This is a rush transcript from "Special Report," August 1, 2011. This copy may not be in its final form and may be updated.


SENATE MINORITY LEADER MITCH MCCONNELL, R-KY.: What I can pretty certainly say to the American people, the chances of any kind of tax increase passing with this, with the appointees that John Boehner and I are going to put on there, are pretty low. In addition to that, let's assume they did. It would have to pass both the House and the Senate. I don't think the House of Represent atives would pass a tax increase.

WHITE HOUSE PRESS SECRETARY JAY CARNEY: The suggestion that it's impossible for the joint committee to raise tax revenue is simply not accurate. It's false. It is certainly our expectation that the product will include revenue as well as other areas of finding deficit reduction.


BRET BAIER, ANCHOR: This is the back and forth about the joint committee. Now, are you ready to get confused? Take a look at the flowchart. These are cuts, the debt hike, cuts $917 billion now. And then $1.5 trillion is for that joint committee. If they can't get the cuts you will see it down there automatic cut goes into effect, $1.2 trillion and a balanced budget amendment.

You know what, I'm not even going to confuse you with the flow chart.


I'll bring in the panel. Charles, the back and forth today was about whether the joint committee has essentially the power and can really raise taxes.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, McConnell and Carney are both right. In theory, which is Carney, it can do anything it wants. It can propose a tax on green cheese. It can propose anything. But what McConnell is saying it won't happen because I appoint three guys or women on the committee, Boehner appoints three --

BAIER: Yes, three, three, three.

KRAUTHAMMER: And these six, there is no way in hell we'll allow any of them to be anybody to be other than a fundamentalist on taxes. So it's not going to happen.

And I think it's probably true. I think it's rather a pity. One thing that you could get out of this committee, and I'm not one of those who thinks it has no chance of delivering, so I mean, it could actually pass, in the House or Senate. It could do real tax reform, which ought to be god for the left and the right. Reagan did it. And at least some structural entitlement reform, unlike what we have in Medicare right now, that is squeezing doctor and changing the retirement age slightly. I think it's possible.

BAIER: Charles, you are saying if the appointments are that important you are back to square one butting heads and you are not going to get anything out, which makes the triggers and the mechanism that is in place pretty important because it's highly doubtful that the joint committee could succeed.

KRAUTHAMMER: Which is why I hope that the six appointees on either side will at least be open to tax reform which allows some raising of revenues but something that would be like the '86 tax reform that would benefit growth and fairness.

BAIER: Juan?

JUAN WILLIAMS, FOX NEWS POLITICAL ANALYST: Well, I am delighted to hear Charles say he is for raising revenue. That is a big deal here. Are you negotiating in good faith? Because just what you said, really, all we're back to is budding heads and we'll be in the middle of the Christmas is and it will be the Grinch who stole Christmas and all those analogies will pop up in the papers because people will be back to this same kind of --

BAIER: By the way, Juan, we're taking a live look at the speaker of the House as he makes his walk from Statuary Hall through the Will Rogers hallway to the House floor. Let's listen in. Now wasn't that exciting?


That was an exciting moment in television. Sorry. Finish your thought.

WILLIAMS: That's all right. I was struck reading the Wall Street Journal editorial page, reading The New York Times editorial page, right and left. Both use an analogy of hostage taking going on, on Capitol Hill.

BAIER: Well, the vice president said the Tea Party are terrorists.

WILLIAMS: That's what we heard from the vice president in a heated meeting as you described it with fellow Democrats, who I think are still very much of a mind that President Obama has not stood up and waged a good fight here.

STEVE HAYES, THE WEEKLY STANDARD: What a disgrace for the vice president of the United States talk about the Tea Party Americans, Tea Party members of Congress to rein in spending. That was the message of the 2010 elections. That is why they came here. They made pledges to their constituents and they are following through on the pledges and the vice president calls them terrorists?

Remember after the Gabrielle Giffords shooting President Obama said we should use words that heal, not words that hurt. Now his vice president is talking about terrorists? I think it's a joke.

I disagree with Charles -- I agree with him halfway. Tax reform is one thing. I want Mitch McConnell and John Boehner to put people on the committee who are going to be the most conservative people they can think of who will fight tooth and nail against any kind of real tax hike. That is the last thing we need right now for all the reasons that Republicans argued for the past several months.

WILLIAMS: How do you feel about closing loopholes and closing some of the deductions for your super rich pals?

HAYES: My super rich pals. Juan, I don't want to hurt you.

BAIER: Before we get to corporate jets and other things, more with the panel after a quick break. We talk about the politics of this and what America thinks of all of this. And this vote is pending right now. Stay with us.


BAIER: Looking live at the House floor. This, ladies and gentlemen, is the vote we've been waiting for. This is the House vote on the debt ceiling deal, the compromise bill that we've been talking about for weeks. It is coming down to this right now.

As you see the votes being tallied, this will be a 15-minute vote. Then they will have -- obviously they will tally this. It could be 216 needed. It depends on how many member reconciliation on the floor, 419 members voted for the last quorum call vote. I understand the number is 216 for a win.

