Newt Gingrich on resurrecting his presidential campaign; Eric Cantor talks payroll tax holiday

The following is a rush transcript of the February 19, 2012 edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: Republican presidential candidates prepare for the most important stretch of the 2012 race.

With Arizona and Michigan next up, we'll talk with Newt Gingrich about his plans in those key states, as well as her picking up delegates on Super Tuesday.

Newt Gingrich -- only on "Fox News Sunday."

Then, Congress cuts a deal over extending the payroll tax holiday. But in this election year, is Washington now done legislating?

We'll ask Eric Cantor, the Republican House majority leader. It's a "Fox News Sunday" exclusive.

Plus, are President Obama's reelection prospects improving, along with the economy? We'll ask our Sunday panel to handicap the November election.

And our power player of the week telling an essential part of the American story.

All right now on "Fox News Sunday."

And hello, again, from Fox News in Washington.

The Republican candidates have been campaigning nonstop with two upcoming primaries in Michigan and Arizona. And then a week later, 10 contests on Super Tuesday. Newt Gingrich has been up and down twice already. Can he come back a third time?

Mr. Speaker, welcome back to "Fox News Sunday."


WALLACE: Let's start with the rollercoaster that is the Gingrich campaign. Just three weeks ago, after your win in South Carolina, you were leading -- just three weeks ago -- leading the Real Clear Politics average of national polls at 31 percent. Now, you're a distant third all the way back at 14.5 percent.

I would like you to put on your political analyst hat that you used to wear here at FOX News. What happened?

GINGRICH: Twenty million dollars of Mitt Romney negative ads. I mean, it's not complicated. Look at Florida, outspent five to one. Many of the ads factually false, as the Wall Street Journal and National Review and others have reported. Now, you got to work your way back up again.

As you pointed out, I've twice been the front runner -- both times over big ideas, developing positive solutions. The first time I was ahead 15 to 21 points in the national polls, we hadn't bought a single ad yet. So, we're back doing what I think I do best, which is focusing on things like on energy policy, $2.50 a gallon gasoline, big breakthrough ideas, and we'll see what happens over the next three or four weeks.

WALLACE: we'll get to the policy in a moment. Last month, you urged Rick Santorum to drop out so that you could have a one-on-one race against Mitt Romney.

Let's take a look.


GINGRICH: The longer the conservatives are split, the more likely it is that we end up with the nominee who I think is a moderate and very, very hard time beating President Obama.


WALLACE: If you feel it is so important for the Republicans to put up a true conservative to run against Barack Obama, by that same reasoning, why shouldn't you drop out and give a clear path to Rick Santorum?

GINGRICH: Well, I think you should have played Rick's answer which I now agree with.


WALLACE: Which is what? No?

GINGRICH: Which was no. And, look what happened to Rick in the last three weeks. You know, I have been through Tim Pawlenty, then Michele Bachmann, and then Herman Cain one, and then Rick Perry, then Herman Cain the second time, and now we have Santorum.

And we're just going to keep moving forward gathering delegates. We're looking forward very much to Super Tuesday. We had a great weekend with Herman Cain endorsing, campaigning in Georgia. We'll be back campaigning. It will be in Oklahoma, Arizona, Washington, Idaho and California this week.

And carrying out -- the biggest difference between me and Santorum, who in many ways were the conservative wing of the race, is the scale of the ideas, the boldness of the ideas. I'm much more prepared to talk about fundamental change, whether it's a personal Social Security savings accounts for young Americans, or it is zero capitol gains tax, or it is the kind of energy policy that leads back to $2.50 a gallon gasoline.

And I think in that sense, I'm much prepared to break out of the Washington establishment model.

WALLACE: So, what's your play now? You go back after Santorum to try to win back the evangelicals and the Tea Partiers. Or do you go after Romney, thinking if you can drive him out of the race that you can take on Santorum later?

GINGRICH: I don't -- well, in my model, the one that got me be the frontrunner twice, frankly, is to talk positively to all Americans and to try to suggest that having somebody, you know, there are set of numbers. Herman Cain was teaching me to use numbers yesterday. So --

WALLACE: Nine-nine-nine?

GINGRICH: That was his number. But his point is -- $1.13 was the amount we paid for a gallon of gas when I was speaker, 4.2 unemployment rate when I left the speakership. Four was the number of years you balanced the federal budget the only time in your lifetime. Two out of three was the number of people who went to work or went to school under welfare reform.

You take that scale of change and you apply it to today, then my goal is to say to the American people -- this is the level of leadership that you need. I'm only person in the race who's actually done things on this scale. And I think for us to get back on the right track is a very heavy lift. And it's more than just beating Obama, it's also changing the Congress, changing the laws, and some very fundamental ways we think we need doing.

WALLACE: You were listing to some of the states. And obviously, you know, it's not only big ideas. It's also political strategy. What does it mean to Mitt Romney if he were to lose his home state and an important swing state of Michigan?

GINGRICH: Well, I'd be curious what their rationales would be. Here' the guy who's been running for six years, put in $40 million of his own money last time, has outspent all the rest of us I think by three or four to one in terms of his campaign and probably by 10 or 15 to one in terms of his super PAC. And if he can't carry his own -- he has gotten majority anywhere, except that very tiny majority in Nevada.

