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


SEN. MITCH MCCONNELL, R-KY.: This is eerily reminiscent of the experience last December , and I predict the American people will have the same reaction to this bill they had to the healthcare bill a year ago.

SEN. HARRY REID, SENATE MAJORITY LEADER, D-NEV.: Christmas is a week from Saturday. I understand that. But I hope the Republicans understand it also, because we are going t o complete our work no matter how long it takes in this congress. We have to do the work of the American people. We’ve been stalled and stalled and stalled this whole Congress.


BRET BAIER, HOST OF “SPECIAL REPORT”: We are just getting word from Democratic aide on the Senate said that the U.S. government runs out of money midnight on Saturday could be shut down for a day or two according to aides because of the clock that’s running in the Senate and schedule of things.

Senator Reid is supposed to bring up this omnibus spending bill, $1.1 trillion, and many Republicans have a lot of problems with it. Senator John McCain from Arizona went to the floor saying there are 6,400 earmarks at $8.3 billion. His favorite is $300,000 for the Polynesian Voyaging Society and $165,000 for maple syrup research in Vermont.

What about all of this? Let's bring in our panel, Steve Hayes, senior writer for the Weekly Standard, A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer. Steve, this looks likes a collision course.

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: I say fine, shut it down. You have a Congress that's more unpopular now than in history of the country.

BAIER: It's 13 percent by Gallup.

HAYES: We have had in the United States in the past two years, closest thing to European style one party government than we've ever had.  The reason that we're in the fix is because Democrats chose to put us in the fix. They chose not to do the things that they needed to do to ensure it didn't happen.  They created the problem so they had to create an emergency solution.  That's why we are seeing what we're seeing today.

The problem they never did a budget. The earmarks are problem. We should eliminate them if we can. But by not doing budget and cramming it through an omnibus, it gives the committee chairman tremendous discretion to raise level of discretionary funding on year-by-year basis. What it does, talk about the spending levels going forward, it sets a new and much higher potential baseline.  So you're talking about $15 billion or $20 billion higher next year than this year, which is double what we're talking about in earmarks.

BAIER: We do talk about earmarks a lot because these the crazy projects, A.B., but there's $1 billion in here for healthcare law implementation which would make it tougher for Republicans in Congress to try to unravel the funding for next year if it's funded through the year.

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: I'm not a shutdown proponent as Steve is, but I would also agree for the Democrats at this point to try to pass omnibus bill, even if it has to further their goals like funding healthcare is a stretch. The House passed a continuing resolution. We have run out of time.

I know appropriators like to appropriate, and that is their responsibility. They should have gotten them done by September, which is what their job really is to do.  The Senate has been in a lockdown filibuster now for ten days. I think the Democrats are frustrated and trying to call the Republicans' bluff. It is their fault they're in this position. I don't know how they actually get the votes for the bill. I really don't. We saw Senator Claire McCaskill from Missouri and other Democrats joining her against it.  In the end they will have to pass continuing resolution. I'm not a shutdown proponent.

BAIER: Despite the fact there are Republicans in here, many of them who have earmarks, the pet projects in this omnibus, many of those are now saying they are still going to vote against it now.

STODDARD: Right. That is the interesting thing. The Senate Republican leader Mitch McConnell, Senator Thune, Senator Cornyn all of the leadership have earmarks in there. But they say they found religion and ready to oppose it. I can't imagine the bill can pass 60-vote hurdle.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I think the poison in here for Republicans is the billion dollars, relatively small amount, that would be used to implement Obamacare. The reason it's so destructive is it takes out of the hands of the new incoming the legitimate Congress issue of how to deal with Obamacare and illegitimate voted out Congress who would oppose $1 billion, and that means that the Republicans would no longer have the way of stopping Obamacare by removing the funding because if it passes now, then next year the Republicans will be required to take it out, have the House support that and override a veto. So that's why there is strong opposition apart from earmarks.

But on issue of the shutdown, I'm not quite as blithe as Steve is on this. Of course, I wouldn't mind if it shut down for a week or two or three, save the money. The problem it's revisiting of what happened with Gingrich and Clinton. Clinton was way down and a lost mid-term election and it revived him.         People are not going to go through the reasoning of the difference between omnibus and continuing resolution in explaining what happened. The blame will fall on Republicans. They'll look at the television and see the bill read over 50 hours over Republican request. They will see the government shutdown, and they will say its Republicans. Why would you want to invite that and give yourself losing happened?

BAIER: Steve, some Republicans would say this is what the election was about. They feel the wind is at their back. They could push hard for resolution to put it in their hands in the new Congress.

HAYES: Absolutely. You can argue the public will blame Republicans.  I say there is equal evidence to suggest that the public would credit Republicans at this point given the levels of dissatisfaction with the congress given levels of concern about the deficit spending given the animosity toward Washington in general. That is a big question.

