This is a rush transcript of "Special Report With Bret Baier" from August 3, 2009. This copy may not be in its final form and may be updated.


PRESIDENT BARACK OBAMA: And I can make a firm pledge, under my plan, no family making less than $250,000 a year will see any form of tax increase.

LAWRENCE SUMMERS, WHITE HOUSE CHIEF ECONOMICS ADVISER: There's a lot that can happen over time, but the priority, right now, it is never a good idea to absolutely rule things out no matter what.

TIMOTHY GEITHNER, TREASURY SECRETARY: We can't make these judgments yet about exactly what it's going to take and how we're going to get there. I think what the country needs to do is understand we are going to have to do what it takes, we're going to do what is necessary.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: I am reiterating the president's clear commitment in the clearest terms possible that he's not raising taxes on those who make less than $250,000 a year.


BRET BAIER, "SPECIAL REPORT" HOST: They must have reiterated that 10 times at the White House briefing today. White House Press Secretary Robert Gibbs there apparently what appeared to be walking back some senior economic advisors' including the Treasure Secretary's comments over the weekend in what seemed to be leaving the door open on taxing the middle class.

Let's bring in our panel, Steve Hayes, Senior writer for the "Weekly Standard," Juan Williams, news analyst for National Public Radio, and syndicated columnist Charles Krauthammer.

So, Steve, what was this? Was this a conflict between campaigning and governing? Was this a trial balloon? What was this?

STEVE HAYES, SENIOR WRITER, "THE WEEKLY STANDARD": Probably the easiest explanation is that these guys were out there and they didn't want to box the president in by taking things off the table, and so they didn't answer a question. I don't think that they are sitting there right now trying to come up with all sorts of new tax proposals.

But that being said, this is not just a campaign promise he made. Remember, on February 24, in the address that he made before Congress, he said again "I will not raise your taxes one single dime," and then repeated for emphasis, "not one single dime."

The problem I think he faces is that he has already done it. Really, technically he has already broken his pledge. On April 1st, a tax went into effect that raised cigarette taxes 61 cents a pack. The median income of smokers is $36,000 a year. That's a tax on people making less than $250,000.

What the White House said to explain that was that they really mean no income tax hikes or payroll tax increases.

I suspect that what we're going to see as they continue to look for ways to fund this massive spending orgy that we have seen over the past seven months is going back to that and specifying not payroll tax increases, not income tax increases, but leaving a lot of other things on the table.

BAIER: Juan?

JUAN WILLIAMS, NEWS ANALYST, NATIONAL PUBLIC RADIO: I don't think that is raising anybody's taxes. I think that's raising taxes for people who choose to smoke or choose to consume alcohol. We can go down the line. But it's not raising taxes in terms of a family income.

I don't think that Geithner as Summers as the economics people have much option if they're going to be honest brokers here but to say they is a tremendous deficit, and we have to deal with it at some point before it becomes a problem, before the economy, it drags the economy down, spurs inflation. So they are retaining it.

But inside the White House, David Axelrod, the senior advisor, Rahm Emanuel, the Chief of Staff, and President Obama all know it's just too treacherous to talk about raising taxes because Republicans would beat them about the head politically and 2010 would turn out to be a slaughter.

BAIER: We are not talking about yet the fact that the Bush tax cuts expire next year and will likely be let to expire by this administration. The will let them expire?

WILLIAMS: If the economy is recovering.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Look, if the president and his team start to parse words in a Clintonian way, and after the president had said last year "I will not raise your taxes in any form," all of a sudden says I only meant income tax and payroll, that's not going to fly. That's not going to work.

