David Plouffe Defends Obama's Deficit Reduction Plan; Sen. Lindsey Graham on Foreign Policy Challenges

The following is a rush transcript of the September 25, 2011, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: I'm Chris Wallace.

Herman Cain picks up a surprise win in the Florida straw poll. And Main Street and Wall Street are rocked by more bad economic news.


WALLACE: As President Obama pushes the plan to reduce the debt and get more Americans working, Republicans reject his call for higher taxes on top earners. Is a deal possible? We'll ask White House senior adviser David Plouffe.

And the Pentagon calls out Pakistan for supporting attacks Americans. And the Palestinian Authority defies to United States and applies to the U.N. for statehood.

We'll talk with the top foreign policy voice on Capitol Hill, Senator Lindsey Graham.

Also, with the Fox News/Google debate, the Republican front runner stumbled.


TEXAS GOV. RICK PERRY, PRESIDENTIAL CANDIDATE: Was it before -- he was before the social programs.


WALLACE: We'll ask our Sunday panel if Texas Governor Rick Perry is in trouble -- all right now on "Fox News Sunday."

And hello again from Fox News in Washington.

With fears growing about a worldwide double dip recession, the stock market had its worst week since October of 2008.

Joining us now to talk about President Obama's plan is White House senior advisor David Plouffe.

And, Mr. Plouffe, welcome back to "Fox News Sunday."

PLOUFFE: Thanks for having me, Chris.

WALLACE: I want to focus today on what President Obama has said and what he's doing, whether he's living up to his rhetoric.

And let's begin with what he said about raising taxes two years ago. Here it is.


PRESIDENT BARACK OBAMA: The last thing you want to do is raise taxes in the middle of the recession because that would just suck up and take more demand out of the economy and put businesses in a further hole.


WALLACE: Question -- if the president believes what he said on that two years ago, why is he proposing huge tax increases in the midst of what is a very close to a recession?

PLOUFFE: Well, let's first talk about what the president wants to do is cut taxes for just about everybody in America. His plan would give the average middle person $1,500, cut taxes for small business owner. So, all we're talking about here is people at the very income spectrum.

Now, the president would like to do tax reform, which would obviously lower rates for most people in America and make the tax code fair and get rid of loopholes and special treatment. But absent tax reform, the president believe the right way to get our fiscal house in order is ask the wealthy to pay their fair share. But he is going to continue, as he has throughout his presidency, push to cut taxes for the middle class folks so that they obviously can weather this economy turn better, but also allows them to help the economy by being able to consume more.

WALLACE: But, Mr. Plouffe, what you are talking about $200 billion in tax cuts that end in the next 15 months. You're talking about $2 trillion in tax increases that will go on for next decade. Between his jobs plan -- and I want to break this down because it's important -- between his jobs plan and cutting the deficit, the president wants $1.5 trillion in new taxes over the next decade.

Let's put it up on the screen -- letting the Bush tax cuts for the wealthy expire, $866 billion; limiting the deductions for families making $250,000 a year, $410 billion; closing loopholes and tax breaks, $300 billion. And on top of that -- on top of that, $1.5 trillion, another $500 billion in new taxes to pay for Obamacare, for a total of $2 trillion.

Again, let's go back to what the president said two years ago.


OBAMA: That would just suck up and take more demand out of the economy and put businesses in a further hole.


WALLACE: He said raising taxes. He wasn't talking about raising taxes on the middle, wealthy or whatever. He said raising taxes will take demand out of the economy and put businesses on the hole. Was he right then or is he right now? Because he can't be both.

PLOUFFE: Well, first of all, in his plan, there would be no tax increases on the wealthy, closing corporate loopholes until 2013, just as we have to make sure the spending cuts are done carefully, over time we do the same thing with revenue.

But, again, we have to reduce the deficits. You know, these are choices we have to make as a country. So, if we all we have to reduce the deficit by about $4 trillion, we're going to cut education by a third, ask seniors to $6,000 more in Medicare to pay $200,000 tax cuts for the millionaires. That's what, you know, Mitt Romney and Rick Perry and all the congressional leaders want to do.

Or are we doing spending cuts and ask the wealthy to pay their fair share?


PLOUFFE: So, this is the right approach to the country. And the vast majority of the people, the job creators, the small business owners, they're going to get tax cuts. President cut 15 taxes for them over the course of two years roughly. And he wants to do more. Every middle class family, $1,500 tax cut.

So, this is significant tax relief for just about everybody in the country.

WALLACE: But two problems it seems to with what -- with what you say. First of all, you say, well, this isn't going to happen until 2013. I know the politicians here in town and on the Republican campaign trail, all they're thinking about is November of 2012.

But if you are businessman, you are thinking five years down the road, 10 years down the road. So, the idea, well, I may get a $1,000 tax cut in 2012, but I'm going to get $2 trillion of tax increases over the next decade doesn't -- isn't likely to make them go out and hire more people.

I also want to get back to this issue of fair share, which you keep talking about. Put it up on the screen. According to the nonpartisan Tax Foundation, the 1 percent of households with the highest incomes pay 38 percent of federal income taxes. The top 10 percent pay 70 percent of federal income taxes. Meanwhile, 46 percent of households pay no federal income tax at all.

And the president thinks that the wealthy aren't paying the fair share?

PLOUFFE: Listen, you can manipulate statistics in any way you want. The fact of the matter is 22,000 people --

WALLACE: Wait, wait -- you don't think that top 10 percent households are paying 70 percent of taxes?

