Treasury Secretary Timothy Geithner and House Speaker John Boehner talk 'fiscal cliff' negotiations

Treasury secretary on 'fiscal cliff' negotiations


The following is a rush transcript of the December 2, 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.

It's 30 days and counting, until we go over the fiscal cliff.


WALLACE: The president is demanding higher tax rates. Congressional Republicans want deeper spending cuts and entitlement reform. Will they make a deal before we bring in the New Year with a round of tax increases for all of us? We'll ask the two men at the center of the negotiations, where we really stand. For the president, Treasury Secretary Timothy Geithner. For the GOP, House Speaker John Boehner.

Geithner and Boehner -- only on "Fox News Sunday."

Plus, we have seen this movie before. The two parties edging closer and closer to the brink. We'll ask our Sunday panel whether we'll get a happy ending for an economic disaster.

And our Power Player of the Week -- a young beauty queen has to make a tough choice.

All right now on "Fox News Sunday."


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

Well, we had quite a day around here Friday, with talks to avoid the fiscal cliff deadlock and everyone saying, the other side is to blame, Treasury Secretary Geithner scheduled a round of interviews. But then, Friday afternoon, Speaker Boehner's office called to say he wanted to come on "Fox News Sunday" to tell his side of the story.

You'll hear from Boehner in a few minutes, but first, here's my conversation with Tim Geithner about the lack of progress in steering away from that cliff.


WALLACE: Secretary Geithner, welcome back to "Fox News Sunday."


WALLACE: I spoke with House Speaker Boehner just before I came over here. He says when you present your plan to him on Thursday, he said you can't be serious, and, Mitch McConnell, the Senate Republican leader says he burst into laughter.

GEITHNER: You know, Chris, they are in a kind of tough position now and it's going to be -- it's obviously a little hard for them now and they are trying to figure out where they go next and we might need to give them time to figure out where they go next.   But what we did is, I think what you expect from us, is we laid out a very detailed, carefully designed set of spending, savings and tax changes that help put us back on a path of fiscal responsibility, to protect taxes, taxes from going up for 98 percent of Americans, and provide some modest room for investments on things we need, like infrastructure.

And we think that's a very good set of proposals. We think that's what's good for the economy.

If they've got some different suggestions, they want to go further in some areas, then they should lay it out to us.

WALLACE: When you say they are in a hard spot, what do you mean?

GEITHNER: Because they are trying to figure out how to find a way to support things that they know they are going to have to do. That's going to be hard for them.

Again, you've heard them for the first time, I think, in two decades, acknowledge that they are willing to have revenues go up as part of a balanced plan -- that's a good first step but they have to tell us what they are willing to do on rates and revenues. That's going to very hard for Republicans. We understand that, but there's no way through this without that.

And they have to tell us on the spending side -- if they want to go beyond where we are and do it differently, they have to tell us what makes sense to them.

What we can't do, Chris, is try to figure out what works for them.

WALLACE: The president campaigned for re-election on the idea of a, quote, "balanced approach," end quote, to deficit reduction -- a mixture of tax increases and spending cuts. Here's the plan that the Republicans say you presented to them this way --

GEITHNER: I can tell you what I presented. It will be helpful.

WALLACE: Let me ask you, they say --

GEITHNER: But it's our plan, Chris, why don't you let me do it? Why don't you let me explain it?

WALLACE: Well, I'd like to ask you about this part of it, and then anything I leave out, you can tell me.


WALLACE: $1.6 trillion in tax increases, more than $80 billion in new stimulus spending, next year, and, unspecified nonguaranteed spending cuts.


WALLACE: Question, is that your idea of balance?

GEITHNER: It is. And let me explain what is in the explain they didn't report to you and they didn't explain to people, which is, we propose alongside the trillion dollars in spending cuts we agreed with Republicans, last year, on defense and a comprehensive range of other government programs, we proposed $600 billion of detailed reforms and savings, to our health care and other government programs. That's $600 billion.

In fact, the health care savings in that plan are larger than the plans we have seen Republicans in the past in the context. Now --

WALLACE: Is that -- is that what was in the budget?

GEITHNER: Well, these proposals have been -- we proposed these things last fall and in the president's budget, they are very detailed. Now --

WALLACE: That was a budget voted down 99-to-nothing in the Senate.

GEITHNER: Well, Chris, you know, this is -- a lot of politics happen in this town, but this is very carefully designed set of reforms. And if Republicans would like to go beyond these reforms, or they want to do it differently, they should tell us how they want to do it.

Again, what we can't do is --

WALLACE: What if they were to propose the Republican budget that they passed? That they passed the last two years.

GEITHNER: There is no risk they're going to do that, Chris.

WALLACE: Well, wouldn't it be as serious as you proposed in your budget?

GEITHNER: No, but the American people have taken a long time to take a careful, hard look at the plan and they found no merit in it. So, the Republicans aren't going to propose it again.

WALLACE: Just like the Senate voted 99-to-nothing against your budget.

GEITHNER: No, the Senate has already proposed and enacted a middle class tax extension that protects 98 percent of Americans from their taxes going up. And we proposed very substantial additional spending reforms, alongside what we did last year, which is a trillion dollars, to make us get to a broader fiscal balance.

Now, again, Chris, you referred to things that will help make the economy stronger in the short-term and let me explain why we proposed that. What we are suggesting is that we work to rebuild the country's infrastructure, rather than just putting it off, doesn't save money just to put it off, to extend unemployment insurance benefits, to help make Americans -- easier for Americans to refinance their mortgages, take advantage of lower interest rates. We proposed some tax incentives for business investment, and we proposed how to do that in a fiscally responsible way that we can afford to pay for.

