Sens. Schumer, Corker on chances of 'fiscal cliff' deal; Israel's response to Syria's civil war

Key lawmakers on 'Fox News Sunday'


The following is a rush transcript of the December 9, 2012, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.


Two big issues today -- the fiscal cliff talks stuck in neutral and growing concern Syria will use chemical weapons against its own people.


WALLACE: With just 23 days to go, and more posturing than progress, will the White House and Republicans cut a deal to avoid big spending cuts and tax increases? We'll talk with two senators on the front lines of the debate: Democrat Charles Schumer, and Republican Bob Corker.

Then, the U.S. draws a red line, telling Syrian President Assad not to use chemical weapons in the country's civil war. We'll discuss the latest intelligence and the possible fallout with Israel's ambassador to the U.S., Michael Oren. It's a "Fox News Sunday" exclusive.

Plus, the Supreme Court agrees to take up same sex marriage. We'll ask our Sunday panel if the court is likely to decide whether gays have a constitutional right to marriage.

And, a final farewell to my best friend, Winston.

All right now on "Fox News Sunday."


WALLACE: And hello again from Fox News in Washington.

Well, it's beginning to feel like Groundhog Day in the talks to avoid the fiscal cliff. Both sides dug in, no agreement in sight. And, we're now just 23 days from the brink.

Joining us to break down where things stand are two leading senators: Democrat Charles Schumer of New York, and, Republican Bob Corker of Tennessee.

Gentlemen, House Speaker Boehner said -- on Friday that another week has been wasted.

Senator Corker, given that President Obama won the election, and seems to have most of the political leverage, what's the realistic deal to be made in the next 23 days?

SEN. BOB CORKER, R-TENN.: Well, first of all, I do think something is going to happen. I hope it's large enough for people like me that want to see entitlement reform to vote for. But, you know, the president does have some leverage now. On the other hand, Republicans have leverage with the debt ceiling and the C.R. which ends in March.

So, hopefully, cooler heads will prevail. But there are different theories coming forth on how to deal with this.

And again, Chris, it's a unique moment in history, where every developed country in the world, economists on both sides of the aisle, know the greatest threat to our country is fiscal solvency and we have a situation where the minority party is trying to leverage the president into doing something that's great for our nation. It's a very unique time and I hope the president soon will see the light.

WALLACE: Senator Schumer, three weeks left. What's the compromise and -- this is the important part, that both sides can live with -- on taxes, spending cuts, and entitlement reform?

SEN. CHARLES SCHUMER, D-N.Y.: Well, I think we will get a deal. I think everyone realizes how important it is. Our economy is moving up some, not fast enough but, some, and to go over the cliff would be terrible.

I think we will get an agreement. And, the reason I think we'll get an agreement, what's standing in the way is revenues, particularly making that top rate go up to 39.6. But I think we are seeing real progress in that regard in two days.

First, a good number of Republican conservatives, people like Coulter and Kristol, have said we have to do it. Last week, Tom Coburn said it's preferable than cutting the deductions and, you have business leaders who supported Mitt Romney, Republicans, the head of FedEx, the head of AT&T saying, let it happen.

So I think that's likely to happen. The president won the election on that issue and I think you will see our Republican colleagues reluctantly say, OK. Let's go up to 39.6.


WALLACE: Senator, let me interrupt right there, let me bring in --

SCHUMER: Please.

WALLACE: -- Senator Corker.

Senator Schumer is exactly right. A growing number of Republicans and conservatives, though not a majority, but a growing number are saying, look, we're going to have to cave on tax -- on raising tax rates, not just the idea of closing loopholes. Would you accept returning to the Clinton rate of 39.6 percent? Or, would you accept something, perhaps, a mid-point, 37 percent or starting with people who make $500,000, rather than $250,000?

CORKER: Well, Chris, there is a growing group of folks, that are looking at this and realizing that we don't have a lot of cards as it relates to the tax issue before year end. I mean, we're -- have one house, that's it. The presidency and the Senate in the Democrats' hands.

So, and a lot of people are putting forth a theory and I actually think it has merit where you go ahead and give the president the 2 percent increase that he is talking about, the rate increase on the top 2 percent. And all of a sudden, the shift goes back to entitlements, and all of a sudden, once you give him the right on the top 2 percent, it's actually much lesser tax increase than what he has been talking about, the focus then shifts to entitlements and maybe it puts us in a place where we actually can do something that really saves the nation.

So, there is a growing body. I actually am beginning to believe, that is the best route for us to take, to, again, shift the focus where it needs to be, which is on entitlements.

Still, Chris, the top 1 percent in or country, take in 17 percent of the income and pay 37 percent of the taxes that are paid. I do hope we'll take up tax reform in a way that creates growth in our nation at some point. But at this juncture, we may be exactly where Senator Schumer says, and I'm not sure that's not the healthiest place for us to go as Republicans, to really get entitlement reform to save or nation.

WALLACE: Well, all right, Senator Schumer. You just heard Senator Corker say, look, I would consider and maybe I'll go for raising the rates, all the way up to the Clinton rate, 39.6 percent, for the top 2 percent. But, we need spending cuts and we need entitlement reform.

What are you guys willing to put on the table?