If he can't carry his home state, I think the rationale for why is there a Romney candidacy. He's not a candidate of ideas. He's not a candidate of ideologies. He was the candidate because he was the inevitable winner.

Now, there's no place yet -- you know, in Maine for example, he's basically tied with Ron Paul. In Iowa, it turned out after the recount, he was tied with Santorum, with Santorum slightly ahead. And even in Florida where he spent $20 million, he couldn't get to 50 percent.

WALLACE: So, you kind of interrupted yourself, you were saying, if he loses --

GINGRICH: If -- my only point is, there's a whole rational, which is now built on his ability to win -- and he hasn't been able to win -- if he loses his home state and I assume they're going to throw the kitchen sink at Santorum because that's the Romney style. If they don't lose his home state, I don't know see what he says the next morning to his donors to stay in the race.

WALLACE: Are you saying that he'd be fatally damaged?

GINGRICH: I think he's already damaged by the negativity of his campaign and the fact that he keeps driving down turnout. I mean, the studies indicate clearly, when I did well, turn out went up, including north Florida. When he's done well, turnout was gone down.

And I think for the general election, that's not a very good sign.

WALLACE: By that same reasoning, the next week, Super Tuesday, Georgia, your home state -- you have to win Georgia.

GINGRICH: I think you'd have a very -- if any of the three loses our home state, if Santorum loses Pennsylvania, Romney loses Michigan, or I lose Georgia, you have I think a very, very badly weakened candidacies. I was home campaigning for the last two days precisely to say to all of my friends back home, Georgia really matters. You cannot take this for granted.

WALLACE: Are you willing to say that if you lose Georgia, you'll drop out?

GINGRICH: No, given the chaos of this race, I wouldn't say anything, but it's -- but I'm certainly willing to say I think it's extraordinarily important to carry your home state. And also has an underlying impact if you don't.

WALLACE: You know, you talk about the chaos of the race. Some top Republicans are now saying if -- and we got to make it clear -- if Romney loses his home state, that they believe that they are going to have to pull a new candidate into this race. They've even talked about the possibility of former Florida Governor Jeb Bush. How would you feel about a late entry in March getting into this race?

GINGRICH: Well, it's happened before in -- I remember, in 1964, the establishment got terrified of Goldwater, they recruited Bill Scranton, the governor of Pennsylvania, at the last minute. Jeb Bush is a great guy. He would be a terrific candidate.

And there are a lot of good candidates. I mean, you have to look around, and they are competent people in the Republican Party -- sure. Can they get on the ballot in those states?

WALLACE: Well, they could get in a ballot in California, New Jersey, Montana, South Dakota --

GINGRICH: Well, I think Tennessee -- I mean, Texas is going to be postponed.


GINGRICH: I have no problem with anybody on who runs. This is where I do agree with what Santorum said in response to my comment. And temper myself since because I think he's right. Anybody who feels that they want to come and qualify, come play.

But as you and I were talking about before the show, this is really hard. There's no gimme here. Nobody is going to show up and become Superman or Superwoman.

So, they just have to understand -- they are entering into the arena and it is a very challenge, very hard working arena.

WALLACE: Let's talk about policies and let's start with taxes. You proposed an optional 15 percent flat tax, with continuing deduction for mortgage interest and charity contributions. You would eliminate taxes on estates, capital gains, dividends and cut the corporate tax to 12.5 percent.

Here's the problem: tax experts say that would reduce federal revenue by a third, almost $1.3 trillion in 2015.

Question -- don't you, with your tax plan, blow a hole in the deficit?

GINGRICH: Well, I tell people, it's not revenue neutral because, in fact, it's a tax cut. And you got to decide what you're doing.

Second, I don't -- and I want to say up front, I'm the only person you interviewed who directly was involved in balancing the budget four times except for Bill Clinton. So, I think I can say this with some authority.

WALLACE: I haven't interviewed Bill Clinton in a while.

GINGRICH: Not in a while. That was a great interview.

But I'm just saying, the two of us negotiated this and we have four conservative years of a balanced budget, the only time in your lifetime.

The number one goal has to be to create dramatic economic growth. You get back to 4 percent unemployment, you shrink that estimate. Number two thing, which nobody counts, I have a program to unleash American oil and gas to produce -- and the estimate by the guy who developed North Dakota is there are $16 trillion to $18 trillion dollars in potential royalties to the federal government over the next generation if you, in fact, open up federal land and offshore.

So, you start adding in what we'd get out of becoming -- my goal is to be so independent in energy production that no American president ever again bows to a Saudi king. Now, if you have that level of American production, $500 billion a year or more in domestic energy production, the royalties that pays is a substantial part of plugging that hole.

WALLACE: OK. And let's -- you bring me right to what I wanted to talk about. You are pushing this idea of drill here, drill now, and you are talking about returning to $2.50 a gallon gasoline.


WALLACE: Again, the experts say, OPEC, if you were to do that, and it would unleash all those domestic production, they would cut production to keep international prices up. It is always the possibility of an oil spike, upheaval in the Middle East. They say, even if it's the right thing to do, drill here, drill now, you can't guarantee $2.50 a gallon.

GINGRICH: You can't guarantee anything. But you guarantee under the Obama plan, there's going to be less American production, higher prices. We already have highest price on average in history.

This president is anti-American energy. He's consistently opposed to -- his U.S. attorney in North Dakota file would a lawsuit over eight migratory birds? That's how much they are opposed to the oil industry? I mean, the nuttiness these guys are engaged in.