So, we matched those proposals, with spending savings that, together as part of the plan, get us down to the point where we stabilize our debt. And that is the critical test.

WALLACE: Let me drill down into the spending part of the equation. Here are the increases, spending increase as you are proposing: $150 billion, in stimulus, public works projects over several years; a $30 billion extension of unemployment insurance, for one year; extension of payroll tax cuts; mortgage relief; deferral of automatic cuts for doctors and Medicare.

Here are the spending cuts: unspecified savings from non- entitlement programs, next year -- let me finish -- and, the promise of $400 billion in savings, from entitlement programs to be worked out next year with no guarantees.

Speaker Boehner says, even if you get all of that, it's a net increase in spending, not a net cut.

GEITHNER: Not true and let me explain why. Again, those investments in infrastructure, extension of unemployment benefits those are very important things and they are very good things. And we can afford those. They have very modest cost, and we proposed how to pay for them.

And what we proposed is -- in contrast to what you said -- is we proposed $600 billion in reforms to mandatory programs, over 10 years and are prepared to do a substantial portion of those up front in ways that are measurable so that we can replace the much more damaging cuts in the sequester.

So, when Republicans say to us that we want to see spending savings locked in up front, we say we agree with you and we are prepared to do that. You have to -- you have to -- you have to give us some sense of what you think we should do up front, what we should do in the second stage and we are waiting to hear from them.

You know, again, if they need a little more time to figure out what they can do, what they want to do, that's OK. We don't have much time, though. And what they have to do is to make sure they commit to all Americans that they're not going to let taxes go up for 98 percent of Americans.

WALLACE: I just want to ask one more question on spending and then I want to move to taxes. The Bowles-Simpson debt commission proposed $3 in spending cuts for $1 in tax increases. In your $4 trillion, what's your ratio, spending cuts to tax increases?

GEITHNER: Very good question, roughly 2-1. Now, the Bowles- Simpson commission also proposed about $2.5 trillion in revenues over 10 years, relative to current policy. So, we proposed a more modest increase in revenues, alongside very substantial spending and savings, too. Again, the ratio is roughly --


WALLACE: -- $1.6 trillion in tax increases is a modest proposal?

GEITHNER: Well, again, it is. And relative to $2.5 trillion in the Simpson-Bowles commission, remember, Chris --

WALLACE: I think it's 3-1.

GEITHNER: No, hold on. No, again, we're -- it's true, we're not 3-1. We are roughly 2-1. And we think that's a better way to do it.

And, again, what we are trying to do is make sure we are strengthening Medicare, not shifting costs to seniors, and we're creating some room to invest in things that are very important to how we grow in the future.

WALLACE: Let's talk about taxes. The president made it very clear and made it clear during the campaign he will not extend the Bush tax cuts on the top earners. Does he insist on raising the top rate from 35 percent all the way up to the Clinton rate of 39.6 percent, or would he compromise on something lower, like 37 percent? Is that negotiable?

GEITHNER: We're not going to extend an extension of the tax rates for the top 2 percent. We think they should go back and need to go back to Clinton levels.

And let me explain why we believe that.

WALLACE: So, I just -- to answer my question, specifically, you are saying nonnegotiable, 39.6 percent?

GEITHNER: Again, we think that's the way to do it. Let me explain why, OK? If you don't do that, it costs a trillion dollars -- roughly a trillion dollars over 10 years.

WALLACE: Not if you went to 37 percent.

GEITHNER: Again, you're -- you're --

WALLACE: Well, that's one of the ideas that's out there, sir. I'm not just making this up.

GEITHNER: That's true. There's lots of ideas out there.

And, again, what we're -- we are proposing to let those rates go back to Clinton levels. Remember, that was a -- that was a time of remarkably good economic growth, in this country -- very strong private investment, strong job growth, strong broad-based growth in incomes. It was a good time for the American economy. It makes a lot of sense.

But in addition to that, we proposed to limit deductions for the top 2 percent of Americans as well. Now, we are willing to work with Republicans on tax reform to create a more simple, more fair system, but only as part of an agreement that has those rates go back up at the end of the year.

WALLACE: So, the Clinton rate?

GEITHNER: We think that's the way to do it.

WALLACE: Thirty-nine-point-six percent?

GEITHNER: And, again, the reason why is because --

WALLACE: I understand the reason why.

GEITHNER: If you -- again, if you don't you have to ask yourself, where are -- whose taxes are you going to raise, where are you going to find the money to bring a balanced plan in place that reduces our long term deficit?

WALLACE: How disastrous for the economy if we go over the cliff as the treasury secretary?

GEITHNER: For the American economy?


GEITHNER: It is pretty damaging to the average American. It would be very damaging. There's no reason it should happen.

Again, the only reason why it would happen is if a group of members of Congress decide they're going to block an agreement because they want to extend tax rates for the rich that we can't afford. That's the only reason that will happen.

WALLACE: Or they now say because you're not willing to cut spending enough.

GEITHNER: No, but that's not true. Again, if they want to do more on the spending side than the $600 billion we proposed on top of the trillion already enacted, in top of the savings from the wars, then they can tell us how they propose --

WALLACE: Savings in the wars that we were never going to fight?

GEITHNER: No, that's not true. We're -- as you know, we're winding down two wars.

WALLACE: I understand that.


WALLACE: And you are thinking savings that nobody thought that you were going to spend that money any way. It's a budget gimmick, sir.

GEITHNER: No, that's not right. You know, let me say it this way, those were expensive wars, not just in Americans lives but in terms of the taxpayers' resources. And when you end them as the president is doing, they reduce our long term deficits and like in the Republican budget proposals, the world should reflect and recognize what that does in savings.

And we propose to use those savings to reduce the deficits and help invest in rebuilding America. We think that makes a lot of sense.