PLOUFFE: Well, they are making a ton of money. Twenty-two thousand people --

WALLACE: But they're paying 70 percent of the taxes.

PLOUFFE: Twenty-two millionaires pay less effective tax rate, under 15 percent. So, we have inequities. The American people are screaming out saying it's unfair that the wealthiest, the largest corporations who can afford the best attorneys, the best accountants, take advantage of these special tax treatments that the lobbyist have, along with lawmakers, have cooked in the books here. So, the question is: how are we going to move forward as a country? Are we going to, yes, do some spending cuts that don't gutter our ability to do things like education and innovation? And are we going to ask the wealthiest to pay a little bit more? All we're talking about is going back to the rates --

WALLACE: Because 70 percent isn't enough?

PLOUFFE: Well, again, they make a ton of money. That statistic, it's a question --

WALLACE: And they pay a ton of taxes.

PLOUFFE: Well, they do. The question is, in raw deals.

WALLACE: They pay more than a ton.

PLOUFFE: In raw. The question is, from a percentage standpoint, they are paying less effective tax rate as Warren Buffett was saying --

WALLACE: That is not -- it is not true.

PLOUFFE: Twenty-two thousand --

WALLACE: There may be a certain number. You talk about being able to manipulate the numbers. The fact is, people at the highest end pay the highest percentage of taxes. They're paying a higher percentage than middle class people are. It is an effective tax rate.

PLOUFFE: You think the middle class should pay more? Because that's what the Republican congressional plan is and the plan that Rick Perry and Mitt Romney --

WALLACE: Well, some of them say cut spending. And I want to talk to you about that -- that's out of the equation, if I may.

PLOUFFE: We agree with you. It's balanced.

WALLACE: Let's get back to this theme, which I mentioned at the beginning, of rhetoric and reality because here's what the president said just before sworn in as president in 2009, making tough choices on the budget. Here it is.


OBAMA: What we intend to do this year and next year and all of the years I am in office is to demonstrate our seriousness and not by gimmicks, not by punting to future administrations the tough choice.


WALLACE: If the president believes that, why is his new plan with deficit reduction filled with budget gimmicks?

PLOUFFE: It's not filled with budget gimmicks. These are very, very hard adjustments to make Medicare and Medicaid, deep spending cuts -- we've already cut $1 trillion. So, that's been signed into law.

We have more to do -- in ag programs and some federal retirement programs. These are tough cuts that are, you know, obviously, we're getting criticized for.

WALLACE: So, I think the criticism you're getting is from Concord Coalition, from The Washington Post editorial page, from the Commission for Responsible Federal Budget, nonpartisan groups, or even liberal newspapers.

Case in point -- $1 trillion of the $1 trillion in deficit reduction the president calls for in his plan is for not continuing to fight the wars in Iran and Afghanistan. The president is cutting money that wasn't going to be spent anyway, instead of cutting of money that was.

PLOUFFE: Well, these are real savings. It's scored by CBO. It's a hard capital --

WALLACE: It's a budget gimmick.

PLOUFFE: Well, it was in Paul Ryan's plan. So then that's a budget gimmick. The negotiations with John Boehner --

WALLACE: Well, if it was in his plan, it was a budget gimmick.

PLOUFFE: It's -- this is scored by CBO. This is real savings. It's hard cash.

WALLACE: You think it's real savings, cutting -- people are concerned about federal spending to sit there and say, we're not going to -- we are not going to spend money on wars that we weren't going to fight anyway, $1 trillion, a third of his plan.

You think that's a real choice and not a gimmick?

PLOUFFE: No, because it is establishing hard cash. And it's real savings over time. The point here is --

WALLACE: A hard cash on what? On a war that we aren't fighting?

PLOUFFE: Here's the question really, because this is a choice, OK? Let's -- what the Republican congressional plan was, which is embraced by either Romney and Perry, one of those are going to be the Republican nominee in all likelihood.

WALLACE: You are ruling out Herman Cain?

PLOUFFE: Two hundred thousand dollars in tax cuts, new tax cuts, this isn't protecting the old Bush tax cuts, for the average millionaire, paid for by middle class people and senior citizens. The country can't afford that right now.

So, the president's approach here has tough spending cuts as well as some smart revenue by closing loopholes to the wealthiest.

WALLACE: I want to talk about these tough spending cuts. The president calls for $320 billion in savings for Medicare and Medicaid, but it's all by reducing waste and payments -- improper payments. There are no cuts to beneficiaries, not cuts to beneficiaries until 2017 -- when even if he is reelected -- President Obama would be out of office.

That's the kind of tough budget cut that that the president was talking about?

PLOUFFE: Well, this is -- and a lot of people dealing with Medicare and I believe the Ryan plan had that kind of a approach.

WALLACE: That's not true. He had a half trillion dollars in budget cuts over the next decade.

PLOUFFE: In terms of --

WALLACE: And you are not putting the Ryan plan as an example.

PLOUFFE: No, my point is, though -- which is, you want to make sure that you're protecting current beneficiaries. So, this goes in 2017.And --

WALLACE: Why not do it when he is president?

PLOUFFE: Well, because this is the right way to approach it.


PLOUFFE: This is obviously a program that's very important to many people of this country, it has to be preserved. You want to handle adjustments smartly. But it does have significant savings in the first 10 years, and because the president is making some structural adjustments to Medicare, on both the provider side and the beneficiary side, you get even bigger savings in the 10 years after that.

