Rep. Paul Ryan on Deficit Reduction; Gov. Haley Barbour on 2012 Presidential Politics

The following is a rush transcript of the February 13, 2010, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, ANCHOR: I'm Chris Wallace and this is "Fox News Sunday."


WALLACE (voice-over): The battle of the budget. Republicans versus Democrats and within the GOP. How much is Congress willing to cut government spending? We'll talk with the chairman of the House Budget Committee, Congressman Paul Ryan.

Then, GOP 2012 presidential hopefuls make their pitch to the conservative faithful, which candidate has the winning message? We'll sit down with a potential contender, Mississippi Governor Haley Barbour. Ryan and Barbour, only on Fox News Sunday.

Plus, Hosni Mubarak steps down as president of Egypt. We'll have a live report from Cairo and we will ask our Sunday panel what it means for U.S. foreign policy.

And our power player of the week provides a place like home for sick children and their families.

All right now on "Fox News Sunday."


WALLACE: Hello again from Fox News in Washington. We'll talk with our guests shortly. But first, here's the latest on the situation in Egypt.

Ruling military leaders say they are committed to handing over authority to an elected civilian government. They also say the peace treaty with Israel will be honored, and protest leaders announced their demonstrations, which led to President Mubarak's fall, will end. For more, we turn to Fox News' Leland Vittert, who's live in Cairo. Leland.

LELAND VITTERT, FOX NEWS: Hi, Chris. This morning the army issued a couple of statements that is certainly news to the protesters and news they wanted. They suspended the constitution and dissolved the parliament, a couple of key demands they had.

The prime minister here has now said that security is the very number one concern that they have, and to that end the army began clearing out protesters from Tahrir Square. They made a way through this morning for cars to get through so traffic could once again return here.

There are some diehard protesters who say they are not leaving, but there are also protesters who are now coming back in asking that they leave so things can return to normal here. Of course, it is going to be a very long road to recovery economically. Some people have said it is going to take months to get the tourists back here.

This, however, is Sunday, the first day of the workweek, and some businesses were open. There were customers inside one of the pharmacies we were in. So things are beginning to get back to normal. We also have cleaners on the streets trying to fix things up. Of course, there is still a huge army present here on day two of the new Egypt on the street, a number of tanks, armored personnel carriers and heavily armored soldiers. Now the soldiers and the army have promised there will be free and fair elections. The big question, though, is when and how.

This is a country that for 30 years has never had anything that resembled a free or fair election. So there has to be political parties built. There has to be political leaders built and the infrastructure to actually have an election. Chris.

WALLACE: Leland Vittert reporting from Cairo. Leland, thanks for the update, and we'll have more on this with our panel in a few minutes.

Meanwhile, here in Washington, House Republicans have unveiled proposed spending cuts and President Obama is expected to do the same Monday. Joining us now, the GOP's point man in the debate, House Budget Committee Chairman Paul Ryan, who comes to us from his home state of Wisconsin.

Congressman, as we say, President Obama presents his budget for 2012 tomorrow, and he reportedly is going to offer a plan that would cut the deficit, his aides say, by $1 trillion over the next decade. The key feature is a five-year freeze on spending and some considerable tax increases on the wealthy. From what you have heard, what do you think of the president's plan?

REP. PAUL RYAN, R-WIS.: It sounds like the similar budgets that he has been giving us the last couple of years. Last year, he gave us a $2 trillion tax increase. He got $700 billion of those tax increases enacted, mostly through his healthcare law.

It looks like he is coming back for another, I don't know, $1.3 trillion in tax increases.

This discretionary freeze is off of an extremely high base. They just blew spending out the gates in the last two years. A 24-percent increase in domestic discretionary spending. When you throw stimulus on top, it was an 84 percent increase, and he wants to freeze for a few years off those high levels. It is less than 1 percent of spending over the next ten years.

We'll see the details of this budget tomorrow, but it looks like to me that it is going to be very small on spending discipline and a lot of new spending so-called investments.

Look, the president is elected to lead and to face the country's biggest challenges. The country's biggest challenge domestically speaking, no doubt about it, is a debt crisis, and I'm really hoping that he is going to give us a budget that tackles this debt crisis. And if it is what these early press reports show, it shows that he is abdicating leadership on that point. I'm hoping that is not the case, that we can get this debt going down. But it looks like the debt is going to continue rising under that budget.