WALLACE: But it was money that wasn't going to be spent anyway, and --

GEITHNER: If those wars have gone on, they would be spent.

WALLACE: I understand. But you're not saving -- you're not ending the wars for budget purposes. You're ending the wars because of a foreign policy decision. The wars weren't going to be fought. You're not really saving money.

GEITHNER: Chris, we all agree --

WALLACE: I mean, it's a budget gimmick, but it's money never intended to spend.

GEITHNER: No, it's not a budget gimmick unless you are -- when Republicans propose, it's a budget gimmick?

WALLACE: Sure, absolutely.

GEITHNER: And you should address that to them. But what it does is --

WALLACE: Well -- so, I'm addressing it to you.

GEITHNER: But, again, it's a basic challenge that we face, Chris. It's the biggest challenge we face, which is how to bring the deficit down over time.

Now, it's going to require spending savings, it's going to require increasing in rates of revenues. We think we can do that. We're going to work very hard to do that and I think we were in a very good chance to do it and there's no reason we can't do it.

WALLACE: Last question: can you promise that we will not go over the cliff?

GEITHNER: No, I can't promise that. That's a decision that lies in the hands of the Republicans that are now opposing increases in tax rates. If they recognize the reality that we can't afford to extend those tax rates, then we have the basis for an agreement that would be good for the American people.

WALLACE: And the president bears no responsibility, it's all up to the Republicans?

GEITHNER: Chris, ask yourself this question: why does it make sense for the country to force tax increases on all Americans, because a small group of Republicans want to extend tax rates for 2 percent of Americans, why does that make any sense?   There's no reason why it should happen. We can't afford the tax rates. That's like the deep tragic lesson of the last decade. We can't afford them.

So we're not going to get through it -- we're not going to get to the end now without a recognition of the Republicans to that basic reality. And that's going to be the responsible thing to do.

And my judgment is, they're re going to do it because there's no alternative to that.

WALLACE: Mr. Secretary, thank you. Always a pleasure to talk with you.

GEITHNER: Good to see you.


WALLACE: Up next, you'll hear from Speaker of the House John Boehner. He describes his reaction when Geithner presented the White House plan. And he lays out what it will take to get a deal. It's a "Fox News Sunday" exclusive.


WALLACE: As we said, House Speaker Boehner's office called us to say he wanted to come on "Fox News Sunday" to tell his side of the story.

He says the president wants to ramrod a deal through, not work out a compromise. And Boehner might -- he suggests -- be willing to go over the cliff.


WALLACE: Speaker Boehner, welcome back to "Fox News Sunday."


WALLACE: How would you characterize the deal the Treasury Secretary Geithner offered you on behalf of the president this week?

BOEHNER: A non-serious proposal.

The president is asking for $1.6 trillion worth of new revenue over 10 years, twice as much as he has been asking for in public. He has stimulus spending in here that exceeded the amount of new cuts that he was willing to consider.

It was not a serious offer.

WALLACE: Wait, wait. You are saying that there is more spending than spending cuts?

BOEHNER: That is correct. They outlined -- they'd be willing to talk about $400 billion worth of cuts over 10 years. But, at the end of the year, they wanted to extend unemployment benefits, they wanted a new stimulus program for infrastructure, they wanted to extend some other tax breaks.

And all of this stimulus spending would literally be more than the spending cuts that he was willing to put on the table.

Now, understand, Chris, the day after the election, I saw the results, I to the cameras and made it clear: the Republicans were willing to put revenue on the table if there were serious spending cuts and reforms put in place. We've talked about it.

The president and the White House have had three weeks and this is the best we've got?

WALLACE: Take us behind the scenes. Take us inside the room. What was the mood music when Tim Geithner sits there, like we are here and presented this to you? What did you say?

BOEHNER: I was flabbergasted. I looked him and said, "You can't be serious."

I've just never seen anything like it. You know, we've got seven weeks between Election Day and the end of the year. And three of those weeks have been wasted with this nonsense.

WALLACE: OK. So, if they are wasted, where are we now? And, quite frankly, what are the chances we're going to end up going over the cliff?

BOEHNER: Well, right now, I would say -- we're nowhere, period. We're nowhere.

We've put a serious offer on the table by putting revenues up there to try to get this question resolved. But the White House has responded with virtually nothing. They've actually asked for more revenue than they have been asking for the whole entire time.

WALLACE: So, what they're chances we're going to go over the cliff?

BOEHNER: Listen, if we go over the cliff, we'll hurt our economy. We'll hurt job creation in our country. It's not fair to the American people.

And this isn't an issue about Democrats and Republicans. My goodness, this is about our country. And we need to get serious about dealing with the problems at the end of the year and need to get serious about our deficit and our debt that are burying our children's future.

WALLACE: I want to ask you one other question about their offer, because this was a real surprise. Geithner also said they want you, Congress, to give up any powers over voting an increase in the debt limit forever.

BOEHNER: Forever. Silliness.

Congress is not going to give up this power. I've made it clear to the president, that every time we get to the debt limit, we need to cut some reforms that are greater than the increase in the debt limit. It's the only way to leverage the political process to produce more change than what it would if left alone.

WALLACE: OK. The president and Democrats are saying, look, we have already agreed since 2010, since the Republican victory, to more than $1 trillion in spending cuts without any increase in revenue, so we've already given.

BOEHNER: But it doesn't solve the problem. We have a debt burden that's crushing us, and it is -- you look at the president's budget, we've got trillion-dollar deficits for as far as the eye can see. This is unsustainable.

We have 10,000 baby boomers like me retiring every day, 70,000 this week, 3.5 million, retirees, this year alone -- signing up for Social Security and Medicare, people living longer, accessing Medicaid. And, it's not like there's any money in the Social Security Trust Fund, or the Medicare Trust Fund. It's all been spent.

