H.R. McMaster talks North Korea threat, Michael Flynn deal

This is a rush transcript from "Fox News Sunday," December 3, 2017. This copy may not be in its final form and may be updated.

CHRIS WALLACE, "FOX NEWS SUNDAY" HOST: You are looking live at Air Force One and the Ronald Reagan presidential library. That’s the flying White House that took our 40th president some 600,000 miles around the globe in pursuit of peace and democracy.

And hello again from Fox News today in Simi Valley, California. I’m Chris Wallace, and welcome to a special hour of "Fox News Sunday" from the Fifth Annual Reagan National Defense Forum.

Key players in national security including top administration officials, members of Congress, and military leaders came here to address the state of our national defense.

This hour, we will share highlights from the forum, including a conversation with Reagan Secretary of State George Shultz about the art of negotiating.

One of the Republican leaders in the Senate, John Barrasso, joins us to discuss Senate passage of the GOP tax plan and what comes next.

And we’ll ask President Trump's national security advisor, General H.R. McMaster, about Michael Flynn pleading guilty to lying to the FBI in the Russia probe.

We begin there with correspondent Kevin Corke live at the White House with how the president’s inner circle is handling the Flynn news -- Kevin.

KEVIN CORKE, FOX NEWS CORRESPONDENT: Chris, a Twitter storm early Sunday with the president tweeting several tweets about the FBI, calling them inconsistent and unfair in the ongoing Russia probe. But the White House also found itself trying to save yet another self-inflicted Twitter wound, this time not over the substance of what the president had to say, but rather over the style and lack of nuance and social media, which is raising all sorts of serious questions.


CORKE (voice-over): The president tweeted: I had to fire General Flynn because he had lied to the vice president and the FBI. He's pled guilty to those lies. It's a shame because his actions during the transition were lawful, there was nothing to hide.

But in Washington, that statement set off alarms with critics suggesting that the president's tweet means he knew Flynn lied to the FBI when he fired him. There are reports that the president's personal lawyer John Dowd is the one who crafted that tweet and did so in a, quote, "sloppy manner."

The president adding this. I never asked Comey to stop investigating Flynn, just more fake news covering another Comey live.

All this as his former national security advisor faces time behind bars for lying to the feds, investigating possible collusion with the Russians in an effort to affect the 2016 election.


CORKE: Chance of lock him up and obvious twist on then now infamous "lock her up" chant at the RNC last year, a chant led by Flynn in which he suggested that Hillary Clinton should be locked up for her role in the private email server scandal that overshadowed the campaign.


CORKE: General Flynn continues to cooperate with investigators. He faces a sentencing hearing in February. The president says they’re not going to find any collusion, Chris, because frankly, there was none -- Chris.

WALLACE: Kevin Corke reporting from the White House, Kevin, thanks for that.

Earlier I sat down with the president's national security advisor, General H.R. McMaster.


WALLACE: General McMaster, welcome back to "Fox News Sunday."

LT. GEN. H.R. MCMASTER, NATIONAL SECURITY ADVISER: Chris, thank you. It's a pleasure to be back with you.

WALLACE: Now that Gen. Flynn has pleaded guilty, and that he is said to be cooperating with the Special Counsel Robert Mueller's investigation, are you in contact with other countries to reassure them that President Trump is firmly in charge, and his presidency is not in trouble?

MCMASTER: No, I don't think our allies need any reassurance. In fact, what we're doing is continuing to work with them on all the key challenges we face today, from North Korea, to the defeat of ISIS across the Greater Middle East, the ongoing efforts in Afghanistan, Pakistan. We're working with our Latin American partners very closely on the issue of Venezuela.

And so, we're -- we haven't missed a beat, really, and the topic doesn't even come up.

WALLACE: But, honestly, do you know what General Flynn may have to say about President Trump and other people in his campaign team, and their involvement with the Russians during the campaign?

MCMASTER: No, that's -- I mean, that's not our focus on the National Security Council, obviously. So, what we're focused on are, you know, the key issues that we have to confront today to protect the American people, advanced our prosperity.

The priorities that the president's given us to move as quickly as we can to resolve this crisis with North Korea, a regime that's threatening the world, and to do everything we can to, as we defeat ISIS in the greater Middle East, make sure conditions are set so that ISIS doesn't return.

And also, so that we address the problem of Iranian influence across the region, which is driving a lot of this humanitarian and political crisis in the Middle East.

WALLACE: On a personal level, though, what are your thoughts about Gen. Flynn, fellow soldier who served in the military for 33 years, pleading guilty to lying to the FBI?

MCMASTER: Well, Chris, I -- you know, my thoughts are on what we have to do for the country. I don't -- I don’t really have a lot of spare time to think about other topics, other than our greatest national security challenges.

WALLACE: Let me ask you about another personnel issue which bubbled up this week. White House officials are talking openly about a plan to replace Secretary of State Tillerson by January, the first anniversary of President Trump being sworn into office.

The president and Secretary Tillerson pushed back on that hard.

But can you flatly deny that there is any plan in place to replace General -- Secretary Tillerson over the next couple of months?