So, what I can guarantee you is the Obama program is higher prices, more dependency in the Middle East, more vulnerability to Saudi Arabia and Iraq and Iran -- exactly the wrong direction. Now, can we get to $2.50? Can we get to $2? It was $1.13 when I was speaker. It was $1.89 when Obama was sworn in.

I mean, $2.50 is not some inconceivable number, except in the Washington establishment, which also explains to you why whatever you want to do that's good for the American people can't be done.

WALLACE: All right. You used to do this for a living, used to play an analyst on TV. You have two minutes.

GINGRICH: There we go.

WALLACE: I got two questions.

Las Vegas casino owner Sheldon Adelson and his wife had contributed $11 million so far to the super PAC that supports you. He's reportedly now prepared to contribute another $10 million to your campaign. Is he keeping Newt Gingrich afloat?

GINGRICH: Well, he's certainly helping to balance off Romney's 16 millionaires. He's helping balance off Romney's Wall Street money. But the reason is very straightforward -- Sheldon Adelson is desperately worried about an Iranian nuclear weapon and he is desperately worried about the survival of Israel. And I am the strongest candidate on foreign policy and the strongest candidate in national security.

It's a very open relationship and something I'm very happy to say I think we should be worried about the Iranian nuclear weapon. I think we should do everything we can to insure that Israel survives.

WALLACE: Finally, your wife Callista is taking a more public role. You can see her here now. I mean, she's speaking out at various appearances, talking among other things about your golf game and the fact that she says that you get in and out of golf traps -- sand traps more often that anybody she's ever known, which may be a political metaphor. According to --


WALLACE: According to one report, the campaign hopes that she will soften your image. True?

GINGRICH: Well, I think that's true. I think also that she's very attractive and she's very smart and she's affective. She has a speech in American exceptionalism that's remarkable speech and she's enjoying it. I think she -- it took her a while to get in the rhythm of being out there on her own, but she's really having a good time. She had a great talk yesterday in Atlanta and I'm very proud of her.

WALLACE: How is your golf game?

GINGRICH: Really bad.


WALLACE: With this campaign getting worse, right?

GINGRICH: Exactly right.

WALLACE: Thank you so much, Mr. Speaker, for coming in.

GINGRICH: Great to see you.

WALLACE: Always a pleasure to talk with you. We'll see you on the campaign trail, sir.

GINGRICH: Thank you.

WALLACE: Up next, Congress extends the payroll tax holiday. But are they done legislating for the rest of this election year? We'll ask House Majority Eric Cantor when we come right back.


WALLACE: This week, Congress passed a bill in surprisingly bipartisan fashion to extend the payroll tax cut and unemployment benefits. But in this election year, was that legislative breakthrough as good as it gets for 2012?

Joining us now to discus what more if anything will get done on Capitol Hill is Republican House Majority Leadership Eric Cantor.

And, Congressman, welcome back to "Fox News Sunday."

HOUSE MAJORITY LEADER ERIC CANTOR, R-VA.: Chris, great to be here.

WALLACE: Let's start with the latest polls. In a survey this week, 50 percent approve of the job the president is doing, while 43 percent disapprove. Meanwhile, the same poll, 10 percent approved of the job Congress is doing, while 82 percent disapprove.

Has President Obama out-maneuvered congressional Republicans?

CANTOR: Well, Chris, first of all, I think no one is satisfied by the direction of the economy right now. They want to see more growth. People want to see more job opportunities. I think it is that frustration that sort of focused on the fact that Congress doesn't seem to be able to get enough done as far as what people were expecting.

And I think it's that frustration that underlies this kind of poll numbers. And if you look to see what it is that we've been trying to do, we really came to this town a year ago, in a new majority and said, you know, we want to try to change the way Washington works. Much of the discussion has been around taxes and spending.

And I think most Americans get -- we spend too much money in the town and trying to get a handle on that. But every time we ask Harry Reid or the president to go along with us, you know --

WALLACE: Harry Reid, the Senate Democratic majority leader.

CANTOR: Right. Every time we want to cut a dime of spending, we are rejected because they don't want to cut spending. And every time we advance a pro-growth type measure, you know, there's some excuse as to why the Senate can't take it out.

So, again, I don't blame the American people for the frustration. We are trying to go and find those opportunities for us to work together.

WALLACE: OK. We talked about the fact -- on Friday, the House passed this extension of the payroll tax cut that so many of you opposed just a couple of months ago, in December. You don't pay, you still don't in the bill that you had. You still don't pay the $93 billion cause of extending the payroll tax cut. You pay for some of other elements. You just add $93 billion to the deficit. A lot of your members doubt that it will help the economy and also note the fact that it takes money away from the Social Security trust fund.

Didn't you cave to the president because basically he's got the political high ground?

CANTOR: First of all, Chris, I don't think we're ever the party that wants to see taxes going up on anybody. And at the end of the day --

WALLACE: The Republican caucus opposed this measure in December.

CANTOR: We supported a year-long extension of the payroll tax holiday to make sure that people will not have their taxes raised when they're out there trying to make it through the month. What we would like to have seen is we would like to have seen it done in a way that we could actually reduce spending while at the same time affording this tax relief.

WALLACE: But you didn't -- it is up to $100 million.