And the whipsaw effect it is having on the budget is horrendous. And if we don't get ahold of it, we're mortgaging our children's future and I am not going to be part of it.

WALLACE: Well, you say you're not going to be part of it. I mean, you are stuck, given the job you have.

BOEHNER: I'm not going to be part of further mortgaging our future.


BOEHNER: It's time to get serious about our debt.

WALLACE: What about the trillion dollars, though? Is it fair to count that as part of $4 trillion in debt reduction?

BOEHNER: You know, it can be part of the package if they want to count it. But where are the next $3 trillion or $4 trillion, $5 trillion worth of reductions that need to happen if we're going to put America on a fiscally sustainable path?

I mean, think about the proposal we got from the president. If we gave the president $1.6 trillion of new money, what do you think he'd do with it? He's going to spend it. That's what Washington does.

WALLACE: You don't think -- you don't believe he'd use it to help pay down the debt?

BOEHNER: He'll spend it. Look at the fact that they put $400 billion worth of unspecified cuts that they'd be willing to talk about, but yet at the same time, that's over $400 billion over 10 years. While he wants over $400 billion in new stimulus spending.

This is -- this is -- it's an unserious proposal.

WALLACE: You've talked about the fact that the president won and you came out with a concession the day after the election. They point out that the president campaigned on raising tax rates, you know, and it was the big issue, between him and Romney. And, they say, just as he had to cave, after your victory in the 2010 midterms, now, it's your turn to cave on tax rates.

BOEHNER: Listen, what is this difference where the money comes from? We put $800 billion worth of revenue, which is what he's asking for, out of eliminating the top two tax rates.

But, here's the problem, Chris, when you go and increase tax rates, you make it more difficult for our economy to grow. Half of that income is the small business income. It's going to get taxed at a higher rate. And as a result, we're going to see slower economic growth.

We're not going to be able to cut our way out of this problem, nor can we can just grow our way out of the problem. We have to have a balanced approach.

But what the president wants to do will slow or economy at a time when he says he wants the economy to grow and create jobs.

WALLACE: Well, the White House says that while you have given this kind of talk, about, well, let's close loopholes, let's limit deductions, you haven't offered any specifics, have you.

BOEHNER: We have laid it all out for them, a dozen different ways you can raise the revenue from the richest Americans, as the president would describe them, without raising tax rates.

WALLACE: What's the biggest proposal you put on the table since the election in terms of raising revenue from closing loopholes and deductions?

BOEHNER: Well, you can cap -- there are a lot of different ways to get there. But you can cap deductions at a percent of income. It'd be one way to get there. You can eliminate certain deductions for those -- the wealthiest in our country. You could do all of that.

WALLACE: Let me ask you a couple of specifics, would you eliminate or lower the home mortgage deduction?

BOEHNER: Listen, there are lots of ways to get out there. Now, I'm not going to debate his or negotiate with you. But if you can sign the bill into law, I'd be happy to.

WALLACE: We're trying to get those powers, but we haven't yet.

BOEHNER: I understand.

WALLACE: Charitable deductions, would you be willing -- I mean, you are a big charity guy.

BOEHNER: Listen, the president has seen a lot of the options from us. There are a lot of them put on the table, and I'm hopeful that the conversations will continue.

WALLACE: OK. But, let's talk about your proposal, because, the president -- and I'm sure this has driven you nuts -- likes to say, the math tends not to work.

Let's look at your math. The White House says a realistic cap -- and I'll explain what that means -- of $25,000 on people making more than $250,000, a cap on their deductions, you can only take $25,000 in itemized deductions and exempting things like charitable deduction, which is pretty unlikely that you're going to do away with that, would only bring in $450 billion, not the $800 billion you are talking about, not the trillion -- $450 billion.

They say the math tends not to work.

BOEHNER: No, the White House knows that the math will work -- to put the kind of revenue on the table that we've been talking about. It won't work if we're trying to get the $1.6 trillion. I'll guarantee you that.

But you can put -- we've put the revenue on the table. And, again a dozen different ways to get there without raising tax rates.

WALLACE: And you can get up to what amount?

BOEHNER: Basically the number that we have been --

WALLACE: Eight hundred billion?

BOEHNER: Somewhere in that range.

WALLACE: The White House, talking about specifics, also says you and the Republicans have offered no specifics for spending cuts or entitlement reforms. Have you?

BOEHNER: Chris, look at the House Republican budget offered by Paul Ryan in 2011. The same budget in 2012, passed the Congress -- all types of specific proposals. I go back to the government --

WALLACE: But he campaigned against that and he won.

BOEHNER: Go back to the super committee -- all of the ideas that were out there.

Look at the conversations the president and I had -- based off the Simpson-Bowles commission, his own deficit reduction commission.

He knows what our proposals are. He knows what we're willing to do. What we don't know, Chris, is what's the president willing to do?

WALLACE: Well, let me ask you specifically about that. Is it true, because it's been said that's it's never -- you know, we have never seen a piece of paper. Is it true that the president offered to raise the eligibility age for Medicare and to slow cost of living adjustments for Social Security when you were in your debt talks in August of 2011?

BOEHNER: It was on the table. Did the president agree to it? He may have been close to an agreement to it. If he agreed to it, we might not have this problem today.

WALLACE: Is that on the table now?

BOEHNER: Of course, it's on the table.

WALLACE: No, is it on the table from their point of view?

BOEHNER: Listen, there are a lot of -- there are a lot of items on the table. The president knows what they are. The question is: what are they willing to do?

