Stimulating Conversation: Rove on the Stimulus Plan Debate, Daschle's Tax Woes and More

This is a rush transcript from "On the Record ," February 2, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: This is a "FOX News Alert." There is breaking news out of Washington. He says he is sorry, but is that enough? Former Senate majority leader Tom Daschle, who has been nominated by the president to be the secretary of health and human services, is now apologizing for not paying his taxes.

Now, according to The New York Times, Senator Daschle first realized last summer that he might have a tax issue and told his accountant to look into it. In November, President Obama picked Daschle for his cabinet. After being chosen and while being vetted, he paid his taxes. Does this satisfy you or did he pay too late?

Senator Daschle moments ago.


TOM DASCHLE (D-SD), FMR. MAJORITY LEADER, HHS SECRETARY NOMINEE: All of my life, I've assiduously tried to pay my taxes in full and on time. My failure to recognize that the use of a car was income and not a gift from a good friend was a mistake. When I realized the mistake, I notified officials and I paid the tax in full. It was completely inadvertent. But that's no excuse. And I deeply apologize to President Obama, to my colleagues, and to the American people.


VAN SUSTEREN: Also breaking news tonight, FOX News can now confirm that Republican senator Judd Gregg from New Hampshire is President Obama's pick for commerce secretary -- that's right, a Republican.

For more on these stories and much more, Karl Rove joins us. Karl, nice to see you.


VAN SUSTEREN: Karl, Senator Daschle, former majority leader, says he is sorry. Is that going to be enough or should it be enough for the American people?

ROVE: Well, I don't think it will be enough for the American people. The question is, will it to be enough for the Democrats in the Senate to ram his nomination through? I have found a lot of what has been said over the last several days about this to be disingenuous. The line that this was -- he didn't understand and it was complicated -- look, there are lots of people in America, sales people who work for companies or work as repair people for companies, who are given company-provided cars, and they're told any of the personal use is a taxable benefit to you.

If you're a -- you know, a seed salesman operating in South Dakota, driving around to farms and making sales and following up with your clients, you know that if you use that car for personal travel that it's a taxable benefit to you. And it is just disingenuous to think that Senator Daschle would receive several hundred thousand dollars worth of car service in a -- over a few short years worth of time and think that this was somehow not a benefit to him and that he didn't need to look into his tax consequences.

And then you get into the question of timing. He knew about this in June, but he doesn't pay it until two days before he alerts the Obama transition team in January, weeks after he's been nominated for this. This is -- this is -- this was not done in a timely manner, and it was a bad -- it was more than a bad mistake to begin with, it was simply sloppiness and inattention to one's responsibilities under the law.

VAN SUSTEREN: I think sloppiness would probably be something that he would love to hear tonight, Karl, because I think at least what's resonating most in people who are e-mailing me is that there's something profoundly deceitful about not paying until you get caught when you had knowledge.

ROVE: That's right.

VAN SUSTEREN: And that's the problem. If he'd paid last -- if he'd paid last summer, I think that people would feel a lot differently, but he admits that he knew last summer. And why the gap? And even just what he said -- he says he realized and notified. Well, he realized last summer and didn't notify until December.

ROVE: Right. And you know what? The average American looks at that and has a right and a reason to say, You know, was he waiting to see whether they won the election and whether he got anything before he paid the taxes? Well, did he wait for nearly six months to make certain that he -- that the money out of his pocket would actually -- he'd need to do it, or was he trying to get away with something?

Now, look, in any other circumstance, at any other time, with any other president, Republican or Democrat, this nomination would be dead and dead for a good reason today. But the fact is, is that the Democrats in the Senate, some of them may have a queasiness about it, but I suspect most of them are going to try and push it through.

And President Obama I think set a very bad signal by having once said he wanted to have a very ethical administration, now saying, Well, you know, the problems we face in health care justify having somebody who had several hundred thousand dollars worth of not only this benefit from the car service but unreported income from his $83,333 in one month's worth of compensation from the hedge fund that -- the private equity fund that was - - that was -- that had hired him. And then he -- you know, he was making charitable contributions -- claimed as charitable contributions gifts that could not be claimed as charitable contributions.

