Sen. John McCain talks Egypt, Gaza and Libya; 'fiscal cliff' vs. consumers, investors

The following is a rush transcript of the November 25, 2012, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: I'm Chris Wallace.

People take to the streets of Cairo to protest the Egyptian president's power grab. And the fallout continues over the Benghazi terror attack.


WALLACE: We'll discuss the situation in Egypt, the cease-fire in Gaza, and the Libya investigation, when we sit down with Senator John McCain. It's a "Fox News Sunday" exclusive.

Then, is the looming fiscal cliff casting a shadow over shoppers and investors this holiday season? Visions of bargains are dancing in the heads of consumers. But will the possibility of higher tax slow them down? We'll talk with Matthew Shay, president of the National Retail Federation, and John Sweeney of Fidelity Investments.

Plus, the holiday is over. The White House and congressional leaders try to make a deal. We'll ask our Sunday panel if negotiators can reach a compromise to avoid the fiscal cliff.

And a Thanksgiving tradition, our Power Player of the Week has me dancing with turkeys.

All, right now, on "Fox News Sunday."


WALLACE: And, hello again, from Fox News in Washington.

On this holiday weekend, we are watching several major foreign policy developments from Egypt, to Gaza, to the continuing controversy over the Benghazi attacks.

Here to talk about it all is Senator John McCain.

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


WALLACE: Well, you'll have to wait until the end of the show to see.

MCCAIN: That's what we're doing now.


WALLACE: Let's start with Egypt where President Morsi, late this last week, basically granted himself almost unchecked powers and sent thousands of protesters packed into the streets, the people who have been helping to topple Mubarak, now back in the streets, against the many they are calling the new Egyptian pharaoh.

What are the chances, Senator, that are we headed for a new Islamist coup and new Islamist state in Egypt?

MCCAIN: I think it could be headed that way. You also could be headed back into a military takeover if things went in the wrong direction. You could also see a scenario where there is continued chaos.

I'll never forget, Chris, after I was in Egypt, I met with the young people who made the revolution in the square, and, a young woman said, Senator McCain, it's not the first election we worry about, it's the second. That's what we have to worry about, a repeat of the Iranian experience in the 1970s.

So, look -- but, what should the United States of America do? They should be saying this is unacceptable. We thank Mr. Morsi for his efforts in brokering a cease-fire, which is, by the way, incredibly fragile but is not what is acceptable. This is not what the United States and American taxpayers expect and our dollars will be directly related to the progress towards democracy, which you promised the people of Egypt, when your party and you were elected president.

WALLACE: Well, I mean, let's talk about that, because, Morsi took his step hours after Secretary of State Clinton praised him for helping broker the peace deal between Hamas and Israel. And so far, at least the administration issued, the State Department, a very tepid criticism.

How tough should they get with them? Should they directly say, you got to pull back? I mean, what should our demands be and what should our leverage be?

CAIN: Our leverage, obviously, is not only the substantial billions in aid we provide, plus, debt forgiveness, plus an IMF deal, but also the marshalling world public opinion is also against this kind of move by Mr. Morsi.

We appreciate President Morsi's action. But, you know, in the past, it's always been the United States that brokered the peace deals and there is a clear perception, at least amongst Hamas, that they won on this one. And, unfortunately, the PLO has been -- Mahmoud Abbas and others have been diminished as a result of the negotiations and the settlement that was reached. And I predict Hamas will continue to test the Israelis and how far they can go.

And, finally, let's trace some of this back to Iran. Where did -- where did the missiles come from that were being fired? Iran. Where are the Iranian revolutionary guard on the ground? In Syria. The centrifuges continue to spin in Tehran.

And, so, we've got to start facing up to what is one of the prime reasons why there is the kind of unrest we are seeing throughout the Middle East.

WALLACE: Let me just button-up the Morsi thing. What should our demand be of Morsi?

MCCAIN: Stop. Stop. Renounce the statement, and the move that he just made. Allow the judiciary to function.

If the judiciary is flawed in some way, then, that's an illness that can be cured over time. But, absolutely, to assume this kind of power is unacceptable to the United States of America and, then, we can outline what actions might be taken. But, first, condemn it.

WALLACE: Let's talk a little bit, you already led us in that direction, to the cease-fire, the very fragile cease-fire worked out this week between Israel and Hamas. How fragile is it? What do you make of it?

And, you know, we saw these longer-range Iranian missiles that had been smuggled into Gaza that were being fired at Tel Aviv and fired at Jerusalem, which raises the question: if Israel takes action against Iran's nuclear program, what is the threat they face from right on their border in Gaza? And, from the Lebanese border with Hezbollah?

MCCAIN: I think they face a significant challenge with Hezbollah because of the tens of thousands of missiles that are in southern Lebanon. I also think that the Iranians will continue unless they see that there is a price to pay, which argues for the United States and Israel to establish red lines and say the Iranians, you cannot cross that.

Now, as a result of the election and what recent events, the president and the prime minister of Israel's relationship I think is dramatically improved. We certainly hope so. But it's time we work together and recognize, it isn't just nuclear weapons the Iranians are doing, I outlined the other things they are doing.

Plus, orchestrating acts of terror throughout the world, including attempts to assassinate the Saudi ambassador right here in Washington, D.C. The Iranians posed a threat to peace and stability throughout the world, and we're going to have to develop a strategy to counter that.