MCMASTER: Yes, I'm not aware of any plan at all. What I'm aware of is that the secretary of state is traveling today to advance and protect our interests, as is our secretary of defense.

I know that we met on some very important topics in the past week, and have brought some great options to the president to protect the American people, and advance our interests where those interests are at risk.

So, the national security team, again, is not missing a beat, and I think is doing what the president expects of us, and what the American people expect of us.

WALLACE: Do you think it's harmful, though, you saw the story -- it was all over the place, and frankly, the White House didn't damp it down very much. Sarah Huckabee Sanders, the spokeswoman, said, we don't have any personnel announcement at this time.

Are you worried about the effect and the idea that you're going to have the nation's chief diplomat traveling to Europe this week with people wondering whether he's really in charge, and whether he still has the president's confidence?

MCMASTER: Well, it's harmful if we let it be harmful. You know, I think it was Aristotle who said: focus on what you can control, and you can get a lot done.

So, what Secretary Tillerson, Secretary Mattis, myself, the director of central intelligence, the director of national intelligence, what we're all working on is what we can hopefully control, which is how to -- how to resolve many of these threats to national security, and take advantage of opportunities to advance and protect our interests.

WALLACE: The president retweeted videos this week from a fringe anti-Muslim group called Britain First that purported to show Muslims, in some cases, inaccurately, Muslim immigrants committing acts of violence.

British Prime Minister May spoke out against the president, sending these tweets. Here's what she had to say.


THERESA MAY, BRITISH PRIME MINISTER: The fact that we work together does not mean that we're afraid to say that when we think the United States had got it wrong, and to be very clear with them. And I’m very clear that retweeting from Britain First was the wrong thing to do.


WALLACE: General, why did President Trump send out those videos?

MCMASTER: Well, President Trump is the best judge of why he did that. But I know it was his intention to highlight the importance of creating safe and secure environments for our citizens -- to make sure that we have the right laws in place, enforcement mechanisms in place, to ensure that, at this critical time, when ISIS is being defeated in the Middle East, that there is no return of terrorists and extremists who can pose a risk to the American people, or to our allies and partners.

WALLACE: But you know that, for instance, in the case of the Dutch video, it was not an immigrant that was involved. Britain First is a fringe, anti-Muslim group. The woman whose tweets that he sent out has been convicted of hate crimes.

Why is that useful for the president of the United States?

MCMASTER: Well, I mean, the key thing is, as you highlight the real risks that these terrorists pose to our citizens, that we make sure that we never buy into or reinforce the terrorist narrative -- you know, this false narrative that this is a war of religion.

I mean, this is really a conflict that involves --


WALLACE: But his tweets were all about anti-Muslim -- about Muslim violence, he was making it.

MCMASTER: Well, those who adhere -- those who adhere to this ideology are really irreligious criminals who use a perverted -- what the president has called, a wicked interpretation of religion in an effort to -- you know, to recruit young, impressionable people to their cause, to foment hatred, and use that hatred to perpetuate violence.

And so, what we have to do is break that cycle of ignorance, hatred, violence at all points, and we're defeating Daesh in its so-called caliphate, 95 --


MCMASTER: Or ISIS. Ninety-five percent of the territory that they have controlled has been taken back, and none of it has been regained by them.

But the other two things the president said we have to be able to do is cut off their financing, and to defeat their wicked ideology. And we're working with allies and partners across the world, and especially in Muslim-majority countries, to do -- to do this in really unprecedented ways.

WALLACE: I want to pick up on exactly that point, because it's been widely reported the president is going to declare this week that Jerusalem is the capital of Israel -- although, he's not going to move the embassy.

Between that and the anti-Muslim videos that he retweeted, aren't you almost giving up on the chance for a Mideast peace agreement, and the support that you have so carefully built up in the Arab world?

MCMASTER: No, the president's not giving up on the Mideast peace agreement at all.

I think what the president is doing is reflecting what has been, you know, a U.S. law -- you know, a waiver that's been -- that's been done, I think, you know, 46 or 47 times. And he's following through on a pledge he made during his election.

Now, I'm not sure what decision he'll make; we've given him options. There are options involving the move of an embassy at some point in the future, which I think, you know, could be used to gain momentum toward a -- toward a peace agreement, and a solution that works both for Israelis and for Palestinians.

WALLACE: I want to move in the time we have left to perhaps the biggest issue -- North Korea.

This week, North Korea launched what's now is its longest-range ICBM missile. Here is how President Trump reacted to that.


DONALD TRUMP, PRESIDENT OF THE UNITED STATES: A missile was launched a little while ago from North Korea. I will only tell you that we will take care of it.


WALLACE: But China continues to export oil to North Korea, Russia continues to hire North Korean workers. So, how is the president going to, quote, take care of it?

MCMASTER: Well, the president's going to take care of it by, if we have to, doing more ourselves. But what we want to do is convince others, it is in their interest to do more.

China, as you know, has taken some unprecedented actions. And what we're asking China to do is, not do us or anybody else a favor, but to act in China's interest.