So, now, the president's approach here is not to try to turn Medicare into a voucher program. Stick the average senior with $6,000 bill to give huge tax cuts to millionaires, which is what the other party wants to do for the most part. We want to preserve this program, and we're going to have to make some tough decisions to do that. But we can both preserve that program and release some pressure on the federal deficit at the same time.

WALLACE: The so-called congressional "super committee" has to come up with $1.2 trillion in cuts, reduction to the deficit either by tax increases or budget cuts by Thanksgiving. If not, you get these automatic triggers.

The president, part of his thing is to limit deductions to the wealthy. That has already been rejected by a Democratic Congress to help pay for Obamacare -- this idea of just letting the Bush tax cuts expire. You know the Republicans won't go for that. That is an article of faith on their part, rightly or wrongly.

Isn't the Obama plan really about running for president in 2012 and not about trying to solve our jobs or debt problems now?

PLOUFFE: No. The president made the point in his speech to Congress. You know, the election is not for 14 months. The American people don't have 14 months to wait. We should act right now in the American Jobs Act.

WALLACE: But his offers, his proposals to the super committee are nonstarter, sir.

PLOUFFE: Well, we'll see. I think some of that -- it's the right direction for the country and we don't know what the super committee is going to ultimately do. But we think that just as most of the spending cuts that were signed in the law by the president after the debt ceiling came out of work the administration did, and identify, we think in terms of some of the domestic spending cuts and entitlement savings, some of the ways to approach revenue ought to provide that foundation.

On the American Jobs Act, the question is: are we just going to sit by and do nothing? Or are we going to do something and we can do it in a fiscally responsible way to pay for it. The higher -- a huge number of people in this country put tax cuts into the pockets of every middle class worker and small business owners, construction workers, veterans, and teachers back on the jobs.

You know, the situation could not be anymore urgent and that's the task in front of Congress right now. Are they answering the call of the American people, which is to do something on the economy right now?

WALLACE: Is he willing to get back -- briefly, because I want to get into a couple of other issues with you. Is he willing to go back to a grand bargain with some -- with Boehner, revenue increases and even deeper cuts and entitlements?

PLOUFFE: Listen, the president laid out his view of what's the right way to put the country's fiscal house in order, so that we can live within our means and still invest in things like education and research and technology. Obviously, the president is going to watch what happens in the super committee carefully. We got close to a grand bargain with John Boehner. It would have been the right thing to do for the country.

WALLACE: Are you willing to go back there?

PLOUFFE: Well, listen, we're willing to evacuate any sound proposal. I will make this point about what happened during the debt ceiling. We're seeing it now with some debates in Congress on keeping the government function. Basically, you are at a point now where roughly 30 Tea Party members of Congress are -- you know, the Republican leadership is putting their needs ahead of the needs of 300 millions Americans.

And that has to stop, because we're not going to make progress on the deficit, on things we can do right now for jobs, on tax cuts, unless those 30 or 40 Tea Party members of the Republican House stop being the focal point of our discussion.

WALLACE: So, you are saying they are holding Congress and the government hostage?

PLOUFFE: I think what they're doing is -- you know, you can see any number of things that would get support in the Senate and the president would sign with 150, 160 House Republicans and, you know, 70 or 80 Democrats. The entire approach is how do we keep those Tea Party members happy?

And I think the country is tired of it because we are not going to move forwards together as a country unless we do so in a bipartisan way.

WALLACE: OK. We got about three minutes left and I want to get through three issues with you.

This week, chairman of the Joint Chiefs, Admiral Mike Mullen, made an astonishing statement, that Pakistani intelligence, Pakistani ISI, supported insurgents who attacked the American embassy in Kabul.

Question: What is the president going to do about that?

PLOUFFE: Well, you know, Admiral Mullen, Secretary Clinton, talked to their counterparts in Pakistan just this week. We made this point, both publicly and privately, that ties and safe havens between any part of the Pakistani government and military and the Haqqani Network cannot be abided.

WALLACE: Are we going to cut off aid to Pakistan if they don't get to crack down on the Haqqani network?

PLOUFFE: You know, obviously, we have discussed that in the past. That is something that was relayed to me. The point is, we're going to continue to make -- now, we've had great success in that region. Twenty of the top 30 al Qaeda leaders have been killed, including Osama bin Laden.

So, we're making a lot of progress. They're an important partner in that effort. But obviously, we can't abide these ties.

WALLACE: Palestinian President Abbas indicates that he is going to reject a plan for renewed peace talks with Israeli that was put forward by the U.S. and other countries. What will the president do now to try to head off a Palestinian, a vote in the U.N. for Palestinian statehood?

PLOUFFE: Well, the president made clear if he thinks the path to a two-state solution here is not through the U.N., through direct negotiations, the quartet statement pointed out that was the right pathway.

So, we're going to continue to make the case that direct negotiation is the way that we can have a free and independent Palestinian state and a secure Jewish state of Israel.

WALLACE: Finally -- we got a minute left -- the government runs out of money next weekend. Disaster relief, FEMA runs out of money perhaps by Tuesday. Congress is once again dead-locked over this idea of a continuing resolution to keep financing the government.

Does the president have a solution or is he basically going to say, hey, Congress, it's up to you?

PLOUFFE: This is a basic function of Congress to keep the government running. And so, what we ought not to do is play politics with those who have been affected by disasters. We shouldn't have offsets in there that would -- as the Chamber of Commerce has said -- the automobile program that they want to gut would cost 20,000 jobs. This is a Chamber of Commerce that helped to elect many of these Republicans.