SCHUMER: Well, bottom line is, if Speaker Boehner ends up where Senator Corker has just said he is, we will get a large agreement. And -- but, Speaker Boehner has not said that. And so, we Democrats realize that there have to be two sides to this bargain.

But we're not going to go back to what we did in 2011 and put both revenues and cuts on the table. And ended up with just getting the cuts because, the other side wouldn't accept revenues. And so once Speaker Boehner calls for an increase in revenues, to 39.6 and the other things the president has called for, we have done $1 trillion in cuts already.

But we realize there have to be other kinds of cuts. And, there will be serious negotiations about that. We'll have different views, my view and Senator Corker's view, as to where we ought to go on entitlements is different, but we will have to find some spending cuts and we will.

WALLACE: Well, I mean, in fairness, Senator Corker, Senator Coburn, a bunch of people, Senator Schumer, have said -- now, I know it's not House Speaker Boehner, but on the other hand, you are not President Obama and they have been willing to come out and say, we are willing to raise the tax rates all the way up to the Clinton rate, 39.6 percent, can you give us some specifics of things you would consider cutting both in terms of social programs and entitlement reform?

SCHUMER: Well, the bottom line, Chris, is that would be negotiating against ourselves. President Obama has agreed --


WALLACE: Isn't that what they just did?

SCHUMER: No. The bottom line is Democrats led by our president, almost uniformly say, here is our $1.2 trillion of getting to the $4 trillion. It's revenues. It's up to the Republican leadership, prodded, correctly and boldly, by Senator Corker and others, to say they'll go along with that and then we'll start negotiating on the other side. It makes no sense for us to negotiate against ourselves.

WALLACE: Do you buy that, Senator Corker?

CORKER: No, look, Chris, we have to have a $4.5 trillion solution here and, really, I know Senator Schumer, I have talked with him numbers of times personally. He knows the general things we need to do and, candidly, most Republicans and Democrats do.

I do think it is time for the president, he knows that there is a growing body of folks, who are willing to look at the rate on the top 2 percent, but that's only -- could be $400 billion, might be $800 billion, depending on how you deal with that. And many of us, who are fiscal conservatives, are beginning to see that we can end up with a lesser revenue increase by agreeing to that.

The shift in focus and entitlements is where we need to go and, again, it is a shame that we're not just sitting down and solving this. But Republicans know that they have the debt ceiling that's coming up right around the corner, and, the leverage is going to shift, as soon as we get beyond this issue. The leverage is going to shift to our side, where hopefully we'll do the same thing we did last time and that is if the president wants to raise the debt limit by $2 trillion, we get $2 trillion in spending reduction.

And, hopefully, this time, it is mostly oriented towards entitlement and with no process. I don't want to kick the can down the road. I think Senator Schumer and I both know that what we need to do is solve this problem now.

WALLACE: Well, let's talk about --


WALLACE: Wait a second. We're going to get into that in a second, Senator Schumer.

Senator Corker, you brought up the debt limit. And as you know, part of the president's demand is that he be given the right to raise the debt limit by himself, unless Congress disapproves by a 2/3 vote in both houses. Is that a deal-breaker for Republicans?

CORKER: Well, look, let me go back, Chris. I mean, let's face it. He does have the upper hand on taxes. You have to pass something to keep it from happening, we only have one body. If we were to pass, for instance, raising the top two rates-- and that's it -- all of a sudden, we do have the leverage of the debt ceiling and we haven't given that up.

So the only way the debt ceiling, I think, is given up is if the president comes to the table, talks with Speaker Boehner about real entitlement reform. Without that, there's no way in my opinion the debt ceiling is going to be begin up. So then you go into January and February, with the negotiation about spending reductions which is where we want to go.

So, look, I mean, he can decide. I agree with Senator Schumer, we're not going to go over the fiscal cliff, to use that terminology. Something is going to happen before year end, hopefully, a comprehensive package that solves our nation's problems. And then, later, next year, we deal with tax reforms in a revenue-neutral way. But I do not want to see us do -- go ahead, I'll stop. WALLACE: Let me bring in Senator Schumer.

And, this goes beyond simply the question of this deal. Why should Congress give up its constitutional authority over borrowing? You know, we looked at your record, when George W. Bush was president, and you voted at least three times against increasing the debt limit.

Why would Congress unilaterally give up that power? SCHUMER: Well the bottom line is, I think on debt ceilings, things have shifted. I don't agree with my good friend, Bob Corker, on the issue. I think it shift the way it has on taxes and we just saw that.

Senator McConnell put on the floor a resolution that said, it was his idea, not ours, that let the president raise the debt ceiling. After all, it's money Congress has already spent, and, let Congress, by 2/3, override it. He thought we Democrats would run away from that, scared as could be.

Within a half-hour, we had 51 votes. We called his bluff and he ended up filibustering his own proposal. The normally, very politically surefooted Mitch McConnell stumbled on this because the ground changed here.

I believe debt ceiling will be part of the agreement and I believe, frankly, our Republican colleagues have learned that to say the government is not going to pay its debts and hold it up for something else is bad substance and bad politics. I don't think they'll prevail on that. If they want to say, we won't raise the debt ceiling unless you cut Medicare, make our day.