VAN SUSTEREN: You know, it's funny. Of the people who are involved in this, the one that I would let off the hook the most is President Obama because I assume, you know, that he's busy doing other things and the vetting is done by other people on the staff. But I hold Senator Daschle very much accountable, but also the U.S. Senate. It looks mighty cozy that all of a sudden, the buddy, the guy in the club, not the poor guy who's sitting out in some county jail someplace for not paying his withholding because he can't make ends meet, or his employment taxes, but it looks awfully cozy. Suddenly, a mistake is OK.

ROVE: Yes. Well, if I were President Obama, I'd be irritated with Senator Daschle because he's put this president in a bad place. I mean, think about this. We have the Democrats with the chairman of the House Ways and Means Committee, Charlie Rangel of New York, is under investigation and in hot water over not paying taxes on investment and vacation properties in the Caribbean.

We have the treasury secretary, who oversees the IRS, did not pay taxes, $34,000 in taxes, and had to pay $43,000 in back taxes and penalties on income that he was told by his employer, the International Monetary Fund, that there were -- that he -- that the responsibility for paying the taxes was his and that they were giving him the money to do so. And now we have the secretary of health and human services designate not having paid a total of $140,000 in taxes and penalties. I mean, that is far more than the average American family makes. And that's what his tax bill on part of his income was.

VAN SUSTEREN: You know, it almost makes Governor Richardson, who -- who -- he realized that he was going to be embroiled in a controversy -- he did the honorable thing, he pulled out. I don't know if he got pushed out or pulled out. But these other two, the secretary of treasury and soon to be secretary of HHS, they want to plow right through, and it looks like their buddies are fine on it.

ROVE: Yes. The average American will look at Senator Daschle and say, How could somebody, you know, take $200,000-plus of driving services over a couple-year period and not think that that somehow was a taxable benefit, particularly when sales -- I repeat, sales people around the country are provided with cars or vehicles by their employers are told explicitly, Use it for business only, and if you use it for personal, you have to pay a tax on it.

And Senator Daschle has -- is driven around -- I mean, how many times a day was he being driven by this -- by this car and driver? I mean, several hundred thousand dollars worth over a several-year period works out to, you know, a couple of thousand dollars, maybe even more than a couple of thousand dollars a month at times. I mean, it's just really remarkable.

VAN SUSTEREN: You know, actually, I could give him more of a pass on not sort of realizing it or not thinking. It's that he knew last summer and he didn't do anything until he got vetted. That's the thing that I think...

ROVE: Right.

VAN SUSTEREN: ... The American people -- and the fact that -- you know, that the Senate seems to look the other way. All right, what do you make of Senator Judd Gregg, a Republican, being appointed by the president to Commerce?

ROVE: First of all, Judd Gregg is one of the smartest, most able members of the Senate. So even if he were not a Republican, I would sort of mourn his passing from the Senate and his movement into the cabinet because he is so good.

The Democrats obviously would like to have a better shot at picking up that seat in 2010. And while a Republican is likely to occupy it for the next two years, Judd Gregg would have been difficult if not impossible to defeat in 2010. And by putting him in the cabinet and a temporary office holder, a place holder in that office, it means the Democrats have got a better shot to take the seat in 2010.

So a smart move on the part of the Obama administration because they get a very good person in the cabinet, a smart move politically because it gives them a better chance in the Senate in 2010 for that seat.

I love Judd Gregg. He's a wonderful guy. I'm not certain that he'll have necessarily a big influence inside the Obama cabinet, particularly since all the power's being sucked out of the cabinet and put into the White House itself. But he's a very good man and a very good senator.

VAN SUSTEREN: The stimulus package in the Senate -- your thoughts on that and where it's headed?

