No DC deal in sight: What happens on January 1?

This is a rush transcript from "Hannity," December 28, 2012. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: And this is a Fox News alert. Earlier today in a pathetic last minute effort to avoid the nation falling off the "fiscal cliff," "President Arnold Palmer" took a mini break from his busy golf schedule to summon congressional leaders to the White House. Now, the latest reports say that a last-minute mini deal may be struck before the end of the year. This deal reportedly would preserve tax cuts for the middle class and extend unemployment benefits.

The president, he raced to the microphones, and he said the following after this meeting. Watch.


PRESIDENT BARACK OBAMA: I just had a good and constructive discussion here at the White House with Senate and House leadership about how to prevent this tax hike on the middle class, and I'm optimistic we may still be able to reach an agreement that can pass both Houses in time. Senators Reid and McConnell are working on such an agreement as we speak.


HANNITY: Here is what you need to remember. No. 1, this whole fiasco was totally and completely avoidable.

No. 2, Senate Democrats have not fulfilled their constitutional duty to pass a budget in over three long years. That's over 1,300 days. Now, their obsession has been and continues to be ruthless politics over doing what is right for you, the American people.

Now, No. 3, not once in that time has President Obama demanded that the Senate do their job. This is the height of irresponsibility.

No. 4, the president's main focus has been to attack Republicans again and again, yet Republicans, they have done their job. They passed a bill months ago to avoid this "fiscal cliff." Now, that bill has been completely ignored by Senate Democrats and by the president.

No. 5, the worst part of all, there is nothing here that the president is proposing that deals with the real, clear, present danger that America now faces. That is reckless borrowing, reckless spending, generational theft that is now bringing America to the brink of bankruptcy.

This president is now borrowing 46 cents of every dollar he spends. He has now given the country over $6 trillion in new debt. We have trillion-dollars deficits as far as the eye can see, and all he wants to fight for is higher taxes that will fund a mere 8.5 days of government. Frankly, nothing but a pathetic disgrace.

Now, you, the American people, you deserve better than this. You deserve a government that lives within its means. You deserve a government that is not obsessed with using your money to accumulate their power. It is time for Americans to understand the simple truth of what is going on here. A truth by the way that an abusively biased news media just ignores.

Joining us now with reaction as America is on the brink, we have Republican Senators Pat Toomey and Ron Johnson. Senators, welcome back.



HANNITY: All right, let's start with the meeting today. Senator Toomey, I'm told that the president was very adamant in the meeting. He didn't come off -- his original request was to keep tax rates at the same for the middle class, but everybody above $250,000 going up. Is that what you heard?

SEN. PATRICK TOOMEY, R-PA.: I haven't heard about specific elements of the conversation, Sean, I wasn't in the room. But what I do understand from people who were there was that it sounds for the first time like the president is actually engaged and actually would prefer that we not go over the cliff.

This hasn't been clear previously. So the fact that Mitch McConnell is actually in meaningful discussions and negotiations is actually quite encouraging. If something can't pass the Senate with a lot of Republican votes, it is not going to pass the House either. So I think for the first time, we see some constructive engagement, at least.

HANNITY: Senator Johnson, I heard a little bit different story than Senator Toomey, and that is that a lot of what we saw today and what we are seeing told is really for show, and the feeling of somebody else that was in the room was that the president made up his mind. He wants to go over the "fiscal cliff." He sees a political advantage to negotiating this in January. What have you heard, sir?

SEN. RON JOHNSON, R-WIS.: I watched the president's press conference. And I was a little disappointed to see him scold, because basically we were told is that it was a serious discussion, and there was a recognition on the part of President Obama and Senator Reid that they are going to have to craft a piece of legislation that would get a great deal of support from Republicans in the Senate, because they realize that is the only way something is going to pass in the House.