WALLACE: Make your day -- meaning, go ahead and default the country?

SCHUMER: No, make or day, meaning, you're not -- that position is untenable politically and it won't last. You won't be able to hold it. WALLACE: Let me, we got a little time left and I want to go to a couple of other subjects.

Senator Schumer, on the first day of the next Congress in January, will Democrats change the rules on filibusters by a simple majority, rather than the 2/3 majority you generally need, to change rules in the Senate?

SCHUMER: OK. Everyone knows the Senate is broken and needs fixing. I think Bob Corker would say that, we have had discussions. We're friends.

Most Democrats -- almost all Democrats and all Republicans believe that and I think it's also true that our preference would be to do this by 2/3 in a bipartisan way. There are all kinds of discussions going on with all kinds of groups to try and come up with some agreement.

The basic problem is, Republicans say, we don't allow the amendments, we say they don't let our bills go on the floor. You can sort of deal with both issues, sort of even-handedly.

If we can't come to an agreement, whether we go to the so-called constitutional option, our caucus will have to discuss that in the coming weeks, but our hope would be, to be able to come up with a compromise and there are some interesting and productive discussions going on right now.

WALLACE: Let me just ask you about the filibuster. And you're right, there are arguments on both sides, Senator Schumer.

But when Democrats were in the minority a few years ago and you guys were filibustering George W. Bush's judicial nominations, you had a different view about the filibuster. Let's watch.


SCHUMER: The wisdom of our republic has shown that when the Senate does slow things down, when the Senate does invoke checks and balances, the republic is better off.


WALLACE: Senator, what's the difference except for the fact that you're now in the majority?

SCHUMER: Nothing. No, nothing, that's exactly right. And the filibuster, I am not for going to a House of Representatives where 51 votes decides everything. But the filibuster has been overused. It's not just used on major issues like very significant judges, Supreme Court leaders, the courts of appeal, health care -- obviously, that shouldn't have passed by 51 votes. It needed 60.

But it's used on such trivial things and not by the whole majority --

WALLACE: Wait, wait, we're going to run out of time. Didn't health care pass on reconciliation by 51 votes?

SCHUMER: Health care got 60 votes.

WALLACE: I thought there was a -- when it finally came back it went on --


SCHUMER: Well, there has to be, but not -- not until after it passed by 60 votes.

WALLACE: Yes, but on the changes it passed at 51?

SCHUMER: No. No. You have to do --

WALLACE: Anyway, it's a technical point but anyway, what you are saying that you think there has to be some reforms?

SCHUMER: Correct.


CORKER: Chris, if I could, really --

WALLACE: Really, quickly and then I got one last question for you, Senator.

CORKER: OK. OK. Number one, we're going to solve this. There is not going -- we will get this fiscal reform done, this year, and that's my prediction, because I think the president -- I think we're going to solve this. I think the two parties are going to solve this.

Secondly, I predict we're going to have a meeting of both Republicans and Democrats, together. Chuck Schumer has been constructive on the issue. I think we're all going to sit down together soon in the old Senate chamber soon and resolve it in a way the Democrats are not breaking the rules, to change the rules, and we actually do it the way the Senate always functioned.

And I think we're going to start this next year with a different spirit within Congress.


WALLACE: Let me ask you one -- let me ask you, Senator Corker, in the time we have left and over time, one last question. And that may test that: the new spirit. You're going to be the new ranking Republican on the Senate Foreign Relations Committee in the new Congress, will President Obama make a mistake to nominate Condoleezza -- rather, Condoleezza -- Susan Rice as secretary of state?

CORKER: I do think -- I do think that Secretary Rice, I mean, Ambassador Rice is viewed as a political operative and I don't think he's going to nominate her. I really don't. I think that that time has come and gone. So, look, as I've said, I'll give any nominee a fair hearing and I will in this case. But I think the president realizes on both sides of the aisle there are concerns about the fact that she's such a political operative and not viewed, Chris, as a principal.

WALLACE: So, you don't think that --

SCHUMER: Chris --

WALLACE: Let me just quickly and then I'll ask you, Senator Schumer.

You don't think she'd pass the Senate?

CORKER: Well, I don't know what will happen. Obviously, there are many people like me that always give nominees a fair hearing. I just don't think she is going to be nominated for a lot of reasons.

WALLACE: And, Senator Schumer, very briefly?

SCHUMER: Yes. The solution here, a lot of Republicans don't want to vote for Susan Rice if she's nominated by the president, and I think she's very capable, they shouldn't filibuster. They don't have to vote for her but don't require 60 votes to get her on. And that's traditionally been done with presidential cabinet nominees when a president is elected or reelected. That would be a solution.

WALLACE: Gentlemen, we're going to have to leave it there. Senator Schumer, Senator Corker, thank you both. We'll be watching for any sign of progress on the fiscal cliff or continued stalemate. Thanks again, gentlemen.

Up next, the U.S. draws a red line for Syria's President Assad. We'll ask Israeli Ambassador Michael Oren about the threat of chemical weapons in Syria.


WALLACE: The bloody civil war in Syria took an even more ominous turn this week, with the reports of the Assad regime has prepared and might use chemical weapons against rebel forces.

