SPECIAL REPORT

President Obama Leans on GOP Over Jobless Benefits, Reverses Course on Health Care Taxes

The following is a rush transcript of the July 19, 2010, edition of "Special Report With Bret Baier." This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: It's time to stop holding workers laid off in this recession hostage to Washington politics. It's time to do what is right, not for the next election but for the middle class.

REP. MIKE PENCE, R-IND.: The deficit this year is $1 trillion for the second year in a row and more. The American people have had it with run-away federal spending, deficits and debt, and they want to begin to see men and women in Washington, D.C. begin to make the hard choices.

(END VIDEO CLIP)

BRET BAIER, ANCHOR: President Obama teeing up a big vote in the Senate tomorrow, another effort to extend jobless benefits. Republicans saying Congress should demand that it be paid for, the $34 billion to extend these benefits. They point to other extensions in the past. For example, back in November, an extension that was described by president Obama this way.

(BEGIN VIDEO CLIP)

OBAMA: It is fully paid for and so it's fiscally responsible.

(END VIDEO CLIP)

BAIER: So, what about the politics of jobless benefits? That's where we begin with the panel, Bill Kristol, editor of The Weekly Standard, Mort Kondracke, executive editor of Roll Call, and syndicated columnist Charles Krauthammer. Bill, what do you think?

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: It's amazing that the president made that appeal, the workers laid off held hostage to the Washington politics. It's time to do the right thing not for the next election, but the middle class.

Think about that. He is implying that what's better to do for the next election is not to extend the unemployment benefits. Republicans are playing politics by blocking unemployment benefits.

I don't know if that is right or not. I think Republicans are doing it because they believe we have to start paying for things as we give out new benefits. It needs to go beyond insurance that people pay, that's why it's extension of unemployment benefit. I think Republicans think they're doing the right thing and the Democrats think they're doing right thing.

But this shows how much American politics change and how much of the reaction against President Obama and Democrats in Congress has led to Obama thinking the good politics, or saying that the good politics is to resist something that -- imagine two or five years ago if you were against unemployment benefit, it was a cruel ad. They cruel Congressman voted to deny the hard-working Americans benefits.

Now Obama is saying that the Republicans are playing politics thereby implying that the politics of the welfare state have changed.

BAIER: Mort?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: First, the president is saying that the Republicans are trying to block unemployment benefits. They're making it contingent on pay-fors, budget cuts, and including one step that sponsored by the chairman of -- the Democratic chairman of the Senate finance committee, which would not take effect until 2014.

So this is a payout, way in advance, and the Democrats refuse to allow that kind of pay-for, that kind of budget cut to go into effect. The politics of this are each side is playing to the base. The Republican base is people who are deeply concerned about the deficit. The Democratic base is poorer people who the president wants to get out to polls by making the Republicans into scrooge. So each side is playing it. I'm not sure which of them has the right, has the right politics. In a way, each of them is going to benefit politically from what they're doing.

BAIER: Charles, the current legislation would finance jobless benefits for up to 99 weeks or five weeks shy of two years.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I'm not sure, I don't have the same analysis as Bill, because I'm not sure I share his premise that the president is sincere when he says it's not about the next election, it's the middle class.

I don't think he believes that. I think he believes he is got the politics on his side. He is appealing to the better angels. How can you be against the unemployed?

And I think what he is saying is what he always does on every issue -- I stand for the national interest. I stand for the good of the virtuous, and the Republicans are standing for the next election. He says that on everything. So this is a tick of his. I wouldn't credit his sincerity.

On the underlying politics of it, I think it's very interesting. I think a year ago, the politics of the debt was considered an issue of the fringe, you know, of the kooks, the Tea Party, which was considered way out there when it started last March and April.

By midwinter of this year, there was only one Republican senator who stood up against extension of unemployment, and he was so pressured by other Republicans who were afraid of the issue that he caved in. And now we see the whole Republican Party standing up, on the issue of debt against extending unemployment. That is a remarkable --

KONDRACKE: It's not --

BAIER: So Senator Jim Bunning was setting the way?

KONDRACKE: I understand. The way --

(CROSSTALK)

KRAUTHAMMER: That's how the ads will play. Despite the fact that the Republicans are going to be on TV ads in a reelection, nonetheless, the Republicans think that the debt issue is so strong that it will override that even if it misrepresented as opposition of the unfortunate unemployed.

BAIER: Another issue, quickly. Remember, we were talking about the healthcare bill, back then, before it became law, and the concern about the mandate for everyone to buy health insurance, how some called at it tax increase. Here is what the president said back then.

(BEGIN VIDEO CLIP)

OBAMA: For to us say that you have to take a responsibility to get health insurance is absolutely not a tax increase.

GEORGE STEPHANOPOULOS, ABC NEWS: Your critics say a tax increase.

OBAMA: My critics say everything is a tax increase. My critics say that I'm taking over every sector of the economy. You know that. We can have a legitimate debate about whether or not we'll have an individual mandate or not.

GEORGE STEPHANOPOULOS, ABC NEWS: But you reject it?

OBAMA: I absolutely reject that notion.

(END VIDEO CLIP)

BAIER: Well, the Department of Justice does not. They are filing in the defense of the mandate of the healthcare law and all these states challenging the healthcare law, this is a 79-page filing of the Department of Justice, in which it cites article 11, section 8, clause one, grants Congress the way to lay and collect taxes, duties, imports and excises, and goes on to cite the constitution and specifically in these documents says this is a tax increase. That is one of the defense arguments.

Charles, what about this?

KRAUTHAMMER: Of course it is. I was going to mention before the other bait and switches in healthcare reform, when I saw that piece of tape, I have to comment on the president, again, his use of language against his opponent.