There's a real grave danger to China, to Russia, to all nations, by -- you know, from a North Korea that's armed with nuclear weapons. And of course, you have that direct threat, but you also have the threat of -- the potential of Japan, South Korea, others, arming themselves, possibly even with nuclear weapons. That is not in China's interest; it's not in Russia's interest.

And so, what the president's saying is, we all need to take care of it. If necessary, the president and the United States will have to take care of it, because he has said he's not going to allow this murderous, rogue regime to threaten the United States with the -- with the most --

WALLACE: Let me pick me up now --

MCMASTER: -- destructive weapons on the planet.

WALLACE: -- because this is my final question.

You have talked about preventive war -- that, at some point, if we can't get a diplomatic solution -- and that's your phrase, preventive war. What's the threshold for that?

And, conversely, we lived -- and, here we are at the Reagan Library -- for half a century with a Soviet Union that had thousands of warheads pointed at us through the policy of mutual assured destruction. They strike us, we strike them.

Why can't we, basically, coexist under that unpleasant reality with North Korea?

MCMASTER: Well, Chris, I don't think you or anybody else is willing to bet the farm, or a U.S. city on the decision-making -- rational decision-making of Kim Jong Un.

And as you know, this is a regime that's never met a weapon that it hasn't proliferated. It's a regime who's said what it -- clearly what its intentions are.

Its intentions are to use that weapon for nuclear blackmail, and then, to, quote, you know, "reunify" the peninsula under the red banner.

So, he would use this to get -- extract payoffs, as the regime has done with their nuclear program in the past, and to drive the States and our allies away from this peninsula that he would then try to dominate. And if you want to know what life looks like under a North Korea regime, you just have to look north of the 38th parallel.

The other really grave concern is the concern that he would proliferate or sell off these weapons to others. And there's never been a weapons system that North Korea has developed that it hasn't sold to somebody else.

So, you're looking at a grave threat directly from North Korea, but then, you're also looking, again, at the possibility of Japan, South Korea -- I don't know, I mean, Taiwan -- who else is going to -- Vietnam. Who else is going to conclude that to protect their populations, they need to have a similar capability?

So, this would be the most destabilizing development, I think, in the post-World War II period, and it is something that places us at direct risk, but places the world at risk.

WALLACE: General McMaster, thank you, thanks for your time, and what a great weekend here at the Reagan Library.

MCMASTER: A wonderful weekend. Thank you, Chris.

WALLACE: Thank you, sir.

MCMASTER: Thanks so much.


WALLACE: Up next, in the wake of the guilty plea from Michael Flynn, where does the Russia investigation go from here? We will bring in our Sunday group to discuss the key question that still remains, did the Trump campaign collude with Russia in the 2016 election or not?

As "Fox News Sunday" continues from the Air Force One Pavilion at the Ronald Reagan Presidential Library.



TRUMP: What has been shown is no collusion, no collusion. There's been absolutely -- there's been absolutely no collusion, so we're very happy. And, frankly, last night was one of the big nights.

REPORTER: Are you going to stand by Michael Flynn, sir.

TRUMP: We’ll see what happens.


WALLACE: President Trump reacting to the news about his former national security advisor Michael Flynn.

And it's time now for our Sunday group here at the Reagan library. GOP strategist Karl Rove, columnist for the Hill, Juan Williams, Fox News national security correspondent Jennifer Griffin, and former Republican Congressman Jason Chaffetz.

Let me say to all folks, don't get too used to this as a backdrop, but it is pretty darn special.

Karl, as someone who has been through a special counsel investigation, what’s your read on the Flynn guilty plea? How worried should President Trump and his lawyers be right now?

KARL ROVE, FORMER BUSH WHITE HOUSE ADVISER: Well, I don't know if President Trump should be worried, but somebody's got to be worried. We know very few things, we can surmise a lot. We know that Michael Flynn got a sweetheart deal. Here is a guy who had enormous exposure on his dealings with Russia Today, paid for a speech in Moscow, his contacts with, his activity on behalf of the Turkish government, but he ended up getting knocked on a lying line to the FBI, and a deal that gives him no more than six months in jail if that.

But what we can surmise from this is that he has cut a deal because he can shed, avoid serious charges and shed light on the actions and statements of others. There are two in particular that are to be concerned today. Jared Kushner, who on December 22nd, told Flynn to intervene with the Russians on behalf of the U.N. resolution, and KT McFarland who on December 29th asked him to intervene with the Russians on the sanctions issue.

Maybe Mueller has information from Flynn that contradicts testimony they've already given in their interviews with the FBI or others. We don't know, but obviously he sees Flynn as a key to the actions and statements of others, and whoever those others are have got to be worried.

WALLACE: Juan, I think we need to point out that in the Flynn court documents on Friday, there was no mention whatsoever about collusion with the Russians during the campaign, and isn't that, at least for now, still the bottom line that after almost a year and a half of investigation, there is still no hard evidence that the Trump campaign cooperated with the Russians to interfere with the 2016 election?