We've already agreed as a country now as we were all in the debt ceiling negotiations who much money we're going to spend. This should not be controversial.

So, stop playing politics, do the right thing for the country and let's make sure that we are not playing politics with disasters.

WALLACE: Mr. Plouffe, we want to thank you for coming in today. Always a pleasure to talk with you, sir.

PLOUFFE: Thank you, Chris.

WALLACE: Please come back.

Up next -- troubles in U.S. foreign policy in the Middle East and stalemate on Capitol Hill. We'll talk with Senator Lindsey Graham when we come right back.


WALLACE: We want to get the Republican perspective now on foreign policy challenges in the Middle East and growing economic problems here at home.

We are joined by Senator Lindsey Graham who comes to us from his home state of South Carolina.

Senator, let's start with Admiral Mullen's flat statement this week that Pakistan intelligence supported the insurgents who attacked U.S. installations in Afghanistan.

Now at the hearing where he said it, you said we are on a collision course with Pakistan. Question, what should we do?

SEN. LINDSEY GRAHAM, R-S.C.: Well, it is a flawed difficult relationship that Admiral Mullen said can not be abandoned. But we need to put Pakistan on notice -- you know they help us with Al Qaeda targets in Afghanistan -- Pakistan, they openly support the Haqqani Network through safe havens in Pakistan to attack our troops in Afghanistan and go after the Afghan government. They provide aid and comfort to the Taliban. We should reconfigure the assistance to Pakistan.

In a mark-up that I was ranking member of, no longer are we to designating an amount of aid to Pakistan. We're going to have a more transactional relationship.

But here is the key, Secretary Panetta said the idea of Pakistan intelligence agencies supporting terrorism needs to come to end. It destabilize Afghanistan. They're killing American soldiers. If they continue to embrace terrorism as a part of their national strategy, we're going to have to put all options on the table including defending our troops.

WALLACE: That is a pretty stunning statement, sir, by one of the top foreign police voices. When you say all options on the table, you're talking about military action against whom?

GRAHAM: I am saying that we know the Haqqani Network operates with impunity inside of Pakistan in a town called Miranshah. Admiral Mullen and Secretary Panetta are right that the ISI, the security -- the intelligence agency in Pakistan assist them directly and indirectly. They do some good things with us against Al Qaeda. They have to choose. What drives this? Pakistan believes that we are leaving Afghanistan. They're betting the Taliban will come back. The Pakistan military lives like kings within Pakistan. A democracy in Afghanistan is a threat to Pakistani military control in their own mind.

So it is now a time of choosing. I hope they choose wisely, because Secretary Panetta and people like myself cannot in good conscious go to military funerals and say I am sorry your son or daughter was killed in Afghanistan by assistance given to terrorists in Pakistan by the Pakistan government. That has to come to an end

WALLACE: But briefly, sir, because I want to move on to other subject. You are suggesting U.S. military action has to be considered against the Haqqani Network inside of the territory, the sovereign border of Pakistan.

GRAHAM: I am saying that the sovereign nation of Pakistan is engaging in hostile acts against the United States and our ally Afghanistan that must cease. I will leave it up to the experts, but if the experts believe that we need to elevate our response, they will have a lot of bipartisan support on Capitol Hill.

The best solution is for Pakistan to fight all forms of terrorism, embrace working with us so that we can deal with terrorism along their border, because it is the biggest threat to stability. But Pakistan is terrorism itself. They have made a tremendous miscalculation. The foreign minister said America needs Pakistan. You're right, but not a Pakistan that will help kill American troops.

WALLACE: Let's move on to the Palestinian vote -- or push for a vote on statehood at the United Nations. President Abbas, the Palestinian president, has indicated that he is going to reject the latest peace plan offered by the U.S. and other countries for new peace talks with Israel, that he is going to press ahead with a vote at the U.N. What can and should the U.S. do about that?

GRAHAM: Well, number one it is a giant step backward for the two state solution that the Palestinian people have been hoping and dreaming for. They will veto, the United States will veto, a security council resolution that would give statehood. Only the security council can provide statehood. And part of the criteria is that the member applying as a peaceful state.

The Obama administration is right to veto the statehood through the security council, because none of us know what kind of state we would be buying into. And you avoid direct negotiations.

But there is a problem, they will probably understand, the Palestinians will, that we will veto any security council resolution, and they will go to the general assembly for observer nation states. That is provocative, because it will probably be granted.

Then the Palestinians will have access to the International Criminal Court and other UN institutions, and they will begin to use the UN as a political tool against the Israelis which will create a back lash here at home. This is a very provocative, dangerous step by the Palestinians. It will not lead to peace, it will lead to instability. And it will push us back home in a bipartisan fashion to speak out.

WALLACE: In what way?

GRAHAM: Well, aid will be considered. But just imagine the -- I think certain organizations in the UN are kangaroo courts. The Human Rights Commission was formerly chaired by Libya under Qaddafi. These organizations if they get observer state status through a general assembly vote, will allow the Palestinians to use the UN as a political tool and that will create a backlash here at home. It will risk UN support by the American congress.

If they go down the road of a forming a government with Hamas, Fatah and Hamas government, Hamas is a terrorist organization. That will end U.S. help to the Palestinian people, because the day they form a government for Hamas as a meaningful player, unrepentant Hamas, that ends the assistance making the world much more dangerous.