CANTOR: And again, every time we try to advance that, Harry Reid and the Senate and president, they just to play politics.

WALLACE: So, why did you agree?

CANTOR: Well, again, at the end of the day, I don't think it's a good idea to allow taxes to go up on working people. Basically a payroll tax says we're going to increase taxes on everybody who has a job. I don't think that that's what we need to do.

WALLACE: All right. Looking forward before New Year's, a White House spokesman said this about the president's relationship with Congress in 2012. Take a look. "In terms of essential, must-do items, the payroll tax cut extension is the last one."

Congressman, are you done legislating for 2012?

CANTOR: You know, I'm disappointed to hear White House say that because I do think there's a window of opportunity for us to get something done. And if we can take advantage of the need for growth in this economy, we could all work together. And there's two things that we're going to be taking up within the next several weeks that I think all of us can agree on.

One is a bill that we are calling the jobs act. It's called "Jumpstart Our Business Start-ups," which essentially is going to be a package of measures that has a lot of bipartisan support. These are things that the president and his jobs council advocate. Steve Case is the former AOL chairman and founder participated, oversaw the board --

WALLACE: What would it do?

CANTOR: What it does is it speaks to small business growth. And it says, we have to afford access for more financing for small businesses. We need to address the regulatory burden that small businesses are facing so we can see then start up again.

I mean, Chris, the truth is -- over the last three years, there is a 23 percent decline in small business start ups, which is indicated when you look at the job growth numbers. We know small business is a job growth engine in this country. This package represents the first opportunity for us, post the payroll tax holiday extension for us to work together in a bipartisan manner and get something done.

WALLACE: You are also talking about a 23 percent cut in the small business taxes?

CANTOR: That's the next measure that I'm hopeful we can get some bipartisan agreement on. We'll be bringing forward a bill that provides 20 percent tax cut for small businesses -- again, knowing full well that small businesses create more than 60 percent of the jobs in this country.

WALLACE: Now, does that mean for instance, because I know when they talk about raising tax on individuals, you say, well, that's a lot of small businessmen. Does that mean that those small businessmen who file individual taxes would get a 20 percent cut in their taxes?

CANTOR: Well, we know that overwhelmingly, the number of folks who are business people in this country file as individuals. We know that. We want to help the small businesses as defined by the Small Business Administration. That's 500 employees or less.

Those entities will be allowed for 20 percent tax cut straight to the bottom line -- and that's what we want to do to make it easier for these small businesses to start up.

WALLACE: But does that mean a lot of folks who are making $250,000 a year are going to get a tax cut?

CANTOR: You know, Chris, you know, that suggestion is somehow that we shouldn't be, and I shouldn't be going home to my district in Richmond, Virginia, and telling a small business person that I can help by providing a tax cut for them so they can grow their business and hire more people just because maybe someone else benefits.

In the end of the day, we are all in this together. We have got to as a country work towards growth in this economy and regain the kind of optimism that America is about.

WALLACE: But there are some deep philosophical differences. And I want to show you a couple of surveys on this, which speak to this issue. Take a look at this.

When asked, should taxes be increased on millionaires, which include some of these small businessmen, to lower the deficit -- 67 percent say yes, increase the taxes, 29 percent say no. In another poll, 80 percent do not believe -- do not believe that Medicare should be cut to reduce the deficit.

I mean, aren't they basically disagreeing with an awful lot of the Republican agenda?

CANTOR: I think, Chris, underneath that question is somehow that we don't care about the people who are out there working paycheck to paycheck trying to make it. And somehow it's unfair.

What I would say it is unfair that these individuals who want a better life, who want more jobs and high pay are not getting it. That's what's unfair.

And the fundamental nature of American is an aspirational country, that everybody ought to have a fair shot. And what's not fair is that we are holding back the ability for this economy to grow because you have Barack Obama in this town working with the Democrats in the Senate, Harry Reid and others, who are saying no to every time we want to try and grow the economy, put in place measures that speak to the entrepreneurial nature of this country. Every time we want to try and get the fiscal house in order straight in Washington, they say no.

So, let's -- you know, again, I think a lot of these issues can be played out in the election, but there are -- there is a window of opportunity for us to work together right now.

WALLACE: Let's do a lightning run, quick questions, quick answers. I'll keep my questions short.

Is the president's budget that he submitted this week dead?

CANTOR: The president's budget is really something that's not serious and we are not going to pass a budget that racks up another $1,300,000,000,000 in debt without any attempt to try and address the real problems here of cutting spend, dealing with entitlements or growth.

WALLACE: Will serious deficit reductions, serious tax reform, have to wait until a lame duck session after the election?

CANTOR: We are going to continue to engage in discussions on our side and we have consistently led on this issue and the president hasn't. It's up to the president and Harry Reid if they want to join us.

WALLACE: Will the House pass a measure to president's revised rule on birth control resolution for religious institutions?

CANTOR: This is a question of religious freedom. And you know what? I don't think that Barack Obama and his administration know more about the Catholic faith than the Catholic Church does. And we're going to do everything we can to restore the religious freedom of this country.

For -- over 200 years, it's been working. Why all of the sudden do we need this?

WALLACE: Will the House cut off military aid to Egypt if they refuse to stop their crackdown on pro-democracy American activists?