JUAN WILLIAMS, FOX NEWS POLITICAL ANALYST: Well, you don't lie unless you have something to hide. And, obviously, Michael Flynn has admitted now that he lied. So, we don't have a clear case of collusion, but as you just heard from Karl Rove, he made a deal, and so he had something more to offer. Robert Mueller is no full, he wouldn't be giving a sweetheart deal to Mike Flynn unless Michael Flynn was giving him something valuable that could take him up the tree, so to speak, in terms of bringing him closer to true authority in terms of the Trump campaign.

But remember that when you talk about Paul Manafort or Rick Gates, who have already been indicted, these people have been charged with conspiracy, not collusion specifically. And when we talk about --

WALLACE: But it had nothing to do with Russia.

WILLIAMS: No, conspiracy potentially that could say that there was a conspiracy to bring Russia into cooperation with the Trump campaign.


WALLACE: No, no, no. But, look, the Manafort charges had altered it with his financial dealings and it nothing to do with interference in the campaign.

WILLIAMS: But the charge was potentially interference, foreign interference in U.S. campaign, that's a conspiracy charge. And I think that would lead you in a direction that would say this is something closer to collusion, if not explicit collusion.

WALLACE: Congressman Chaffetz, your thoughts about this and the whole issue of Flynn’s guilty plea? And Juan raises a good question -- why would he lie about something, talking during the transition to Russian officials, which arguably wasn’t even a crime?

JASON CHAFFETZ, FORMER U.S. CONGRESSMAN, R-UTAH: I don't know why he would lie.

But this is good news for team Trump, because if Mueller could have charged him with something more dramatic than the lowest possible charge they could get, they would have. No collusion, no treason, no nothing. And now, they take Mike Flynn, they take somebody very important to this investigation, and now, he goes to the court and admits that he's a liar.

He's not going to have any sort of credibility to be able to say this happened or that happened because he's an admitted liar at this point.

WALLACE: Do you by that?

WILLIAMS: No, I think it's part of a deal, Congressman. I think that’s why it was --

CHAFFETZ: If they wanted to charge them with something greater, they would have.

WILLIAMS: No, but they didn’t want to, that’s my point.

CHAFFETZ: And they didn’t get anything. They didn’t --

WILLIAMS: But they would -- if they -- if they are making a deal, they are using it as pressure. In fact, you notice no sentencing component because the judge and a special prosecutor, special counsel, want to be able to say to him, all right, along the way, are you cooperating or not?

WALLACE: All right. We’re going to have plenty of time to talk about this and we really don't know what we don't know. Let's talk about something we do know, and that is the Senate passed a big tax plan early Saturday morning, and not surprisingly, the reaction from the president and from the Senate Democratic leader Chuck Schumer was very different. Here they are.


TRUMP: Tremendous tax reform, but it was the biggest package in terms of tax cuts ever passed in our country.

SEN. CHUCK SCHUMER, D-NY, SENATE MINORITY LEADER: Not a single member of this chamber has read the bill. It would be impossible, some of the pages were completely crossed off and text has been replaced by handwritten notes.


WALLACE: Jennifer, we’re going to talk to Senator Barrasso, who was involved when this in the next segment. But as you look at the bill, is the key what’s specifically in the bill or more of the fact that after the failure on Obamacare repeal and replace, that congressional Republicans are passing something?

JENNIFER GRIFFIN, FOX NEWS CORRESPONDENT: Well, I think it's absolutely true that they feel that they made this win before the end of the year and they want to pass this as a Christmas present, if you will, before they leave for the Christmas holiday. They're going to have to come back, and to show you how much time pressure they're feeling, Congress is coming back a day early. They're coming back on Monday.

They will start to try and reconcile the two bills, the Senate and the House bill. And from those Republicans that I have spoken to, it's going to be pretty easy to reconcile. Some slight differences, but when congressman explained for the mortgage deduction, the Senate bill gives you $1 million deduction, the House bill 500,000, they can split the difference.

But the president, a part of the quote that you didn't like him, the president threw a wrench at the last moment when he got on Marine One. He said that the corporate tax rate could be 22 percent. Well, that was not in either the Senate or the House bill.

WALLACE: Might I just suggest that I have saved that to ask Senator Barrasso in the next segment.


GRIFFIN: Preemptive. But you could lose the freedom caucus Mark Meadows --

WALLACE: No, because they want to see that down to 20 percent.

GRIFFIN: They want it down to 15 percent, but 20 percent was the bare minimum. So, the razor-thin margin that they pass it by in the Senate, they could lose that if they make --

WALLACE: Karl, we got about a minute left. According to the polls, this is not a popular bill at this point, which is surprising for a tax because it's generally seen as doing more for cutting the tax rates for corporations than it does for the middle class, for average Americans.

Given that, if they do pass this bill, whatever -- you know, talking about details, but if they pass this basic bill, how much will it help Republicans politically in the 2018 returns?

KARL ROVE, FORMER BUSH WHITE HOUSE ADVISER: Well, first of all, I think it’s less because it's tilted towards a corporate tax cut than simply if you look at the questions the pollsters are asking, they ask -- do you approve of crumbs tax reform bill, and his -- the approvals for the bill mirror his personal approval rating of the high 30s. This all depends on what happens. And the Republicans are counting on two things. One is that in January, withholding will reduce people’s withholding and their paychecks will be bigger and then also that the corporate tax rate cut will cause greater economic growth next year and both of those things are important to Republicans keeping the House and Senate.

