This is a rush transcript from "Special Report With Bret Baier," September 3, 2010. This copy may not be in its final form and may be updated.


PRESIDENT BARACK OBAMA: The economy is moving in a positive direction. Jobs are being created . They're just not being created as fast as they need to, given the big hole we've experienced.


CHRIS WALLACE, ANCHOR: President Obama putting the best spin on more disappointing job numbers today. Let's bring in our panel, Steve Hayes, senior writer for the Weekly Standard, Nia-Malika Henderson from the Washington Post, and syndicated columnist Charles Krauthammer.

So the August job numbers came out today, and unemployment, the total unemployment number rose from 9.5 to 9.6 percent. Steve, let's take a look at the internal numbers, which are more alarming. The economy lost 54,000 jobs in August along with the revised numbers of 54,000 in July and 175,000 in June.

So Steve, in what the White House was billing as the summer of recovery, a total of 283,000 jobs were lost.

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: If this is recovery summer, I think the White House is bracing for recovery fall. It's not likely to be a good fall. Looking forward, it's not getting better. Contrary to what the president said, he said things are moving in the right direction, they're actually not moving in the right direction.

And in addition to the internal numbers you mentioned, 331,000 people moved from full-time work to part-time work last month. Talk about alarming. That's alarming. It's a problem for the White House in that they don't have anything positive to say at this point. They don't have a positive argument to make. They can't point to something and say here is what we're going to do.

You saw the president try to do this with the small business bill which he claims is being held up by the Republicans and which is keeping small businesses from being able to hire, but I don't think that's big enough.

So what you have seen in the last 24 hours is the White House trying to come up with another package of -- amore comprehensive package, including the deeper tax cuts they can campaign on for the last two months when people are really paying attention from Labor Day on to election.

WALLACE: I want to get to the package in a moment, but Nia, I want to go back to the numbers we saw today. Private sector employment rose for the eight straight month by 67,000 and the stock market reacted quite favorably to that. Is there some good news in the report?

NIA-MALIKA HENDERSON, WASHINGTON POST: There is some good news. You saw Nancy Pelosi sent out memos today talking about the good news on this, including small business tax cuts that are already a part of the law here.

But I think the other numbers are so stark. If you look at 70 percent of Americans actually think that the recession, that we are still in a recession. If you -- I travel around the country and I talk to folks and I've been in focus groups, and everyone has the same question. That is, where are the jobs?

We'll see the president reset or restart his messaging next week. He will talk to the unions and he will be in Cleveland, Ohio, talking about the economy. Friday, there will be a press conference. But it's very hard to see it gaining traction over the next --

WALLACE: Let's talk about that, Charles, because the White House did say today that the president is going to is a new package of ideas to help get people employed.

And in the Washington Post today, they were talking not about spending, but about tax cuts, specifically tax cuts targeted for business. And one of them was a temporary payroll tax holiday.

First of all, are the idea of tax cuts a good idea? And would it corner Republicans because it's something they have trouble opposing?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: It's a Republican idea, a conservative idea, and it's a year-and-a-half late. This is what Republicans were talking about the beginning of the Obama administration when the stimulus was proposed, and he would have had a lot of Republicans supporting him.

He would have had a lot of them on board had he gone with a larger package of tax cuts, particularly a cut in the payroll tax, which is the most direct way to attack unemployment. It lowers the cost of hiring. When you lower the cost of "x" you get more "x." That's fairly elementary.

Instead he went for spending, essentially spending.

WALLACE: There were some tax cuts in the stimulus.

KRAUTHAMMER: They were insignificant. If they worked he wouldn't be proposing this now. The fact is that the bulk of it was absolutely wasted on spending, a lot on temporary jobs which are going to disappear. And as a result, right now this is clearly aimed at the elections, clearly aimed at trying to propose a plan that he thinks will have appeal to independents, perhaps even Republicans late in the game.

It will have no effect on the actual economy between now and November. He is hoping it will have an effect on politics and on the voting in November. But it won't.

WALLACE: Well, that's leading me to the next question. Why won't they?

KRAUTHAMMER: I anticipated it.

WALLACE: As always.

KRAUTHAMMER: Because it's late, it's obvious, it's plagiarized, and it's right on election eve. You don't have to be a genius to understand that this is something that Obama never believed in, and all of a sudden he becomes a believer.

WALLACE: Does it corner Republicans? In other words, if Democrats bring it to a vote, would Republicans have to go along and Democrats can say this is a big bipartisan success?

KRAUTHAMMER: Republicans might but it's not going to have any effect on the election. What is going to have an effect on the election is the state of the economy and the fact that Obama and the Democrats have proposed a $1 trillion stimulus that did not work.

WALLACE: Steve, one other thing that we're almost certainly going to see and a reference to that today as well is the tax cuts, and the Democrats are likely to propose keeping the middle class tax cuts, the Bush tax cuts but letting the tax cuts for the wealthy expire. Could position put Republicans in a box?

HAYES: I think it could, but it's not likely to. You have a position now where you have probably I say 10 to 15 Democrats in the Senate who would like to see the tax cuts extended, so basically the Republican view on that, position on that.

And if you have 10-15 in the Senate, you probably have 50 to 60 to 70 in competitive House districts who are not at this point going to make an argument saying we should raise taxes in a recession. And whatever the merits, and you can make the class warfare argument, but the bottom line is the effect would be raising taxes in a recession, which virtually everybody believes it's a bad idea.