CANTOR: I just returned from the Gulf, Chris, and talked to a lot of the Arab nations and governments there. They are very concerned about what they see going on in Egypt. I'm concerned about the signal that this administration is sending. I think we need to get tough and speak out as leaders, as America is globally.

WALLACE: You're saying get tougher. Are you talking about cutting $1 billion in aid?

CANTOR: I am talking about the very real prospect that if Egypt does not demonstrate that it sees thing in the way that we do in terms of promotion of freedom, human progress and protection of minority rights, that there will be repercussions on Capitol Hill. There's no question about it.

WALLACE: Cutting off aid?

CANTOR: There is certainly -- that discussion is live. Chris, I'm not going to say right now because we'll have to get into the details of what the commitments that the Egyptian government is going to be. But let's not mistake the fact that you got a very radical shift in Egypt right now, going on in terms of a government that could be -- maybe not as friendly to U.S. interest.

WALLACE: Democratic Congresswoman Maxine Waters had some choice words for you this week. Take a look.


REP. MAXINE WATERS, D- CALI.: I saw pictures of Boehner and Cantor on our screens. These are demons. These are legislators who are destroying this country.


WALLACE: So much for civility. Your reaction?

CANTOR: Those kinds of words obviously are not very helpful. But I can tell you, Chris, is that's evidence again that any time that we try and put forward pro-growth measures, or measures to try and get the budget under control, that's what happens. Individuals on the other side just take off on a personal attack that has nothing to do with the debate, but just to make politics --

WALLACE: And, finally, I got 30 seconds left -- are you worried that the Republican presidential candidates are so negative, are bashing each other so much that they are weakening the entire field and making it easier for Barack Obama to win reelection?

CANTOR: You know, Chris, I think that the debate ongoing in our primary is really one of a debate versus Barack Obama. It's about our vision and who can best translate or articulate our vision of the direction of this country versus Barack Obama.

WALLACE: So, you are not troubled by the negativity against each other?

CANTOR: No. And you know what, Chris? You know, it's still February. If you look and see where the Democrats were in their primary in '08, you know, Hillary Clinton and Barack Obama were at it, well through June.

And so, this is a nature of our system. I believe we ought to be sticking to substance and the policy differences we have with this president.

WALLACE: Congressman Cantor, we want thank you for coming in. It's always a pleasure to talk with you, sir.

CANTOR: Thank you, Chris.

WALLACE: Please come back.

Up next: the economy starts to tick back up, along with the president's approval numbers. We'll ask the Sunday panel what it really means for the November election.




PRESIDENT BARACK OBAMA: It is amazing what happens when Congress focuses on doing the right thing instead of just playing politics.

SPEAKER OF THE HOUSE JOHN BOEHNER, R-OHIO: The White House made clear that the president is finished with governing for the balance of his term.


WALLACE: The president touting the extension of the payroll tax cut, while House Speaker John Boehner predicts Washington won't get much work done in 2012.

And it's time now for our Sunday group.

Kimberley Strassel of The Wall Street Journal, former Democratic campaign manager Joe Trippi, former Bush White House senior adviser Karl Rove and Kirsten Powers of The Daily Beast.

Well, as I discussed with Congressman Cantor, the president's approval numbers are now up to that magical 50 percent. The economic news is better. Unemployment is down, housing construction is up and General Motors just announced record profits -- all-time record profits -- for 2011.

Karl, how much does that conglomeration of facts mean as we look towards November?

KARL ROVE, FORMER BUSH WHITE HOUSE SENIOR ADVISER: Well, it means something about the news coverage. But let's put it in perspective. Gallup, his approval rating is 46 percent. No president has ever been reelected with that --

WALLACE: It was up to 50.

ROVE: No, it was up to 50 and the CBS/New York Times poll, which consistently has far more Democrats than there are in the public -- in the voting pool actually. Sixty-eight percent of ABC/Washington Post said the country is going in the wrong direction. His approval rating on economy, jobs, deficit, health care, Social Security and taxes are all upside down.

And the generic ballot is 43 Obama, 42 generic Republican, one out of every six Americans is unemployed, working part-time, looking for full-time work or so discouraged they're -- they've dropped out of the workforce altogether, and gas is now $3.53 a gallon, going to $4.

So, you know, look, we'll have a brief renaissance here, but if I were in the White House, I wouldn't be -- I wouldn't be picking out my second term office just yet.

WALLACE: Well, and it will probably be the Oval Office if he does win.


ROVE: No, I am talking about the West Wing staff.



WALLACE: Look, all right, and I want you to weigh in on this. I read an analysis -- and maybe you're right. Maybe this is a rush to judgment and to say, you know, it's Obama is going to win again.

But I read an analysis in the paper this week that said this is precisely the point in February and March of 1996 when Bill Clinton kind of cemented his victory. He went up over 50 percent; he didn't go back down after that. Do you view where Obama is right now as a watershed or just a blip?

JOE TRIPPI, FORMER HOWARD DEAN CAMPAIGN MANAGER: It is a big change from where we go months ago. I mean, all of the trends that Karl is talking about are all turning, bar one. Gas prices, I think, are the one that will continue to go this way. But unemployment is going the right direction, consumer confidence, right direction.

All these numbers that the president's been rated low on are turning, turning right now, and they have to turn now to give him a shot in November. They're turning fast enough, and now the question is did they turn big enough? I think they will.