WALLACE: Thank you, panel, and I hope that you have enjoyed your visit here to the Reagan library as much as I have. And I suspect from the smiles on your face, you have.

Up next, now that the House and Senate Republicans have both passed tax bills, can they agree on a compromise to put on President Trump's desk? A top Senate leader joins us to discuss that in the effort to avoid a government shutdown as "Fox News Sunday" reports from the Reagan presidential library in California.


BRET BAIER, FOX NEWS HOST: Understanding you served with the pleasure of the president. Have you had talked about another job?

MIKE POMPEO, CIA DIRECTOR: Very focused on doing what I’m doing, Bret.



WALLACE: Coming up, the Senate passes its version of the Republican tax bill.


TRUMP: The business is going to be happy and the workers are going to be happy, and the country is going to be a happy place.


WALLACE: We’ll ask a Republican leader, John Barrasso, what will end up on the president’s desk, next on "Fox News Sunday."


CHRIS WALLACE, FOX ANCHOR: Ever the cowboy, an 11-foot bronze statue of Ronald Reagan on his favorite horse El Alamein here at his presidential library.

The Senate passed the Republican tax bill early Saturday morning along party lines, but there are some big differences between a House and Senate plan. On individual taxes, the House tax cuts are permanent, while they expire after 2025 in the Senate bill. On corporate taxes, the House cuts the top rate from 35 to 20 percent in 2018. The Senate waits until 2019.

Joining us now live from Washington, Wyoming Senator John Barrasso, head of the Republican Policy Committee.

Senator, as we have just noted, there are several differences between the House and Senate plans that have to be reconciled before a bill can go to the president. I want to put up what may be perhaps the two biggest that are creating the sharpest differences. In the Senate plan, most tax cuts for individuals, as we said, expire in 2026. And the Senate plan does not repeal the estate tax. House conservatives say that both of those are unacceptable. So how is that going to get worked out?

SEN. JOHN BARRASSO, R-WYO., CHAIRMAN, REPUBLICAN POLICY COMMITTEE: Well, first, Chris, thanks for having me.

Let me take a step back to say a year ago the American people voted for fundamental change in this country, and tax reform is a very big part of it. People wanting to keep more of their hard-earned money. That's what you see in the bills that passed both the House and the Senate. Absolutely there are some changes that still need to be made in conference to work these things out.

The other thing that you haven't mentioned and the big differences are, the Republican bill in the Senate eliminates the mandate of Obamacare. It takes Obamacare from being a mandatory program to a voluntary program. And, yes, I like the idea of making the -- taking away the death tax entirely.

You know, the other thing that we're doing in terms of helping stimulate the economy, President Trump talks about energy dominance for America. And we allow more energy exploration in an area of Alaska that's been off-limits for a long time. I hope those are included.

WALLACE: So -- so, briefly -- so, briefly, I mean, there are some things that you're saying you like better in the Senate plan, some things you like better in the House plan. But you only passed it in the Senate with one vote to spare. So the question is, is this going to be a give-and-take where you'll take some of one and some of the other, or is the House basically going to have to swallow this Senate plan?

BARRASSO: Well, there's going to be a conference committee. Members from the House and the Senate will get together to look for the best solutions. But we're not that far apart. Fundamentally for the American public, we double, double, the standard deductions, double the child tax credits. We will lower the rates.

And in terms of investing in America and an America first economy, we lower tax rates for main street businesses all across the country, as well as corporations, to make us much more competitive internationally, so investments are made in America and not overseas.

WALLACE: Well, let's -- let's talk about one of those investments then. President Trump, as Jennifer Griffin suggested, may have thrown a slight monkey wrench into things on Saturday morning. He suggested that instead of cutting the corporate tax rate from 35 percent to 20 percent, that he might accept cutting them to 22 percent. A lot of hardline conservatives in the House say that is not acceptable. They want it down to 20 percent. They wanted 15 percent. Is that idea of a 22 percent corporate tax rate, is that on the table now?

BARRASSO: We have 20 percent in both the House and the Senate. That's the number that I'd like to see.

President Trump came to our policy lunch on Tuesday. I thought did a wonderful job explaining how important this is because once we get tax reform done and he is ready and willing to sign the tax relief for the American people, the tax reductions and tax cuts that people are desperately looking for to get the economy growing even faster, he said then we can go into additional things, infrastructure, all the important things.

WALLACE: Sir -- sir, to answer --


WALLACE: To answer my question, is 22 percent acceptable or not?

BARRASSO: Well, everybody's going to have to decide for themselves how they would vote. My preference is 20 percent. I think we have a very good bill out of the Senate. The House has some components. But I think this is a major step forward for the American public. We are going to get this to the president's desk for his signature before the end of the year.

WALLACE: Let -- let me ask you about a couple of -- of questions that people are raising about this bill. One of the president and Republican's key selling points was that these tax cuts would pay for themselves because they would spur so much economic growth. Here's Treasury Secretary Mnuchin.