WALLACE: You are starting to have some political problems, because you are starting to have some splits in your ranks. I don't have to tell you that one of the top congressional Republicans, Tom Cole, said this week, you know what? I'm not comfortable standing in the way, holding hostage, extending the Bush tax cuts to lower rates for the 98 percent, people making under $250,000.

And you weren't happy that he said that.

BOEHNER: No, I wasn't.

WALLACE: Because that means you're breaking ranks. Isn't it tougher -- going to be tougher to hold to that as you get closer to the cliff and people are facing a tax increase of $2,000?

BOEHNER: Really, that's what's so sad about the situation that we're in. The president, not being serious about coming to an agreement, holding the middle class tax hikes over their heads.

WALLACE: Well, he says you are doing it.

BOEHNER: This is -- this is America. This is our economy. We all want the economy to get better and Americans to have more opportunities at jobs.

And this agreement should come sooner rather than later, because, just the threat of the fiscal cliff is already hurting our economy. Now, listen, I believe raising tax rates hurts our economy, hurts the prospects for more jobs in our country.

And I realize that the president may disagree. But the fact is, if there's another way to get revenue from upper income Americans that doesn't hurt our economy, then why wouldn't we consider it?

WALLACE: What if we go over the cliff? Doesn't the president hold all the cards, then? Because can he say: all right, everybody's taxes increased, I'm offering 98 percent a tax cut of $2,000 a year, you are the party of lower taxes -- are you going to refuse to cut people's taxes?

BOEHNER: Listen, nobody wants to go over the cliff. That's why the day after the election I tried to speed this process up by making a concession to put revenues on the table. And it's unfortunate that the White House spent three weeks doing basically nothing.

WALLACE: So, you've been around this time a long time, you've been in a lot of negotiations. What is their game? What is their thinking as to how they're going to work -- well, they just figure they won, they're going to get what they want?

BOEHNER: I have no idea, Chris. If I knew, I would share it with you. I don't know what they are thinking.

WALLACE: Do you think they are being bullies?

BOEHNER: I think -- they've won the election. They must have forgotten Republicans continue to hold a majority in the House. But, you know, the president's idea of a negotiation is: roll over and do what I ask.

We need to find common ground and we need to find it quickly.

WALLACE: And, again, you kind of didn't answer it the first time, what are the chances we're going to go over the cliff?

BOEHNER: There is clearly a chance. But I'm going to tell you, I might be an easy guy to get along with -- affable, obviously, I've worked in a bipartisan way on a number of agreements.

But I'm going to tell you one thing, Chris -- I'm determined to solve our debt problem. We have a serious spending problem and it's going to be dealt with.

WALLACE: And if the White House is unwilling to do it, are you prepared to say --

BOEHNER: We are going to deal with America's debt problem.

WALLACE: And if they refuse to do it in the way that you find acceptable?

BOEHNER: We're going to deal with it.

WALLACE: Sooner or later?

BOEHNER: Sooner or later. We're going to deal with this debt problem and we're going to do it now. We're not going to kick this can down the road again.

WALLACE: So, if it takes it, you'll go over the cliff.

BOEHNER: I don't want any part of going over the cliff. I'm going to do everything I can to avert that.


BOEHNER: We're going to solve America's debt problem.

WALLACE: Speaker Boehner, on that happy note, thanks for talking with us.

BOEHNER: Thank you.

WALLACE: Thank you.


WALLACE: Up next, we'll bring in our Sunday group, where do they think negotiation stand and will there be a deal, before we reach that cliff?



PRESIDENT BARACK OBAMA: Let's turn the lights back.

The lump of coal you get for Christmas, that's a scrooge Christmas.

BOEHNER: I mean it was not a serious proposal. And so, right now we are almost nowhere.


WALLACE: President Obama accusing Republicans of being willing to raise taxes on 98 percent of Americans, while Speaker Boehner says it is the president who is unwilling to compromise. And it is time now for our Sunday grill, Bill Kristol of "The Weekly Standard," Mara Liasson of National Public Radio, Republican strategist Ed Rollins and former Democratic Senator Evan Bayh. Well, you all just heard for the last half-hour, both Tim Geithner and John Boehner, each of them say that they are being reasonable and it is all the other side's fault. Bill, you have been through your share of Washington negotiations. What strikes you about what you heard today?

BILL KRISTOL, "THE WEEKLY STANDARD": I thought they both made their case well, but I just think Geithner is in a stronger position, in this respect. The president is the president. He can maneuver, he can say, 1.6 trillion and then he can say, OK, 1.1 trillion. Speaker Boehner has 235 or so members. They don't just hop to it when he decides to move, and he's in a much tougher position structurally and I think we have seen the history of these show downs, as the White House usually wins, and, the main reason why that usually wins, is a unitary executive and, the Congressional Party's -- the majority party in Congress is just in a weaker position.


MARA LIASSON, NATIONAL PUBLIC RADIO: You know, what happened this week is pretty interesting. Either it is just kabuki theater and both sides are putting out their maximalist positions and fighting as hard as they can and saying the other guy is being intransigent, which is what they do to tell their troops that they are trying as hard as they can before they cave because the Republicans are going to have to move on tax rates, not just revenues, and, the Democrats are going to have to do a heck of a lot more on entitlement reform than is in the president's proposal. That is what is going to happen if the deal is going to be done even if the deal happens after January, after a couple of failed votes. You know, after some kind of -- a little bit of falling off the cliff. And, I continue to believe that that is what is happening, not that this thing is going to end in complete disaster.

WALLACE: I have to say, Ed, and part of this comes from having talked to the two men, what struck me was how genuinely shocked Boehner seemed to be at the proposal that he got from Geithner, how little there was in terms of spending cuts, how little there was in it in terms of entitlement reform, and, also, this new demand, that seemed to come out of nowhere, that Congress in effect gives up its power over the debt limit. Is there the possibility here that the president is overplaying his hand?