Look, of the four people who spoke we saw at the beginning of the segment, two of them are politicians and two are economists. The economists have said we have to leave the door open. The politicians understand that it would be fatal for Obama to raise taxes after the pledge he made. It was an essentially a "Read my lips." So how does he square it? I think what's going to happen is by the end of the year he will have a fallback. He's not going to have Obama- care, because you cannot do it in the absence of new, massive taxes. What he's going to have is a health insurance reform, which will mean heavy regulation on the companies so there are no preexisting conditions, you can't lose your insurance. Everybody will be happy, except it will bankrupt the insurance companies. So the shortfall will come not out of the taxes but out of coercing the 18 million young people who today have no health insurance because they are young and healthy and calculate correctly it is unneeded, if you force them into buying health insurance, you have a revenue stream. Insurance companies will be happy. So without taxing, coercing the young and coercing insurance companies into giving unlimited insurance, it will work. That's the only way it will work. And that's where I think they will end up with in December. BAIER: Juan, this weekend the treasury secretary and Larry Summers both talked a lot about deficits. And here is an administration that is, you know, doesn't look like it is dealing with deficits with all the spending that it's doing.

It seemed a disconnect there. Did you see that?

WILLIAMS: No. In fact, in all of their conversations that I have been privy to, they do care about deficit. This is not new to me.

But I think, in the terms of the public, clearly the drive has been towards getting these programs put in place and trying to then mitigate the cost.

But as part of that conversation, you do get conversations about deficits, because if you look at the polls right now, Bret, the economy is number one issue, and deficits are number two. That's the box they are in. If you deal with deficits, you might drag down the economy and you can't afford to do it.

KRAUTHAMMER: And the original sin here is the stimulus package. That was $1 trillion dollars out the window. And because of it, Obama has lost a lot of leverage having spent that money with almost nothing to show.

Everybody is skeptical about all the other spending he is going to do, and he has key ate add deficit of his own making that will crimp all his other ideas and plans.

BAIER: Steve, there are some people, up there on Capitol Hill, some lawmakers saying, you know what, just abandon the rest of the stimulus plan.

HAYES: I was going to say, that's a good proposal. I can't imagine that they would actually seriously think about it, but they have spent, estimates vary, but roughly 10 percent of that right now. It has not proven to be stimulative.

Who knows what will happen, but there are signs that the economy is now in recovery or is on its way to recovery. So what's the point? You could save approximately another $700 billion. You wouldn't have to raise taxes. Good idea.

BAIER: But will it happen?


HAYES: Absolutely no chance!

WILLIAMS: You guys are dismissing the idea that the money, the stimulus money to be spent down the road has contributed to the confidence that is being seen on Wall Street and from consumers.

I wish consumers had more confidence thinks it's looking good.

HAYES: Look what Wall Street has done since Obama-care has run into trouble. I would say that Wall Street is factoring in the opposite, the fact that all of these big government plans are having serious problems, and the stock market has taken off.

KRAUTHAMMER: You'll never have a rescinding of the stimulus because it would require Obama admitting error, and that doesn't happen.

BAIER: There was plenty of traffic at many car dealerships over the weekend, but will it last? The fate of Cash for Clunkers, next.



MITCH MCCONNELL, (R-KY) SENATE MINORITY LEADER: Americans need some assurance that the estimates they're getting is accurate. And if recent experience is any guide, they have reason to be as skeptical as the car dealer who said this to a reporter last week, "If they can't administer a program like this, I'd be a little concerned about my health insurance."

GIBBS: If it doesn't happen this week, it's unlikely that we'll make it to the weekend with a program that can continue.


BAIER: A bit of a threat from the White House saying that senators need to move on the Cash for Clunkers program. It has already passed the House, $2 billion additional dollars because the program, frankly, was running out of money.

We're back with the panel. Charles, what happens with Cash for Clunkers?

KRAUTHAMMER: Well, it is very popular. It's an artificial stimulus drawing from the future into the present. I don't think it will have any real effect in the long run other than the temporary stimulus. But at bottom, it's bizarre economics. We're paying people — what we're forgetting is that all of these cars, tens of thousands of clunkers, are going to be turned into scrap. And the question is why? America is going to be destroys tens of thousands of perfectly usable cars, destroying essentially American assets.