WALLACE: Let's turn to the economy. You just heard my conversation with White House senior adviser David Plouffe. Hearing his explanation, what do you think is behind the new Obama plans to create jobs and to cut the deficit?

GRAHAM: His polling numbers. He should have done what President Clinton did when he got beat soundly in '94. President Clinton turned to Republicans and we passed a balanced budget agreement and we engaged in welfare reform legislation that fundamentally changed welfare. The balanced budget agreement affected entitlements. We worked together.

Their approach after being beat is to go to Ohio and Kentucky and give a speech about a bridge and to declare class warfare is their strategy in terms of solving the economy. Every problem that he inherited is much worse, higher unemployment, a lot more debt, higher gas prices. You can't borrow money because of Dodd-Frank.

He's putting more taxes on people that create jobs. He's creating conflict where he should be trying to find common ground.

WALLACE: Let me break in if I can, sir. What about, and you heard Mr. Plouffe eloquently make the agreement that it is just not fair to ask more of the poor, of the seniors while giving nothing -- demanding nothing of the top earners.

GRAHAM: Well, what you do with Medicare and Medicaid reforms you do what Ronald Reagan and Tip O'Neill, you work together. You protect near-term retirees. Anybody over 55 would be unaffected. But you do what Bowles-Simpson's commission recommended. He's had a lot of input and advice in a bipartisan fashion from the Gang of Six. But he's going down a partisan route. He's trying to elevate class warfare. He's trying to find points of disagreement rather than common ground and he is using, in my view, a strategy of class warfare, divide and conquer, to try to survive the next election. It won't work. He should have done what Bill Clinton once he got beat in congress, find common ground to solve problems.

WALLACE: So, and we've only got a couple of minutes left, if congress is so divided and the congressional super committee has only two months to come up with another trillion dollars in cuts, what are the chances for a compromise?

GRAHAM: Well, the Gang of Six was a bipartisan group. So Bowles-Simpson had bipartisan support. Look at those proposal, see if you can flatten the tax code, something I support, lower rates, flatten the tax code, do entitlement reform in a way that doesn't hurt near-term retirees and get our fiscal house in order.

At the end of the day, if this commission fails, there is a trigger cutting defense by $600 billion if they can't perform their job. I will introduce legislation, Chris, that will protect the Defense Department from devastating cuts.

Leon Panetta said when I asked him if take $600 billion out of defense on top what we are already trying to do you will be shooting the country in the head. I want an across the board cut as a trigger, the whole government being on the table with a five percent reduction for the whole government and cut our pay by 10 percent rather than devastating the defense department.

I hope the super committee works. But if it fails, let's don't destroy the Defense Department.

WALLACE: A couple of last questions for you, sir. As I discussed with David Plouffe you are in danger up on Capitol Hill of letting the government run out of money again, the danger of a shut down, no continuing resolution. Don't Republicans who are calling for a yes more for FEMA for disaster relief but we want to see offsets to green energy programs, don't Republicans -- aren't they going to run get fairly or unfairly a lot of the blame if the government shuts down?

GRAHAM: The government is not going to shut down, because most Americans want us to deal with disasters in front of us and disasters to come. That's why we're trying to start to pay for things that we haven't paid for before.

The House proposal is reasonable. I would ask Harry Reid to take it. It does fund disasters. It gets us on a glide path of --


WALLACE: Yes, but what do you mean? The Senate had already tabled it, sir.

GRAHAM: Well, I'll tell you, come up with a proposal of your own that reduces the effect of additional spending. We can't borrow money every time something bad goes wrong in America.

Are you able to borrow money every time something bad goes with your business or your family? You have to have priorities. That's something we don't seem to accept up here.

The House version says a disaster has to be dealt with, we're going to help people who have been affected by disasters, but we're going to start cutting the government in other places where the money is not so important. So I support the idea of paying for this.

WALLACE: And finally, sir -- we've got about 30 seconds left -- 2012. You said that this, in terms of the presidency, is the GOP's race election to lose. You've got Rick Perry, the front-runner, stumbling, you've got a lot of conservatives who aren't satisfied with Mitt Romney. You've got Herman Cain winning the Florida straw poll yesterday.

Are you worried about disarray in the Republican race for president?

GRAHAM: The best thing we've got going for us is Obama policies that won't work and are never going to work, and he seems to be unwilling to change. It is our race to lose.

We need to make sure we produce a candidate who can beat President Obama. And things are so much worse in the last three years, going into the four year.

I think it most definitely is ours to lose. This vetting of candidates is a tough process.

I'm proud of our candidates. I think the whole debate has been good. And they're going to get stronger over time.

We can't afford four more years of policies that are going to keep us in perpetual high unemployment. And the Obama administration's picking on Israel a year and a half ago about east Jerusalem settlements, saying that Israel was the problem, started this whole unraveling of the peace process.

WALLACE: Senator Graham, going to have to leave it there. Want to thank you so much for joining us. And please come back, sir.

GRAHAM: Thank you.

WALLACE: Up next, Rick Perry's not-so-great debate performance. We'll see what our panel thinks about the current GOP front-runner.



PERRY: What Americans are looking for isn't the slickest candidate, they're looking for an authentic, principled leader.


WALLACE: GOP presidential front-runner Rick Perry making the argument his less-than-stellar debate performance this week shouldn't take away from his candidacy. But the Florida straw poll Saturday showed it apparently did.