WALLACE: The director of national intelligence now says that he was responsible for watering down, editing, the talking points that U.N. Ambassador Susan Rice used when she went on those five Sunday talk shows -- here's the picture, the famous picture of it -- to talk about Benghazi. But you say that a few days before his office said they were responsible for editing the talking points, that in a closed-door hearing, the head of intelligence, James Clapper, told you and other senators he didn't know who was responsible.

Question -- two questions: where does the investigation stand? And how do you get to the bottom of it?

MCCAIN: Well, it is like any other -- assuming the proportions of any other major scandal in this town, there are many layers to the onion, there's all kinds of questions that have been raised. The most recent is the one you mentioned. I saw the director of national intelligence say he didn't know where these talking points were edited and now he's saying he did it. We'll be interested how that -- all that transpired.    But, the biggest aspect of the whole thing is, it has to be really looked into is why there was such a failure on the part of the administration in light of events, the attack -- the two attacks on our embassy, the assassination attempt on the British ambassador. They closed their consul. All these long train of events that made our consulate in Benghazi a death trap. And then during that, why didn't we have military capabilities close by, especially on September 11th?

WALLACE: And after all of these hearings so far, and, you know, what, we're two months out -- do you have any answers to those questions as to why we weren't better prepared for this possibility?

MCCAIN: No, and I think we ought to know why as late as September 25th, two weeks later, the president of the United States, at the United Nations, was talking about hateful videos.

So, there are many things that need to be resolved. There are four committees in the House, four committees in the Senate. They are holding different hearings, all turf fights going on as it usually does in these bodies.

And we need a select committee in order to sort this whole thing out -- to find out what happened, but, also, we can't ever again have a tragedy such as took place in Benghazi and it could have been prevented in my view. Now, we've got to make sure that there are ways to make sure it doesn't happen.

WALLACE: You say that you will do everything in your power to block Susan Rice's nomination, if the president decides to name her to be secretary of state. She said this week, that all she did was rely on the intelligence community's talking points and then went on to say this about you. Take a look.


AMBASSADOR SUSAN RICE, U.S. AMBASSADOR TO THE UNITED NATIONS: I do think that some of the statements he made about me have been unfounded. But I look forward to having the opportunity at the appropriate time to discuss all of this with him.


WALLACE: Is there anything that ambassador rice can do to change your mind?

MCCAIN: Sure. She can -- I'd give everyone the benefit of explaining their position and the actions that they took. I'd be glad to have the opportunity to discuss these issues with her. Why did she say that -- why did she say that al Qaeda has been decimated in her statement here on this program?

Al Qaeda hasn't been decimated. They're on the rise. They are all over Iraq. Their training camps are in Libya. They are all over Syria. They are on the rise everywhere in the Middle East.   So, there's a lot of questions that we have for Ambassador Rice and she would -- I'm sure that I'll have the opportunity to discuss this with her.

WALLACE: But you are saying that she could conceivably get your vote for secretary of state?

MCCAIN: I think she deserves the ability and the opportunity to explain herself and her position, just as she said. But, she's not the problem. The problem is the president of the United States, who, on -- in a debate with Mitt Romney, said that he had said it was a terrorist attack. He hadn't. In fact that night on "60 Minutes", he said they didn't know what kind of an attack it was and continued to say --

WALLACE: He didn't say that night. He said in an interview with "60 Minutes", which we didn't see until --

MCCAIN: We didn't see until after the election, I'm sure, that it was such an inconsequential statement, that it didn't deserve the attention of the American people before the election.

WALLACE: Let me pick up on in a more aspect and we'll move on.

House Democratic leader James Clyburn said this week that Lindsey Graham and you have used racial code words to go after Susan Rice. Take a look.


REP. JAMES CLYBURN, D-S.C., ASSISTANT DEMOCRATIC LEADER: Senator McCain called her incompetent as well, but he told us that Sarah Palin was a very competent person to be the vice president of the United States. That ought to tell you a little bit about his judgment.


WALLACE: Your reaction?

MCCAIN: You can't -- you know, dignify comments like that. I notice in this town if they can't win the argument on the merits, then, of course, they resort to those kinds of personal attacks. It goes with the territory.

WALLACE: Would you agree to raise taxes as part of a solid compromise to avoid a fiscal cliff?

MCCAIN: I would be very much opposed to raising tax rates. But I do believe we can close a lot of loop holes. The tax code is this high, we can do plenty of things to eliminate these -- in fact, two other things. One is, things like a limit on the amount of deduction of charitable giving. A limit on the amount you can take on your home loan mortgage deduction.

And, obviously, we are going to have to look at entitlement reform. Entitlement reform is the only way we are going to really get the debt and deficit under control. And we've got to take it on.

WALLACE: But let me ask you, though, you say you would consider more revenue but through loopholes and deductions, not through --

MCCAIN: Sure. And there are so many of them.



WALLACE: Let me ask you about this though. You vote against the Bush tax cuts, a decade ago, because -- and I went back and looked at it -- you said too many of the benefits go to the wealthy, not to the middle class. Now, once they were passed you changed your view and said they have taken effect. I'm not going to oppose them.

But, if you could get a solid deal, with, as you call for, spending cuts and entitlement reform and make a major -- take a chunk out of the national debt, why is the 35 percent top tax rate which you opposed sacred?

MCCAIN: Because every economist that I respect says if you raise tax rates at this time, in fact, the president even said a couple of years ago, that it harms the economy. We are trying to help the economy. And, so, unless I can be convinced that raising tax rates will be beneficial, then obviously I think there's reason and ground for my position.

But, I also believe that we can and must get an agreement, otherwise I think, first of all, the markets are going to start reacting.