STEVEN MNUCHIN, TREASURY SECRETARY: In our models, we believe it would be $2.5 trillion of growth. And we're happy to go through the numbers. We're happy to give the details.


WALLACE: But even taking into account economic growth, what's called dynamic scoring, the non-partisan joint committee on taxation came out with its analysis of the Senate plan this week. They say that even after growth, it still is going to add a trillion dollars to the debt. Not pay for itself, add a trillion dollars.

BARRASSO: Well, two -- two things. One is, the good news is, that this group is -- tends to be wildly pessimistic has actually said that there will be economic growth as a result of the things that we're proposing with this tax relief bill.

WALLACE: But not enough, sir.

BARRASSO: They -- they are wildly pessimistic. Economist across the board believed that we have -- we will do much, much better.

Just take a look at the current economy. These are all based on 1.8 stagnant Obamacare numbers. We don't have to do much to get up to much higher numbers because the last -- the last two quarters we've had over 3 percent economic growth in this country and we've had 2 million new jobs already created since the day President Trump was elected, and a lot of that has to do with the reform of regulations. So when you do regulatory relief, as well as tax relief, I think we are going to have an accelerated growth of the economy --

WALLACE: All right, and --

BARRASSO: Way beyond what people are predicting.

WALLACE: Another big selling point has been that the corporate tax cut will result in benefits, jobs, higher wages for the middle class. Here's President Trump.


TRUMP: We need a competitive tax code that creates more jobs and higher wages for Americans. It's time to give American workers the pay raise that they've been looking for, for many, many years.


WALLACE: But major companies, like Cisco, like Pfizer, like Coca-Cola all say that they will turn over most of their tax savings, not to workers, but to shareholders in the form of bigger dividends and stock buybacks. That directly contradicts what the president's saying.

BARRASSO: Well, when we take our tax rates, the corporate rates from one of the highest in the world to now one of the lower tax rates in the world, we have a global economy, money will come rushing into the United States to invest here. I expect to see incredible amounts of investment from around the world. We live in a global economy, even though the joint commission on taxation really doesn't look at it that way when they do their evaluation and assessments.

WALLACE: I want to turn to a different subject, and that is, as you well know, the government runs out of money on Friday. The working thought is that now that you'll pass a two week extension till the 22nd of December, just before Christmas, and try to work out issues then. Is that something that you'd accepted, a two week extension to try to work things out?

And, also, what about Democrats and some Republicans were are now saying that to get a deal, a long-term spending deal, that you have to have a DACA fixed to protect the so-called dreamers?

BARRASSO: Well, I -- I think we need to keep the government open. To me, that's what a mature, responsible governing group does. You're right, it does require bipartisan participation. I thought it was incredible childish for Chuck Schumer and Nancy Pelosi to not go to that White House meeting that they were scheduled to go to with President Trump. I thought it was a responsible on their part because we need to work together to keep the government open.

I'd like to move that date into either January or February. We need to fund the government and do it confidently.

WALLACE: And I got less than a minute left for this question, sir. On DACA, as I -- we said, some members of both parties are demanding a DACA fix as part of a long-term spending bill. This week we had the shocking verdict in the Steinle case where the illegal immigrant who had been deported and returned several times was acquitted on charges of murder. I know he was not a dreamer, but does that, just an emotional sense, make it harder to arrive at a DACA fix?

BARRASSO: Well, you know, the Democrats have threatened to shut down the government over dealing with illegal immigrants. People that are in the country illegally. I think that's the wrong way to go, but we've had Democrats speak to that effect. And I think that that recent result in that case and that -- that verdict points to the impact of that -- that illegal immigration has had in our country to a detrimental effect.

WALLACE: Senator Barrasso, thank you. Thanks for your time.

BARRASSO: Thank you.

WALLACE: And we'll track all the developments in Congress this week.

BARRASSO: Thanks for having me.

WALLACE: Up next, the U.S. faces growing threats from North Korea, Iran and Russia. We'll ask two national security experts about the president's foreign policy when we come back from the Reagan Presidential Library.


KEVIN MCCARTHY, R-CALI., HOUSE MAJORITY LEADER: We stand in the library of a man who taught us best to be prepared so you never have to use it, to be stronger so no one ever would challenge you that (ph).


WALLACE: A look outside the Reagan Presidential Library here in Simi Valley, California.

President Reagan's mantra was peace through strength as he dealt with the Soviet Union and other foreign threats. Well, this weekend at the Defense Form here, top officials and foreign policy experts discussed what's the best strategy for these times. Earlier, I sat down with Jack Keane, a retired four-star general and former vice chief of the Army, and Michelle Flournoy, another former undersecretary of defense for President Obama.


WALLACE: Gen. Keane, big picture -- how do you think President Trump is doing in national security and foreign policy?

GEN. JACK KEANE, FORMER VICE CHIEF OF STAFF, U.S. ARMY/RETIRED FOUR-STAR GENERAL: Yes, I give him pretty good marks. I think it first begins with the National Security team he's picked. And, by and large, they know what they're doing. They have some background, some experience. Most of them have been in very stressful positions before. So, that's good.