WALLACE: Well, if it is as it has been reported, and there is every reason to believe it -- these are leaks from the White House -- is this budget, which has some spending increases for infrastructure and education and research, is this budget, the president's budget dead on arrival?

RYAN: Well, look, I don't like to say that until I actually see the budget. So, I wish I could give you a clean, clear answer. But again, I want to look at the actual budget. We will get this tomorrow. We will pore through it line by line very quickly. We know how to analyze these things pretty quickly, and then we will give you an answer to that tomorrow.

But, look, if he is talking about coming and having new spending, so-called investments, that is not where we are going. The great debate we are having in Congress now, which is refreshing, is we are debating how much to cut spending, not how much to increase spending. And these early press reports are showing us that he wants paltry savings on the one hand and a lot of new spending on the other hand.

Borrowing and spending is not the way to prosperity. Today's deficits means tomorrow's tax increases, and that costs jobs. So all this borrowing and spending doesn't work. Didn't work on the stimulus, and it will cost us jobs. We need to cut spending so we can get taxes and interest rates low so businesses can plan and hire people.

WALLACE: But, Congressman, a number of business leaders, including Tom Donohue, the head of the Chamber of Commerce, say that the economy needs some -- not a net -- but some new investments. He talks particularly about infrastructure, to create jobs. There are a number of independent economists out there that say if you have too many cuts too quickly when the economy is so weak, that that is going to hurt the recovery.

Let me ask you specifically, and we are going to get to the details of your budget in a minute, but how do all of these spending cuts create jobs in the short-term, in the next year?

RYAN: Ben Bernanke came to our committee a few days ago and said if you guys put in place a real plan to get the deficit under control, that will help the economy now, because that sends the signals to the markets, to the small businessmen and women of America that my taxes aren't going to have to pay for all this borrowing, that interest rates are going to be low.

So getting spending under control today gives confidence for tomorrow, and that leads to more hiring and job creation.

Look, I am not worried about Washington cutting too much spending too fast. I mean, the kinds of spending cuts we're talking about just right now are $100 billion out of a $3.7 trillion budget.

So I am not concerned about that. What I'm concerned about is endless borrowing, which is going to compromise our economy not only today but in the future. Because we know the decisions we make right now really dramatically impact us in the future, and the debt is literally getting out of our control.

And if we bring a budget that continues to send the debt out of control, that today hurts the economy. So spending cuts, yes, in fact help us with jobs today.

WALLACE: All right, Congressman, this gets a little confusing. The president is going to be offering a budget for the next budget year that starts in October, 2012.

RYAN: Right.

WALLACE: This week you guys, the House Republicans, are going to offer some cuts in the current budget, the 2011 fiscal budget, for the next seven months that are still left in it.

You originally as the House Budget chairman proposed roughly $30 billion in cuts from 2010 spending, and under pressure from the House, Tea Party members, the freshmen, the young guns, that was doubled to 20 -- to about $60 billion. Do any of these cuts, double what you originally proposed, do any of them go too far?

RYAN: No. Look, how great is this debate we are having in Congress? A year ago Congress was debating about how much more spending to increase. Now we are debating about how much more spending to cut.

When I put the number out there, that was the pledge, which said we will bring spending down to '08 levels for the rest of the fiscal year. Given that the Democrats spent half of the money already, you don't get as much savings. Our members wanted to go back and get those savings. So they wanted to get a year's worth of savings for the rest of the fiscal year. That's fantastic. I think it is a great debate to be having, and it is showing that we are serious about fiscal discipline. And if we can show that we are serious about fiscal discipline, that will actually help the economy today.

That will tell businesses that we are serious about getting this debt and deficit under control so they don't have to panic and worry about tomorrow's taxes and interest rates.

WALLACE: Well, let's get specific, because the Democrats say, look, it is very easy to talk about a big number, very easy to talk about a percentage, but let's get into some specific programs and what House Republicans are going to be offering this week.

Let's look at the cuts -- $3 billion from the Environmental Protection Agency; $2 billion in the middle of a recession from job training; $600 million from border security and immigration enforcement; $1.6 billion from the National Institutes of Health, and $500 million from the COPS program, which puts more police on the streets.

