This is a rush transcript from "Special Report," December 9, 2010. This copy may not be in its final form and may be updated.
(BEGIN VIDEO CLIP)
REP. PETER DEFAZIO, D-ORE.: Almost unanimously, the Democratic caucus of the House of Re presentatives just took a position that the tax deal between the White House and Mitch McConnell and the Senate is not acceptable to the Democratic caucus of the House of Representatives, and we will not bring it to the floor in its current form, plain and simple.
REP. LLOYD DOGGETT, D-TEXAS: We were told yesterday by the vice president this was a take it or leave it deal. We're saying leave it.
ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: If one side takes out what they don't like and the other side takes out what they don't like, we're going to have that. And that, a blank piece of paper, is not going to prevent middle class tax rates from going up.
(END VIDEO CLIP)
BRET BAIER, HOST OF “SPECIAL REPORT”: Some interesting reporting on Capitol Hill today as House Democrats push back hard against the deal the president struck with Republicans on tax cut extensions and the extension of the unemployment benefits and others in this giant compromise plan. The House Democratic caucus meeting was very fiery. We heard reports of cursing. Also chants of "no we can't," and "just say no."
Let's bring in our panel, Steve Hayes, senior writer for the Weekly Standard, A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer. A.B., you say this liberal revolt is real.
A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: Yes. The words "pent up frustration" and "negotiating malpractice" were used. They cannot believe that they've been left out of this process that Vice President Biden managed to secretly craft a deal with the Republican leader on the Senate side, a deal that the White House now says is airtight and cannot be broken apart and can't be amended.
There is some thinking that -- there is a few scenarios. The speaker could never bring the bill up. The other one is she brings it up and breaks it -- through the course of the rules committee, breaks it into different parts so it gives liberal members an opportunity to vote for a different estate tax provision, things that they would like, other goody, other additional tax, et cetera, that would then probably fail -- much like seeing everything example go down last week in the Senate at the hands of Senate Democrats.
The leadership would like to see this resolved by December 31. They don't want the Republicans who are enjoying the side show, to be able to see this expire and go in two weeks later, come in and have a paid for unemployment insurance extension , permanent tax relief for all the brackets, et cetera. So they want to resolve this. But they are giving their members room to vent, and this could go on for many days.
BAIER: I talked to Senate minority leader Mitch McConnell today and he said there is no chance that this gets restructured in any way, that this is a hard, firm compromise. "We shook hands on it. This is a done deal." And here is what the president just said in a radio interview moments ago.
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PRESIDENT OBAMA: My sense is that there are going to be discussions between both House and Senate leadership about all the final elements of the package. Keep in mind, we didn't actually write a bill. We put forward a framework. I'm confident that the framework is going to look like the one that we put forth.
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BAIER: "The framework is going to look like the one," Steve, the estate tax, Senator McConnell told me that Republicans should be very happy with this deal because he couldn't get through with the Republican House, Republican Senate, and a Republican president the deal on estate tax that is in this compromise. Now, that makes Democrats livid, but that's what he says is the truth.
STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: That's probably why he's saying it, in part.
Look, what I thought was interesting is there is a difference between what Mitch McConnell told you and what President Obama is saying. He's talking about a framework. McConnell is saying no, this is it. We are going to enforce this or else. He didn't say the or else, but I think it's implied.
The question is, if you start tweaking it and adding all sorts of goodies to appease people in the House, Democrats in the Senate who might otherwise not be in favor of it, do you get point where you start having real bolting from the Republican in the Senate? I think that's not a crazy scenario at this point if it gets larded up with goodies, with pork, with additional tax credits, with things that people don't know are in it but will find out after it passes.
BAIER: But then it goes down. And everybody's taxes go up January 1. Who is to blame?
STODDARD: The Republicans will blame the Democrats for not holding together and that's why they I think they think it would be fine if it went down.
CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: What's so interesting is how the blame game has now shifted from what we heard in the White House. Up until now both the White House and the Congressional Democrats have said that if it goes down and taxes are raised in January, it will be the fault of Republicans, and they held the sham votes in which they supported only the middle class cuts. The Republicans opposed it and it failed. So that was the storyline.
But if you watch Gibbs today, now that the compromise is out there, what Gibbs has said, if you're a member of the House or Senate, you don't want to go home and have your taxes raised on the 1st of January, meaning that the blame now will lie with those who killed the tax compromise, i.e., the House Democrats. So a Democratic White House is now joining the Republican storyline that if the taxes are raised in January, it's the fault of the House.
BAIER: Not only that.
KRAUTHAMMER: That is new and that is a powerful disincentive for any House Democrat who wants to hold out.
BAIER: They're also joining the story line that this works with the economy, that tax cuts and tax credits and don't raise taxes on anybody works to turn the economy around, which is, in the words of Senator McConnell, a win for Republicans.
KRAUTHAMMER: Look, I think it's a win for the president because if he's going to get reelected, he needs a stronger economy, and he's getting $1 trillion stimulus, a stimulus he could never have gotten a month after an election that was run on smaller government and less debt. He's gotten that as a result of this negotiation. I think it's a gift to him, and he's very happy to have it.