But the bigger issue is the Republicans right now, both -- all of the folks that are left are losing support among independents. This is -- I mean, one of the things that's going on is that the president right now is surging among the independents and both Romney, Santorum and Newt Gingrich are falling apart among them. That's the group that's going to decide this thing in the end.

So with these trends going, with the Republicans having this fight, you know, I think -- don't want the staff to looking for their new office, but I think the -- I don't know where they could be any better off than they are right now.

ROVE: They could be ahead by a significant margin, the generic ballot. And the unemployment could be well below 8 percent after they told it would never get to 8 percent. We have these --


TRIPPI: -- seven or eight points over Romney or Santorum --

ROVE: Well, you know what? And below 50 percent -- he is the incumbent president and he can't get above 50 percent against the Republicans who are in the middle of a battle, where they're bleeding all over the floor.

WALLACE: All right. Fine with. Agreed on that.

Kim, I think it is fair to say, from the contrary positions held by Joe and Karl, an awful lot of this depends on the economy, and clearly the economic news is -- if it is not good it is certainly less bad than it was. How confident are you that the news stays good from now till November?

KIMBERLEY STRASSEL, THE WALL STREET JOURNAL: Well, I think that this is very tragic, because as Karl noted, yes, you have unemployment going down slightly, consumer confidence up a little bit. But you have these gas prices hanging over people's heads. Also you don't know what's going to happen in Europe. It could still explode. So if they are betting on this, that is a problem.

I do think that there is one other thing going on here, though, which is that the president is benefiting slightly from having found his message. And they have spent this past year wandering around, deciding if they were going to be the negotiators or if they were going to be the bipartisans, if they were going to step out and try to appeal to moderates. They have lost that.

And what the president is doing is doing his class warfare shtick now. He is out there and that is -- with Republicans not having a message to combat that, I think that he is getting a little bit of a traction from just having his position.

WALLACE: And if it is a class warfare shtick, it seems to have worked this week, because the Republicans basically gave up on all their objections and passed the payroll tax cut extension.

STRASSEL: Yes, and I think, you know, if you look -- I actually -- I see what both Karl and -- both of these men are saying, is that essentially if you -- depending on the poll that you look at, you see a lot of different things. But if you look at the FOX News battleground poll, you see Obama actually doing better, just from a couple weeks ago.

Previously three state polls were showing Obama really losing because he wasn't doing well with independents. And I think a lot of that is because of what is going on in the -- in the primary, which is right now you have Santorum at the front, which is somebody who really alienates a lot of independent.

And even Romney was really being hurt by the fight with Gingrich being so negative, scaring off independents. And so right now they are in a great position and if they can keep this message going on with this fight over contraception and these other issues around women, I think the Obama campaign sees this as very positive for them.

WALLACE: Karl, the president submitted a budget this week that, I think it's fair to say, was a lot more about politics than it was about governing.

You saw the quote that I put up for Eric Cantor (sic). We are basically done legislating for the year. It may be cynical, but is that smart politics?

ROVE: No, it's not. In fact, we -- they were done with mostly governing last year. The only thing of substance they did last year was pass the free trade agreements, and it mystifies me, because the greatest strength that a president has is to be the president, not the campaigner in chief.

Here's a guy who's done 91 fundraising events and basically let 2011 go without any significant legislative accomplishment, and has no plan to make this year about significant legislative accomplishment.

He moves up on the polls when he does things together, whether it's November and December of 2010, when they extended the Bush tax cuts and passed some things he wanted, or when they get the yearlong extension of the --

WALLACE: Now you're not just saying put up a bunch of show proposals. You're saying actually trying to get something done.


ROVE: It has mystified me why this president thinks it gives him an advantage to get on a bus and drive through Minnesota, Iowa and western Illinois and pretend to be the campaigner in chief rather than being in Washington, being the actual chief executive of the United States.

WALLACE: You agree with that, Joe?

TRIPPI: Look, I think it's realistic -- it's unrealistic to think that they're -- that this town's going to get anything done between now and November. I mean, it just -- they haven't been able to get a whole lot done in the whole -- I mean, either side in the four years. November is going to decide this one way or another.

And I think that -- I think they -- I wouldn't have said it, I wouldn't have telegraphed it the way that the administration has telegraphed it. But I think it's unrealistic to think anything different is going to happen.

WALLACE: All right, we have to take a break here, but when we come back, where the wild Republican campaign stands now and whether a late entry could still get into the race. Our Sunday group breaks it down.



MITT ROMNEY, REPUBLICAN PRESIDENTIAL CANDIDATE: I want to make Michigan stronger and better. Michigan has been my home. And this is personal.


WALLACE: Mitt Romney, emphasizing his Michigan roots in what many political observers are calling a must-win state for him. And we're back now with the panel. So here's the latest Real Clear Politics poll, our average of recent polls in Michigan.

Santorum, as you can see, has opened up a solid lead over Romney. Palin and Gingrich are quite a ways back.

Kim, how important is Michigan, how damaging for Romney if he were to lose in a key swing state that's also home turf? And what are the chances that Santorum can pull off this upset?

STRASSEL: It's a very big deal, because he has got to -- if he loses Michigan, it fundamentally changes the narrative of this entire race, and that he has run first and foremost as a frontrunner in this. And if he can't win Michigan or if he comes in poorly in Arizona then it does allow someone like Santorum to come out and say you are not necessarily what's going to happen.