WALLACE: We're going to talk about that in the next segment, and I think it is a real issue.

Finally, let's talk about the GOP. Republicans -- I don't have to tell you -- had a really rough night on election night. And let's look at the break down of some of the numbers.

You lost unmarried women by 36 points, Hispanics by 44 points. Young people by 23 points.

Does your party need to change, especially in its outreach with those groups, on social issues like same sex marriage, on immigration reform?

MCCAIN: I think we have to have a bigger tent. That's -- no doubt about it. And, obviously, we have to do immigration reform.

There is no doubt whatsoever that the demographics are not on our side. And, we are going to have to give a much more positive agenda. It can't be just being against the Democrats, and against Harry Reid and against Obama. You have to be for things, and we have to give them something like the Contract with America, that we gave them some years ago. We have to give them something to be for.

And as far as young women are concerned, absolutely -- I don't think anybody like me, I can state my position on abortion, but, to -- other than that, leave the issue alone when we are in the kind of economic situation and, frankly, national security situation we're in.

WALLACE: When you say leave the issue alone, you would allow, you'd say, freedom of choice?

MCCAIN: I would allow people to have those opinions and respect those opinions. I'm proud of my pro-life position and record. But if someone disagrees with me, I respect your views.

WALLACE: Senator McCain, I want to thank you as always for coming in today. You're going to have a busy final weeks here in 2012.

MCCAIN: We certainly are.

WALLACE: Thank you, sir.

MCCAIN: Thank you.

WALLACE: Up next, 'tis the season to shop and spend. But will the coming fiscal cliff put a damper on consumers and investors?


WALLACE: For all of you who survived Black Friday, here's something new to worry about. Christmas is one month from today. And, a week after that, if nothing gets done here in Washington, we all go over the fiscal cliff.

What does that mean for shoppers, and investors, in these final days of 2012?

For answers, we turn to Matthew Shay, president and CEO of the National Retail Federation.

And from Newton, Massachusetts, John Sweeney, executive vice president of Fidelity Investments.

First of all, Mr. Shay, what can you tell us about holiday shopping this long Thanksgiving holiday weekend? Are people buying?

MATTHEW SHAY, PRESIDENT & CEO, NATIONAL RETAIL FEDERATION: Well, it looks like people are buying. The data we have got so far looks like we had a very busy, a very successful weekend. We know a number of retailers opened earlier. They were open on Thanksgiving, and retailers have been piloting that the last three years.

Last year, 24 percent of holiday shoppers that went out over the entire weekend were actually out on Thanksgiving by midnight. I think the numbers are going to show that this year, we did better than that. We are predicting about 4 percent increase, in sales, over last year.

Last year, we did 5.5 percent actual. That was very good. And, I'm not sure we'll hit the number, but when we did the 4 percent forecast, it was pre-election, a lot of uncertainties in the economy.

So, right now, we are bullish. We think we had a very good weekend.

WALLACE: Now, Christmas shopping not just for the first weekend but for the whole season was up 5.6 percent last year. Do you think you're going to have that strong of a Christmas shopping season this year?

SHAY: Well, thanks to an act of the president, 75 years ago, President Roosevelt, now, we've got a very long holiday season. This is as long as it can possibly be.

WALLACE: Briefly explain, because Thanksgiving was very early.

SHAY: That's right.

WALLACE: It's on 23rd.

SHAY: That's right. And so, it can't be any earlier than that based on the fact it's got to be the fourth --

WALLACE: It was 22nd, I think.

SHAY: The fourth Thursday, 22nd. So, that gives us as many days as we can have, and gives us an extra weekend. Christmas is on a Tuesday.

So, I think we're going to have a nice, long selling season. We're going to see some real growth. And I think we'll go back and look at the numbers in mid-December and see whether we need to make an adjustment.

But, right now, everything we have heard from the CEOs and others we have talked to, looks like we had a really good weekend -- a great way to start the holiday season.

WALLACE: Mr. Sweeney, the numbers for the markets are not as strong. The Dow Jones average is down 236 points or 1.8 percent, since Election Day. And the question -- and this gets us to the main subject we want to talk about today -- how much of that do you believe is investor concern about the fiscal cliff?

JOHN SWEENEY, EXECUTIVE VICE PRESIDENT OF FIDELITY INVESTMENTS: When we surveyed our investors after the election, we found that 83 percent of them were concerned about the fiscal cliff, 83 percent of them also concerned about the long term national debt. So, those are issues weighing on the minds of our investors.

I think what you've seen, as you'd just expressed the pull back on some of the equity markets, we had through the third quarter of this year, an equity market in the U.S. was up 13 percent, up almost 30 percent year over year, on one year basis. And what you've seen is a significant pull back from that, at that time.

So, a couple of things to keep in mind. One: when you think about making investment decisions, try and make the investing decision first. So, when you have a market that's up 15 percent, it's natural to think about rebalancing. When you think of constructing portfolios, we want to be sure investors are focused on the long term and not subject to the short-term vagaries of the market.

Rebalancing is an activity that happens constantly throughout the market. You look for opportunities where your equities that appreciated to rebalance back into fixed income or cash where that's appropriate.

WALLACE: I'm going to come back to you about the fiscal cliff and its impact on investors in a moment.

Let me bring in Mr. Shay.

How aware -- we talk about investors -- how aware are consumers about the coming fiscal cliff? And do you get the sense that they are factoring the uncertainty about what's going to happen into their decision about how much this spend this Christmas?