In a big upset, businessman Herman Cain trounced the field with 37 percent. The Texas governor was a distant second, with 15 percent, while Mitt Romney, who didn't campaign for the straw poll, came in third. And you can see the rest down the line.

Time now for our second group -- Brit Hume, Fox News senior political analyst; A.B. Stoddard of The Hill newspaper; Bill Kristol, from The Weekly Standard; and Fox News political analyst Juan Williams.

Well, Brit, how do you read the straw poll? Was it a vote for Cain, a vote for Perry, or a statement, please, let somebody else get in this race?

BRIT HUME, FOX NEWS SR. POLITICAL ANALYST: Well, you can read it any of those three ways, it seems to me. They're all -- I mean, Perry really did throw up all over himself in the debate at a time when he needed to raise his game. I mean, he did worse, it seems to me, than he had done in previous debates.

Romney was strong, as he has been lately. He has clearly raised his game in reaction to the emergence of Perry. It's been good for Romney in a way that one might not have predicted.

Michelle Bachmann, she was dead last with some tiny -- look, Herman Cain was there. He tried hard in this. He gave a stem-winder speech. He's a marvelous stump speaker, and it seems to me he gets a moment out of this, but I cant imagine that it's going to last very long. And Perry is about one-half a step away from almost total collapse as a candidate.


A.B. STODDARD, EDITOR, THE HILL: I think the delegates in Florida, this is a much more closed straw poll than the one in Ames. And these are discerning voters, very loyal Republicans. They've been paying attention to this process all along.

I think it was a real slap towards Perry and Mitt Romney. And what you really got a sense -- when I spoke to Republicans on Friday, as many as I could after the debate, the sense was not only that Perry had given a dismal performance, and, of course, Romney had won, but that they don't like their choices in all. That, in the end, just because Romney has been a good debater, they are not enthusiastic about him. And you still see, according to people who watch these numbers, about 50 percent of donors on the sidelines and people, heavy hitters, not ready to commit to either of them.

WALLACE: Bill, you wrote a special editorial for The Weekly Standard after the Fox/Google debate, and let's put it up on the screen. It was fairly striking.

"Yikes." That was one-word headline. And about Rick Perry, you wrote this: "No front-runner in a presidential field has ever, we imagine, had as weak a showing as Rick Perry. It was close to a disqualifying two hours for him."

About the rest of the field, you wrote this -- "None of the candidates really seemed up to the moment either politically or substantively."

Two questions. Is it that bad for Perry? And is it that bad for the others?

BILL KRISTOL, THE WEEKLY STANDARD: I think so. You know, I was down there in Orlando, and I think I posted early Friday morning. And I was on a couple of panels Friday and talked to an awful lot of the Republicans who were there. It didn't change -- my sense is that I said what a lot of them might have said. And honestly, the straw poll, I think, confirms that.

I mean, 70 percent of the Republicans, having seen with their own eyes Romney and Perry up on the stage Thursday night, and then speaking to the crowd on Friday and mixing and mingling after receptions for them -- and these were pretty -- these are serious people, I talked to an awful lot of them. Seventy percent voted against the two front-runners.

It was a vote of no confidence. And Perry, I think, because of his really poor debate performance, but also Mitt Romney, who spent a lot of time in Florida over the last five years, to get 14 percent isn't very strong. So I think these are very weak front-runners.

Look, the front-runners in 2007 on the Republican side, if you look at the polls in September, 2007, were Rudy Giuliani and Fred Thompson. The front-runners in the Democrats -- I looked this up -- in 2003, in September, were Howard Dean and Wesley Clark, who -- so you can have a nominee who is not a front-runner in September of the year before the nomination.


JUAN WILLIAMS, FOX NEWS POLITICAL ANALYST: Well, I think that for the Republican Party, this has been not a good season, not a good primary season. And I am taken by something Bill wrote in his editorial. He quoted a poem that said the people who have ability lack conviction, and they're not on the stage. And so I think there still is this hankering for someone else to come in.

Now, after Perry initially made his entry, there was a big bump in terms of Republican confidence in this field. That number has now gone back down.

But I must say that the impression that they are giving to the nation as a whole is that this is a very limited conversation among the Tea Party element, or the far right of the Republican Party. Not only is it that they won't accept $3 in cuts for $1 in a tax hike, but it's things like the immigration argument that really held center this week, with Perry saying that he thinks children of illegal immigrants should be qualified to get tuition support in states, something 13 other states have, something that's very important to the Republican Party in terms of Hispanic participation going forward. If I'm Hispanic and I'm watching that show, I think, gee, these people don't like me. They don't like immigrants of any stripe.

WALLACE: Brit, once again, brother Kristol, having had his hopes dashed about Mitch Daniels and Paul Ryan getting in the race, is pining away for someone else to get in, and now his heart has gone to Chris Christie.

Two questions, really. One, are we being overly harsh on Rick Perry? I mean, are we writing him off too quickly? And two, what do you think of the chances that a Chris Christie or some other Bill Kristol knight in shining armor gets into this race?

HUME: I don't think we're being too harsh on Rick Perry. He still has some opportunity to recover his balance and put in a strong performance.

What was so strikingly troubling about, from a Republican point of view, about this performance was that Perry was thought of as a really true conservative. Now it appears he's got this position on immigration which is anathema to a lot of conservatives. So this really hurts him with the base.