But there is going to be a lot of challenges for Santorum here. The money is about to hit him in terms of the Romney negative campaigning. He's going to have respond to that. He's going to have to try to avoid stepping his own foot in it as people focus on things like his social issues, et cetera.

And he's also going to have to do a little bit better in organization, because we do have all of these states coming up after Michigan, Arizona, too --


WALLACE: But specifically in Michigan, do you think Santorum can pull this off?

STRASSEL: He can, especially if Mr. Romney does not come out and become much more aggressive on an economic message. Despite all of these opportunities he has had to retool his message and try to excite conservatives, he is largely running on biography. He's going to give a speech this week, and we're going to wait and see if he comes up with something big (inaudible) --


WALLACE: Well, I need to tell, because I have talked to somebody, a top official in the Romney campaign. He's giving a speech this week to the Detroit Economic Club. And there was so much attention about this, instead of having it in a hotel ballroom they've moved it to Ford Field, where the Detroit Lions play. So there's going to be a big crowd there and there has been a lot of talk he's going to make some major economic announcements of new policy. I am told no, he's not.

STRASSEL: That's going to be a huge disappointment for a lot of people looking at him, and he may want to rethink that, because it's going to take something big like that to ignite the conservative base around him.

WALLACE: Kirsten?

KIRSTEN POWERS, THE DAILY BEAST: Yes, well, you -- if you look back, usually the way Romney comes in and wins, is he starts carpet bombing whoever is his main opponent. And so I think, as Kim said, there's going to be a lot of money coming at Santorum.


WALLACE: But (inaudible) a possibility, because he's done that so much, that that's beginning to blow back on him?

POWERS: No. I mean, well, maybe it is going to blow back but he doesn't really have any other choice unless he really thinks that he's going to win there. But it's not just going to be coming from there. Newt Gingrich's primary funder has basically said I'm going to give him more money so we can just make sure that Romney isn't the person.

They want to support Gingrich, just to pull more votes and just to divide the field more, just because they want no Romney. So I think that, you know, yes, right now Santorum is ahead in all of the polls, but there is basically a lifetime between now and election day.

WALLACE: Karl, your thoughts about Michigan. How damaging if Romney were to lose Michigan.

ROVE: Yes, damaging and one of the problems with Michigan is, first of all, I am not certain I agree that he needs a new policy at the Michigan Detroit Economic Club speech. If he comes out with a passionate art of defensive capitalism, of free enterprise, that would do just as well as a policy-laden speech.

But, look, Michigan is problematic. I remember I'm 2000, Fred Steep (ph), our Bush campaign pollster called -- Michigander -- said my sister is voting in the Republican primary for the first time.

I said great. He said, no, bad news. He said, it is an open primary. She is a member of the Michigan Education Association and the union has told them go in and vote against Dingell (ph), and by voting against Bush. And so you got -- you're going to have United Auto Worker and Democrat people coming into the Republican primary to vote against -- to vote against Romney.

I do think it is very problematic. And I don't think he's going to get hit necessarily for being negative. I agree with Kirsten on that, particularly if these are seen as fair attacks. But interestingly enough, this is getting so convoluted, I'm starting to track of all of the threads. There are reports that Sheldon Adelson is going to put the $10 million into the race in order to help boost Gingrich and to stop Santorum.


ROVE: And I mean, I'm sitting here saying, well, geez, now we're playing chess not on two dimensions or three dimensions, but four dimensions.


WALLACE: -- that Santorum doesn't like gambling and he thinks that if he were president it would be bad for business.

ROVE: Well, and also he is an -- Sheldon is not a -- he's not an antisocial conservative but he's worried about the emphasis that he has seen --

WALLACE: Karl --

ROVE: -- and statements.

WALLACE: -- you and I -- I'm going to entertain this again. You and I discussed many times the possibility of a late entry in this race and you have always flatly dismissed me, but now reportedly, some other -- and you will know if it is true or not -- top Republicans are talking about this possibility. And they know. And let's put this on the screen.

The filing deadline has not passed for these states: California, New Jersey, Montana, New Mexico, South Dakota, and the argument is if -- and I've got to repeat -- if Romney were to lose Michigan he's mortally wounded.

The other candidates can't beat Obama so the establishment brings in somebody like, for instance, Jeb Bush, he can't win the nomination but he gets enough delegates to throw it to a contested convention. Tell me I am crazy again.

ROVE: Yes, look, this proves mental illness is transmittable by contact, personal contact. You've been talking to all these people and -- look, let's go. Let's take that list that you just threw up, and let's add in one more big state just for the heck of it, Texas. It is unclear whether the filing deadline has closed in Texas or not. We have a --


WALLACE: -- Texas primary moved back to May.

ROVE: -- moved back to May, but it's unclear whether they will reopen the filing deadline. But let's assume they do for a minute. There are 554 delegates up in those states that you talked about, plus Texas; 222 of them awarded, winner take all; 332 of them awarded proportionately.

So in other words, even if the candidate gets in and wins the pig states with winner take all, and wins half of the states with proportional, wins half of those delegates, we're talking about 350 out of over 2,000 delegates. And that may be enough to toss it into a convention that gets -- that gets decided at the convention, but that is different than -- no brokering a convention.

No, no, no, brokered convention is you work it -- you've got it all worked out and you've got the...


WALLACE: ...contested convention.