SHAY: Consumers are very aware of this. We have been in the field since about Labor Day, and, the numbers ranged anywhere from 65 percent to 80 percent of respondents. So shoppers have said, they are aware of what's going on.

Now, they may not be able to put every facet on what the fiscal cliff means but economic uncertainty, generally, because it is such a point of contention between the political parties, we talk about it every day. It's the leading headline of the day, they are definitely thinking about --


WALLACE: -- they are scaling back?

SHAY: Well, I think it means that they are no spending as robustly as they would, because, they still don't know what's going to happen. And it's very clear, just as John said, about investors, that CEOs of companies, whether large or small, business owners, are thinking about what's going on in the economy and what might happen next year, before they make those capital investments.

So, when you think about the retail industry creating 42 million jobs, one in four Americans, 20 percent of GDP, 95 percent of them have a single unit, 50 percent, only, employ five people. If they don't spend and invest and grow, then our economy is not going to grow. And so, we talk about fixing taxes and fixing spending. We really need to be talking about growing the economy.

WALLACE: Mr. Sweeney, it obviously gets more complicated than consumers, when you talk about investors and the decisions they have to make. Let's look at some of the real world consequences for investors, if we do go over the cliff at the end of the year.

Between the expiration of the Bush tax cuts and higher taxes, for Obamacare, the top capital gains rate will jump from 15 percent to 23.8. And listen to this: the top rate on dividends will jump from 15 percent to 43.4 percent.

How are, Mr. Sweeney, how are investors reacting to those possible, very stiff tax hikes?

SWEENEY: Well, to Matt's point, you want some clarity and whether the clarity comes in your personal economy at home, whether you are a CEO or CFO of a corporation, you want some clarity on how to spend the cash that you have accumulated on your balance sheet or, whether you're the government, you want to figure out how to impact the spending you have at the federal level as well.

Americans are looking for clarity so that they can make the decisions, that Matt's referenced, in terms of purchasing short-term Christmas gifts for the next selling season or whether, again, if you are a CEO and you're trying to think about investing in a plant or hiring new people.


WALLACE: If I may, sir -- if I may, I mean, just specifically, if you have a stock and you see your capital gains, if you sell that stock, could go from 15 percent to 24 percent, at the -- on January 1st, are some people cashing out now?

SWEENEY: Well -- so, what we have seen over the last year is that people in the search for yield have sought out dividend-producing equities, with the treasury -- 10-year treasury yielding about 1.5 percent and the S&P 500 dividend yield about 2.3 percent, people have flocked to dividend-producing equities.

But as you referenced earlier, the pull back in the market often comes from very high dividend-producing equities that have appreciated significantly over the last year -- telecoms, particularly, and utilities have been the hardest hit in the most recent weeks. They have been stocks that have been attractive to investors looking for higher dividend yields, but we have seen contraction because their price-to-earnings ratios are out of line perhaps with the rest of what we're seeing in the S&P and the diversified industries.


SWEENEY: So, investors are definitely --

WALLACE: Let me just, if I may, Mr. Sweeney. Fidelity did a survey of your investors and you found that 3/4 of them don't think we're going to go over the cliff, think that there's going to be a deal.

But if our leaders come back tomorrow and, you know, we go a couple more weeks and suddenly, the deal is looking less and less possible, and the cliff is getting closer and closer, what kind of impact is that going to have on the markets?

SWEENEY: I think we've seen that. So, you know, as we mentioned -- between the end of the third quarter and this past week, you've had some volatility in the markets. So, you've had some pull back in the equities, people started to take equity risk off the table.

I would hope the people are doing that from a rebalancing standpoint. When they've had appreciation in equities, you want to rebalance into fixed income to make sure that you're sticking with your target asset mix and not making a reactionary move.

WALLACE: Don't get too technical on us here, sir. But I guess the question really becomes, could you begin to see the markets really drop as we get closer to the fiscal cliff?

SWEENEY: I think, you have seen some of that already. So, what we worry about, is we worry about the shift that we saw over the last couple of years, where people abandon that goodies post '08 and '09 and they shifted a trillion dollars into bonds. And what they missed out on is the equity rally that occurred since the market grows in '09.

So, we want folks to focus less on the short-term and more on the longer term and understand the role equities play in your portfolio and make sure that you continue to have an appropriate asset (ph) allocation for the time horizon and the risk tolerance that you need for your portfolio.

WALLACE: Let me -- we got a couple of minutes left, I just want to ask you, because there are some big decisions that are going to be made over this next month, we hope. Mr. Shay, looking at the various options that have been mentioned for a possible compromise, are there some things that are better for the retail industry and some things that are worse?

SHAY: Well, the best thing I think is to get us into 2013 and so we can have a conversation in a comprehensive way about the entire tax code, looking at the entitlement spending, thinking about the things -- to John's point -- the long term issues.

What really drives the deficit here obviously is the spending on entitlements, Medicare and Medicaid and Social Security, and we can't fix this by just attacking discretionary spending. That's the easy thing. It's convenient. No one argues as much.

But when we talk about political leadership, we really need it and we need specificity.

So, what we ought to do in the next few weeks is get some sort of a down payment that gets us into next year and then have a thoughtful discussion about how we make the tax code more competitive and lower the corporate rate from 35 to 25 percent and broaden the base and do the things that are going to put us on a trajectory of growing.

And consumers start to pull back -- now we are talking about 70 percent of the economy is consumption -- if they pull back and they start to save, we are talking the paradox of thrift and people don't spend at a time we need them to spend. So, going over the falls in a barrel, or the fiscal cliff without a barrel, it would be a disaster.