Joining us now is Michael Oren, Israel's ambassador to the U.S.

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

MICHAEL OREN, ISRAELI AMBASSADOR TO THE UNITED STATES: Always good to be here. Thank you, Chris.

WALLACE: There is a report in The Sunday Times of London that Israel has spotters on the ground inside Syria.

What is your latest intelligence about Assad preparing, possibly getting ready to use chemical weapons? Is she still mixing the sarin gas? We saw signs of this last week. Or have the warnings from the president and Secretary of State Clinton scared him off?

OREN: Well, we're watching the situation very carefully, Chris. We have been watching it many months now and it's not new to us. Syria has a varied, deep chemical weapons program. It's geographically dispersed as well and were those weapons to pass into the wrong hands, into Hezbollah's hands, for example, that would be a game changer for us.

WALLACE: And at this point, any signs as to whether he is continuing to mix the sarin gas? Or whether he's pulled back from that?

OREN: I can't confirm those reports, but I can say, again we are watching it and I will tell you we have a very clear red line, about those chemical weapons, passing into the wrong hands. Can you imagine, if Hezbollah, with its 70,000 rockets, got its hands on chemical weapons, that could kill thousands of people.

WALLACE: Well, let's talk about that. The U.S. drew a red line this week and their red line is different than Israel's red line is, if Assad uses them against his own people. Israel's line, as you say, is if he were to lose control or give the weapons to extremists -- which raises the question, how big a presence do jihadists and especially those allied to al Qaeda play in the rebels who are opposing and fighting Assad and Syria?

OREN: Well, we support the president's red line as well, you should know, and Prime Minister Netanyahu has come out publicly and supported President Obama's red lines regarding the use of chemical weapons in Syria. The jihadi presence is big and getting bigger. And the longer the conflict goes on there, the bigger it will get.

WALLACE: Do you worry about the possibility, yes, you lose Assad, who is no friend of Israel, but then on the other hand, you then get a situation where you have al Qaeda factions running part of Syria?

OREN: We have long advocated for Bashar al-Assad's departure, long before, actually the outbreak of hostilities. We came to the administration, years ago and said Bashar al-Assad is too reckless.

His father was, remember Hafez? He was reckless, but somehow predictable -- reckless but somehow responsible. His son is reckless and irresponsible and ruthless.

And he has provided 70,000 rockets to Hezbollah in Lebanon, tens of thousands of rockets to terrorists everywhere. He had tried to create a nuclear facility, secretly. Hafez al-Assad probably would have never done something like that.

So, he had to go. He was a loose cannon throughout the region and a danger to the entire region. If he goes now, we would view that as a positive development. He's an ally of Iran. He's an ally of Hezbollah. We understand that if jihadists were to come in, it wouldn't be good. But, it perhaps wouldn't be as bad as the current situation. WALLACE: All right. Let's turn to Egypt, where Egyptian President Morsi this weekend has rescinded, it appears, most of the decree that gave him sweeping powers, but he is moving ahead with a referendum this weekend on a new constitution.

Does Israel care whether Egypt becomes an Islamic state?

OREN: Well, Egypt's stability and democracy, is very important to us. Israel has an interest in a stable, peaceful and democratic Egypt. And we're not going to get involved in the internal politics of Egypt, just like we don't expect Egyptians to get into our internal politics.

We think that Egypt needs stability in order to revive its economy, and Egypt needs peace. It's not just an Israeli interest. It's an Egyptian interest. It's a regional interest. We think it's a global interest, to Egyptian-Israeli peace and we hope that Egypt overcomes its internal difficulties as quickly and peacefully as possible.

WALLACE: Does your government at this point, given, particularly his role in helping to broker the ceasefire with Gaza, with Hamas, in Gaza, do you trust Morsi to keep the peace with Israel?

OREN: Well, he has said repeatedly to Americans and others who have visited Egypt that he has every intention of upholding the peace and, yes, he did play a constructive role in helping to achieve a cease-fire surrounding the recent fighting in Gaza and we hope that Egypt will continue to play that kind of constructive role in the future.

WALLACE: Immediately after the Palestinians, a week or so ago, were voted nonmember observer status as a state, nonmember observer state status in the United Nations, your government, Prime Minister Netanyahu announced that it will go ahead with plans at this point, just plans, for a new settlement on the West Bank called E1.

We're going to put up a map and show it. Here's the map of the project which the Obama administration says would drive a wedge into the heart of the Palestinian West Bank, possibly cut off East Jerusalem from the rest of the West Bank.

Ad my question is: will Israel develop that little chunk, E1, or are you using that as a bargaining chip, to say to the Palestinians, look, you made trouble for us in the U.N. and international bodies, this is what we may do, if you don't, maybe we won't?

OREN: Well, the map is a little bit misleading. What you saw that yellow chunk there, that is actually a suburb called Ma'ale Adumin, 40,000 Israelis live there. It's about -- it's less than two miles stretch of barren desert road from that suburb to Jerusalem. That's E1. That's the road.