Back with the panel. A.B., if you were the House majority whip is this a nervous time for you as you are watching the board?

A.B. STODDARD, THE HILL: Again, they really know that ultimately, they will have enough Democrats and Republicans to get it out of House, but there is last-minute game playing as you said before, about the threat of going to recess and pretending they didn't have enough votes to get more Democrats to come on board. It is going to work out and pass tonight.

It's an anxious time because defense cut concern many Republicans. It was very difficult aspect of this vote. And there are Senate candidates that can't vote for it, Tea Party backed member, veterans, conservatives who feel it's not, it doesn't make structural changes to Medicare. And Social Security and drivers of the debt, that it is -- there are whole delegations watching out on the whet. It is definitely a tough vote to whip, but I think between the parties they will get what they need.

BAIER: And there is the vote happening live. I want to insert this. The voice president spokesperson just said the word acting like terrorists, the Tea Party members acting like terrorists, quote, "was used by several members of congress. The vice president does not believe it's appropriate term in political discourse." So some walking back of that.

Charles, in the poll we saw from Washington Post and Pew Research, negative is 72 percent from the American people, negative about what is going on, one word impression of the budget negotiations.

And as you look live at the vote, the one word impression that most people chose was "ridiculous." Second was "disgusting." Third was "stupid." And fourth was "frustrating."

KRAUTHAMMER: Well, America was taken in the sausage factory and it's pretty ugly. I don't think it will have any impact a week or two or month or certainly not on Election Day in 2012 exactly how we got to the debt limit increase today. I think what they will remember is the lack of leadership by the president.

BAIER: Charles, this next "urgent" just gave me some goose bumps. Congresswoman Gabrielle Giffords has returned to Washington to support a bipartisan bill and vote to prevent this economic crisis. She of course was shot in the head in Tucson, Arizona, and has rehabilitated herself. And with the help of doctors and nurses, she is voting tonight in this vote on extending the debt ceiling limit. Juan, that is pretty powerful.

WILLIAMS: I agree with you, goose bumps. That's democracy in action. And, you know, I think it evidence of how deeply felt she, I think many people feel. We got to prevent the idea of economic catastrophe. But God bless America. We have got to make sure our economic future is secure. And her presence is a great demonstration of her commitment to American politics at this moment. It's a tremendous story.

BAIER: Steve?

HAYES: Yes. I agree. That's a pleasant surprise. I think it caps off what has been a messy process.

I think what we saw in Washington Post/Pew poll is it gets it exactly right. People have been disgusted by the process. And while I think the Tea Party clearly won, you know, in this whole debate by actually getting members of Congress to focus on decreasing spending, the other part of their message I thought was so powerful --

BAIER: By the way, live shot, Congresswoman Michele Bachmann. Obviously, she is running for president. She is a lot of focus outside the capital. We had a live shot. We thought we'd put it up as she arrives. Keep going --

HAYES: The second part of the message from the 2010 election in my view was message about process. Message about how the health care bill was jammed through at the last minute when people didn't know what they were voting on. It was 2,000 pages people didn't understand. To a certain extent not to the degree we saw in the healthcare debate but a certain extent we have seen that replicated here in this process.

WILLIAMS: I think that just, very quickly, this is going to last, in my opinion, that this is going to be a key debate in the presidential campaign. Bachmann, who we just saw, says she's going to vote no. that's interesting to me. What kind of judgment is that?

BAIER: There are others who will vote no, Juan.

WILLIAMS: OK, but Bachmann is running for president. And I think to put America at risk in this way -- I'll let people be the judge. But in terms of the presidential race going down the road, the disgust and that 72 percent number that you read is going to play. It's going to I think encourage people to get involved and vote.

BAIER: As far as how it plays with the president, we've seen his poll number drop precipitously, Charles. It could have an effect on everyone, a pox on all your houses.

KRAUTHAMMER: You don't win or lose elections on process. You win and lose them on substance. And the substance is dead. And who put it on the table? Tea Party Republicans, the conservatives. At the State of the Union address the president didn't even have the word "debt" until almost an hour into his speech. Right now it's the first word out of everyone's mouth. It will be on the table, and the fact that Obama's has increased it by $4 trillion is a major issue. And the fact that Democrats have at every turn attempted to restrain the cutting, to restrain the attempt to put a hold on spending, all of that, protect constituencies, that will be remembered.

HAYES: And the one positive about the process that you can say, at least from perspective of a small government conservative or libertarian is that the horse trading that went on -- when John Boehner was looking for people to support him a few day ago, he was not going for post offices or pork, things that were going to cost taxpayers money. He was instead going to them to get them support by adding things that were cutting government, which I think is a good thing.

BAIER: A.B., last word, 20 seconds. Wrap it up.

STODDARD: I'm going to repeat myself that we have a lot of fights to come. Not one spending bill for next year. They are all going to be out on September 30th. They haven't been passed. They're not prepared. We're going to have more talk of government shutdowns all fall and they you're going to have a big fight at the end of the year when the payroll tax cut expires.

BAIER: Good to leave on a positive note.


BAIER: Thank you, panel.

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