Congressman, when it gets down to those specifics, are you willing to defend all of those cuts?

RYAN: Yes, because last year these agencies got double- and triple-digit spending increases. You throw the stimulus in there, EPA got a triple-digit spending increase.

Look, if borrowing and spending were the way to create jobs, we would be at full employment. We are not. We have high unemployment. And so last year, at the end of the fiscal year, this government had $1.4 trillion leftover money. We call that unobligated spending.

RYAN: We don't even know how much more. They have thrown so much money at these bureaucracies that in a full fiscal year they can't even spend all of the money.

So unobligated balances was just a fancy way of saying they can't even spend all of this money. We anticipate the same thing again. We cannot continue down this path of having double and triple digit spending increases on government agencies. No matter how popular sounding these programs are, they mortgage our children's future and they compromise our economic growth today.

We just don't buy into this neo-Keynesian belief that you've got to borrow and spend more money today to try and create jobs. We've got to have jobs in the private sector grow, not jobs in the public sector because every time we borrow more money from the Chinese or whoever, we're taking money out of the private sector, and that is costing us jobs.

This is about prosperity and economic growth. And yes, we want to put the brakes on spending in Washington and I'm excited about the new culture which have in the House of Representatives which is spending levels are now ceilings and now floors and we're going to debate how much more we want to bring spending down, and that is a good dynamic to have.

WALLACE: Having -- having said all of that, everything that we've talked about, Congressman, is non-defense, discretionary spending, which is a very small piece of the total pie. We're talking about only 15 percent of the total federal budget.

RYAN: Sure. That's right.

WALLACE: And -- and if you really want to get where the money is, as Willie Sutton said about banks, you've got to talk about entitlements, social security and Medicare and Medicaid --

RYAN: That's right.

WALLACE: -- which is 40 percent of the federal budget. Are you going to -- can you pledge right now that you will address those issues and make serious cuts in them in the 2012 budget starting next October?

RYAN: Well, you're right about that. Right now we're dealing with just discretionary for the rest of the fiscal year, and in FY '12 we deal with all of those things. As the Budget chairman I have to get consensus with my conference. We have 87 new people, and, quite frankly, I want to hear the perspective of these new members because they come from great and diverse backgrounds from around the country. So we will be going forward in -- in consensus.

We can't even start writing a budget until March, when we get our baseline from CBO. I'm excited to see what the president's budget does tomorrow, because if the president's budget ignores those programs you're talking about, that means he's abdicating leadership on dealing with this entitlement crisis. I can't tell you --

WALLACE: But wait a minute --

RYAN: -- what our new budget's going to look like. I can't tell you what the budget's going to look like --

WALLACE:-- you guys are too.

RYAN: -- because we don't have a baseline yet.

WALLACE: Aren't you -- you guys are doing it, too.

RYAN: We haven't even written the budget yet. We haven't been able to write our budget yet. Every time I brought budgets to the Floor the last couple of years, we've been dealing with those programs, we've been talking about reforming those programs.

Look, the president not only didn't deal with these programs which are the drivers of our debt. He punted to a fiscal commission and then he just didn't even embrace the Fiscal Commission. So if --


WALLACE: You were on the Fiscal Commission and you voted against it yourself.

RYAN: I did, and I proposed alternatives. The reason I voted against the Fiscal Commission, because it didn't deal with the driver, which is healthcare spending. Alice Rivlin and I, a Democrat, proposed real significant healthcare entitlement reform. It was not accepted by the Fiscal Commission, and that is in large part why I didn't support --

WALLACE: But here -- here is the thing --

RYAN: But the point I'm trying to say is --

WALLACE: Well, if I -- if I may just ask a question, and you -- and you can answer it in the course of this. It sounds like you're -- and let's face it, there's a certain game going on here. The White House is scared to go first on entitlements because they say that the Republicans will demagogue them. The Republicans say they're scared to go first on entitlements because they think the Democrats will demagogue them.

When are we going to get some progress on entitlements?

RYAN: Two things. Number one, presidents are elected to lead, not to punt and this president has been punting. And I really hope -- I sincerely hope he's -- he leads with the budget tomorrow.