And we have to worry about a situation in the future where Ma'ale Adumin, that suburb, could be cut off from Jerusalem. You see on the map it doesn't cut off the West Bank, you can get from Ramallah in the north, the Palestinian city of Ramallah in the north, to the Palestinian Bethlehem in the south by going around E1. And if there is true peace, the problem is solved by a clover leaf or tunnel going under the road that links Ma'ale Adumin with Jerusalem.

But, yes, I think you said it best, Chris, it was the way the Israeli government set down a marker. The Palestinians violated their agreements with us and with the United States by going unilaterally to the U.N. to declare a state. All of our agreements say there's no alternative to direct talks between us and the Palestinians.

We are still ready to have those talks, ready to have them today if the Palestinians join us at the table. If not, we're going to have to take measures that will enable us to defend ourselves and our citizens in the future.

WALLACE: Well, I just want to button up the issue with E1, which is -- you know, you put your spin on it. The U.S. talked about it driving a wedge into the West Bank and making it more difficult to have a viable contiguous state.

The question is: is Israel necessarily going to build on E1? Or are you saying it depends?

OREN: It's a preliminary stage that was announced, last week. It could take years to fulfill that. Let's see if the Palestinians come back to the negotiating table. I just want to reiterate, we are ready to negotiate today, here in Washington, in Ramallah, or Jerusalem to work out all the core issues between us.

One of those issues is Jerusalem, and the question of settlements, which are, for us, part of the territorial issue. We are willing to talk about all of it if we just get the Palestinians to sit with us.

WALLACE: All right. I want to talk about a different negotiation with the Palestinians, not over the final solution, but the cease-fire in Gaza. A couple weeks ago, Israel agreed to the cease-fire, and, through Egypt, agreed to talks to try to settle the issues, they want to loosen the blockade and you want to stop weapons being smuggled into Gaza, missiles that are ending up being fired on Israel.

Two questions: where do the talks stand? And what do you make of the remarks of Hamas' political leader Khaled Meshaal, who this weekend said he will never recognize Israel's right to exist?

OREN: Well, about the talks, Chris, they are going on now, almost literally as we are speaking and we're working out various issues. The most important issue from our perspective is stopping the flow of Iranian missiles and other weapons into Gaza.

WALLACE: Has there been any progress on that?

OREN: We are discussing this openly with Egyptians and it's key, because that's where the bottle neck is. Most of these weapons, whether they come from the Libyan direction, or from the Sudanese direction, pass at some point through Egyptian territory into Gaza. So, if we can stop that we can do a tremendous amount toward reinforcing the cease-fire.

Khaled Meshaal, the head of Hamas, was in Gaza this weekend and he talked about destroying the Jewish state. There's no chance for negotiation. We're going to liberate Tel Aviv. We're going to liberate Haifa, and he did it from the huge papier-mache model of a rocket.

And I think there is no better indicator of what we are dealing with, with Hamas than that speech by Khaled Meshaal.

WALLACE: Ambassador Oren, thank you so much for coming in. We will continue to monitor the developments in the region. Thanks again.

OREN: Thank you.

WALLACE: Up next, the Supreme Court steps in to the debate over same-sex marriage. We'll ask our Sunday group if a new constitutional is in the making.


JEFF ZARRILLO, SAME-SEX MARRIAGE SUPPORTER: This is what the judicial system is all about. It is to take care of the minority when they are being oppressed by the majority.

ANDY PUGNO, SAME-SEX MARRIAGE OPPONENT: The vast majority of states, four out of five states, the people have chosen to either vote themselves, or their elected representatives, to stick with traditional marriage.


WALLACE: Two views on the Supreme Court's decision to wade into the debate over same sex marriage. And it is time now for our Sunday group. Bill Kristol of the Weekly Standard, Kristen Powers from The Daily Beast website, Kimberley Strassel of the Wall Street Journal and FOX News political analyst Juan Williams.

So Bill, what do you see as the significance of the Supreme Court deciding to take on this issue?

BILL KRISTOL, WEEKLY STANDARD: I think they pretty much to because there were serious issues presented at the appellate level. And that is what the Supreme Court is for, actually, to resolve differences amongst circuits or to resolve a situation where congress has passed legislation and a couple of circuits have found it unconstitutional. And a big fight at the state level in California.

I think the court will be modest and cautious. I think the court has learned, especially the Justice John Roberts court, is weary of doing what the court did in 1973 in Roe v Wade. I don't think they are going to suddenly throw out arrangements in 30 states, or 40 states. They will resolve, I suspect, the Defense of Marriage Act case narrowly. Only one section of that act is actually at issue, section 3.

I think on California they'll make a decision that might uphold the appellate court, or not, but only keep it limited to California. I really believe the court does not want to be, you know, overturning arrangements throughout the country, something so delicate as this. I think this is -- they learned the lesson that that is not the right role for the Supreme Court.

WALLACE: Yeah, let's talk about that. And a lot of people are making the comparison to 1973 in Roe vs. Wade. Because, what is so interesting is that, public attitudes on same sex marriage changed dramatically. Let's put up the map. 37 states, either by law or in their constitutions, now ban same sex marriages. But, they are legal in 9 states as well as the nation's capitol, Washington, D.C. And in a new poll, 40 percent say they approve same sex marriage, 30 percent support legal unions, while 24 percent say same sex couples should not be allowed to enter into any such union and of course we now we have President Obama, Kirsten, who has come out in favor of same sex marriage, although he wants to leave it to the state issue, not a national law.