But there's another advantage to doing it this way and it's to put President Obama in a box. He didn't like signing the omnibus in 2009 shortly after being sworn in. He talked about cutting back on earmarks and talked about not wanting to sign it. He was advised you can't do this.  You're the new president and it would be the worst way to start off relations with congress.

KRAUTHAMMER: A family that arrives at Yellowstone on Christmas and finds it shut is not going through the reasoning of the omnibus. It will be recapitulation of what happened in the early '90s and Republicans will take the hit for it.

BAIER: Last word, A.B.?

STODDARD: The administration is opposed to the omnibus spending bill.  They haven't come out and said so publicly.

BAIER: But why not?

STODDARD: They're purposely not making suspect portative statements and they encourage for stop gap continuing resolution.

BAIER: Why not come out and say, OK, this is not going to work. I voted for the last one and I regretted it. I'm not going to let it pass.

STODDARD: I think they ruffled enough liberal feathers for a ten-day period perhaps.

BAIER: Our online poll question, do you think Senate will ratify the start agreement with Russia in the lame duck session of congress? Go to FOXnews.com/specialreport and you can vote there. Next up, the future of the tax rate compromise. 



REID: Whether you agree with all the contents of the bill or not, everyone should understand this is one of the major accomplishments of any congress where two parties ideologically divided have agreed on a major issue for the American people.


BAIER: Well the tax rate compromise bill with the extension on unemployment benefits as well passed the Senate today overwhelmingly. It heads to the House tomorrow. There is some opposition but most believe it will pass there as well.  It's interesting to see the Republicans and the split between potential 2012 candidates. Here's Mitt Romney in the USA Today saying he’s against this, “Because the extension is temporary, a large portion of the investment and job growth that characteristically accompanies low taxes will be lost.”  To answer that, Senator John Thune took to the Senate floor yesterday saying it may be politically expedient to stand on the sideline and criticize the proposal, but if you are against it, he said, you are for tax increase January 1.  We're back with the panel. What about the split, Charles?

KRAUTHAMMER: I wouldn't say politically expedient. It's politically smart. Romney is reflecting the spirit of November by opposing this, where the message was deep opposition to bloated government and huge deficit.

To give you an example how bloated this is, Paul Ryan who supports it, admitted on "Fox News Sunday" there is $313 billion of excess spending in this.  You heard squawking on the omnibus bill and $8 billion in earmarks. That is 39 times blown away in one-week deal.

BAIER: Blow it up and let the tax increase happen January 1st.

KRAUTHAMMER: Those who support the bill, like Newt Gingrich, Huckabee, Thune, are the ones saying we would have ordinarily; otherwise we would not have had the continuation of rates. That's not so. In January, the Republicans would have been in the House and retroactively passed clean tax cut extension and the Senate would have supported it. There's no way Obama would have vetoed it.

BAIER: You don't buy the deal businesses having to plan for the taxes to redo them twice, the whole thing.

KRAUTHAMMER: It would have been a hiccup. The Democrats and the president would have gotten the blame and Republicans would have cleaned it up in January. This is completely unnecessary.


STODDARD: There’s real evidence now that the outside pressure the conservative groups and pressure from the 2012  Republican nominating process is going to weigh on shoulders of congressional Republicans trying to govern over the next two years entirely, not just on this issue.

I'm fascinated that when you have Congressman Ron Paul, a grandfather, founding member of the Tea Party movement, Congressman Paul Ryan and Newt Gingrich, the entire Republican leadership up against Rush Limbaugh, Sarah Palin and Mitt Romney, the question who is more conservative is making the leaders nervous.

The soon to be majority leader Eric Cantor released something to press telling what a yes vote would mean, what a no vote would mean.  And there’s actually something here that says why not wait until January 11 when the Republicans control the house. They said this is no time to play game with the economy. For member elected and have to cast a vote that could shock a stock market, that's different story for someone on the outside planning to run for president.

HAYES: I don't think you can say with certainty that Charles does that President Obama would not support this kind of a tax hike if it came to that. So in Mitt Romney's editorial, I found it utterly incoherent. On the one hand he's saying a two year extension of rates leads to this tremendous amount of uncertainty, and what does he propose instead?  Instead He says either we'll have the higher taxes or the uncertainty of not having any bill.

So we don't know what president Obama would do. It's not clear he'd say I've got to be against this. It doesn't make sense.

KRAUTHAMMER: I think what you are seeing here is the tax cut religionists, those who believe that any tax cut is good no matter what it costs, and those who have the larger vision, which is that deficit and increase government especially when the price you pay for tax cut is a huge amount of wasteful spending, that I think is the prevailing sentiment of the electorate but the establishment still has tax cut religion.

BAIER: You don't buy the economy would crater if taxes go up?

KRAUTHAMMER: No. You would have had a hiccup and understanding a change in January. It would be a two week delay.

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