So I mean, let's be encouraged by the fact that we are finally talking seriously, that there is going to be some very serious discussions tomorrow between Senator McConnell and Senator Reid, and another good piece of news is the debt ceiling was not even brought up. So I think there is also recognition that it is way too late in the game to try and fold that in, because unfortunately there's probably not going to be a whole lot of serious discussion about what we need to do to save entitlements.

HANNITY: There is definitely true, and I heard the exact same thing, he does not get a debt ceiling increase, which is very important. He doesn't get the stimulus that he originally bargained for.

Senator Toomey, at one point you seemed to support the "Plan B" of Senator (ph) Boehner, which would be, OK, tax rates would increase for those over $1 million. You are a guy that is well known as a conservative. In principle, isn't that something you think hurts the economy?

TOOMEY: No question, what the president wants to do is bad for the economy, Sean. What concerns me is we are now three days away from a really bad law taking effect, which is increasing tax rates on everybody, huge increases on capital gains, massive increase on dividends. This is very, very destructive. I see my mission in part is to try to absolutely minimize the damage. Unfortunately, I don't have the ability to repeal that law, and the Democrats control two out of the three parts of the elected government. So I am going to fight as hard as I can to minimize this damage.

But I got to be honest with you, I mean, we got a pretty tough hand to deal with here. And we can't just change that law by ourselves.

HANNITY: It seems to me, Senator Johnson, three things that maybe the president hasn't thought of. No. 1, if the country goes over the fiscal cliff on his watch, the optics are not very good for him. While he may think that there is an advantage here when the country sees its taxes go up, then he comes in as the guy that is the tax cutter, but has he factored in that Republicans also have control of the budget with the debt ceiling?

JOHNSON: I think, again, the president is serious about this, because I think he is beginning to see the long-term consequences if we do increase taxes. That's probably a good thing. You know, Sean, we maybe ought to do a little celebrating here. Democrats are now on board that 98 percent of Bush's tax cuts were a good thing for America and for the economy. So let's at least chalk that up as a win.

And I agree with Senator Toomey, right now unfortunately only President Obama is the one man that can sign a bill into law, and without him agreeing to sign a bill, everybody's taxes go up. So we are kind of in a position of how do we limit the damage, and I think the best way of doing that is continue to talk about what we need to do is grow our economy, and that is something President Obama hasn't shown any interest really in doing. He certainly hasn't concentrated on it in his first term.

HANNITY: And Senator Toomey, this has been a little frustrating as we watch this frankly reckless, irresponsible political positioning going on. This really doesn't deal with the problem, and this is really important, I think, for the American people to know, as I said in my opening commentary. This will fund the government if he gets the increase in taxes on the so-called wealthy and small business, that funds the government for 8.5 days. America has $16 trillion in debt and we are out of money again. Why isn't the president -- why are we really discussing the spending issues would seem to matter a lot more?

TOOMEY: The reason is because unfortunately we have got a law that goes into effect in January that raises taxes, and we have got to try to prevent as much of that as we can.

Look, you are absolutely right. If the president got the full tax increase he campaigned for, that would solve eight percent of the deficits projected for the next 10 years, and the president refuses to so much as offer an idea about what he is going to do about the other 92 percent. This is ridiculous that we spent all this time talking about how much damage the other side is going to insist on inflicting to the economy, instead of talking about how do we get on a sustainable fiscal path so we can have strong economic growth and the prosperity that we ought to have and that our kids deserve.

So I agree completely, this has all been misplaced. I want to get this behind us, do the best we possibly can on the tax side, and then focus on the real problem here, which is spending.

HANNITY: Senator Johnson, I'm told that sequestration will go through regardless of what maybe mini deal might happen here. Is that a good thing, even though a lot of that money apparently will come from defense, in your opinion?

JOHNSON: Well, hopefully that's one thing they can iron out, is try and replace some of the defense sequestration cuts with other limitations in spending in other areas. That would be a good thing.