I can't tell you what our budget's going to look like yet because I don't even have a baseline with which to write one yet. We haven't even gotten consensus in our caucus yet. But if you want to take a look at the kinds of things we're proposing lately, I have consistently introduced legislation and brought budgets to the Floor that does address the drivers of our deficit and debt, which is the entitlements.

So we expect and hope the president will actually lead on this crisis, this debt crisis and preempt it. Everybody knows the sooner you deal with this, the better off everybody is. And if -- if the president doesn't want to lead on entitlements, then he's not leading, and we do hope and plan on dealing with these issues.

But I cannot tell you exactly what in -- we're going to do and how we're going to do it because quite literally we haven't been able to reach consensus with each other yet because we don't even have a baseline with which to write a budget yet.

WALLACE: Congressman, we got a little --

RYAN: That's what comes in April.

WALLACE: Congressman, we've got a little bit more than a -- than a minute left. I want to talk, because obviously there's a deadline here, and that is if the continuing resolution runs out on March 4th.

There are -- some even Republicans who say it's all well and good to have not your cuts, the $30 billion, but these deeper cuts, but in fact you're getting further away from a possible deal with the Democrats and with the White House when you -- when you have these deeper cuts. You're making it easier for them to say no. That's the contention.

The question I have is what happens when a continuing resolution runs out if there is no deal on March 4th, and would you accept a -- a short continuing resolution to keep the government running while you try to work out a deal?

RYAN: I think that's a very viable possibility. Our short-term extensions, while we work out a compromise.

But look, we're not interested in rubber stamping big government. We're not interested in accepting these extremely high levels of spending. We're serious about spending. That's the driver of our deficit and debt. We want to get spending down.

And what's interesting is we're going to let an open rule process, unlike the way Nancy Pelosi ran Congress the last four years. Any member of Congress can bring any amendment to the Floor to readjust spending levels however they want to, to readjust these issues if they want to add spending or take away spending.

So we're going to let Congress work its will, and Congress right now wants to bring spending down below where President Obama wants to take it, and we're going to have to negotiate.

WALLACE: We're going to have to leave it there.

Congressman Ryan, we want to thank you so much for coming in and joining us today. It should be a big week on Capitol Hill, and we'll stay on top of it, sir.

RYAN: Great. Thanks, Chris.

WALLACE: Up next, Governor Haley Barbour on 2012 presidential politics and a possible run of his own.


WALLACE: Most potential 2012 Republican presidential hopefuls came to Washington this weekend to address a gathering of conservative activists, and one of the contenders is Mississippi Governor Haley Barbour.

Governor, welcome back to "Fox News Sunday."

GOV. HALEY BARBOUR, R-MISS.: Hey, Chris. Thanks for having me back.

WALLACE: You said last year you're the governor of a poor state, you have a distinct drawl, and you have been -- were a big time Washington lobbyist for a decade. You said some people would consider those handicaps for running for president. You don't. Why not?

BARBOUR: Well, when you -- I'm a lobbyist and had a career lobbying. The guy who gets elected or the lady who gets elected president of the United States will immediately be lobbying. They would be advocating to the Congress, they'll be lobbying our allies and our adversaries overseas. They'll be asking the business community and labor unions.

You just -- that's what presidents do for a living. Presidents try to sell what's good for America to others in the world, as well as to Americans.

Ronald Reagan was the -- he was the ultimate lobby wrist, the great communicator.

WALLACE: CPAC, the Conference -- Conservative Political Action Conference, that you were at this weekend, they did a straw poll last night, and we want to put up the results.

WALLACE: Ron Paul got 30 percent, Mitt Romney got 23 percent, everybody else was in single digits, and way back, quite frankly, in last place was Haley Barbour at one percent.

I want to get your reaction to that and also, as you look at, for lack of a better term, we would call the frontrunners at this point, Romney, Huckabee, Palin, Gingrich. What do you offer that they don't?

BARBOUR: Well, let me say first of all about the straw poll, you'll notice that Sarah Palin got three percent, Mike Huckabee got two percent because they weren't there.

WALLACE: You were there.

BARBOUR: But the straw poll was taken before I spoke. They shut down the straw poll on Friday. I spoke Saturday. And so I was in the position of Palin and Huckabee. I didn't -- for the purposes of the straw poll, I didn't get to speak which is fine. I mean, they got to have rules and that's fine with me.