Notice how he says we can have a legitimate debate about the mandate, but it's completely illegitimate even to talk about it as a tax. Here he is again, hovering above the debate, the man who stands above it all for the national interest and he is saying it's not even legitimate.

And now his department is arguing that not only is it legitimate debate, but it's a tax.

KONDRACKE: It is a tax. It's a mandatory payout. It's like the payroll tax. It's mandatory. Bud you don't pay it to the government. You pay it to the insurance company. It sounds like a tax to me.

KRISTOL: The Justice Department had to file a brief and take it seriously. A year ago, to pick up on Charles' point, people thought the constitutional argument against the mandate, that was old fashioned, fringe-y; who interprets the Constitution literally anymore?

Now there are lawsuits from the 20 state attorneys general and a serious chance of serious judges on the federal court will find this part of the healthcare plan unconstitutional. And the Obama administration says wait a second, there is a broad power to tax and it is a tax, even though they knew it would be embarrassing to the president.

BAIER: And analysts look at this and say they have written in a way they believe the tax, the Justice Department believes the tax case is the better of the defense in the lawsuit.

Tell us who you think is to blame for impasse over jobless benefits? Go to the homepage at FoxNews.com/specialreport. Vote in the online poll.

And stick around, we will talk about Joe Biden's foreign policy mastermind.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

VICE PRESIDENT JOE BIDEN: Separating the parties. This is a cycle of self-sustaining sectarian violence that 20,000, 30,000, 50,000, 100,000 Americans will not be able to stop, a central government that is a democracy that is going to be fair to the rest of the citizens. It is not possible. Mark my words.

It is underway and it is going to happen. There will be a central government with control of the foreign policy, with control of the military.

(END VIDEO CLIP)

BAIER: Vice President Biden this weekend on ABC, saying that he is seeing a central government form but there will be some semi-autonomous governing in the provinces in Iraq. That was among other interesting things in the interview this weekend, we thought we'd analyze it with the panel.

Bill, first of all, on Iraq -- what about the dichotomy?

KRISTOL: Well, it would be nice, of course, if Vice President Biden one time would acknowledge he was wrong. But it's good for the country he was wrong and good for the country that President Bush resisted the entire Democratic Party in Congress for two years.

It's good for the country I think that President Obama is basically continuing President Bush's policy in Iraq, not Senator Biden or Senator Obama's policy.

BAIER: Mort?

KONDRACKE: You know, it's not absolutely a lead pipe cinch that Iraq can exist as a central government. This is still at issue. The election results haven't worked themselves out yet. And the Kurds are largely independent of the rest of the country.

So I'm not sure that in the end Biden version one is not going to be correct. But now we have Biden version two. Some day, I hope it doesn't happen that way, but if the thing falls apart, how Biden will explain that when Bush created the success and the failure would have occurred on Obama's watch.

BAIER: He said, Charles, he was not for partitioning Iraq to three segments. He was for a decentralized government with stronger province -- provincial governments. However, however you look at it, it was not --

KRAUTHAMMER: Depends what the partition means. I don't want to beat up on the guy. He is a nice guy, but I will anyway. Why anyone listens to him on foreign affairs, I don't know. The stage of Wilmington was wrong on the freeze in 1980s. He was wrong on the contras. He voted against the Gulf War, remember the good war about Kuwait? He voted in favor of the Iraq war and then said was the worst mistake ever.

Then he repented and opposed the surge which redeemed the Iraq War and saved us. So now he tells us he was against partition, when, in fact, he was.

I think Iraq is still in play. It's not a slam dunk. It's gone a long way. I'm very disturbed by the deadlock that has happened almost half a year. Al-Sadr showed up in Damascus yesterday, the anti-American cleric, in alliance with Malaki. He showed up with the guy we like, Allawi, who leads a Sunni-Shiite secular coalition. And so there might be a nefarious deal in the works that we don't know.

But what is happening in Iraq today is because Obama is to hands-off, and because he's so rigid on his withdrawal -- Syria is a player. Iran is a player, Turkey is a player in the forming of the new government, and we are not a player. And that is not the way it ought to be. It's not in our national interest.

BAIER: On Afghanistan, Bill, the vice president said that the policy that is on the ground now is very similar to what he advocated for behind closed doors, but he can't talk about it fully right now. What about that?

KRISTOL: It's been reported and never challenged he said privately you can bet there will be a huge drawdown in troops in July of 2011. He was an advocate of adding to the deadline, now a transition moment, to the president's speech, last December.

Now, what is very encouraging, too -- we paid a price for that. We paid a price in Afghanistan and Pakistan for the stupid deadline which was added the last minute by the president for totally domestic political reasons. Dove, hawk, idealist, whatever your view, no reasonable person thinks it's intelligent to say we'll get out July 2011 if you are going to send more troops.

It was for domestic political reasons and Vice President Biden was for adding it. I hope he repents for that, too.

The good thing is he said yesterday on TV, the July 2011 deadline, where we begin to draw down, it could be as few as a couple thousand troops. This was the man who was quoted as saying you can count on us getting out of there after 2011. Now, thank god, I think General Petraeus is in charge of the Afghanistan policy more than Vice President Biden.

BAIER: Because Afghanistan officials will tell you privately the Taliban goes in and says August, 2011, we'll be here.

KONDRACKE: Absolutely. I think the quicker the administration makes it clear to the parties in the field that the 2011 deadline isn't a real deadline, that we'll be there, that we are dedicated to winning this war, the better off we'll be. If this doubt that's created about whether we're staying, whether we're leaving is getting people's throats slit.

KRAUTHAMMER: In Kandahar, they're not watching the Sunday news shows and he doesn't understand all these nuances. The president set a deadline and he has to undo it in public or it will hurt us endlessly in Afghanistan.