ROVE: You know, I've gotten a report today on -- tonight literally -- on the stimulus version in the Senate, and it just -- it looks like -- it's worse than the House version, if that -- if that can be believed. It's just -- it is -- it's added more spending in it and new programs.

You know, I was reading something, rereading Larry Summers, the head of the National Economic Council in the Obama White House, some remarks that he made earlier in this process, I believe it was in December. He said, As with any potent medicine, stimulus if mis-administered could do more harm than good by increasing instability and creating long-term programs. A stimulus program should be timely, targeted and temporary.

Timely -- we now know that more money in both the House and Senate versions is going to be spent in the years 2011 and beyond than in 2009. Think about that. We're going to be spending more of this so-called stimulus money in 2011 and to 2019 than we're spending in 2009.

Targeted -- I mean, how targeted is it? You know, we're losing jobs in manufacturing, and what we're doing here is just throwing every dollar we can against the wall. It's sort of like trickle-down Democratic economics. Give $2 billion to the National Institutes of Health. What is that going to do to employ somebody in a manufacturing plant?

And temporary? This is not going to be temporary spending. This is going to be the largest increase in discretionary non-security spending in the history of the United States. It will be an 80 percent increase over this year's budget. This year's budget is roughly $393 billion in discretionary non-security spending. This will add $307 billion into the budget this year.

Who thinks that next year, Congress is going to come in and say, You know, what? That $40 billion we added to education in 2009, for the FY 2009 budget, oh, that was just a one-year thing. How many people are going to say, That's built into the baseline of the budget and we've got to start from that point for the 2010 budget? I mean, this is ridiculous, what we're looking at here. It is the biggest expansion of government all in the name of the stimulus, and it's not going to end up creating jobs.

VAN SUSTEREN: All right, if you and I were talking a year from now, what would we talking (INAUDIBLE) what's going on today? What's the situation a year from now?

Watch Greta's interview with Karl Rove

ROVE: We will not have the four million new jobs created or saved that the Obama administration says that this will pass -- that this will create. The bill is going to pass. There's no doubt about it. The question is just how -- how gooked up is it going to be and how -- is it going to look more like the House, more like the Senate, or more like the worst of both?

But they're going to end up passing a bill. And the question then is, is, What happens in the American economy in two years? Will we have a -- will we have those four million jobs that they say -- they say they are going to save or create? The American people are going to just get rid of the word "save" and be looking for four million new jobs. And I don't see how we can spend our way to prosperity by basically blowing up the size of government and dramatically increasing the baselines of these programs.

I mean, next year -- there's $88 billion in this budget, in this bill, to expand the federal share of Medicaid. Now, the same amount of total money is going to be spent on Medicaid. We're just simply increasing the federal share of it as an entitlement program, a mandatory program. How easy is it going to be able to undo that next year? It ain't going to be undone. It's going to be stuck in law and we're going to be stuck as a result with all of this spending built into the budget not as a one-time temporary stimulus, as Larry Summers argued for in December, but as a permanent expansion of government, and that's not good for America.

VAN SUSTEREN: Karl, if you'll just stand by, we have much more with you after this break.

And up next: There's blood on the floor, the Democratic Party taking on one guy, Rush Limbaugh. Who are you going to put your money on, Rush Limbaugh or the Democratic Party?

Plus: What was he thinking? Mega-gold medal Olympic swimmer Michael Phelps caught on camera smoking pot. What, where, and now what? Coming up.


VAN SUSTEREN: It's Rush versus the Democrats, and maybe even all the Democrats, and the fighting is rather fierce. Many Democrats have come out swinging at the conservative powerhouse ever since Rush had some stinging criticism for President Obama on his radio show.


RUSH LIMBAUGH, RADIO TALK SHOW HOST: If I wanted Obama to succeed, I'd be happy the Republicans have laid down. And I would be encouraging Republicans to lay down and support him. I don't want -- look, what he's talking about is the -- is the absorption of as much of the private sector by the U.S. government as possible, from the banking business, the mortgage industry, the automobile business to the health care -- I do not want the government in charge of all of these things! I don't want this to work! So I'm thinking of replying to the guy, say, OK, I'll send you a response, but I don't need 400 words, I need four: I hope he fails!