I enjoyed getting to speak to that audience. It's an audience of a lot of young people, some of whom came up to me after and said, gee, I tried to vote for you today, but they told us we couldn't vote any more.

WALLACE: OK. What about the frontrunners though, as we mentioned, Palin, Huckabee, Romney, Gingrich. What do you offer that they don't?

BARBOUR: Well, they're good people and all good friends of mine. I have a record as governor. I have a record of cutting spending. And I talked yesterday not only about we ought to cut spending, I talked about how we've cut spending in Mississippi and how if you did the same things in the federal government, you would save tens of billions of dollars a year.

I talked about how we've cut the biggest entitlement program in Mississippi. And we've done it in a way where the people who are on Medicaid haven't been hurt. We've squeezed out of the system through management and by making sure that everybody who's on Medicaid is actually eligible.

We have saved in Medicaid hundreds of millions of dollars over the course of my time as governor. That would be hundreds of billions of dollars if you applied the same reforms to the federal government.

WALLACE: I'm going to follow up on the question of your record as governor. As you say, you say you've cut spending by hundreds of millions of dollars and that you've balanced the budget without raising taxes. But the Cato Institute, certainly a conservative group, gives you only a "C" on its fiscal scorecard saying, "His [Haley Barbour's] tax and spending record over seven years as governor has not been very conservative."

They say you've reinstated a tax on hospitals, increased taxes on cigarettes 50 cents a pack and that spending rose 43 percent during your first term.

BARBOUR: Chris, what they said was, mistakenly, that I created a new tax on hospitals. Then they found out --

WALLACE: But you did reinstate it.

BARBOUR: -- but then they found out, no, that that was wrong and they scored me down because they said I created this tax on hospitals. Of course, the tax on hospitals existed while I was there. It existed when I became governor. The federal government --

WALLACE: But you did reinstate it.

BARBOUR: -- the federal government made us change the way we collected it. They said we were cheating essentially and a bunch of other states. It wasn't just Mississippi. Said y'all have got to collect this a different way. We did reinstate it after four years. The hospitals got a $360 million tax cut during those four years.

And then, when we reinstated it, instead of it being a $90 million tax, it's a $60 million tax. But the Cato Institute wrote initially and told my staff, we thought this was a new tax. We didn't know it had been a tax that has existed since 1993.

WALLACE: What about the increase in cigarette taxes --

BARBOUR: We did that.

WALLACE: -- and the fact that spending increased 43 percent in your first term.

BARBOUR: When I became governor, spending actually increased 28 percent my first term. Revenue increased 42 percent my first term without raising anybody's taxes. We did it because we had more taxpayers with more taxable income. That's how you get the revenue up.

We did that without raising anybody's taxes. Revenue increased 50 percent faster than spending increased. Spending went up 28. Revenue went up 42. That's a 50 percent difference without raising taxes. I did my second term raise the cigarette tax. I had said when I ran the first time, we are not raising a bunch of taxes.

When I ran for reelection, I said, look, before you vote for me, know we are going to consider raising the cigarette tax. We had the second lowest cigarette tax in the country. We didn't raise it to raise revenue because raising taxes is enemy of controlling spending. And what we've done is control spending.

We raised it because our cigarette tax was too low. We were very out of line with the rest of the south. We raised it to 60 cents, which is the average of all the southern states. We did it for health reasons, not budget reasons.

WALLACE:OK. I want to go back to this question of a lobbyist because it's clearly, if you do run, something you're going to have to deal with. And, you know, you say, well, any president's a lobbyist. But it has a kind of bad connotation. It's kind of a dirty word for a lot of people out there because they think it means you're part of an inside game here in the corridors of power.

As we mentioned, and you were one of Washington's biggest most successful lobbyists for more than a decade. Not only did your company represent more than 50 major U.S. corporations, it has also done work over the years for the governments of Kazakhstan and Eritrea which, quite frankly, both have terrible human rights records.

BARBOUR: Well, not while I was there. And once I left the firm, other than getting paid my retirement, I don't have anything to do with what they do. I can tell you what we did when I was there. We represented Switzerland. We represented Macedonia because the Clinton administration asked us to because of what was going on in the Balkans.