But you know, Sean, one of the points we do need to make is we just blew through the $2.1 trillion worth of debt ceiling increase from last August in 17 months. That is an astonishing fact. And so what I think we need to do is once we get this tax issue behind us, and I think we'll get it behind us hopefully in the next couple of days, but then we need to start asking the president what is your plan? Senator Harry Reid, are you going to pass a budget?

I really do believe that the president and the Democrats really have no intention, and as a result have no plan to limit the rate of growth in government, they have no plan to save Social Security and Medicare, and we need to start putting political pressure on them to show the American people a plan.

The House has passed two budgets since I have been here. They both include some proposal to save Medicare. The Democrats have not done that, and this is really where we start turning the messaging on them and start demanding.

I think the American people have a right to know. President Obama, how are you going to solve the other 92 percent or 93 percent of that deficit? What is your balanced approach that you talked about on the campaign trail all the time?

HANNITY: That is a good point. And Senator Toomey, how is it possible, maybe you can help me out and help the American people out. They don't know what their taxes are going to be in just a couple of days, and now we are counting the hours. How is it possible the U.S. Senate does not pass a spending bill, which constitutionally they are supposed to pass in over three years, over 1,300 days, and then lecture House Republicans that did their job? How did we get to that point in this argument? That seems a little strange to me.

TOOMEY: It is incredible, Sean. It really is, it is an absolute obligation. Look, it would be a common sense obligation on the part of Congress to have a budget, even if it weren't required by law, but it is required by law, and yet the Senate Democrats have still refused to produce a budget. That is a big part of the reason that we are in the mess we are in. We don't go through the normal process of figuring out how much we are going to spend, establishing the guard rails, putting the limits on the size of our deficit, figuring out how we are going to reform big programs. None of that happens, and then we find ourselves back up against the wall with a situation like we are in now. It is a complete abdication of responsibility.

HANNITY: Senator Johnson, we are dealing with everything, but what I say we need to be dealing with, which is reckless spending, reckless debt and reckless deficits. Do I overstate the case if I say that America really is on the brink? How dangerous is this for the country in the long-term if we keep going down this path and kicking the can down the road?

JOHNSON: It's extremely dangerous. I mean, Sean, just a couple of facts. I mean, from 1970 to 1999, the federal government's average interest rate was 5.3 percent. In order to accommodate all of this deficit spending, we have been paying about 1.5 percent. If we just revert to that mean, that average borrowing cost when America was a far more credit worthy nation, that would add more than $600 billion per year to just our interest expense. So Senator Toomey is right. The reason we are in this situation, this brinkmanship, this last-minute negotiation behind closed doors, as that continues, is because Harry Reid hasn't passed a budget that would get reconciled with the House budget, and that would set the whole framework of how the committee structure would go to work and start debating these issues in public so the American people could actually see what the issues were that we are grappling with, and they can kind of weigh in, in terms of public opinion, in terms of what we need to do to save Social Security and Medicare for future generations. This should all be done through regular order. We'd be in a far better position, but that is not the case because President Obama doesn't propose serious budgets.

HANNITY: Senator Toomey, how is this going to work? Because Speaker Boehner tried to pass a "Plan B." The president in the meeting today is insisting on raising taxes on small business and individuals over $250,000. But yet he wants to work through the Senate. But how does this get through the House when they couldn't get it with a million-dollar limit? Or a million-dollar cutoff?

TOOMEY: I don't know where this threshold might end up in these negotiations. My suspicion is that that is perhaps one of the topics that is under discussion. And the second point I would make is I think a part of the reticence on the part of many of the House Republicans to vote for this package that was on the table last week is because they were afraid of what would happen to it when it got over to the Senate. If that mystery disappears because there is a reasonable package that can attract a lot of Republican support in the Senate, then I think the prospects in the House improves dramatically. I don't know. We'll have to see. It all depends on what is in the deal, but that is a scenario that I think is plausible.

HANNITY: Gentlemen, thank you both for spending time. Happy New Year to both of you, appreciate you being with us.

JOHNSON: Happy New Year to you.

TOOMEY: Happy New Year, Sean.

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