ED ROLLINS, REPUBLICAN STRATEGIST: Well, certainly on that last issue, which is absurd, no Congress is ever going to give up the power to set the debt limit, and I'm not even sure they can, because the Constitution basically gives them that power.

At the end of the day my sense is they are talking at each other and not to each other. This is a status quo election. The president had a great re-election. House Republicans held the House and Democrats held the Senate. They've got to basically sit down and do some negotiating, and it isn't Boehner versus Geithner, it is basically can the House Republicans buy a plan that basically they can sell to 218 or more members. Can the Senate go along with that? And if so, will the president sign it. Until they sit in a room and discuss all of those elements of it -- at this point in time you get people talking at each other with a lot of absurdity. The most absurd part of this, we are talking about $85 billion a year in added revenue over a ten-year period. We are spending over a trillion dollars in debt every year, we are not even putting anything into it, and Republicans have been down this road before where they were promised three-for one, for every tax -- dollar in taxes, three cuts, it never happens. So I think there is -- they are beginning just realizing, until it's actually on the table, and signed off on by all sides, they are not going to buy into it.

WALLACE: Senator Bayh, your view of this. Did the president in this offer with so little in spending cuts, so little in tax reform, the debt limit, did he overplay his hand or is he being realistic as Bill seems suggest, that he has that much leverage?   SEN. BAYH, FORMER U.S. SENATOR (D-IN): Well, I think both, Chris. I agree with Mara, that I think this is likely kabuki theater -- these are the opening offers in a longer negotiation. If it was easy, it would have been done by now. You are seeing that some basic philosophical differences in the part of the two parties' bases. That is why it is hard but at the end of the day, they've got a deal, they have to make a deal, I put the odds at about 70 percent they do, about 30 percent they don't.

WALLACE: Before the end of the year.

BAYH: Yeah, and the reasons for that are a couple. Number one -- it's going to go all the way to the end, it always does in legislative bodies, the same thing in Indiana General Assembly, the reason for that is you've got to show your base you are fighting to the very end, you are not giving in. Also, it limits the amount of guff you take, when you compromise from your base, but at the end of the day, they'll get a deal, because the political realities suggest they have to -- the president will get most of what he wants, because he won, 55 percent of the American people said they will blame the Republicans if they don't get a deal, but at the same time the president desperately needs an extension of the debt ceiling. He also wants to get this issue off his back, so he can go on to other parts of his legacy and that's why at the end of the day I think they'll get an agreement.

WALLACE: Are you as optimistic as that, Bill?

KRISTOL: I think so, and I was struck that the president has now embraced incidentally something I was arguing for last week -- I wish the Republicans would listen to me instead of the president -- which is the extension of the payroll tax cuts. The Republicans have a real risk in my view now of looking like they are defending, they are keeping the current tax rates for the wealthy, the Bush tax rates for the wealthy and, right now the official Republican position is, let the payroll tax cut -- tax rate go back up by two points. That is a 2 percentage point increase on every American, but it's a two percent -- it's a marginal -- (inaudible) about marginal rates, it's a marginal increase on everyone making less than $200,000 a year. I am really worried that Republicans are -- that President Obama, we can say that he is overreaching, it's too much, you know. At the end of the day, President Obama is selling a very simple message. I want to keep taxes low for middle class Americans and, Republicans, look, I'm worried, are in a position of looking as if they don't care about the middle class and just want to keep tax rates low for wealthy Americans.

WALLACE: One of the thing that struck me in my interview with Tim Geithner, Mara is that the president have been a little bit indefinite, he made it clear the Bush tax rates on the top two percent have to go off, but he hadn't said they have to go all they way up to 39.6 percent. Geithner, in effect, said they do have to go up to 39.6 percent.

LIASSON: I still think the White House is willing to get -- to settle for something in the middle there, above the Bush tax rate, but also not all the way back up to Clinton, maybe not even for 250 and above, maybe 500, maybe a million. I think there is some moving parts there. I think he says in every speech he goes out there and gives the hard line message to the base, that I'm not going to be the wuss that you thought I was last time. He also, always says, I want to compromise, I want to get -- we now all have to get out of our comfort zone. I want a big deal.

WALLACE: Ed, Senate Republican Leader Mitch McConnell added another wrinkle to this whole deal, after our interviews, in the Saturday "Wall Street Journal," he said that he wants structural entitlement reform and you can see some of the ideas there, to both Medicare and Social Security. Like the president was offering back during those big debt talks in August of 2011. But the president and Democrats seem in no mood to revisit those kinds of big structural entitlement reforms.

ROLLINS: Oh, I think you are absolutely correct and I think McConnell is absolutely correct. If you don't get the structural reforms at this point in time, at least a commitment to go do it, it's not going to happen. I think the one thing that we do know, is if we go over the cliff it's not going to help our economy. It's going to probably tamp us back into another recession. I don't think anybody wants that. I think at this point in time, though, for the long term structural changes that need to be made, now is the time to do it, which is why I think they need to sit down and negotiate this thing, as opposed to yelling and screaming, that this is a short-term, even if you -- but anything the president's going to do, this does not resolve the trillion dollar a year deficit. It does not resolve the long term structural things. And I think we basically have to basically take advantage of this disadvantage, which is the facing the cliff, which is an idiotic thing they got themselves in to begin with, and make something positive out of it.

WALLACE: But we have got 30 seconds. Senator Bayh, but it certainly doesn't seem like the president and especially, liberal Democrats, unions, they don't want to go back to entitlement reform. Big structural changes, raising retirement age, changing the cost of living.