In terms of what he's doing, I think what he's really trying to do is return America to a leadership role on a world stage once again, as the indispensable nation in the world. I think they believe that the United States, by and large, disengaged too much in our -- we've had problems with our allies and we've also had confrontations with our adversaries to a point where I think the risk has gone up rather considerable.

So that is what these 10 minutes (ph) have been about for me, reassuring allies, and willing to confront adversaries, and making certain that these alliances we have and these partnerships are sound, that the United States is truly a strategic partner.

WALLACE: Michele, how do you grade the president in these areas? I have a feeling, slightly differently.

MICHELE FLOURNOY, FORMER UNDER SECRETARY OF DEFENSE FOR POLICY/CENTER FOR A NEW AMERICAN SECURITY, CO-FOUNDER AND CEO: It is a little differently. I -- I would agree with General Keane, that he -- the president has appointed a very strong National Security team, but I am concerned about some of his early actions.

He's withdrawn from the Paris Climate Accord, making the United States the only country that hasn't signed the accord. He is pulling out of the Iran deal, which was keeping a very nefarious actor from actively pursuing nuclear weapons, and, again, isolating the United States when all of the other parties to the deal are sticking with it, and so forth.

And then his own lack of discipline on his messaging. When he went to the NATO Summit, he was clearly very reluctant to commit the United States to the defense of Europe. When he tweets random thoughts -- sometimes, insulting thoughts for other leaders -- and creates a sense of crisis and unpredictability.

So my biggest fear right now is that allies are wondering whether they can rely on the United States. Is the United States still a predictable ally and leader?

WALLACE: I want to talk in a way that we haven't -- not about specific issues, but about, sort of, bigger areas. I -- the president just came back from his recent trip to Asia, and I was struck by his appearance at the economic summit in Vietnam, where he swore off big international trade deals, and Chinese President Xi embraced them. Here they both are.


TRUMP: What we will no longer do is enter into large agreements that tie our hands, surrender our sovereignty, and make meaningful endorsement practically impossible.

XI JINPING, CHINESE PRESIDENT (through translator): Over the last few decades, economic globalization has contributed significantly to global growth. Indeed it has become an irreversible historical trend.


WALLACE: Michele, is President Trump creating a power vacuum in Asia that the Chinese are rushing to fill?

FLOURNOY: I think that is the danger. When the United States pulled out of the Trans-Pacific Partnership negotiations, which is a high standards trade deal that greatly advantaged U.S. economic interests, that left a vacuum, and it left our allies and partners high and dry.

China's very happily stepping into that vacuum and trying to get a trade agreement in place that advantages China and plays by its rules. So I am worried about that.

WALLACE: Let me turn to another area of the world, General Keane, which is your particular area of expertise, the Middle East. You now have Russia and Turkey and Iran working on a peace deal that would keep President Assad of Syria in place, and the U.S., it seems, somewhat on the sidelines. In effect, is Vladimir Putin winning in the Middle East?

KEANE: Yes, absolutely, at the expense of the United States. There's no doubt about it.

I don't -- I don't believe we actually have a real strategy to counter the Iranian's aggression in Syria. The Iranians want to build a land bridge from Iran through Iraq, through Syria, challenge Jordan, challenge Israel from Syria, all the way to Lebanon. And they're well on their way to doing that, Chris.

And our focus has been exclusively on ISIS. And the Iranians are moving east into Syria. The Russians are a part of that. Putin came into Syria by that military intervention. Hasn't done anything like that in 35 years.

And it's a huge win -- win for him, you know, politically, geopolitically. He stood up behind an ally when the United States, I think, was not standing up behind our allies. He's doing arms deals with every Sunni country in the region. He wants to build nuclear power plants for most of the countries in the region. He's trying to replace the United States as the most influential out of region country in there in the Middle East, a thing that we haven't enjoyed since the 1970s.

And I don't see a strategy from the administration that's going to counter the aggressiveness of the Iranians in terms of what they're doing. The words are there, but I don't see any execution, and also counter Putin's dramatically and accelerating influence in the Middle East.

WALLACE: Michele, do you agree with that, that we are creating a vacuum in the Middle East, and Iran and Russia are filling it? And if so, why would we do that?

FLOURNOY: Well, I -- I think there is a lot of hesitation about furthering military involvement in the Middle East given what's happened in the last 15 years. But I do agree that Iran and Russia have both taken advantage of that situation, and we don't have the same leverage that we used to have there.

I do think it's very important to reengage with our most important allies and partners, Israel, the Gulf States, and others, and try to come up with the kind of strategy that the general's talking about.

But this is not just a matter of, you know, being strong militarily. We also need a strong diplomatic arm. And right now I'm very worried about the -- the sort of decimation of the State Department and the departure of many, many senior diplomats, and the failure to bring in whole classes of new Foreign Service officers. So ware are -- we're tying one arm behind our -- you know, one arm behind our backs.

WALLACE: We got about a minute left, and I want you to equally share it.

When you'd ask the White House, they say the Trump doctrine is "America first." What are we getting in return for that? General?

KEANE: I don't believe it is "America first." I -- it's never been "America first" with the implication that it's "America alone."

