This is a rush transcript from "Special Report," November 15, 2010. This copy may not be in its final form and may be updated.


SEN. MITCH MCCONNELL, SENATE MINORITY LEADER R-KY.: What I've concluded on the issue of Congressional earmarks that the leader of my party in the Senate, I have to lead first by example. Nearly every day that the Senate has been in session for the past two years I have come down to this spot and said that Democrats were ignoring the wishes of the American people.

When it comes to earmarks, I won't be guilty of the same thing.  Banning earmarks is another small but important symbolic step that we can take to show that we're serious, another step on the way to serious and sustained cuts in spending and to debt.


BRET BAIER, HOST OF “SPECIAL REPORT”: Senate Minority Leader Mitch McConnell says he is listening to the American people, reversing a public opposition to earmarks, supporting now a proposed two-year moratorium on the so called pet projects that have been the focus of a lot of talk on Capitol Hill as the new Congress gets ready in January to come in.

The White house putting out a statement from President Obama, quote, "I welcome Senator McConnell's decision to join me and members of both parties who support cracking down on wasteful earmark spending which we can't afford in these tough economic times. In the days and weeks to come I look forward to working with Democrats and Republicans to not only end earmark spending but to find other ways to bring down our deficits for our children."

What about all of this? Let's bring in our panel, Bill Kristol, editor of The Weekly Standard, Fox News contributor Juan Williams, and Chris Stirewalt, Fox News politics editor digital. Bill, a conversion?

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: A graceful confession and conversion by Mitch McConnell. He did the right thing and the necessary thing. He was going to lose tomorrow in the Senate Republican Congress if it came to a vote.

It's ridiculous to say they can't experiment for earmarks for two years. Even if you agree with Mitch McConnell's theoretical case for earmarks, which I don't, the idea that suspending them for two years will be some kind of great disaster is ridiculous. The voters want them suspended and they will be suspended, I think, which will be good.

BAIER: And now, Juan, the White House is onboard. Are the Senate Democrats on board with this?

JUAN WILLIAMS, FOX NEWS CONTRIBUTOR: I think that everybody now is looking at it, as a matter of symbolism. That's what McConnell had to say today giving a speech. It was interesting that he thinks it's really now a bipartisan issue. He doesn't want to cede discretion to them, but now given the powerful symbolism of this moment to earmarks he is willing to give discretion back to president to see with a he does with it.

But this is a big flip-flop for Mitch McConnell.

BAIER: Chris?

CHRIS STIREWALT, FOX NEWS POLITICAL EDITOR DIGITAL: Where is this Republican establishment everybody keeps talking about that has to be destroyed and fought back? It seems like every time the Tea Party or the anti-establishment movement we hear about comes up with something it rolls through.         I haven't seen the fighting and opposition that many people predicted that was a trope we heard a lot during the campaign, can Republicans hand the outsiders, the Tea Parties? So far there doesn't seem to be any resistance.

BAIER: Jim DeMint this weekend on "Fox News Sunday" saying that essentially he is leading the charge. Is this a big win DeMint and the Tea Partiers, Bill?

KRISTOL: Yes. Not just Tea Partiers. I suspect earmarks are unpopular by about 75, 25 percent of the American public as a hole. So it's a win for the Republican Party understanding a bit of the message of the last election. I think it strengthens Jim DeMint's hand a little bit.  And I do think it's a bit of a moment for Mitch McConnell. He wouldn't have gone as far out as he has the last week opposing this. And people like me said this was crazy. You are not going to sustain this.  But this for him was important. He's proud of what he has done for Kentucky. If you are senator for 25 years you define yourself with the Mitch McConnell center for the study of this and that and the University of Kentucky and other worthwhile earmarks I'm sure that he secured.

WILLIAMS: The fusion plant in Paducah.

KRISTOL: Yes. It had to be in Paducah. If it had been in the normal legislative process, wouldn't have been as efficient, I guess. But he probably had to swallow hard to give the statement today, but I give him credit for doing it.

It's an interesting moment here where we are seeing that the Republican establishment is adapting to the Tea Party. Trent Lott, the Republican leader said, was quoted in the "Washington Post" a few months ago, saying the Tea Partiers will get here and we'll domesticate them. We have to get them under in control. I think it's more the opposite.

BAIER: Let's talk about extending the Bush era tax cut. The deadline obviously is the first of the year. It's essentially a tax increase across the board if it doesn't get fixed in the next couple of weeks. Take a listen to David Axelrod, senior advisor to the president this weekend.


DAVID AXELROD, SENIOR OBAMA ADVISER: We just can't afford to borrow another $700 billion for tax cuts that almost entirely are going to go to millionaires and billionaires. We just don't have that money.

We cannot afford to go to the additional step and permanently cut taxes primarily for millionaires and billionaires at a cost of $700 billion for the next ten years alone.


BAIER: I just wanted to show that "permanent" was the big word there, Chris, and that seems to be the talking point.

STIREWALT: Yes, the talking point alert for the week is "permanent." They were never that opposed. The White House was never that opposed to the concept of a little extension with the tax cut for wealthy.  I think this is essentially bowing to reality. There is no way that they could get through a tax increase at this moment given what's going on. So I think this is just sort of a nod and face-saving effort.

BAIER: Juan, where does this go, this compromise? Democrats and Republicans sit down at the White House with the president on Thursday.  There are all kind of deals floating out there. Chuck Schumer has one out there for $1 million or less. There are other things that would be tied to temporary extension. Where do you think we are on the compromise possibility?