BAYH: Of course they don't, Chris, and it gets back to the philosophical differences. But, I think at the end of the day, the president -- this is a leadership moment and I think the president is going to pleasantly surprise some skeptics and step up and certainly on means testing on Medicare benefits, the COLA increases being more modest, and maybe the age, although that is less likely to get a deal to get--

WALLACE: Do you think he is willing to take on his base?

BAYH: I do, you know, and those discussions with Boehner that as the speaker just indicated, that was on the table. So, that is not sacrosanct and I think to get this result, particularly to get the significant increase in the debt ceiling, the president is going to have to give some there, and I think he will, and that will pleasantly surprise some people.   WALLACE: Well, that's a very happy, optimistic note. We have to take a break here, panel. When we come back, the Palestinians win a symbolic victory at the U.N. Egypt fights over a new constitution, and Susan Rice tries to win over critics in the Senate.


WALLACE: Still to come our 'Power Player of the Week"

UNIDENTIFIED FEMALE: I know that I'm going to walk (inaudible) stage and I have my mom there.

WALLACE: But after the pageant, she faces a difficult choice.

UNIDENTIFIED FEMALE: It's really a fuel to fire what's  to know that that's not a life that I ever want my children to live.

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



SEN. SUSAN COLLINS, (R-ME), RANKING MEMBER, HOMELAND SECURITY COMMITTEE: I must have meeting with -- less of a feeling about her judgment, and, about her suitability to be secretary of state.


WALLACE: Moderate Republican Senator Susan Collins, still expressing doubts after meeting with U.N. Ambassador Susan Rice, and we're back now with the panel, well I think it is fair to say, it sure seems like Susan Rice was on a pre-nomination charm tour, to try to disarm some of her Republican Senate critics and smooth relations before the president names her secretary of state. Senator Bayh, why do you think it went so badly? She certainly didn't disarm the critics and, at this point, do you think it would be a mistake for the president to go ahead and name her secretary of state?

BAYH: Why it went badly, Chris, I don't know, I wasn't in the room. Whether my friends, Senator McCain and Graham were willing to be charmed, that is a very open question.

WALLACE: Yeah, but Susan Rice is a pretty steady hand and I'm not saying that McCain and Graham aren't, but she is somebody who plays it pretty much down the middle. [Editor's note: Chris Wallace misspoke, inadvertently saying "Susan Rice" when he was referring to Susan Collins.]

BAYH: Well, the most concerning thing about all this to me was Susan Collins, if the Republicans choose to filibuster this nomination you need five Republican votes. Susan Collins is going to have to be one of them. And the fact that she was expressing some reservations is somewhat concerning, but I do think, ambassador Rice is getting a bum rap on that, Chris, and I would encourage all my Republican colleagues who were out talking about weapons of mass destruction in Iraq, before the Iraq war, to have a little humility in terms of making public statements that turn out to, in the full light of all the evidence, have been less than accurate. Anybody who would have come on this show, or any of the others, whether it'd been the secretary of defense, state, head of the CIA would have been put in a similar situation. So, the real question is, is there any evidence of intentional deception, is there any evidence of a political cover-up? Today, there is not. And we ought to focus on why was the security so poor at that facility. That's a question.

WALLACE:  So you don't think the president would make a mistake taking on this fight?

BAYH: Well, he's on the horns of a dilemma here. If he doesn't nominate her, he looks weak. If he does nominate her, he has a fight on his hands, and potentially, somewhat polarizing secretary of state figure. My guess is he'll choose to go forward and try and persuade the critics that there is really no there there, as I think there is not, at the end of the day.


ROLLINS: I'm not a big Rice fan, but I think if the president wants to put her as the secretary of state, it is his prerogative, she's just got a lot of questions to answer, it will be a knock down, drag out fight, but I think he'll win it, and at the end of the day they'll move forward.

WALLACE: All right. Let's move on to the overwhelming vote at the U.N. this week, 138 to nine with 41 abstentions to recognize Palestine as a "nonmember observer state." Mara, what does that do for the Palestinians? What does it mean in terms of the Israeli- Palestinian -- if there is -- peace process?

LIASSON: Oh, it's the big boost for the Palestinians, they were thrilled about this and this is something the United States just didn't want to happen. They were unable to stop it. As in many things in the Middle East, not under our control. I think at least in the aftermath it looks like it makes a settlement between the Israelis and the Palestinians actually harder to reach because the Israelis immediately went ahead and announced blueprints for more settlements, in a particular area that would make it even harder to have a contiguous Palestinian state if there ever was one. So, I think it is probably, you know, a step forward, psychologically for the Palestinians and a step backward for the peace process.

WALLACE: Yeah, Bill, let me just explain, Israel announced the day after the vote that they are going to build new settlements east of Jerusalem that would split the West Bank and that is obviously something the Palestinians are very upset about. So, when you add that to this vote, where are we, in the possibility of any peace talks?

KRISTOL: No, we don't have much possibility. The Palestinians (inaudible) control -- even what the U.N. would likes to think is Palestine, since Abbas cannot set foot in Gaza, which is controlled by Hamas, which seems to be getting a little bit stronger in the West Bank. But the most interesting things to come out in the last few days was that, during the Gaza conflict, Abbas, the head of the Palestinian Authority, placed several phone calls to Egyptian President Morsi. He refused to take the call. Because he wants Hamas to be stronger, not the Palestinian Authority. The problems in the Middle East are so massive now and we are so close to falling over a real cliff into total chaos, because -- partly because of U.S. weakness, I'm afraid, that I think this trivial -- you know, the U.N. vote or where Israelis build 2,000 houses on the outskirts of Jerusalem -- no one will remember that three months from now.