WALLACE: So Nia, we have about 30 seconds left in the segment. What happens? Do they end up not passing anything by the end of this year and it goes to the next Congress? Or do the Democrats admit defeat and accept extending all the tax cuts, at least temporarily?

HENDERSON: They may be able to cobble something together and extend these tax cuts for everyone. Nancy Pelosi certainly is afraid that they are going to let these, extend them for everybody. She --

WALLACE: Including the wealthy.

HENDERSON: Exactly, including the wealthy. So I think we have to wait and see and see how it plays out. No matter what it will be a big issue for the campaign.

WALLACE: All right, you can read more about the economy and the administration's plans in the "Show Notes" section of the homepage at foxnews.com/specialreport. Up next, the Friday lightning round.


WALLACE: Every week on the foxnews.com/specialreport page, viewers vote on the topic we should discuss first in the Friday lightning round. And tonight's winner is immigration. So, Steve Hayes, it turns out as we reported earlier, in the 37 races for governor across the country this November, in at least 20 of those states, including Massachusetts and Iowa, that in some cases Republicans, some cases Democrats, some cases both have endorsed an Arizona-style crackdown on illegal immigrants. Will immigration be a voting issue this November?

HAYES: It always threatens to be a voting issue and it rarely is a voting issue. This year could be different. You are seeing candidates including Republicans not only embrace Arizona, but how many have we seen reported on that says it goes further than Arizona? That is happening in Wisconsin where I was a couple weeks ago. Scott Walker, the Republican candidate for governor says "I want Arizona-plus and take away public funding from the illegal immigrants."


HENDERSON: It also feeds into this narrative that the federal government has been asleep on the job in terms of immigration and come plays into folks wanting to take their government back. So I think it will be an issue.

Of course, I also think the economy is the top issue. I think some folks will go to voting booth thinking about immigration, especially in states like Arizona. Jan Brewer had a little bit of a brain freeze in that debate but I think she is still probably on the winning side of this issue in Arizona.

WALLACE: Charles?

KRAUTHAMMER: What the Arizona law did is gave what is usually amorphous debate structure. And the fact that the feds, the Obama administration weighed in opposition, which I think a lot of people who are worried about illegal immigration, resented as a kind of arrogant elitism coming from ivory tower in Washington. That I think has made it a larger issue electorally than it normally is.

WALLACE: The second issue, we now have the first and certainly not the last "kiss-and-tell" book from the Obama White House in which the former car czar, Steve Rattner, a big figure on Wall Street before he came to D.C., talks about the infighting and the White House, some juicy details. He also talks about the politics in decision of the auto bail-out for GM and Chrysler.

And describing the president's reaction when he heard the ousted head of GM would still get a $7 million severance package, Rattner writes "Suddenly I felt that I was indeed in the presence of a community organizer."

Steve, your reaction to the little tidbits that have come out? The book is not coming out until the middle of September.

HAYES: I have seen it describe as a tell-all, and I guess my view is you have to know all to be able to tell all. He was sort of a marginal player, one element of the administration's economic fight. I don't think he is in a position to talk much. What we might get, Rahm Emanuel swears a lot and he's really blunt. Not breaking news.

HENDERSON: Yes, he seems to have a problem with the unions. We'll see President Obama give a big embrace of unions on Monday.

WALLACE: But he said Rahm supposedly said "Blank the UAW." I suspect that Rahm has said blank almost everything, and they say it was the heat of battle and he very much supports the UAW and all other unions.

HENDERSON: Exactly. That was my take away, see Rahm there talking about the unions. But we've heard Rahm say much worse things before.

WALLACE: Charles?

KRAUTHAMMER: Surprise, Rahm is profane.

I have an objection in principle for all of the books. It started in 1979 when Jimmy Carter's chief speechwriter wrote a tell-all, which was against the grain historically. You usually have the decency to wait until after the administration. Now we get a book less than a year- and-a-half in an administration.

If the president appoints you, you ought to have respect for him and the office, and you shut up until he leaves office.

WALLACE: What a quaint idea.

KRAUTHAMMER: Very quaint. I'm a quaint guy.

WALLACE: That's what we often call you.

Finally, we've got less than two minutes left. Let's take the temperature in Afghanistan -- 29 Americans killed in just the last two weeks, new battles between the U.S. and Afghan President Karzai about corruption and casualties. General Petraeus has been there for two months. Are we doing better, Steve?

HAYES: You have to put it in context. We expected casualties to go up. I expect casualties will go up further as the fighting intensifies.

That said, the developments on the banks, corruption, potential financial crisis in Afghanistan layered on top of the increased fighting that we're seeing and the general chaos on the ground there, no, I don't think it's going well. And again, ultimately, all of that is details if the president doesn't renounce the deadline.

WALLACE: Nia and Charles, we have a minute -- 30 seconds each.

HENDERSON: I think yes and no. There has been progress on the ground in the south, but these, you know -- the Karzai government is a corrupt government. And that's what we're seeing more of. And I think the question going forward is what is victory going to look like in the war?

KRAUTHAMMER: The irony is the Democrats opposed the surge in Iraq which succeeded, and in office they imitated that in Afghanistan where the circumstances and the conditions are a lot harder. We have a government that's less stable and more corrupt, a nation with less sense of a nation and we don't have the Anbar awakening. I'm not surprised that the going is so tough.

WALLACE: That's it for panel.

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