ROVE: A contested convention like 1976 where Gerald Ford goes in and they...

WALLACE: So are you now suggesting, are you now willing to say this is a possibility?

ROVE: No. I think it is remote as life on Pluto.

It could happen, sure. You can make up all kinds of scenarios. But in all likelihood what happens in the dynamic of the primaries, once somebody starts to win they keep on winning.

WALLACE: Here nobody keeps winning.

ROVE: We have got a nationwide, at least in the punditry class, a call of premature electionitis. We have had five contests so far that have awarded delegates. We have had eight contests, including -- in which delegates could conceivably be -- and one beauty contest. We have got 54 contest in this thing. And we concluded five of them.

TRIPPI: If Romney loses Michigan the train wreck keeps happening. And I can call it that, because we usually -- Democrats are the ones who usually have these kind of train wrecks in their nominating process, but this one is -- if he loses Michigan, I think it's -- and he's being moved on both sides. Gingrich is holding up in Georgia, Santorum in Michigan. He's not being, they are not splitting up each other's votes yet the way they have been in other states. And so this is going to be a big problem for Romney. His money may not make a big difference here.

WALLACE: So, wait, wait.

ROVE: This guy had an Aeronautical engineering degree. We just heard from the rocket scientist from the panel.

WALLACE: So are you saying Joe you think there is a possibility that somebody else gets in the race?

TRIPPI: Yes. I absolutely believe that is very possible, particularly if Romney loses Michigan. I would suspect that that's going happen if he loses Michigan.

STRASSEL: The question is who is the savior? Exactly. I mean, nothing changed since last fall.

WALLACE: You can name a bunch of saviors. I mean, just go ask Bill Kristol, Jeb Bush, Paul Ryan, Marco Rubio, Mitch Daniels...

ROVE: ...Sarah Palin. She happy to...

STRASSEL: All of these people have refused already. And it has only become harder since that time. It seems difficult to believe one of these now jumps into the race.

WALLACE: Well, as Earnest Hemingway said at the end of The Sun Also Rises, isn't it pretty to think so?

Thank you 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 website We'll post the video before noon eastern time. And make sure you follow us on Twitter. You can use our handle @Foxnewssunday.

Up next, our power player of the week.


WALLACE: This Wednesday, the Smithsonian breaks ground on the 19th building in its complex of museums. When it opens in 2015 it will help explain a key chapter in what it is meant to be an American. Here is the power player of the week.


LONNIE BUNCH, DIR, MUSEUM OF AFRICAN-AMERICAN HISTORY AND CULTURE: If you want to understand our notions of freedom, our sense of liberty as Americans, where better to look than through the lens of the Africa-American experience.

WALLACE: Lonnie Bunch is director of the Museum of Africa- American History and Culture which will stand on the National Mall near the Washington monument. Bunch says it merits that spot, because the story it will tell is an essential apart of this nation.

BUNCH: The Africa-American experience and challenges of slavery, race, segregation have really been at the heart of who Americans are.

WALLACE: Bunch and his staff have been working under the radar since 2005 raising more than $200 million from the government and private donors for what is expected to be a $500 million dollar project. The biggest challenge has been figuring out the story they want to tell, then finding the 25,000 artifact to tell it.

BUNCH: In many ways crafting this museum was like going on a cruise in uncharted water at the same time we're building the ship. WALLACE: Bunch says a Philadelphia collector claimed to have material from Harriet Tubman, the escaped slave who helped freed dozens more through the Underground railroad.

BUNCH: I knew as a 19th Century historian there wasn't anything.

WALLACE: Smithsonian staff brought in an ever so delicately unwrapped just one example of what the collector had, a shawl that Queen Victoria gave Tubman.

BUNCH: They pulled out this shawl and told the story -- I think people were ready to cry.

WALLACE: Bunch has collected much more. From the dress Rosa Parks was working on when she was arrested to Chuck Berry's Cadillac. And there is a railroad car with separate sections for whites and colored.

When you see things like that does it still hurt?

BUNCH: Of course it does. I really feel for the people who experienced it, but what I come away with more than anything else is the sense of strength and resiliency of people who basically believed in America when America didn't believe in them.

WALLACE: Lonnie Bunch got his first job out of college working at the Air and Space Museum.

BUNCH: They offered me a job even though I knew very little about air and nothing about space. But it really got me excited about the Smithsonian.

WALLACE: He's worked in museums ever since.

BUNCH: I remember as a kid watching the old men sit in the back yard. One would tell one story, one would tell another. And it became a social gathering. For me, museums at their best are like that.

WALLACE: How daunting is this assignment?

BUNCH: Let's just say that at 8:00 in the moshing I have the best job in America and at 2:00 in the morning it's the dumbest thing I have ever done.

WALLACE: No doubt he feels both because of his ambitious goal for the museum.

BUNCH: This is an opportunity to help Americans by being candid and tell the unvarnished truth so that we can say we can find a way to overcome the greatest chasm that has divided us that is the chasm of race.


WALLACE: Bunch says while he has plenty of material from Barack Obama's 2008 campaign, he also wants something that defines the first Africa-American presidency. But he says Mr. Obama is not ready to say what that is just yet.

Now this program note, tonight at 9:00 p.m. on Fox News Channel our colleague Brit Hume anchors President George H.W. Bush the Man and His Mission. Be sure to check it out.

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

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