wanted a tax cut for them as well.

He couldn't think of a reason they'd want that, but the reason is they invest and create economic growth and jobs. He went on and on like that. But the truth is from a Democratic standpoint if you're liberal, if you're a hardcore, unrepentant liberal after the election it was a bad deal because some of the stuff he got, like cutting the payroll tax, are things that Republicans were happy to give him.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I think he did rather well. Accusing Republicans of being hostage takers is slightly over the top, and attacking your own Democrats as sanctimonious is a little bit harsh, but I think he made himself a player.

This is a guy who could have been irrelevant, and now he is in a weak time in this president after he loses the House, and he pulls a rabbit out of a hat. If you're a liberal, a Democrat and you think about this, this is a pretty healthy rabbit.

What he managed to get, as I said last night, he just got the Republicans to agree to a huge second stimulus. If he had asked for a stimulus he would have been asked out of town. He got them to approve or they got him to approve -- he pretends he was the passive one here. If you add up all the debt added op to, none of it will be paid for. Essentially we'll now have $900 billion less of revenue next year, over the next two years, all borrowed from the Chinese, which is a huge fiscal stimulus in the economy in 2011 or 2012 which are exactly the two years in the run-up to Obama's reelection. This is the kind of stimulus a president would dream of in a weak economy in which he needs a strong economy to win reelection.

BAIER: There will be people who say how does it create jobs? Keeping the payroll the same, and does the payroll tax cut to workers really pay off in that big of a fashion? And is the $900 billion that you are signing for is it worth it in the big picture?

KRAUTHAMMER: Well, it's money that will be, and this is a Republican argument, a conservative argument, you want to leave the money in the hands of the people. So by returning it to workers and the payroll tax and in reducing it with the Obama tax cuts and having the money infused through unemployment benefits for extra year, plus the absence of the tax you would have had with expiration of Bush tax cuts, you have almost $1 trillion in hands of those who will spend it.

And Republicans would argue that doing it through taxes is the way to stimulate the economy and recover. It's a Republican argument and I think it will work.

BAIER: One thing, Erin, that the president didn't really talk about is that he got the deal now because once Republicans take over the House, they could roll him on what they want after January.

BILLINGS: He may have the strongest tax right now. When the Republicans take over the house they'll have 46 seats in the Senate. He will have a weaker happened to play. He may not have any of this. He may not have gotten extension of the unemployment benefits for 13 months.

And I think once that argument is made to Democrats, this could be the best deal we'll get, I think they'll come around.

BARNES: I don't think this will help much. It will help a little. This is not a tax cut to spur investment or anything like that. It's just keeping taxes at the same level.

You may be one that beliefs extending the unemployment benefit is great for the economy and spurs the economy. I don't think so at all. It's just another government hand-out of the kind that didn't work.

Remember, Charles, under FDR, the New Deal was not solved by the government spending. Unemployment was as high as end of the end of the '30s as it was at the beginning of '30s. And the one thing that would help is cut the payroll tax. It would help more if it was done more on the employer side.

BAIER: Quickly.

KRAUTHAMMER: It's going to be hundreds of billions of Chinese money in the hands of Americans, and they will spend it.

BAIER: Last word there. Do you think the president's liberal base will support him in 2012? Vote in the online poll at FoxNews.com/specialreport.

Next up, White House handling of the WikiLeaks affair and sex charges against founder Julian Assange.

(COMMERCIAL BREAK)

MARK STEPHENS, ASSANGE ATTORNEY: Many people believe Mr. Assange to be innocent, myself included. And many people believe that the prosecution is politically motivated.

SEN. JOE LIEBERMAN, I-CONN.: I'm a former state attorney general. It sure looks to me on the fact that Mr. Assange violated America's espionage act with great negative consequences for us. He ought to be indicted, and then we can ask authorities in England to extradite him here to the United States.

(END VIDEO CLIP)

BAIER: WikiLeaks founder Julian Assange in custody today after turning himself in to authorities in London. He's being held and he says he will fight extradition request to be sent to Sweden to face sex crime charges there, one of those rape.

What he is not facing yet are any charges for release of documents in the U.S. There are calls. You heard calls Senator Lieberman and Senator Dianne Feinstein from California to indict him on the espionage act.

Where are we with this and what about it? We're back with the panel. Charles?

KRAUTHAMMER: It's utterly inexplicable why the attorney general has not been able to produce an indictment. This is a gut who in July released secrets about Afghanistan in an ongoing war which were even more damaging to American national security. He has had half a year. We know the espionage act is clear about releasing this information and disseminating it.

If the act is inadequate, he has half a year to produce and new updated act where espionage or sabotage would be dealt with. We have a very strong extradition treaty with Britain. It would be easy to extradite him. Where is the indictment and where is the extradition request? This is most passive, inadequate attorney general I've seen in my lifetime.

BAIER: The attorney general yesterday said, "We have a serious, active ongoing investigation that is criminal in nature." He wouldn't get more specific than that.

BILLINGS: I think that is the issue. I don't think anyone knows what the Justice Department is doing. Is it an internal argument? It seems to me if they're going to issue indictments they should do it now while they got the guy in custody. If they are going to act, they should.

Moreover, in the last five months since this began, I don't think we have seen forceful response from the White House politically speaking. I think the language has been tempered and they downplayed the last dump. I'm not sure what the motivation is or how they are approaching this, but it seems to me they should come out more aggressively just on the political side alone.

BAIER: Fred, more serious over the last couple of days. Here is what Robert Gibbs said just last in an interview about this.

(BEGIN VIDEO CLIP)

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Our foreign policy and our country is stronger than one guy with one website. We should not - - and we should never be afraid of one guy who popped down $35 and bought a web address. Our foreign policy is stronger than that. We're a stronger country than that. We're not scared of one guy with one keyboard and a laptop.

(END VIDEO CLIP)

BAIER: Is there a mixed message here on tone?

BARNES: Yes. And the message is we don't take these disclosures very seriously. And that's why they haven't reacted in a political way, as I should have, I agree with Erin, or legal way. This is five months ago in July when the first attack occurred.

But that is a dumb thing for Robert Gibbs to say. You can say American foreign policy was stronger than Pearl Harbor or stronger than the 9/11 attacks. Of course it is. It's just not helpful to say that. That's not a good excuse.

But their problem is we have three sets of disclosures and they have only now begun to take it seriously. And they are, and the release of these things has been enormously harmful.

BAIER: Quickly down the row, I want to talk about recidivism report from the director of national intelligence just out today. Catherine Herridge reported back on the battlefield, Gitmo detainees, 598 detainees have been transferred out. Of those, 150 they say are confirmed or suspected back in terrorism. That's a rate of 25 percent. Fred, that's a big deal.

BARNES: It is a big deal, and the president should announce he hates to admit he's wrong, but he should announce today as he should have months ago that Guantanamo will stay.

BAIER: Is this another nail in the coffin about Gitmo closing?

BILLINGS: I think It's done. If the president couldn't get it done at the beginning of his honeymoon period when he came in office, I don't see how he does it now with the information coming out like this. It's just one more thing to say no.

KRAUTHAMMER: It's the last nail in the coffin. We can't give prisoners away to other countries. We look absurd in our efforts. You can't put them in the U.S. They'll all be held in definite detention anyway. And we learn now that quarter of them are returning to fighting against us. There is no argument left for closing Guantanamo.

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