This is a rush transcript of "Special Report With Bret Baier" from February 1, 2010. This copy may not be in its final form and may be updated.


PRESIDENT OBAMA: We simply cannot continue to spend as if deficits don't have consequences, as if waste doesn't matter, as if the hard earned tax dollars can be treated like monopoly money.

JEFF SESSIONS, R-AL, SENATE BUDGET COMMITTEE: The president is going to have to be consistent and clear. He can't spend a big part of his State of the Union talking about more spending programs and then say that we're — we have got a serious deficit problem.


BAIER: The president, the administration submitted the $3.8 trillion budget proposal to Congress today. That means the proposal has it at $1.6 trillion deficits for the following year.

Here is a quick breakdown of the numbers. The receipts are taxes are scheduled to rise from 14.8 percent of the gross domestic product of 2009 to 19.6 percent by 2020. Outlays or spending scheduled to fall from 24.7 of the GDP this past year to 23.7, GDP in 2020.

And the national debt is scheduled to rise from 53 percent of the gross domestic product in 2009 to 77.2 percent of GDP in 2020. A little breakdown of the numbers.

Let's bring in our panel, Mort Kondracke, Executive Editor of Roll Call, Nina Easton, Washington Bureau Chief of Fortune magazine, and syndicated columnist Charles Krauthammer.

Mort, your thoughts?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Those graphs that you had there were optimistic projections. They assume that lots of things that ought to happen will happen but probably won't happen, like having a permanent fix to the alternative minimum tax and imposing a doctor fix for Medicare and stuff like that.

The chances are that we are going to have — we face catastrophic debt, as Jim Angle reported. And it's basically, and it's been — people have been saying this for years and years and years, it's because of Social Security, Medicare, and Medicaid, and now interest on the national debt.

So, George Bush proposes a deficit commission, and the Democrats refuse to serve on it. Now Obama is proposing a deficit commission, and the Republicans are not going on it.

I think what they should do is all go down to the Chinese embassy and just declare articles of surrender right now because they own our debt and they are going to own us at the rate things are going, and it's going to be both of their faults.

BAIER: Nina?

NINA EASTON, WASHINGTON BUREAU CHIEF, FORTUNE MAGAZINE: I think if you are going to look at the budget today, you have to — President Obama and his advisors have said over and over again, we inherited this huge deficit, this huge debt. There is some truth to that.

So I would say in terms of judging him, let's say OK, well, just take the deficit off the table because that is a different issue I want to get to in a minute. But just in a matter of spending, they talked about $20 billion in spending cuts, you know, discretionary, non-defense spending.

Then you go in there and you look at the stuff that they are adding to add back the spending, $6 billion in clean energy technology. The EPA's budget being higher than any other administration has ever asked for.

And then you look at that and you contrast that with the cuts. There is this $9 million national parks program preservation program, $9 million in grants it gave out last year. And they have the gull to put it on the website as one of their tough choices they had to make. So I think that tells you all.

The problem with the deficit is you — you have — you need growth. These numbers are so huge. He is going to try to tax down the deficit. He wants to put $2 trillion of taxes on industry and people and capital.

BAIER: And let the Bush tax cuts expire.

EASTON: And let the Bush tax cuts expire for wealthiest people, many of whom are small businesses, as we know. That's not how you get deficits under control.

Bill Clinton was helped in the 90's because the economy improved and the economy helped us grow out of those deficits. You have to — you have to be doing policies that help growth in order to bring revenue in. You can't just cut — you can see from the numbers, you just cannot cut discretionary spending remotely enough to get the deficits under control.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: The scary part here is that normally you expect in a recession to get an explosion of deficits because revenues are down and spending is up. But, when you get a recovery, that should decrease.

But, under the projections of this administration, even after recovery and robust increase in growth, we're going to have the lowest of our deficits are going to be about $700 billion, and they are going to end up at around $1 trillion at the end of this decade. The cumulative effect is, as you showed, that we will have national debt, the total amount, at just about 80 percent of gross national product.

But as Mort said, that includes all kinds of rosy assumptions, including the fixes of the AMT, which is not accounted for, and even loonier is it goes in a decrease in debt of $100 billion as a result of Obamacare. That's a fictional saving of a plan that's not going to happen anyway. So it gives you an example of how out there this whole projection is. A realistic projection is it's going to be 100 percent of the GDP, which means we are either going to have a run on the dollar or we're going to have hyper-inflation or we are going to have catastrophically high interest rates. And either — all three of them will destroy the economy.

BAIER: I want to talk quickly about the president talking frequently about how he inherited this deficit, $1.2 trillion, and that is true. Of course, it came from a Democratic-controlled Congress as well since 2006.

Here's the president on two specifics pointing back to the Bush administration today.


OBAMA: Yet over the course of the past 10 years, the previous administration and previous congresses created an expensive new drug program, passed massive tax cuts for the wealthy, and funded two wars without paying for any of it.

KARL ROVE, FORMER BUSH SENIOR ADVISER: President Obama has attacked the Bush Medicare prescription drug plan in two ways, one by saying it wasn't too generous enough, and two by saying it was too costly and not paid for. What is interesting to me is he has made absolutely no move to pay for it, so to speak.

And, second of all, the Democrats almost to a person favored a plan that was twice as expensive. And they opposed the Bush plan explicitly because it was a private delivery system because it relied on markets and competition.


BAIER: Is that fair, Mort, the Karl Rove response.

KONDRACKE: Rove is right. The Democrats did want a bigger plan and it probably wouldn't have been paid for, although it was a Republican Congress and a Republican president that put through the plan that did.