But I am perfectly glad to look at the clients that I worked with when I was there. But let me just make this very plain. I'm a lobbyist, a politician, and a lawyer. You know, that the trifecta. And I am willing to have my record in front of everybody. I don't intend to be responsible for what other people did that I have no control over, which is not to criticize them. It's just I got no way of defending or criticizing the things that I wasn't involved in.

WALLACE: Finally, there was, as you well know, a (INAUDIBLE) involving you about a profile of you in "The Weekly Standard" in December when you talked about growing up in the south during the Civil Rights Movement. You said, "I just don't remember it as being that bad." And you said you went to see Martin Luther King speak one day." We just sat on our cars, watching the girls, talking, doing what boys do. We paid more attention to the girls than to King." Question. Any regrets about those comments?

BARBOUR: Well, it was just the truth. You know, I asked about my childhood. And my childhood was a very great childhood. My daddy died when I was two years old. My mother raised my two older brothers and me. And we couldn't have had a better situation. I mean, she was the -- ran the concession stand at the Little League, and she was the first woman president of The Touchdown Club, the booster club for the high school football team. And so, I had a wonderful childhood. And that's the truth.

As far as the deal about when Martin Luther was passing through Yazoo City and stopped at the fairgrounds to speak, I was in high school and two carloads of us, boys and girls, went out and sat on the -- sat on our cars on the street while the -- we really couldn't even hear very well.

But I was interested in seeing what was going on. It wasn't any big major event, as I say.

WALLACE: But you understand, people are saying you're insensitive or were insensitive.

BARBOUR: Well, look at -- look at my record. You know, we can talk about my childhood if people think that's a requirement for running for president of the United States which I may do.

But if you look at my record and you look at the fact that after I was elected we have had more minority business contracts. We have more African-American elected officials in Mississippi than anywhere in the country. I've had outstanding African-American members of my administration. You know, I'm proud of that record and I'll put it up.

WALLACE: OK. Thirty seconds left. Serious -- how serious are you about running for president?

BARBOUR: Well, I'm not going to make a decision until April, but I am very serious about it. But I understand -- having been political director of the White House for Ronald Reagan, have been working campaigns, have been chairman of our party, I understand that this is a decision to dedicate the productive -- remaining productive years of my life, the next 10 years, to the most consuming job in the world. And it is a 10-year commitment because if you win, it's a 10-year commitment. I take that very seriously.

I'm not somebody who has wanted to run for president all of my life. But right now, I think the country is in such straits, we've got to have a huge change.

WALLACE: Governor Barbour, we want to thank you so much for coming in today, and we will also be watching as the Republican presidential race heats up. Thank you, sir.

BARBOUR: Thank you, Chris.

WALLACE: Up next, the 18-day revolution topples Egypt's president. We'll ask our Sunday panel what it means for that country and for U.S. interests in that part of the world.



PRESIDENT BARACK OBAMA: From Egypt, this was the moral force of nonviolence. Not terrorism. Not mindless killing, but nonviolence, moral force that bent the arc of history toward justice once more.


WALLACE: The celebration in the streets of Cairo as Hosni Mubarak steps down and President Obama trying to point out the right path to change in the Middle East.

And it is time now for our Sunday group. Bill Kristol of the Weekly Standard, Nina Easton from Fortune Magazine, former State Department official Liz Cheney, and Fox News political analyst Juan Williams.

So I think it is fair to say in these first hours after the fall of Mubarak, everyone is saying the right thing. The government says it is going to turn over power to a democratically elected government, that they are going to honor the peace treaty with Israel, and the demonstrators say they're going to go home.

Bill, how confident are you that this is all going to work out and how much influence does the Obama administration have to try to shape events?

BILL KRISTOL, THE WEEKLY STANDARD: Confident would be an overstatement, I think. It is the Middle East after all, so you have to be foolish to be confident that anything would work out too well, and revolutions do often go off the rail for various reasons.