And I think people that talk, well, we could do it and we'll have leverage -- politically, it won't be such a bad idea. It would be a terrible idea, it would be devastating, we'd be back in recession and consumers wouldn't spend -- big mistake.

WALLACE: Mr. Sweeney, finally, and we have less than a minute left -- if we get a deal and it's a solid deal, how much of a boost would it be to the markets? How much pent-up demand? How much would there -- new capital that's been sitting on the sidelines -- I guess, I'm asking, what's the upside here?

SWEENEY: Yes, I think there is cash sitting on the sidelines and we have seen an increase in flows into our money market funds over the last two months. So, you assume that there's some cash waiting to be deployed.

What we want to make sure, though, is we ask consumers, corporations and the government to think about, want to be sure your burn doesn't exceed your earn. So when you are thinking about spending, obviously, we want to make sure that whatever you are earning out of your portfolio or your paycheck doesn't exceed your capacity to earn.

WALLACE: We're going to have to leave it there. Mr. Sweeney, Mr. Shay, thank you both. Thanks for talking with us this holiday weekend. Maybe our leaders will give us a Christmas present and pull us back from fiscal cliff. We can only hope.

SHAY: Cyber Monday is tomorrow. So, we're not done yet!


WALLACE: Always selling.

Up next, foreign policy hot spots, our Sunday group weighs in on Egypt, Gaza, and, the ongoing probe of the Benghazi terror attack.



MOHAMED MORSI, EGYPTIAN PRESIDENT (through translator): I must put myself on a clear path that will lead to the achievement of a clear goal.

UNIDENTIFIED MALE: This is just a new era of dictatorship in Egypt. This is not what the revolution was about.


WALLACE: Egyptian President Morsi and one of the protesters in the street after Morsi grabbed almost total power in that country this week. And it's time now for our Sunday group. Bill Kristol of "The Weekly Standard," Kirsten Powers from "The Daily Beast" Web site, Fox News analyst Liz Cheney and Fox News political analyst, Juan Williams. So, Bill, how serious is the situation in Egypt? Do you believe Morsi is playing, that this is just a temporary measure? Until the country adopts a new constitution? Or is this possibly an Islamist coup?

BILL KRISTOL, THE WEEKLY STANDARD: We don't know. We have some influence, I think, to make it one and not the other and that is really the test for us and it is a test for us, the administration, Secretary Clinton was there, earlier this week, and, then, Morsi makes this announcement, what, two days after she left the country. This is not a place we have no relations with, the place we haven't been working with, the place we that we don't give a lot of aid to. And so I think it is a test for the administration, can we pressure Morsi and induce Morsi to let there be a constitutional process that goes forward and second elections, not just the first election, that he narrowly won. It's not like the whole country is united behind him.

WALLACE: Kirsten, how much, and this gets to the question I was discussing with John McCain, how much can and how much should the administration do to try to put pressure on Morsi to pull back?

KIRSTEN POWERS, THE DAILY BEAST: Well, the issue that they are obviously facing is that Egypt just played an important role in the situation with Israel, and I think it is sort of interesting, that right after that happened, Morsi did this. I think he feels like he has a very strong hand because he did help out in the situation that the U.S. asked him to help out with. So they are going to have to figure out how much they need to still -- need to support in that situation and, so, that said, they do need to condemn this kind of anti-democratic behavior, I think, you know, to make it clear that we were behind a democracy and he cannot do this kind of anti-democratic thing.

WALLACE: I mean, Kirsten makes a good point, Liz, but just to some degree, particularly in dealing with Hamas, Morsi played a constructive role and to some degree we do need him. So, how tough do we get with him?

LIZ CHENEY, FORMER STATE DEPARTMENT OFFICIAL: I'm not sure how much we need him, frankly. I think at this point, you know, what happened in terms of the role that he played with Hamas, you've now got, you know, Hamas and the Muslim Brotherhood are basically the same organization. Morsi, the Muslim Brotherhood President of Egypt, he stepped in and he's now somehow supposed to be the arbiter of any disagreements between the Israelis and Hamas, over this cease-fire. At the end of the day the real problems, as Senator McCain pointed out is Iran and is what's going to happen next. You had the Hamas number two since the cease-fire say that they're going to continue to support arming Hamas, that Iran will.

Morsi -- we need to be very clear and very strong. I think we need to cancel any debt forgiveness. I think that -- I would put a hold right now on all economic aid. I would look carefully at the military aid, and I would say very clearly, you know, we do not support this. The problem is, that our silence is read by people all across the Middle East, as acquiescence in this completely antidemocratic clampdown he has undertaken.

WALLACE: Juan, I want you to pick up on this whole question of the cease-fire. Because that was the other big development in the Middle East this week, Israel and Hamas agreeing to a cease-fire. But, Israel says it is going to maintain its border restrictions, even though they said they're going to talk about it. But they certainly are not going to lift the blockade, the naval blockade. And Hamas, as Liz just pointed out, they number two said we are going to keep arming Gaza with rockets hat could be fired into Israel. So, how stable is this situation?