BAIER: A.B., President Obama and the White House announcing that president Obama is going to meet at the White House with President Clinton, former President Clinton tomorrow. They call in the lefty and throw him over to Capitol Hill. What happens?
STODDARD: Well, President Clinton remains one of their best negotiators. He was the best campaigner that they had. He is the most popular Democrat and also arguably in some polls the most popular politician in the country.
They're leaning on a lot of advice from the Clinton alumni these days that is for sure. They hope to be able to triangulate in ways that Clinton was able to in the 1990s. I actually don't think that they're conquerable situations, because I think John Boehner lived through that time and is not going to lay at the feet of President Obama as many opportunities as Newt Gingrich did.
However, President Clinton who still has a very strong influence among both conservative Democrats and liberals alike, and I think that he might be able to help them in this fight.
KRAUTHAMMER: Hearing A.B.'s description of the mood of the House today, which was rejection, neglect, upset, I think what Clinton will be doing is doing therapy in there, and that may be what they actually need. He will feel their pain, and I think he might actually have an effect on them.
BAIER: Get ready for our next panel by voting in our online poll. Go to our home page and tell us if you think a European style debt crisis will happen here in the U.S.
BAIER: Back now with the panel to talk about the national debt. The deficit, we heard a lot about it over the past couple of weeks with the president's debt and deficit commission. And now one anti-deficit group is running a chilling ad. This is from the Citizens against Government Waste.
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UNIDENTIFIED MALE: You can change the future. You have to. Join Citizens against Government Waste to stop the spending that is bankrupting America.
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BAIER: We're back with the panel. What about that? Let's start with Steve.
HAYES: It is sort of a disturbing ad when you stop and think about it 20 years out. In many respects, we are already in crisis mode. It's just that we haven't realized it. We haven't seen the kinds of things that European countries have, whether it's England and the riots there or Greece or potentially Italy, Spain, because our economy is so -- the structure of our economy is so great and the size of our economy is of such a magnitude that we don't see these kind of effects.
But if you look at the debt to GDP ratio, which is what people look at, it's 63 percent right now, a ratio of 63 percent right now, projections are it's at 90 percent in 2020. These are crisis type numbers. We just aren't seeing the things on the street that we're seeing in Europe and elsewhere.
BAIER: If you listen to Charles, and we'll get down here and he'll say this, about this $900 billion package that they're debating, Steve, what's the defense about that?
HAYES: The defense of that, it's not a cost to the government when it's not the government's money in the first place. That's like me saying that I'm adding to my debt because I bought a lottery ticket and didn't win. It's not the government's money in the first place, so you can't count it as a cost. It's the taxpayers' money. So it doesn't cost the government anything to let the people keep their own money. It's a mistake in the projections, if that's the way they want to look at it, but it's not a cost of anything.
KRAUTHAMMER: In that case, you can't abolish all taxes and say it's not a cost. Of course it's a cost. And the bond markets have spoken. Forget about what I'm arguing. On the day that the compromise was announced, which will increase the debt over the next two years by roughly $1 trillion dollars, you had the largest drop in the price of bonds since the Lehman collapse in September of '08, meaning the markets are looking at this and saying, here is the United States that's supposedly on Election Day had a national consensus against expansion of government in debt and supposedly a month later had a debt commission which had a lot of support for cutting our debt, and then all of a sudden, out of the blue announced an enormous stimulus that Republicans and Democrats are supporting, and the bonds dropped. That is a loss of confidence in the ability of America to control its debt.
BAIER: Here’s what Senator McConnell says. He says the economy needs to continue and that raising taxes at this time will be the worst thing. And he says that dealing with the debt is going to be dealing with entitlement reforms and cutting spending significantly, which is what the next Congress is pledging to do. He said but you can't do it with a faltering economy if they raise taxes.
KRAUTHAMMER: I agree on almost all of that and I would have let the Bush tax cuts continue for a short time until you get radical tax reform as advocated by the commission. We have lower rates and eliminate loopholes.
But all the other stuff, two-thirds of that $1 trillion is outside of the Bush cuts and it is completely gratuitous, and I think that is the reason why the markets reacted.
BAIER: A.B., there are three persons on the debt commission who supposedly are going to vote for this tax deal, Senators Crapo, Coburn, and Gregg. They talked dire consequences about what we're facing, yet all three of them it appears are going to vote for it.
STODDARD: I know. It's really interesting. They spent ten months working to try to come up with a plan to reduce deficits by $4 trillion over something like a generation, and then we added another one, and it makes their work -- it's a setback for whatever they're going to do. Obviously they took the votes and don't have a recommendation that they can force the Congress to vote on.
But there is serious concern about not laying any groundwork as you take a vote like this and spend more money for what's going to happen in the months to come and how serious the president and the Republicans in the Congress will be about coming to these very difficult solutions.
HAYES: Spending as a percentage of gross domestic product is typically about 18 or 19 percent, federal spending. It's now 25 percent. The problem is we're not taxing enough or that we're letting taxes expire. It's that we're spending far too much. So the trick is to create or allow economic growth and at the same time cut the deficit.
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