Having said that, I think basically for the last three or four weeks the skeptics have been proven to be too skeptical. The naysayers who said it could never happen, it's going to be violent, his departure would mean the Muslim Brotherhood taking over the next day or total chaos in the streets of Egypt, they have been proven wrong. And the notion that the Egyptian people have managed to pull off this democratic, peaceful removal of a dictator, and now have a seemingly a pretty stable situation in the streets of Cairo and the other big cities, with the guarantee or at least a promise of a transition to free and fair elections and no real sense that those elections are -- yet that the elections are going to go in some terrible direction for the U.S. or for Egypt itself.

I think this may be a case where the normal worldly pessimism is too pessimistic and the normal cynicism is too cynical, and one has a right to actually be hopeful about these developments in Egypt.


NINA EASTON, FOX NEWS CONTRIBUTOR: I have to agree with Bill Kristol. You know, the thing to keep in mind, everybody wanted to compare this or a lot of people wanted to compare this to 1979 in Iran, but the face of this was not turbaned ayatollahs; the face of this revolution was a marketing executive from Google, 30-year-old young guy. And these young people were very consciously at the forefront of this protests.

I think whereas the U.S. had to find its way -- the Obama administration in the weeks leading up to this -- the way is very clear now, and that is to hold the military's feet to the fire, to make sure that there are elections and to make sure the emergency decree is lifted.

The military is key here. It is something that touches everybody's lives in Egypt. Somebody is either-- somebody from every family serves in it or is an officer, but it also controls 10 percent to 15 percent of the economy. It is entrenched in the economy. It has its own interests. It has to be watched.

WALLACE: All right, I'm going to be the professional worrywart on this panel. Liz, you've worked on Egypt for, what, 20 years at the World Bank and then at the State Department. How worried should we be about the Muslim Brotherhood and the possibility that they or some other Islamist radical force fills the political vacuum?

I talked to a senior White House official yesterday who said that he feels that support for the Muslim Brotherhood is declining in Egypt.

LIZ CHENEY, FORMER STATE DEPARTMENT OFFICIAL: I think the Muslim Brotherhood is a concerning organization. I think that Jim Clapper clearly got it wrong.

WALLACE: Explain who he is and what he said.

CHENEY: The director of national intelligence who said they were a secular organization in his testimony, later clarified, but nothing could be further from the truth.

So they are concerning. They are not democratic, and I think we as a government need to be clear about the fact that they don't uphold basic human rights and notions of equality for women or minorities.

Having said that, however, I think that what happened on the streets of Cairo is just magnificent and has been tremendously moving to watch. The Muslim Brotherhood has not been at the forefront of what happened. It has been young people. It has been a new generation, who basically have said our parents may have been willing to live this way, but we aren't.

And I spoke last night with a friend of mine who has been in the Square, who said, you know, we used to in the evenings go to restaurants and go out and figure out how we could relax after work. Now, we stay up until 3:00 or 4:00 in the morning, thinking about what our constitution should say and how can we guarantee the freedoms that we've won.

I just think that it has been an amazing model and lesson for the world. I think we, as the United States, ought to do whatever we can to help, but we've got to do it with a lot of humility here. What the Egyptian people have accomplished, they accomplished on their own. It wasn't about us. It was about freedom, and they ought to be applauded and supported (inaudible).

WALLACE: I want to pick up on that. I want to go back to the president's statement that we played at the beginning of this segment, where he said that nonviolence, peaceful protests, not terrorism, was the right path for change. Obviously in Egypt, and I think the implied message was in the Middle East.

Given what happened in Egypt and in Tunisia, how effective a message is that to the young, angry, unemployed, disenfranchised element of the Arab street?

JUAN WILLIAMS, FOX NEWS POLITICAL ANALYST: I think it's got to be compelling. It's overwhelming. I mean, there is real change that has taken place here, and it is a compelling alternative to Al Qaeda's model that requires terrorism and embraces violence. You know, it is not in my nature, but let me give a hat to Liz Cheney.

CHENEY: That should happen more often.

WILLIAMS: Because Liz Cheney, when she was at the State Department in the Bush administration, had been pro-democracy all along.

CHENEY: Thank you, Juan.

WILLIAMS: And what they have done is to try to help, in fact, try to help Mubarak when he was rigging those elections last year, and I think that sent a message that change was necessary, and I think young people did respond. I mean, it is stunning to me to think that a third of the population there is under the age of 15. That shows you how young and what a compelling --

WALLACE: And that is not unusual in the Middle East.