JUAN WILLIAMS, FOX NEWS POLITICAL ANALYST: Well, I think that there is the peace deal that's foreseeable. It is not difficult to foresee that, I mean, already, the deal is that Israel would stop with the assassinations and that Hamas would stop firing the rockets. Now, the second part of that would be that Israel would do something in terms of the border crossing, open some of this so that they could get commerce, kind of civilian activity back to normal, which is something that the Palestinians dearly want, as well as to have a sense that Israel would -- that Hamas would then stop the smuggling of the weapons, that are coming from Syria. That they -- and that's why the naval blockade is in place, again, that Israel fears that the weapons are coming through that route. You have the possibility of the United States coming in and you are asking about U.S. pressure, but there is also U.S. playing a greater role. That the Obama administration has said, you know what? Let people settle this for themselves, but instead the U.S. might say, you know, we'll help you, we'll control those ports to make sure that weapons aren't being smuggled in. We will play a more aggressive role. That is the challenge for the Obama administration, in the second term. Whereas in the first term I think they wanted a very light footprint.

WALLACE: Then there is Benghazi. The president and -- let's talk of one aspect of this. We've talked about the investigation for a long time. The president is expected to announce a number of top appointments, including Cabinet positions in the coming days, conceivably some, it's been reported as soon as this week, and, one of the questions is, and you see the two of them there, do you think he will take on this fight, and name Susan Rice to be secretary of state, Bill, and if he were to do so do you think the Senate will confirm her?

KRISTOL: President Obama hasn't confided in me, who his secretary of state appointment is, I know that is a shock, I rather think he will appoint Susan Rice and I think, I'm not a huge fan of hers, but I think she's likely to be confirmed by the Senate. An awful lot of people might decide, you know, given the range of alternative appointments, maybe she's not -- John Kerry might be -- might be a worse secretary of state. So, maybe, one just goes ahead and lets him have the secretary of state he wants. I don't know. Or maybe one votes against it, as senators will say she was not forthcoming, obviously in September and she should have known better than to say what she said, and then vote against it, but since Democrats control the Senate, I assume she'll get confirmed.

WALLACE: Now, I'm curious. What is wrong with John Kerry as secretary of state? He is -- I mean, obviously he is not the one that you would appoint ...


WALLACE: But as a Democratic ...

KRISTOL: Because I think Susan Rice has been a little more interventionist than John Kerry. John Kerry is the guy who loved the Assad regime in Syria, John Kerry has been against intervening, every war that we intervened. The first Gulf War, Iraq, he was for it before he was against it. I actually think Susan Rice might go along with Juan and say, you know what, that light footprint thing is not working out so well, and not having any presence in Libya and not intervening in Syria ...


WALLACE: -- pushed for the intervention against Saddam in the first place.

KRISTOL: Right. I mean -- the first -- I'm not -- this is not my administration and not my choice, but I think if one thinks that it is incredibly dangerous moment, thanks to this light footprint, to the utter collapse of the U.S. influence and power in the region, maybe Susan Rice will be a little more alarmed by that than John Kerry.

WALLACE: Kirsten, do you think the president is going to name her?

POWERS: I don't know, though, I think if he does, that could be -- that kind of arrogance, which is what I think it would be, could be his undoing, because if she's put under oath and forced to go through and answer all of these questions about Benghazi, I think it is going to put the administration in a really bad position and I don't think she was the front-runner. I don't understand where this came out of, everything I had heard was, she was in the running, that it was really leaning more towards John Kerry and then we have this press conference with the president, just kind of, you know, went off about Susan Rice, and, it has now become almost a sense of pride. So, you know, if you want ...

WALLACE: Do you think he cornered himself in that press conference?


WALLACE: Saying what he said now, if he doesn't name her ...

POWERS: Exactly.

WALLACE: It's going to look like he is caving.

POWERS: I feel that he did, and I don't know that it was intentional, and I think he went a little overboard. You know, his defense of her was fine to a point and then it kind of went into an area that didn't -- wasn't -- didn't really make sense. And, I think that, like I said, if you want to send her up on the Hill and put her under oath and have her start answering every single questions, this administration will not ask or answer over Benghazi, go for it.

WALLACE: Liz, you've got the final word here.

CHENEY: He may nominate her, and she ought to be filibustered. She went on the air and she misled the American people. She says that she is an expert on North Africa. Either she knew what she was saying, was wrong, either she knew that al-Qaeda hadn't been decimated and that it was not because of the video or the alternative is that she took talking points she was given and simply read them without questioning. In either case, those are not the actions of somebody who's qualified to be the secretary of state.

WALLACE: All right. You are shaking your head, I'm going to give you the last word. Go ahead, Juan.

WILLIAMS: This is so unfair. I mean, this lady was given intelligence materials, by the intelligence community -- you can blame the intelligence community. There is no way you can blame Susan Rice and to suggest that she is unqualified. She is a Rhodes scholar, this woman is extraordinary.

CHENEY: She's not qualified ...


WILLIAMS: I mean and this whole Benghazi thing -- it's been so politicized. It's time to end this.

CHENEY: Juan, there are more people ...


WALLACE: I'll tell you it is time to end this segment! Thank you, panel. We'll take a break here. When we come back the president and congressional leaders get back to work Monday. Will they come up with a way to avoid the fiscal cliff?


WALLACE: Still to come, our "Power Player" of the week.


UNIDENTIFIED FEMALE: What I learned was to love work.

WALLACE: She grew up on a farm in California, making enough from raising cattle to send herself to college.

UNIDENTIFIED FEMALE: I'm really happiest when I am engaged and working and thinking ...

WALLACE: Stay tuned. We'll be right back.




SEN. JEFF SESSIONS, R-ALA., RANKING MEMBER, BUDGET COMMITTEE: We relegated to a group of people meeting in secret, plotting, some sort of scheme that they think is best for America.

