Political fallout from Trump's 's---hole' controversy

The president denies he used vulgar language during the DACA meeting, but impact on delicate negotiations over immigration reform and government funding is already being felt; reaction and analysis from the 'Special Report' All-Star panel.

This is a rush transcript from "Special Report with Bret Baier," January 12, 2018. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIPS)

SEN. DICK DURBIN, D-ILL.: I cannot believe that in the history of the White House in that Oval Office, any president has ever spoken the words that I personally heard our president speak yesterday, calling the nations they come from holes, the exact word used by the president not just once but repeatedly.

MERCEDES SCHLAPP, WHITE HOUSE COMMUNICATIONS ADVISER: I think there has definitely been selective leaks, there's been inaccurate reporting on this. I was not in that meeting, but what I can tell you is that he made it very clear that that language was -- the language was not used. And it's very clear that this is the Democrats trying to derail this process.

HOUSE SPEAKER PAUL RYAN, R-WIS.: Yes, I read those comments later last night. So first thing that came to my mind was very unfortunate, unhelpful.

(END VIDEO CLIPS)

BRET BAIER, ANCHOR: Well, it was the meeting with the comments specifically heard around the world. The president trying to step back from this on Twitter this morning. "The language used by me at the DACA meeting was tough, but this was not the language used. What was really tough was the outlandish proposal made - a big setback for DACA!" "Never said anything derogatory about Haitians other than Haiti is, obviously, a very poor and troubled country. Never said "take them out." Made up by Dems. I have a wonderful relationship with Haitians. Probably should record future meetings - unfortunately, no trust!"

However, despite the fact that two Republicans senators came out and said they didn't remember hearing it, another Republican senator there, Lindsey Graham, told a colleague he did hear exactly that, and then you just heard about Dick Durbin.

Well, Rush Limbaugh talking about all the media said today on his radio show it amounts to moral preening from a drive-by media eager to project their phony supremacy onto the American people, quote, "They offend me far more than Donald Trump does. These people in the media are a bunch of the biggest phony-baloneys on the planet acting like they don't talk this way. They think this way about Mississippi, they think this way about the American South, they think this way about flyover countries. I can't stand this phony supremacy and superiority that these people projected as though anybody who does think or talk that way is somehow subhuman, a reprobate, or other things.

With that, let's bring in our panel: Jonathan Swan national political reporter for Axios; Susan Page, Washington bureau chief at USA Today, and Byron York, chief political correspondent of Washington Examiner. Just from our talking to people in and around, different sources, it doesn't seem there is a lot of doubt that this conversation happened. It's what the context was and what he was talking about on immigration, specifically merit-based immigration.

JONATHAN SWAN, AXIOS: It's also not surprising to people who have spent a lot of time with the president because it's how he feels. This is how he's always felt about this issue, and in fact you often read about the palace intrigue of the immigration discussions, which staff is on which side. It actually doesn't matter a whole lot with immigration and trade, because the president has these very hardwired instinctive beliefs. And that comment was perfectly in keeping with what he says privately repeatedly to people about these countries.

BAIER: Susan?

SUSAN PAGE, USA TODAY: But just because he speaks about that privately doesn't make it less offensive in terms of language. And I think it's created this global firestorm because it crystallizes existing concerns about his attitudes on race.

BAIER: Byron?

BYRON YORK, THE WASHINGTON EXAMINER: I think now we want to figure out what effect this will have on DACA negotiations. The president had already rejected this idea from the self-appointed bipartisan group of six senators who said they were close to a DACA deal, said there wasn't enough on the wall, said they were completely wrong on chain migration. He said their idea on the visa lottery wouldn't work. The president had rejected that. As a matter of fact, I think his outburst in the Oval Office came as a result of them pitching this idea on the visa lottery which he found completely unacceptable. So I think that Mercedes Schlapp was correct when she says the Democrats are trying to completely undermine this. We'll see what effect it has.