WILLIAMS: There are two lines of argument that are current. One is, you know what, you've got to have the tax cut in place to boost the economy. If you boost the economy, you do so at the expense of the economy. That's the line from the White House.

The contrary position coming from the Republicans at this point, you need to stabilize the tax rate so it's predictable for businesses going forward.

BAIER: Keep it where it has been.

STIREWALT: Yes. That's the argument. Previously the Republican argument had been everybody should be the tax cut. There is no reason to do away with it. It stimulates the American economy. Their argument shifted to the business ability stabilizing.

It looks to me that they are going to win; Republicans will win on the idea of extending the tax cut. Schumer's effort to try to limit it to people making $1 million is attractive, but I think the counterargument about the need for stability and just leave it in place is going to carry the day.

BAIER: Bill?

KRISTOL: There will be a three or four-year extension for all the tax cuts so Chris and I will get a middle income tax cut and Juan will get his millionaire's tax cut.


BAIER: We'll leave it there.

Afghanistan's president wants America to ease up on the Taliban. What do you think the U.S. should do? Vote in the online poll at our homepage at FOXnews.com/specialreport. We'll be right back.



HILLARY CLINTON, U.S. SECRETARY OF STATE: On President Karzai's concerns, we share the concerns. We've discussed them on a number of occasions. But we believe that these operations are in the best interest of the Afghan people, the Afghan government, and the ISEF troops who are working with their Afghan counterparts to secure the country.

RICHARD HOLBROOKE, AFGHANISTAN AND PAKISTAN ENVOY: Some of the things he objected to are things which are being done at this time necessarily to support his government.


BAIER: Secretary of state and envoy to Afghanistan and Pakistan talking about President Hamid Karzai's comments this week talking to the Washington Post.  He said this, quote, "The time has come to reduce military operations. The time has come to reduce the presence of, you know, boots in Afghanistan, to reduce the intrusiveness in the daily Afghan life."

He also went on to say that these nighttime special operation raids were a real problem and he's very critical of the American operation overall which prompted some concern from General David Petraeus, the commander, of course, on the ground their now.

We're back with the panel. How big a problem is this, Bill?

KRISTOL: It's not a very big problem. I e-mailed someone working with General Petraeus in Kabul today. He said look, this is business as usual with Karzai, who says things we wish he wouldn't say sometimes and has his domestic constituencies to play to.

What made this a big story is the Post story this morning, "Karzai's remarks concern Petraeus, he says criticism hurts war effort."  So I kept looking for where is the quotation from David Petraeus? There is none. This is officials say that Petraeus said this in a meeting with Karzai.

The two remain direct quotations from a foreign diplomat in Kabul, European diplomat who is unhappy with what Karzai said. So my impression from the person I communicated today, Karzai is a difficult partner, but they're not panicked and they will go ahead and do what they're doing. Maliki in Iraq several times said things and it didn't stop Petraeus from waging a counterinsurgency war there in 2007 and 2008.

BAIER: Juan?

WILLIAMS: Well, I just have a different point of view. I think it undermines support for the war effort at home because what General Petraeus has said is the surge with the added boots on the ground to book up the language that Karzai used, there is more of a presence. We don't intend to win it by all-out warfare. The special ops operations being done at night are being done with great care, and they are targeting the insurgents. And we are having success.

Now there has been a slight bump up in terms of civilian deaths.  When there’s a botched effort it comes at a cost. I understand that. But our entire effort is based on trusting that David Petraeus being a fabulous military man, and he is in a difficult situation and he has designed this strategy.

And I think if you have Karzai not only as an unreliable partner but as a critic, it makes it more difficult.

BAIER: Chris, there are a number of stories about Karzai. And you go back to Bob Woodward's book about how they thought he was unstable and maybe perhaps still do, what about the Karzai storyline and how he factors into how the U.S. prosecutes this war?

STIREWALT: We knew -- you mentioned the Woodward book. We knew that the president, now we know the reason the president put the 2011 timeline is so he didn't, quote, "lose the Democratic Party."

Now the question is he has got the 2014 timeline. His administration says 2014 is the real target. But of course that is probably designed to keep Republicans on board because the new majorities in Congress mean that he is almost completely reliant on Republican support to prosecute this war.

So the question is, especially as we have some Republicans who are less certain about prosecuting this war and less certain of prosecuting it with Karzai if he is in fact an uncertain sentinel for liberty in Afghanistan, then it's becoming a problem. As you point out, this becomes a serious problem because you start to lose political coalition behind the war.

BAIER: Republicans right now, Bill, seem like they’re backing the president and how he is doing pretty much anything on Afghanistan.

KRISTOL: I think they are. And Karzai's comments aren't helpful. One difference with Iraq as someone pointed out to me today, we had an excellent ambassador to Iraq, Ryan Crocker, who worked hand in hand with Dave Petraeus in 2007/2008. Everyone agrees that our ambassador to Afghanistan, Karl Eikenberry, does not, can’t even get in the door to see Karzai. He's ruined his relations there.

There was talk when McChrystal was replaced by Petraeus that Eikenberry would also be replaced, he hasn't been. If we are fighting to win, let's get our very best diplomat into Afghanistan along with our very best general.

BAIER: Karzai has admitted taking bag of cash from Iran. He talked about corruption in this interview with the Washington Post saying it's an American allegation.

WILLIAMS: Not against his brother. That's a fact.

The big picture from the American point of view is we want to have success there and be guaranteed we'll be able to then not only have a withdrawal date but there will be a strategy in place that allows us to be secure that we have achieved has some staying power.

And in order to build American support on the left and the right we have to have confidence in the strategy laid out by General Petraeus.

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