REP. CHARLES RANGEL, D-N.Y., WAYS AND MEANS COMMITTEE: The fiscal cliff is not going to happen. So the ceiling, guys, is not going to fall.


WALLACE: Senators Jeff Sessions and Congressman Charlie Rangel on prospects for avoiding the fiscal cliff and we're back now with the panel. So, Liz is Charlie Rangel right, the sky is not falling and the fiscal cliff is not going to happen?

CHENEY: I don't want to say Charlie Rangel is right. But, no, look, I think that the potential damage done by going off the fiscal cliff is so significant, that I would hope that even in the town that is very divided right now, people will be able to come together to avoid it. What concerns me now, is that the whole terrain that we're on is this argument about whether or not we should raise taxes on the upper income earners, to get us through the end of the year, when the argument really ought to be, is the president of the United States willing to put forward spending proposals and spending cuts that are serious enough that we can in fact come to an agreement. So, I think that, you know, if you look at the bigger picture here, the president really is sort of pushing a fallacy, which I have watched some Sundays, my dear friend, Bill Kristol seems to buy into on the panel. That we can solve our problems ...

KRISTOL: That was ....



CHENEY: But no, this notion, that this fiction that we can solve the problem by raising taxes on the upper income earners, which I think actually is economically ill-advised and very dangerous, and hopefully we'll get beyond that.

WALLACE: All right. Well, I'm going to give Mr. Kristol an opportunity to respond in a moment. Juan, the president and congressional leaders met at the White House, a week ago Friday, before everybody went off for Thanksgiving and at that point there was some positive talk that the Republicans were talking about putting revenues, new revenues, if not, higher tax rates on the table and the president talked in very general terms about entitlement reform and spending cuts. Supposedly between then and now, the staffs were supposed to try to begin to work on this. And, the word, unofficial word, is that they haven't had much progress in, you know, when it comes to whether rubber meets the road in making a deal. Where are we?

WILLIAMS: Rob Nabors, the president's liaison over the Capitol --he's been up there meeting with Republican staff and Boehner's staff, McConnell's staff and they have had some, you know, basic outlines and possibilities, ideas thrown on the table, but this really comes down to the principles and the personalities of the president, John Boehner, and Senator Reid, Senator McConnell. So what do you -- what is on the table here is, of course, that I think this week you see more Republicans saying, you know what, we are not going to hold to this Grover Norquist idea, Norquist being the man who says that everybody who is a Republican has to sign a no tax increase pledge.

WALLACE: And in fact they already have signed it.

WILLIAMS: Right. In some cases, but this week you had people like Saxby Chambliss, the Senator from Georgia, joining people like your guest this morning, John McCain, Tom Coburn and others, the 12 members of the House, to say, you know what, Republicans have to be willing to compromise. We did not win, clearly, this election, the president is back in office, you are going to have to make some kind of deal. For the president's side, he needs to deal, too. I think this sometimes doesn't get attention from the press, but you've heard Nancy Pelosi, you've heard Harry Reid all say they expect a deal along with Charlie Rangel before the December 31st deadline. Why? Because the unions have been on the air advertising, saying, don't you dare cut our programs badly, you see this also advertising from the Republican side, both sides are under pressure for a deal, right now and they are going to make it.

WALLACE: Well, that is an optimistic view. Bill, let me ask you, and you can respond to sister Cheney about this. One idea that was floated this week is for top earners to pay, instead of raising our top marginal rate, that they would pay that top rate, now, 35 percent, on every dollar they make. And let's put up this graphic on the screen, so we can try to explain it. Instead of now you pay ten percent on the top 17,000 from there to 70,000 you pay 15 percent, and the idea is instead of that, you pay 35 percent on all of the income from zero, all the way up to whatever you made if you were making over $250,000. Question: Good idea?

KRISTOL: Not particularly. And, I saw -- I asked someone on the Hill about it yesterday, and they said, well, no, we kind of realize that is not a good idea. The Republicans are going into contortions to try not to raise the top rate, while in fact trying to produce more revenues, which Speaker Boehner said he's for, and to produce them from the wealthy, since they are scared of being accused of attacking the middle class.

I don't really care if they want to find some complicated way to get more revenues, I suppose, I think it is probably easier just to give in a little bit on the top rate. But, they made that a matter of dogma, and I'm not going to break my own sword on telling them not to break their sword on it, but I would point this out. What is the one tax that -- rate that's going up on January 1, that no one is talking about and apparently both parties are not going to collude to let go of? The payroll tax. Remember that? That was cut from 12 percent to 10 percent two years ago. It's been 10 percent last two years, and I gather the Republicans have no problem, I don't know if Grover Norquist has a problem, with letting working class and middle class Americans have a two percent tax increase. That is not currently the Republican position, that the payroll tax cuts should be extended, and the administration I think quietly just happy to let that go, because God forbid they should actually cut entitlements for wealthy seniors or for others who benefit from corporate capitalism of big government. So, we have a collusion among the elites of both parties, that the one tax that gets -- that is going to go up, on January - if there is a deal, on January 1, is the payroll tax, which I think is wrong and Republicans have a huge opportunity here to be champions of the working class and the middle class, instead of screaming and yelling about millionaires.

WALLACE: Kirsten, some Democrats are now saying let's go over the cliff; everybody's tax rates are going to go up, and then the president, in January, can go back to Congress and say, "Well, you know, now it is 39.6 percent; now it is whatever it raises for for the middle class, and I'm going to present a plan that will cut the tax rates -- cut the tax rates of 98 percent of people. everybody under $250,000. Are you prepared now, when the rate is already up, to oppose that?"