And some people, as Bill suggested, are comparing to this to the 70s when opinion was evolving on abortion. The states seem to be working it out and the court came down with a big ruling and, what is it, 40 years later we're still having this holy war on the issue.

How do you see the court reacting? Do you see them, some people would say, creating a constitutional right, or do you think that they're going to be narrow and modest in their decision?

KIRSTEN POWERS, DAILY BEAST: I think it would be a surprise if they did such a broad ruling. And Justice Ginsburg has talked about this a lot, about Roe V Wade and how they should have left it to the states and let it play out. And I would suspect if you look -- that map you just put up, sort of tells the whole story. When you look at that many states who have banned it versus how many approved it, that gives you a good sense of where the country is on this issue.

Yes, it is moving in the direction, and I do expect at some point it will be -- the court will rule on it and rule that it is a constitutional right, which is my personal view. But, I think right now, I would expect them to do something more narrow, maybe like the appeals court did, in California. The lower court found that it was a constitutional right and basically appeals court said, no, it's just that you can't take rights away that have been given. So I would expect a narrow ruling.

WALLACE: So basically what you are saying is if they sided with what the circuit court did in California they would say, that, OK in California...

POWERS: Exactly.

WALLACE: It is legal, but it's not legal in any other state. This doesn't apply to any other state.

POWERS: Right. They are not ruling the way the lower court -- if they rule the way the lower court ruled, then that's very broad saying this is a violation of the equal protection clause. That would -- I because that that's true, I just don't think that this court is going to step out at this point on that issue.

WALLACE: What is the possibility, Kim, that the court does exactly the opposite way and says, look, congress has a law that says that the federal government can keep benefits from -- in a state where -- that has banned same-sex marriage, can keep partners, in this particular case, from getting an inheritance, or for instance say, look, you had prop 8 in California, people voted. What do you think the chances of it going exactly the other way and be pretty broad ruling against it?

KIM STRASSEL, WALL STREET JOURNAL: They absolutely could. They could do that, they could have a clear ruling for it. I mean, the more likely thing, given the complex number of legal issues here is that there may be a very muddled decision. And those who are hoping that there may be some very clear-cut finality at the end of this, may be disappointed.

I mean, to go what you said, though, about 1973, Roe v Wade, one thing that is -- we have a real world example of how it can work in a good way and not on gay marriage. If you look up 2003, the Massachusetts Supreme Court went out and said, this is a constitutional right in the state of Massachusetts. The next year 11 states came out and had referendums banning same-sex marriage, and that's because voters really don't like to have things imposed on them from the top. It works much better when they get a chance to take part in the democratic process and it gains a lot more legitimacy as a result. And that's why you have seen this migration. And we -- after 32 defeats at the ballot box, in this last election you had three states approve it. And that is because people have had a chance to make these decisions on their own, and vote.


JUAN WILLIAMS, FOX NEWS CONTRIBUTOR: Well, first of all, let me say I think this is a significant step by the court to agree to take the case. I think is something the whole country is focused on. As you pointed out Chris, public opinion has shifted. The court also has an affirmative action case and voting rights case. So, it is being seen as a significant turn for the Supreme Court on issues of equality.

But when it comes to this issue, no, it comes down to, you said abortion. I think a lot of people are also thinking about a 1967 case Loving versus Virginia, in which the court said, it is legal for people of different races to marry in this country. Is it analogous to that? Is it a case that, you know, a gay couple has the same rights as a heterosexual couple?

These are critical issues for our understanding. And a narrow ruling I think will be seen as dodging the issue, kicking the can down the road. Is it you your constitutional right to marry the person of your choice in this country? And I think this is an issue that is the way that the proponents of gay rights are putting it before the court is, let's look at the states and allow the states to make the decision. And, if that is the case, I think they are backing away from the larger issue. And the larger issue has to be, that the court would say, it is constitutional or not.

WALLACE: But what about the argument that what happened in abortion, and obviously, if you are a pro-choice person you would think that was just great, but because of the court coming in and setting this rule from on high you have had this battle for 40 years. WILLIAMS: I understand, but the thing is you can't say to a human being, you know, in certain states you have rights, and in other states you don't. To me, that -- this is a constitutional issue, and I think that is what the Supreme Court is for. It's not to say, you know what, we're going to fight the last war again on abortion, we shouldn't have ruled so broadly. This -- abortion is a matter of -- I could see a state's issue, a constitutional right? I don't see it.

POWERS: I would say, I think that's actually the best analogy that you just gave, I think more than abortion, because I think once you started seeing racial attitudes change it really did just snowball. And I think that is what is going to happen with gay marriage.

But when that case was decided, there were only 16 states that banned interracial marriage, versus almost 40 states. And so I think that when you look -- when the court is looking at that and they're trying to get a sense of where the country is and they are concerned about this, they might see it differently.

WALLACE: All right. We have to take a break here, but up next, will the stalemate over the fiscal cliff hobble an already weak recovery?



PRESIDENT BARACK OBAMA: Businesses are making decisions right now about investment and hiring. And if they don't have confidence that we can get this thing done, then they're going to start pulling back and we could have a rocky time in our economy over the next several months.