You can't -- you know, look at all the trouble Romney has had. He's got some trouble with the base. That's what's holding him back. Now Perry has got the same trouble, so his weakness is very real indeed.

As for whether someone else might get in the race, you can't rule anything out. It is still early, but what keeps happening here is these people have a moment, and they get in the race, as Perry did, zoom to the top, everybody's in love, and then we get a dose of them in reality, on the debate stage or wherever, and they don't seem so great.

Now, I'm as impressed as the next person is by Governor Christie's sort of tough love governance in New Jersey. But who knows how he would fare on the national stage? He can arrive freshly minted from a governorship, having not spent all that much time on national and international issues. He gets on a debate stage, he could screw up as badly as the next guy.

WALLACE: I want to -- we just have a little time left, and I want to go to you, Bill.

HUME: And how conservative is he really?

WALLACE: Because I have been teasing you. But what is wrong -- I mean, let's assume that Perry has -- and I think he's demonstrated some vulnerabilities. What's so bad about Mitt Romney?

KRISTOL: Nothing is so bad about Mitt Romney. But, you know, this is a very big year, 2012. The country is in really deep trouble, and I think it's an open question.

Mitt Romney is a technocrat. He's a skillful technocrat. Does he have the vision, does he have the boldness to advance the kind of reform agenda that I at least would want?

I don't think it's a matter of being quite more or less conservative. I think Rick Perry's position on allowing graduates at Texas high schools, even if they're illegal immigrants, to go to college with in-state is defensible. The problem is, he didn't defend it.

And Mitt Romney, what is he doing? He's attacking it.

I mean, really, look at Mitt Romney. Does Mitt Romney really believe that they be allowed to go to -- have in-state tuition if they graduate from El Paso High?

WALLACE: Well, he vetoed it in Massachusetts.

KRISTOL: Right, because he was planning to run for president. Does he really believe you can build a 1,200-mile fence on the border? He's not really showing, I would say, presidential level leadership, and his 59-point economic plan doesn't seem to be up to the moment.

We don't know how Chris Christie would be, as Brit says, as presidential candidate. I would just like to see some of these guys try. You know?

And Chris Christie would be a big -- I've said this before, and I've said this to him, and he's good natured enough to laugh at me and not knock me out -- he would be a big man for a big job.

WILLIAMS: Oh, stop mocking him. But I'm going to have to defend you, because it sounds to me like you're rational and you're not doing what the candidates on the stage seem tempted to do, which is just not only batter each other, but throw red meat to the Tea Party.

KRISTOL: But that's not fair, because Herman Cain, I was there and I saw --

WALLACE: We're going to have to --


KRISTOL: I saw Cain. Cain has an upbeat message. Cain is not demagoguing immigration particularly, or other things.

Herman Cain has a bold economic reform message. It may not be quite ultimately worked out as much as it could be, but why is Cain attractive? Because he says scrap the tax code, let's have fundamental reform. He's the only one talking on a scale appropriate to the time, I think.

WALLACE: All right. We have to take a break here, but when we come back, the president calls for more jobs and less debt, while Congress remains gridlocked on -- well, just about everything.



OBAMA: Mr. Boehner, Mr. McConnell, help us rebuild this bridge. Help us rebuild America.

SPEAKER OF THE HOUSE JOHN BOEHNER, R-OHIO: Now is not the time for the president to go into campaign mode.


WALLACE: President Obama and Speaker of the House Boehner at odds this week about how to get Americans working again.

And we're back now with the panel.

So, President Obama offered his plan this week to cut the deficit. You take that, together with his new jobs plan, A.B., and the conventional wisdom in Washington is the president has given up on compromising with the Republicans and is all about the 2012 election. Is that's what's going on here?

STODDARD: Well, I think he made it pretty clear in introducing the jobs plan in his address to the Congress in the joint session. He has chosen confrontation over compromise, and he doesn't want to have negotiations anymore with the congressional leaders of the Republican Party.

He has proposed plans he knows they are not going to pass. He's asking the super committee to become a jobs committee, a job that they are not tasked to succeed with in the short time they are given and the debt reduction targets they have to meet.

He is going around to all these swing states campaigning, and he's made it clear his time negotiating with Republicans is done. And he might say it's 14 months until the election, but he is campaigning on a confrontational agenda that is not likely to pass.

WALLACE: Well, there was a development last night. The president spoke before the Congressional Black Caucus, which is not in your morning papers, and we have a clip of it, and it may give you a sense of the president's mood these days.

Take a look.


OBAMA: Take off your bedroom slippers, put on your marching shoes, shake it off, stop complaining, stop grumbling, stop crying. We've got to press on. We've got work to do.


WALLACE: Is that a president, Juan, who is in full campaign mode?

WILLIAMS: He is. And he's in the pulpit, he's before a black audience last night. And that's what they wanted.

We were talking a moment ago about throwing red meat -- the candidates for the Republican nomination throwing red meat to the Republican base. There is President Obama throwing red meat to the liberal base.

And the reason he's doing it is because they are convinced on the left and at the White House right now, I am telling you, that the president has been fooled. He's been suckered.

He has tried to negotiate, and run into total obstinacy from the Republicans, even in terms of the continuing resolution argument that's going on now over the budget in this country, that, time and time again, the Republicans will push it to the brink, they have no limits. They play politics, and President Obama feels he has to appeal to Independents by showing that he can be bipartisan, and then he comes up looking like, you know what? You've got taken.

So, the base wants him to fight, to be more aggressive, and that's what he's doing now.