POWERS: Yeah, well, the problem with that plan is it's very dangerous because we don't know how the markets would react to that. It makes us look reckless. You know, we can see us getting downgraded again. So I don't think that that's not an ideal outcome. It's a, kind of, clever idea. I don't think it's ideal.

I also think Obama has the upper hand. I don't think he has to do that. When you have Bill Kristol and Saxby Chambliss and, you know, a lot of incoming Republicans not signing the tax pledge and starting to say, "Look, you know, this doesn't have to be orthodoxy," I think -- I agree with Bill -- I'm sorry -- that, you know, that why are you -- if you're willing to raise revenues, why not just let it go back to the Clinton rates? I mean, this is just silly, you know?

And I think there's just going to be more pressure on them, and there's really no reason for Obama to give in on it.


CHENEY: Well, you know, it's a fundamental difference of view about where revenues come from. And, you know, what Republicans, I hope, will stand firm on is the truth, that revenues come from increased economic growth. We need pro-growth economic policies in order to create jobs and generate revenues.

And, you know, the notion that we're somehow going to go back to the Clinton rates and that will be OK -- you've got a lot of other rates under -- you know, in terms of the state tax rates and others that have gone up since, which means that the Clinton rates are no longer the Clinton rates.

So we really need to make clear here this isn't about are you going to raise these rates or raise those rates. It's about are we going to get our spending under control; is the president going to stop his addiction to spending other people's money; are we going to deal with the deal; are we going to deal with entitlements; and are we going to have economic growth so that we get the revenue that we need?

WILLIAMS: You're going to have economic growth (inaudible) but, you know, Liz Cheney's a brilliant woman, but I'm going to tell you something, with the aging population, you cannot just cut entitlements willy-nilly without saying that the rich have to make some sacrifice here.

WALLACE: Well, I'm glad we solved that. And, listen, if they can just follow our lead, we'll avoid the fiscal cliff.

WILLIAMS: I agree.

WALLACE: Oh, boy, are they in trouble.


Thanks, panel. See you next week. Don't forget to check out "Panel Plus, where our group picks right up with the discussion on our website, We'll post the video before noon Eastern Time. And make sure to follow us on Twitter @foxnewssunday. Up next, our power player of the week.     


WALLACE: Here's a holiday riddle we first asked you last year. Who founded a huge tech company, created a successful cosmetic business, and now raises turkeys like the Indians did? The answer, our Power Player of the Week.


SANDY LERNER, AYRSHIRE FARM: Farm with the seasons. Know your soil. Know your rainfall. Know your -- know your weather. Know your animals.

WALLACE (voice over): Sandy Lerner is talking about sustainable farming, raising livestock and growing vegetables without the chemicals that are so common in what she calls factory farming.

Just days before Thanksgiving, she took me out to see and, yes, to dance with her 1,300 turkeys, heritage breeds that trace back to the Indians.

LERNER: Come on. Raise your arms. Gobble, gobble, gobble, gobble!

Gobble, gobble, gobble, gobble, gobble.

WALLACE: Lerner is mistress of Ayrshire Farm, 800 acres in Upperville, Virginia. But as interesting as her business is how she got here. She grew up on a farm in California, making enough from raising cattle to send herself to college.

LERNER: What I learned was to love work. I'm really happiest when I'm engaged and working and thinking and -- and striving.

WALLACE: She got into computers. In 1984 she and her then husband started CISCO Systems. They found a way to link networks of computers, the foundation of the Internet. But six years later venture capital people were running CISCO.

WALLACE: How do you get fired from a company that you started?

LERNER: We just basically got taken to the cleaners, and part of that was, if you don't have an employment contract -- I got fired by the same guy who fired Steve Jobs.


WALLACE: Lerner had a second act. She started a cosmetics company called Urban Decay with edgy colors for women like her, and in 1996, she bought Ayrshire Farm.

LERNER: It's historically been people who had disposable income who made strides in farming. Look at George Washington or look at Thomas Jefferson.

You're such a pretty girl. Pretty is as pretty does.

WALLACE: She raises Shires, war horses that go back centuries; Scotch Highland Cattle, and those turkeys, which she says taste better because of the lives they lead.

WALLACE: How much does an Ayrshire turkey cost as compared to what I'd get in a grocery store?

LERNER: Well, our turkeys are expensive. They're between -- I think they're running this year about $160 to $200.

WALLACE: At those prices, there are questions about how to make this kind of farming profitable. But, while Lerner is determined to run a sound business, it's not just about the bottom line. There's a 40-room mansion on the farm.

WALLACE (on camera): What's it like living there?

LERNER: I don't know.

WALLACE: What do you mean?

LERNER: I live in a little log cabin and I love it.

WALLACE: Do you think you're a bit eccentric?

LERNER: I am now that I'm rich. I used to just be weird.

WALLACE: And so, just days before Thanksgiving, Sandy Lerner and I dance with the turkeys.

She grew up on a family farm. And she wants to see those values live on.

LERNER: I'm a cowgirl. I can tell what cows are thinking. It's very much my success as a farmer, which is what George Washington was. He wanted to be a really good farmer. And I think I've -- I've been a -- I've become a good farmer.


WALLACE: Sandy Lerner sold about 1,000 turkeys this Thanksgiving, but she also gave 600 to D.C. Central Kitchen for use at shelters, food lines and schools.

And that's it for today. Have a great week. And we'll see you next "Fox News Sunday."

Content and Programming Copyright 2012 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2012 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.