WALLACE: President Obama, drawing a link between the fiscal cliff talks and a still slow economic recovery. And we're back now with the panel.

Well, we got the new jobs numbers Friday. Let's put them on the screen. Unemployment dropped from 7.9 to 7.7 percent, the economy created 146,000 new jobs. Kim, yes, continuing a recovery but not a roaring recovery. Does that help one side more than the other in the negotiations over the fiscal cliff?

STRASSEL: They are both going to have their talking points. The president is going to come out and say, look, we're recovering, we're making our progress like I said we are, and therefore the economy is OK to have these tax hikes levied on it.

Republicans will come out and say, it is too weak for us to be playing a guinea pig with the economy, you should not be making this experimentation.

I think what is actually relevant about these job numbers is they are not strong, and put the politics aside, you know, presidents, when they have a second term, we know that their most lasting legacy in the end is their stewardship of the economy.

And it is astonishing to me that this president thinks that, given how weak the economy is, that you can go out, just impose new taxes, whatever that may come, because if he is wrong and it does have an effect, it's going to be very hard for us to dig out of that in the end.

WALLACE: Juan, 23 days and counting now until we go over the cliff. Do you see -- and you heard senators Corker and Schumer, any sign that we are getting closer to a deal? And it sure seemed, listening to Senator Corker, like Republicans are caving on the top tax rates.

WILLIAMS: You were listening carefully.


WALLACE: It didn't take that much careful listening.

WILLIAMS: I think that is exactly right. I mean, that is the sign. I mean, Republicans don't have leverage in this deal. You look at the polls, it is not one or two polls, it is overwhelming, the American people would blame the GOP.

And then the second thing to say is that you look at people like Corker, but you could go beyond Corker to Tom Coburn, Saxby Chambliss, even my colleague Bill Kristol, who said, you know...

WALLACE: Senator Kristol.


WILLIAMS: Senator Kristol here. You know, he said, look, it's time to -- you know, Republicans don't need this fight. It's not a winning fight for them politically. And the third thing, but something that I think a lot of people don't say is, this could be damaging to President Obama.

He wants to begin his second term more forward-looking, not lost in a sea of economic fear in the country. And people would blame him for, you know, taking away unemployment benefits, no doc fix, you know, letting taxes go up on everybody. That's just not what he wants.

WALLACE: Payroll taxes.

WILLIAMS: Right, so both sides here have strong incentive to make a deal. Not to mention they want to get out of town for Christmas.

WALLACE: Not to mention.

Bill, given all of that, and you were one of the early people who said, Republicans, I just thought we would remind those who may have missed it...



WALLACE: You were one of the people who said Republicans don't want to be fighting over tax increases for millionaires. What is the smart play for Republicans at this point and how do they get -- because it has all been about taxes, how do they get the deficit debate back to their issues, which are spending and entitlements?

KRISTOL: I think they can do that next year once they get taxes off the table. I think what they will do is pass -- in the House of Representatives the Republican majority will pass an extension of all the Bush tax cuts, which is what Republicans believe is the best policy.

WALLACE: You're talking about doing that before the end of this year.

KRISTOL: Yes. Before Christmas. And then they will pass, perhaps, a second piece of legislation as a fall back if the Senate doesn't accept the better piece of legislation, and that legislation will be -- will make some accommodations to President Obama, perhaps raise -- allow a tax hike up to 37 percent, but only for millionaires.

I mean, Obama has a pretty extreme position, which is a tax hike of 4 percent on every family making $250,000 or more. There are a lot of upper middle class families that are not very wealthy -- don't think they are very wealthy if they are paying college tuition or whatever, making more than $250,000 and less than $750,000 or a million.

There is already a tax increase going into effect for those families in "Obama-care," about a 1 percent increase on their income and also a big 3 percent increase -- surcharge on investment money.

So I think Republicans can say, best case, no tax increase, we'll also give you a responsible, modest increase, so you can satisfy yourself, President Obama, that we're increasing taxes a little bit on millionaires, not on families making $250,000 a year.

Obama would have to accept that. Republicans would have saved a lot of families from a worse tax increase. And then you can have a big spending and entitlement fight next year where I think Republicans have plenty of leverage. There will still be a debt ceiling issue. There will still be a continuing resolution for funding the government running out in March. It is not as if -- you know, it's not as if everything is resolved this month.

WALLACE: Kirsten, you seem singularly unimpressed by this scenario laid out by...



KRISTOL: As she so often is, I have got to say.

POWERS: Well, I mean, the deal that seems to be on the table, or at least is being floated right now is the 37 percent rate. And then...

WALLACE: Let's just quickly explain, the top tax rate is now 35 percent. If the Bush tax cuts lapse, the top rate goes up to 39.6 percent, the rate it was under Bill Clinton, some people are saying, well, go to the middle, 37 percent.

POWERS: Yes, so that is sort of the deal that Obama has sort of said he would come down to, 37. And the Republicans have said, well, let's raise Medicare eligibility. And I think it has been out there, sort of floating to see how to the base is going to react to it.