A parody of Keynesian economics is to say that you pay half the population to dig holes and the other half to fill them in. this is worse, because what we're paying people with the bribe of cash is to destroy huge numbers of assets.

Why not put them on tankers, ship them into the third world, and get the cash for cars and parts? So you are doing is destroying a whole set of assets and replacing them. That's going to be stimulative for a week or two or three, but in the end, it's lunatic economics.

BAIER: Juan, senators, Democratic and Republican senators who support this, say it's better gas mileage for all these cars and it's good for the environment. What is the outtake of what you think is going to happen up there?

WILLIAMS: Well, I think it will take some time. I mean, the opposition is really among Democrats who want higher fuel efficiency standards put in place. They want more demands on auto — on drivers, consumers, in terms of what they are putting on the road in the future.

It's not about the program. The program is a fabulous success. Let's count the ways. If you're talking about economic stimulus, my gosh, the car dealers who were down in the first half of the year say they had their best month ever last year because of this. If you're talking about independents from Middle East oil, good news there.

KRAUTHAMMER: Oh, come on.

WILLIAMS: It's good news in so many ways.


WILLIAMS: It's good news in so many way, and yet Republicans can't even see the sunshine.


BAIER: It's not just Republicans, first of all. It's Claire McCaskill from Missouri.

WILLIAMS: That's wanting to up the fuel efficiency standards.

KRAUTHAMMER: But these are trivial games on fuel efficiency, global warming, and Middle East dependence. It's almost un-measurably small.

WILLIAMS: It's a small program, so if you want to put more money into it, I will listen to that argument.

HAYES: It's not economic stimulus. You can't say that this is economic stimulus. What this is is auto industry stimulus. And hooray for the auto industry. If you are the son or daughter of a car dealer, you're thrilled right now.

The problem is, it's just shifting the spending. The details of the program, too, are, I would say, the perfect example for Republicans to seize on, to warn about the problems of big government programs. It was supposed to start July 1 and it couldn't, because it wasn't ready. The administrative costs were $50 million to make this thing happen.

When it started on July 24, within two days, the computers crashed. Dealers were not able to register the transactions that they had dealt in, and they were facing $15,000 fines potentially.

The EPA in the middle of the week just decided to change which cars were eligible for the Cash for Clunkers program right in the middle of the week!

WILLIAMS: Steve, if you to talk about the administration and how government can be slow, that's fine. But you're not talking about the value of this program to middle income consumers —


WILLIAMS: — to a key part of the American economy, the auto industry, which has lots of subsidiaries that contribute to making cars. I just think it's good news and yet, and yet you guys are like, oh, no, anything Obama, we are going smash. Oh, come on!

KRAUTHAMMER: No, it's not that. Anything that weirdly and bizarrely defies all laws of economics — it isn't as if the cash has arrived by stork. This cash is coming from other people who pay taxes. This is real cash.

So what you are doing is taking the money out of the pockets of some workers and putting it in the hands of others. It is a transfer of money, it's not a creation of money.

WILLIAMS: It is known as a stimulus. That's the whole idea, Charles. You keep it on the road out of recession.

BAIER: I want to wrap this up.

KRAUTHAMMER: You can call it a banana, it won't make any difference.

WILLIAMS: Out of recession.

BAIER: What about the administration taking that and saying, wait a second, if the Cash for Clunkers doesn't work, how does one-sixth or one- seventh of the economy get handled by health care by public option?

WILLIAMS: That's a problem. I agree. Steve makes the right point. If you saying these guys didn't understand how popular this program was going to be, and therefore managed it badly, and after there missed predictions, exactly right. I don't have any problem with that.

But the program is pretty good.

KRAUTHAMMER: No, I'm against even if it were well-administered. It is a lunatic idea. It's a lunatic idea.

HAYES: It is a banana.


KRAUTHAMMER: You call it a banana, and therefore it is going to work.

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