VAN SUSTEREN: Did Rush gratuitously attack the president or are Democrats going after Limbaugh unfairly? Karl joins us. Karl, was that a personal attack on the president or is that an attack on the ideology of this administration?

ROVE: I think it's clearly the ideology. Rush outlined in the run-up to the -- to the pay-off comment the things that he hoped would not happen. Look, we all want the president to succeed in a certain way. We want our presidents, Republican or Democrat, to be successful leaders, respected, make good decisions, do the right thing. But we never surrender our -- you know, our personal views. It's not like when we elect a president, we all have to agree with him regardless of what he does.

Rush has every right in the world and conservatives have every right in the world to respectfully disagree with the president when we think he's wrong. When we think he's right, we've got a responsibility, like on Afghanistan, to support him all we can. When his mind is open to suasion, it's our responsibility to make the best arguments possible.

But when we disagree with him, we ought to be able to and should disagree with him respectfully and responsibly. And I think that Rush is right, the idea that we're going to expand the government, turn over health care to it and we're going to have this dramatic expansion of federal power and federal influence is a bad thing for our country.

VAN SUSTEREN: All right, Michael Steele, new head of the Republican - - the RNC.

ROVE: Right.

VAN SUSTEREN: What do you think? What's his challenge? What's his challenge?

ROVE: Well, first of all, he's a very good person who's an -- you know, an effective, enthusiastic, energetic advocate for Republican principles. He is the sort of the American dream and Republican principles embodied in his life. It's a great thing for our party that we have such a -- you know, such an energetic, and you know, joyous warrior to go into combat.

On the other hand, he does have some challenges. He has got to demonstrate -- the job of being Republican national chairman is about 70 percent raising money. The previous chairman, Mike Duncan, raised $400 million. And Michael Steele's going to have to raise a lot of money and spend a lot of time and money raise -- lot of time raising that money.

He's also got to be a good manager because when you have an enterprise that big, running that operation and making sure its resources are carefully deployed in contests where it can make a difference is really an important thing. And you have a board of directors, and it's 168 members. And as a result, any board that big is a difficult board to keep in touch with, communicate with, manage, and please. And so being national chairmen is a tough and demanding job, and Michael's an energetic advocate. We'll see how he does on these other responsibilities.

VAN SUSTEREN: It almost sounds like, with all the members, that it's like herding cats. Anyway, in terms of raising money...

ROVE: But these have -- these have claws.

VAN SUSTEREN: Yes. Indeed. The Internet -- I mean, isn't this -- I mean, isn't this is the big transition, too? I mean -- I mean, the Republican Party has really got to zero in on that because President Obama and his campaign so effectively championed that.

ROVE: Yes. Interesting enough, I think -- yes, Internet fund- raising, both political parties have got to figure out how they can do it more effectively. But let's remember Barack Obama raised money on the Internet for a candidacy. That's a lot different than party organization. Some of the same principles apply.

Your money is going to be driven by the controversy of the moment. You can't simply send people out a request for money and expect them to respond to it. It has got to arrive in an atmosphere and an environment where they feel their reaction to that -- that request is going to make a difference. And that's going to be -- you know, that's a challenge for both political parties.

And but yes, we're now seeing -- we went through a change from the old traditional way of big-dollar fundraisers to direct mail, and we're making the transition from direct mail to Internet. We'll still continue to raise money through direct mail and still continue to raise money through big dinners and fund-raising committees, but particularly in the years to come, I think we're going to find Internet fund-raising, particularly for candidates, as a more cost-efficient way. But it's going to be driven by the even and driven by the persona of the candidate and supported by the ideology of the party.

VAN SUSTEREN: Karl, thank you.

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