WALLACE: Brit -- and I know you don't agree with what a lot of what Juan said, but I think you will agree with this -- the markets both in the U.S. and worldwide are a mess. Growth has stalled, unemployment is high. As we say, we saw the worst week in the stock market since October of 2008.

If the president is all about 2012, what happens in the meantime?

HUME: Well, the truth is, what would help him more than anything else is better results.

Now, you can look at the economy and say, God, it's so much in the doldrums, that it's not going to come out enough to put a big dent in the jobless rate in time for his election, and that's a huge problem. He can't overcome that problem simply by rallying his base. It is a testament to the political weakness he senses that he is working so hard to do that both with the plans that he's outlined and the kind of speech that we saw last night to what ought to have been a drop-dead great audience for him.

He's telling them to get off their butts. I mean, that's an unusual message for somebody at this stage to be saying to the core of his base.

But what I would say is the president could benefit, however, if there were a big, successful deal on the deficit. That would take an issue off the table, it would please Independents, and it would be a bipartisan achievement, all things that would help him with the people -- the swing voters he needs to have a chance to win.

If he can't do any of that, I think his reelection gets to the point of being almost hopeless unless the Republicans nominate some freak.

WALLACE: But, Bill, I mean, I'm reminded of the "Peanuts" cartoon of Charlie Brown trying to kick the football, and Lucy keeps pulling it away at the last second. You know, if you had heard David Plouffe today, he would say, look, the president has tried to get that grand bargaining, he's trying to get that grand deal, and he just can't get a willing partner. So maybe it's realistic not to keep going for that.

KRISTOL: Well, he's president of the United States, and he has an obligation to try and make a concrete proposal the Republicans would then reject. But he hasn't done that.

WALLACE: Well, he did make a concrete proposal.

KRISTOL: Well, really? Not a real concrete proposal, I would say. I mean, what is his Medicare reform?

I was thinking George W. Bush had pretty -- not so great numbers in this time in 2003. He signed the Medicare Part D bill over the objections of a lot of his own base, over the objections of a lot of conservatives. He thought it was the right thing to do. I think he also thought politically, it was smart -- the Republicans had to show they cared about seniors' problems and buying drugs.

It's the opposite strategy of President Obama, and I think it helped Bush in 2004 in a narrow reelection bid. I just can't see how Obama -- he's the president. And 14 months is a long time. And we have real economic problems.

I mean, that is what strikes me the most. Shouldn't he be governing? Shouldn't he be really thinking hard and trying to think, what can we do to really help the economy? Instead, he's going out and giving speeches, rebuild this bridge.

WILLIAMS: But, Bill, President Bush signed that prescription drug benefit without any funding. It has become an albatross in terms of deficits in this country.

And then you think about what the president is saying here in terms of the continuing resolution argument that is paralyzing this Congress, and you say, wait a second, this is hurting the American economy, it's hurting investor confidence. Europe and the banks are in crisis.

We see a decline in terms of manufacturing output coming from China. There's a global economic crisis that threatens a double-dip recession, and these guys continue to play a brinkmanship game on the Republican side. And as Plouffe was saying to Chris Wallace this morning, a very good interview, that, guess what? You know what? These guys don't seem to care.

HUME: Well, wait a minute. Let's just take a look about this latest skirmish.

You need a continuing resolution to keep the government open, there's a need for some more disaster relief fund because it's almost been exhausted. So the Republicans pass a bill that has disaster relief money in it, and it's to the tune of several billion dollars. And they pay for it with cuts in green jobs funding. Well, green jobs funding ought to be by now a very low priority given the history of it and the fact that it's utterly failed to produce meaningful jobs.

They send it to the Senate. What does the Senate do? The Senate blocks it and then does so far nothing.

Now, it may be that with media coverage and the political statements that will be made about this, that if the government shuts down, the Republicans will get the blame. But I ask you in this, who is being responsible and who's playing politics?


STODDARD: I think that we're going to have a deal in the next couple of days on disaster relief and the government is not going to shut down. Both sides are beginning to give. That's going to be resolved in some way that's not clear right now.

But with regards to what Brit said, I do agree, if the president doesn't get back to the table with House Speaker John Boehner and find a path to meaningful entitlement reform, which he was invested in, in July and now he's abandoned, and really find a way to come up with a big deal, it would be very hard for him to convince Americans he did everything he could next spring and summer and fall to get reelected.

WALLACE: All right. We're going to have to leave it there. Thank you, all, panel. See you next week.

And don't forget to check out "Panel Plus," where our group picks right up with the discussion on our Web site, FoxNewsSunday.com. And we promise we'll post the video before noon Eastern Time.

Up next, we hear from you.


WALLACE: Time now for some comments you've posted to our blog, "Wallace Watch."

With our Fox News/Google debate in the book (ph), some of you have been writing in about who you thought did the best.

Gene Kelly from Titusville, Florida, sent this: "I think the presidential race for the Republican nomination is between Michele Bachmann and Mitt Romney."

Betty Beth from Desert Hot Springs, California, has a different pick. "I think Gingrich has the best approach when he tells you to stick to the reason for the debate, to defeat President Obama."

And then there's James from Massachusetts. "I consider myself an Independent voter. I know it might sound unpopular, but I think a second term for President Obama might end up being the best solution for the country."

Please keep your comments coming. You can find us at FoxNewsSunday.com.

And that's it for today. Have a great week, and we'll see you next "Fox News Sunday."

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