What -- what they have done, in the -- in the visit to the far east, a visit to the Middle East, and the visit to Europe is making certain that those alliances are there, that the United States is an indispensable partner to that.

And I think the "America first" had -- has more to do with what they believe is unfair trade practices. And -- and that's really at the heart of it, to get America back into making certain that we're getting our fair share. I think it has less implications on foreign policy.

WALLACE: Michele?

FLOURNOY: Yes, my -- what I hear from allies and partners around the world is they don't know what U.S. policy is. They hear something from the White House, or read a presidential tweet, and that's different from what they're hearing from the secretary of state, or the secretary of defense, or others who to try to reassure them.

I think we need to -- this administration needs to speak with one voice, and be very clear about what kind of leadership role the U.S. is willing to play in each of these areas, and what allies can count on us for. We need to be predictable and reliable leaders and partners.

WALLACE: General Keane, Michele Flournoy, thank you both.

FLOURNOY: Thank you.

KEANE: Great, Chris.


WALLACE: Up next, our "Power Player of the Week." President Reagan's secretary of state, George Schultz, looks back on the art of negotiation as "Fox News Sunday" continues from the Ronald Reagan Presidential Library in California.


DAVID PETRAEUS, FORMER CIA DIRECTOR: I very much subscribed to what Churchill said, that the only thing worse than fighting with allies is fighting without them.



WALLACE: Another look at the Reagan Presidential Library on a mountaintop in California's Simi Valley.

This weekend has been a sentimental journey for me. During the Reagan presidency, I had the honor to serve as NBC's White House correspondent, covering the president as he traveled the world advancing America's interests.



WALLACE: (INAUDIBLE) everywhere that you went in Europe, the foreign leaders opposed the Nicaraguan trade embargo and we now hear that Costa Rica has opposed it.


WALLACE: But, most memorable were the four Reagan/Gorbachev summits which led to the end of the Cold War. Their first meeting in Geneva in 1985.


WALLACE: One of the keys to this whole summit will be how these two men get on during the 12 hours they'll be spending together.


WALLACE: And at President Reagan's right hand on all those trips, his trusted secretary of state, George Schultz. I got the chance here to revisit those days with him.


WALLACE: Mr. Secretary, I want to ask you about the art of negotiations. And you say rule number one is good ideas, strong policy.

You went into the first Reagan/Gorbachev summit with peace through strength, through the military buildup. We had it.

GEORGE SHULTZ, FORMER SECRETARY OF STATE UNDER REAGAN: Well, strength is important. And a willingness to negotiate is important. But you want to negotiate from strength and on the basis of what you want.

If you want a deal too much, you’re going to get your head handed to you. You want a good deal, you don’t want just a deal.

WALLACE: Your second rule is you say that a negotiation is a learning process. You’ve got to figure out what are the core interests of the other party and what aren’t the core interests.

SHULTZ: Well, when you’re negotiating your opposite somebody and you’re talking to them back in forth. And one of the things to find out is, where is that person's bottom line? What are they really interested in? And what is fluff (ph)? And that will help you figure out how to make a deal.

WALLACE: Conversely, you say rule number three is credibility. No empty threats. Make it clear to your adversary, your negotiating partner, what are your core interests.

SHULTZ: Yes. Well, I had that drummed into me when I was a boot (ph) at the Marine Corps at the center of World War II. Sergeant hands me my rifle. He says, take good care of this rifle. This is your best friend. And remember one thing, never point this rifle at anybody unless you’re willing to pull the trigger. No empty threats. Boot camp wisdom.

WALLACE: In actual negotiations, do you start big and then start giving things away, or do you start close to your bottom line?

SHULTZ: Well, we had – in the Reagan period, we had a bottom-line. We had what we wanted and we said what that was.

And you don't want to sort of build in things that you’re going to give away that you think are going to please the other guy. If you start thinking about his position, you’re going to be negotiating with yourself. It's best to be for what you're for and -- and hold on to that.

When we started out in the intermediate range nuclear weapons negotiation, our object was to have zero. And people said, that’s crazy, the Soviets have 1,500 deployed, we have none. What kind of a negotiating position is that? Well, we kept at it and we kept at it and who -- what happened? They signed an agreement in the White House where it was zero on both sides. So we got it.

WALLACE: Once you say something is off-limits, nonnegotiable, in the case of President Reagan, anti-missile defense, SDI, you can’t back down on that?

SHULTZ: No. Well, he was all for the SDI. He felt it had great promise. And it did turn out to be a wonderful bargaining chip. And actually we've learned a little bit about defense. We’re glad to have done that. But in the Reykjavík meeting, Gorbachev practically laid on the table all of our negotiating positions, which he agreed to, but he made conditional in what he said, keeping SDI confined to the library. And we interpret that as meaning kill it. So President Reagan wouldn't kill it. but in the end, all of the things that were laid out in Reykjavík and agreed to became agreements.

WALLACE: Mr. Secretary, they were great times. Thank you for sharing them with us.

SHULTZ: They were great times.


WALLACE: Secretary Shultz celebrates his 97th birthday later this month.

Before we go, a special thanks to the Reagan Library and the National Defense Forum for inviting us here.

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

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