WALLACE: Let me just point out, when Israel decided to do that, that was against U.S. wishes. They defied the administration, too, so nobody seems to be listening to them.

Then there's Egypt. And the continuing protests, Senator Bayh in Egypt, thousands of the people who were demonstrating a year or so ago against Mubarak now demonstrating against the new Egyptian President Morsi, the country's new draft constitution written by an Islamist assembly. And critics, including those people on the street, say that it doesn't provide enough guarantees for women's rights or for minority religions.

What do you make of the situation in Egypt and the dangers that it could turn into an Islamist state?

BAYH: The bottom line in Egypt, Chris, it that it's bad for Egyptians and their political future, perhaps not quite as bad for the long-term national security interests of the United States. You know, any time a leader of a country like Morsi puts himself above the judiciary, that's not a good sign for democracy. Any time you ram through a constitution with language in there that could lead itself to Islamist interpretation, that's not good for their democracy.

And it's particularly troubling, not only for Egypt, but, for the long term course of events in Syria, where things are becoming extraordinarily polarized because of the violence there and the real possibility of an Islamist state there.

But the somewhat more encouraging news is that the Brotherhood has shown that they can behave...

WALLACE: The Muslim Brotherhood, of which Morsi was a member.

BAYH: Correct. When they first came to power, there were calls to ban alcohol. They didn't do it. Why? They cared about tourist dollars. There was a proposal to segregate beaches, men and women, and to regulate what women could wear. Didn't do it because they were concerned about the economic realities. They need Western aid. In the Gaza conflict, they've behaved responsibly and tried to bring things to a conclusion.

So there is evidence that, while they may be throwing some bones to their most fervent supporters in terms of constitutional language, and that is concerning, at the end of the day, when push comes to shove, they may behave more pragmatically.

WALLACE: Bill, your thoughts about Egypt? Are you as optimistic?   KRISTOL: I don't know. I think Iran doesn't ban alcohol, to my knowledge, and I think they may have beaches there where men and women mix, and they're still getting nuclear weapons that are a huge threat to the world. So I'm very worried about Egypt, compared to where one hoped it would be.

And, again where is the U.S.? We are in retreat everywhere and we are now seeing the price. We actually didn't see the price that much in the first four years because we were living off a lot of inherited capital of U.S. strength. And look at Syria, the total chaos and killing there. Look at Egypt. Look at -- we're going to get out of Afghanistan, and the signal that will send will be disastrous. I am -- I have never seen a more worrisome moment of U.S. weakness and chaos following.

WALLACE: Well, on that cheerful note...


On that cheerful note...

BAYH: And a merry Christmas to you.


WALLACE: ... thank you, panel. See you next week. Don't forget to check out "Panel Plus," where our group picks right up with the discussion on our web site,, and 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: She's one of those young women who has it all, beauty, talent, intelligence, but at her crowning moment, she's carrying quite a burden. Here is our power player of the week.


ALLYN ROSE, MISS DISTRICT OF COLUMBIA: Choosing life over vanity -- you know, choosing life over what society or Hollywood tells me makes me beautiful.

WALLACE (voice over): Allyn Rose is Miss D.C., competing for the title of Miss America in January. But she's not your typical beauty queen. Yes, she's worked as hard as any of her competitors to develop her talent, artistic figure skating, and to hone her fitness for the swimsuit competition.

ROSE: This body that I've worked so hard my entire life for and to be able to showcase that, to showcase my talents and, you know, to showcase your own -- your poise and your beauty and your intelligence.

WALLACE: But after the pageant, she faces a difficult choice. And at age 24, she has made her decision.

ROSE: I've decided to have a prophylactic double mastectomy. And what that means is I will have my breast tissue removed in an effort to help prolong my life.

WALLACE: To understand Allyn's decision, you have to go back a few years to her mother, Judy.

(on camera): How old were you when you lost your mom?

ROSE: I was 16, and my mom was diagnosed when I was 12, so I spent, you know, the really pinnacle years of me developing into a young adult having a mom battling breast cancer.

WALLACE (voice over): What makes it even more difficult is her mother had a single mastectomy when she was 27 but refused to have her other breast removed.

ROSE: My mom never saw me get my drivers license. She didn't see me graduate from high school.

WALLACE: It turns out the women in Allyn's family have a history of breast cancer. And now she's learned she has the same genetic disease they did.

ROSE: To know that I'm going to walk across that Miss America stage and not have my mom there -- it's really fueled the fire within me to know that that's not a life that I ever want my children to live.

WALLACE: Allyn's platform as Miss D.C., and if she's selected, as Miss America, is early breast cancer prevention. She calls it "planning a marathon, running a sprint." Once again, it goes back to her mother, who used to run marathons.

ROSE: She said, "Ally, that's my goal in life. I want to be 100 years old. But, you know, my mom's plan for 50 more years turned into this battle for three. You know, what happens when your marathon turns into a sprint?

WALLACE: And so ever since she was named Miss D.C. in June, she has carried her mother's loss and her legacy.

ROSE: When they announced my name, it just felt like all of my mother's dreams for me had been realized and my own dreams for myself.

WALLACE: Allyn knows what she faces after she completes her duties in these pageants, but one thing she doesn't do is feel sorry for herself.

(on camera): You're beautiful; you're accomplished; you're smart.

ROSE: Thank you.

WALLACE: Do you ever think, why me?

ROSE: No, because I know that I have been given these blessings. I think that I have been given this incredible opportunity to help save the lives of other women. And, you know, by having this message of my mom and being able to show women that, you know, if I can do it, you can do it.

WALLACE: In college, Allyn Rose majored in government and she interned on Capitol Hill. After her pageant days are over, she'd like to run for office. After all, she says, what better way to change the world?

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

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