The left is completely freaking out over the raising the Medicare eligibility, and I assume the right is probably freaking out about giving in on the tax rates. And so they have to sort of decide.

But the administration is pretty clear that tax rates have to go up. Obama has given in on this before and so there's a lot of pressure on him, there's a lot of pressure on the House Democrats. And so I think if they can come to some sort of agreement on the rate and if Republicans are willing to push the other steps to next year, that is a deal.

STRASSEL: I think what argues against a big deal that includes any sort of cuts, for instance, up front on the entitlement side is, Republicans -- tax rates are going up either way, this is the thinking among some Republicans either because you are going over a cliff or because the president has a whip and he's going to force you into a deal. They don't want to take responsibility for the economic fallout that comes. So if they agree to a big deal that also includes spending cuts, they are signing up and their fingerprints are all over it.

I think it's far more likely what Bill said that you just something extends the tax rates and then it say we'll see you next year at the debt ceiling debate then we can talk about spending. The middle class hostage that you have been holding over our heads will be dead and then we will -- we think we'll have more leverage to make you sit down and do cuts.

WALLACE: Juan, let's talk about that, because the president, we just heard last week, late last week, has this new demand. He wants to get unilateral authority to raise the debt limit all by himself, unless two-thirds of congress, two-thirds in each House, disapproves of that. What do you think of the chances that Republicans will give him that? And listen to what the president said this week about the debt limit. Here it is.


OBAMA: I will not play that game, because we have to break that habit before it starts.


WALLACE: President seemed to be suggesting, you want to bargain over the debt limit? I'm not going to do it.

WILLIAMS: You know his argument, White House argument that I hear is, look, the last time this happened, it was so much an Armageddon. And it was the first time that it happened in American history that previously, Republican and Democratic presidents were able to get a hike in the debt ceiling without this kind of pressure coming from the congress in terms of spending and taxes and the like. And they don't like it. They don't want it. And it is the one point of leverage to reaffirm Kimberly here, that Republicans have over the president, right now.

WALLACE: Well they also have one in March, because we run out of money for the government. So then there's going to be a government shutdown.

WILLIAMS; Well, I think -- that is more of a negotiation, but this is a specific point of leverage. I don't see Republicans giving in on it. I see the president, though, saying this is unreasonable. And it becoming another political fight.

WALLACE: Let me ask one question about the, what we will henceforth call the Kristol scenario. Which is that they end up passing this halfway cave, a limited cave on tax rates. That doesn't avoid the fiscal cliff, does it?

KRISTOL: It avoids the tax side of the fiscal cliff. There's still a spending problem. Most of those cuts in spending are fine with me, except for defense, but there the president seems to have no interest in us having a strong defense. And so again I guess we can litigate that next year. There will be plenty of other opportunities to debate all the spending, defense and entitlement issues next year. My view is get the tax issue off the table. It's the weakest one for Republicans right now. Let the president own it and they will have a bunch of other debates next year.

WALLACE: It ends with a wimper, not a bang.

KRISTOL: I think that's -- yes, could be.

WALLACE: There you go.

Panel, see you next week. Don't forget to check out panel plus where our group picks up right 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.

Now this program note. Tune into Fox News Channel tonight at 9:00 pm Eastern for "Fly Me to the Moon." Anchored by Neil Cavuto, it marks the 40th anniversary of the last time man walked on the lunar surface.

Up next some final thoughts about my best friend.


WALLACE: We've been getting together here on Sunday mornings for 9 years now. And I hope you don't mind my sharing personal moments with you from my wife's Sunday soup to the passing of my dad.

Well, I have something new to tell you about, something sad.


WALLACE: Last week, we had to put our beloved yellow Labrador, Winston, to sleep. And it is nothing less than a death in the family. Winston joined us ten years ago, and he was wonderful, a furry little bundle of life and joy.

He took his place in family photos. As our family grew, Winston was still front and center. He loved holidays. At Christmas, my wife Lorraine put up a stocking for him, which he would stare at. When we sang happy birthday, Winston always thought it was for him. He loved to play in the snow. He loved to get up on a couch and look out the window at the traffic.

Winston even appeared in two of our power players. When we profiled Washington's Dog Whisperer I look Winston in for some much- need training.

UNIDENTIFIED MALE: That's where we do it!

WALLACE: Why is it he doesn't do any of this for me?

And when Lorraine wrote a book about our Sunday soup tradition, Winston demonstrated the central role he played.

LORRAINE WALLACE, CHRIS WALLACE'S WIFE: His nose goes in the air and he can't wait for his taste of soup after we finished our. What's this Winston? Is it your soup Sunday? Yay, come on Winston. There you go.

WALLACE: But more than any of that was his constant companionship. And he was good company.

He loved to make us chase him around the house until he rolled on his back for belly rubs and hugs. When my son Remik (ph) went fishing, Winston went along. And as our children started having children, he welcomed the babies into our house, as Uncle Winston.

He has only been gone a week but life is very different. We will always have lots of wonderful memories, so many memories. But why is our home so quiet and empty without him?


WALLACE: Since Winston died I have heard from so many of you who loved and lost pets. Thank you for your kind messages. We like to think we take care of these wonderful little guys. But once they are gone you realize it is the other way around.

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

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