BAIER: Speaking of the long list of people who are saying this was a racist comment, here are a couple of them:

(BEGIN VIDEO CLIPS)

REP. JAN SCHAKOWSKY, D-ILL.: It was racist. It was inappropriate. It was crude and loathsome. Not enough adjectives really to describe how inappropriate the president's remarks were.

REV. JESSE JACKSON, CIVIL RIGHTS ACTIVIST: Every sign is that. He speaks like a racist. But categorizing him by a name does not quite address the issue.

(END VIDEO CLIPS)

BAIER: Senator Lindsey Graham releasing a statement, "Following comments by the president I said my piece directly to him yesterday. The president and all those attend the meeting know what I said and how I feel." This comes as he, the president, recognized Martin Luther King today in a ceremony, signing a proclamation, and then faced some questions yelled by reporters in the room.

SWAN: Yes, and it was sort of unfortunate timing. He was filming that Martin Luther King address while this was breaking, the news was breaking that he described these countries this way.

One thing we know for sure after yesterday is that this immigration issue at DACA will not be solved by the so-called gang of six. And I think one thing we've also learned is that Lindsey Graham miscalculated with the president. He has been flattering the president to no end, playing golf with him, complimenting him on his golf courses and his golf game and really buttering him up. And people have been speculating as to why that might be. One of the policy issue he wants to bend him on is immigration, and this deal is just dead on arrival. And the people who pitched it I do not believe will be the people who take the final deal across the line.

BAIER: Right, because this meeting happened in the Oval Office, this bipartisan group, which is a fairly narrow group, said they had a deal. And then they walk in to find other senators like Senator Cotton and Representative Goodlatte from the House who said this is not a deal.

PAGE: There is a reason why year after year we continue to not have a deal despite negotiations with various groups including some of the people who were in on this Senate group. I frankly am flummoxed by thinking about how they get a deal, certainly by how they get a deal by next Thursday or Friday when they have to pass government funding or see the government shut down.

BAIER: There's got to be a continuing resolution again, right, the fourth time?

PAGE: But will everybody go for that? I think there are some forces that against that idea too.

YORK: The Democrats are trying to create a sense of urgency here, as if the DACA deal has to somehow be done by next Friday for the funding the government deal. It does not. The DACA deal, Trump's announcement would expire on March the 5th.

BAIER: It does if the Democrats say that that's the lever point that they make the deal.

YORK: They had the opportunity in December and did not do it. And Republicans leadership down do not believe they are going to try to shut down the government for that.

BAIER: Let me just read one thing from a senior administration official about this conversation, and this is where the comment happens about merit based immigration. Many nations, especially Canada, Australia, New Zealand, Norway, the list goes on, utilize merit based. Why in the modern era should the U.S. take immigrants unskilled and unlikely to quickly integrate from questionable countries that have severe human rights issues, dysfunctional government, and failed economies? Why can't the U.S. look out for itself and its future that we should bring in immigrants, 1.1 million annually as the steady state, that we need to require they speak English, they have usable skill for a modern economy, will contribute and integrate and will not go on welfare ever any kind. That is what they are trying to pitch.

SWAN: I don't know if your source is Stephen Miller, but that is a pretty good distillation of how thinks about this and how the president thinks about this. This is probably the core of their immigration worldview, which is that people should be judged in a different way and that the immigration system should be overhauled around this idea of quote-unquote, merit.

YORK: Which would not have created a problem if Trump had simply read that statement.

BAIER: That's what I mean. He says that instead of --

PAGE: That sounds pretty rational, but he has undercut his own argument by creating instead this controversy over the offensive language he used.

BAIER: Quickly, before we go to the lightning round, the president's physical exam today, Walter Reed National Military Medical Center, according to his doctor went, quote, "exceptionally well. The president is in excellent health and I look forward to briefing some of the details on Tuesday," Dr. Ronny Jackson from Walter Reed.

Content and Programming Copyright 2018 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2018 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.