Now, there was a group in the Senate and the house that wanted to have a deficit commission that was bipartisan and had all the big players involved, the Conrad Gregg plan, and guess what happened? It couldn't get 60 votes.

The vote against it was 16 Democrats, 23 Republicans, including 17 Republicans who had previously said that they were in favor of this commission.

BAIER: And the White House is talking a lot about that.

KONDRACKE: Including Mitch McConnell. And how they can possibly explain their flip can only be politics.

KRAUTHAMMER: Look, there is a statute of limitations on laying it all at the feet of your predecessor. It's about one year. Time is up. At this point it's all whining.

BAIER: Last word, Nina.

EASTON: He didn't make tough choices. And I agree, the Republicans have not stepped up to the plate. But he didn't make the kind of tough choices in this budget that would encourage Republicans to take tough choices.

And by the way, that prescription drug benefit, while everybody calls it a budget-buster, it's also incredibly popular with people.

BAIER: OK, so is the plan to try 9/11 suspects in New York City officially dead? The panelists render their verdicts, next.



OBAMA: If Congress makes a decision that they are going to try to block the opening of a new facility, it potentially constrains what our administration can do. And so this is something that we have got to work through both in Congress, but also with public opinions so that people understand that ultimately this is the right thing to do.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Let me tell what you plan a is for Khalid Sheikh Mohammed. Khalid Sheikh Mohammed is going to meet justice and meet his maker. He will be brought to justice and he is likely to be executed.

OBAMA: I don't think it will be offensive at all when he is convicted and when the death penalty is applied to him.


BAIER: There you see the president today and also the White House press secretary over the weekend and the president from a few weeks ago talking about the trials for 9/11 suspects, and Khalid Sheikh Mohammed, of course, the alleged master mind of the 9/11 attacks.

What about that? Are they still going to be in New York? We're back with the panel. Charles?

KRAUTHAMMER: What a great demonstration of the presumption of innocence.


I mean, if there is a rationale, and there isn't, but if there were ever a rationale for having the KSM trial in New York in front of a civilian court, it was for America to demonstrate the rule of law and the majesty of our justice system.

And here you get the spokesman for the president of the United States saying on Sunday the guy is going to be found guilty and executed, the president essentially saying the same. The attorney general has said essentially the same. It's like in the westerns where they say let's hang them but give them a fair trial first.

And you know, if you are going to have the president and high spokesman in the administration speaking in this way ahead of a trial, it poisons the jury pool, meaning the whole American electorate, the whole American population.

And a defense attorney is going to argue that this makes it inherently a trial that's going to be unfair. So, if there were a rationale, it's destroyed.

And, secondly, the issue is it's not the cost of what is happening in New York. You know, all of a sudden people are saying that we discovered that it's going to be expensive if you have it in New York and it will shut down Manhattan. You really have to have a study? I could have told you that for nothing about six months ago. The reason that Democrats are running away is not the expense of the trial. It's because of what happened in Massachusetts. It was seized upon by a Republican. This is lunacy in how you treat terror. Democrats are running scared because it's going to be an issue in November.

BAIER: Nina, there is a push, a bipartisan push led by Lindsey Graham of South Carolina. There are Democrats on board to strip all the funding and put them back into military commissions, starting a bill launched tomorrow.

EASTON: I think it probably would do the White House a favor, actually, if Congress took action, went this route, went a route of saying military — we should have military tribunals for anybody declared an enemy combatant, because I think what's happened to the White House is that they have run up against the contradictions of their two positions and it's blowing up in their face.

They want to look tough to voters because it's popular to say these guys are vicious murders. On the other hand, they want to look like they're just and fair and rule of law to appeal to their civil liberties allies on the left.

And you can't — the two sides aren't ten being. That's not a proper position. They are rightly tied in trying this guy in a court in New York City or anyplace like that. So I think, again, Congress would do them a favor to act.

BAIER: Mort, the administration insists a decision hasn't been made. Our reporting has said that pretty much every politician thinks this is the wrong side of politics and they are moving on from New York City.

KONDRACKE: Well, you know, you could bet everything you have, practically, that it's not going to be in New York City. You know, I thought when the president started talking there, that he was sort of pleading with Congress to bail him out of this situation...

BAIER: That was from the YouTube interview.

KONDRACKE: ... that he got himself into, and then he finally sort of went back to Eric Holder land.

This whole thing has been just immensely naive. I mean, President Obama thought that he could satisfy the civil libertarian and the Nobel Peace Prize Committee and all these people by closing Guantanamo Bay and trying these killers in civilian courts and that sort of thing. And he has just discovered that he can't do it.

Some of these people are going to be held indefinitely forever because they can't be released, they are too dangerous to be released, and they can't be tried.

So — then you have got some of them are going to be tried in military tribunals, others in civilian courts. The ones that are tried in military tribunals will appeal on the basis that they should have been tried in civilian courts with all the due process. This is just a catastrophic mess.

BAIER: Quickly, Charles, Senator Evan Bayh, a Democrat here on this set said here this weekend that he thought it was too costly, $200 million in the budget to pay for trials when it could cost less than $1 million at Gitmo to try them.

KRAUTHAMMER: Democrats will use the cost as a good excuse, but the Democrats are implying if you find a place where it's cheaper in the United States, for example, a military base, it would be OK. No. Republicans ought to oppose it on the grounds of, in principle, it's a bad mistake, expensive or not.

It should be in Gitmo and it should be a military commission, not a civilian trial.

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