WILLIAMS: And you said something also. So combine these two factors. So many young people and so many unemployed people, especially young men, uneducated, are seeking change and having no way to do it. And now seeing that there is a way -- we have seen Tunisia and now we've seen what is taking place in Egypt. There is already pressure in Jordan.

So we see this building now across the Middle East. And the question is whether or not there is a domino effect. Does it in fact continue, or does the military, which is under tremendous pressure, you know, does the military give in to the idea that they hold on to some of Mubarak's forces, their government right there, and delay the free and fair elections?

WILLIAMS: Change has come in terms of no Mubarak son running for election, no Omar Suleiman running for election, but do they lift the emergency ban? How quickly do we see these changes or do we see people forced back into Tahrir Square in a matter of weeks?

WALLACE: Certainly now since dissolving the Parliament so they certainly seeing to be moving in that direction.

I want to -- I want to pick up on this idea of how this could spread. Because it was interesting, Bill, to see the Obama administration trying to use these events to put pressures on the mullahs in Iran. Here is Vice President Cheney on Friday.


VICE PRESIDENT JOE BIDEN: I say to our Iranian friends, let your people march. Let your people speak. Release your people from jail. Let them have a voice.


WALLACE: Well, obviously that wasn't Dick Cheney, that was Joe Biden, but we have Cheney on our mind. Can the White House reignite the political opposition in Iran that it did so little to support in 2009?

KRISTOL: I hope so. I think the political opposition will have to reignite itself. But there is that opposition there and they've tried to call for a demonstration tomorrow which the Iranian government is trying obviously to suppress. But it is striking to me that the administration will not say that it made a mistake, but I think they now understand they made a terrible mistake in June of 2009 in not supporting the Iranians in the streets of Tehran.

Vice President Biden said what you showed there, Tom Donilon, the National Security Adviser, put out a statement Saturday afternoon, which is kind of unusual, calling on the Iranian government which had hailed the demonstrations in Egypt to allow its own people to demonstrate similarly for -- for freedom and democracy. So that's a good sign.

I hope -- and I really hope that -- that June of 2009 was not a once in a generation event and that that can be reignited, and history would suggest that incidentally. There have been plenty of times in the last 30 -- 40 years where there's a democratic protest, Poland, they got suppressed for a while and then it reemerges. And so I think that would be an unbelievable triumph if Egypt could be followed by -- by Iran.

WALLACE: All right. We have to take a break here. But when we come back, Republicans learned the hard way, holding the majority doesn't mean everything goes your way.



WALLACE: Still to come, our "Power Player of the Week".

UNIDENTIFIED FEMALE: The idea behind children is really to keep families together as they go through what is likely to be the most serious crisis of -- of their family's lives.

WALLACE: What do families have to pay?

UNIDENTIFIED FEMALE: All free of charge.

WALLACE: Stay tuned. Our panel will be right back.




SPEAKER OF THE HOUSE JOHN BOEHNER, R-OHIO: We have been in the majority four weeks. We're going to have -- we're not going to be perfect every day.


WALLACE: Speaker John Boehner offering up an excuse of sorts for why the House under Republican rule is not going according to plan.

And we're back now with the panel.

Well, Nina, it was a rocky week for the new Republican majority. We'll get to some other aspects, but as we discussed with Paul Ryan, the House leadership came up with a plan for $30 billion in cuts and the Tea Party, the freshmen, more Conservative members said no, no, that's not nearly enough and they came back with $60 billion. Good or bad?

EASTON: I think the most difficult point is down the road, it's not this week. Yes, they stumbled on the Patriot Act. Yes, they stumbled on these -- on these budget cuts, but the real question for the Republican leadership down the road is, are you going to compromise with the Senate and with the Obama administration on cuts.

We keep forgetting we focus on these House Republicans. They're one of three players in this and they can -- they can certainly -- they can vote for these reductions and say to their constituents, look, we voted for the largest reduction in discretionary spending in history. Great. That's fine. You can take that home. What happens when you have a compromised budget that comes back to the House and you have to vote on that?

That's the key vote and I think that's where that you're going to see these difficult divisions emerge between House leadership and more of the Tea Party.

WALLACE: Yes. I'm going to pick up exactly on that point, Liz. Because some House Republicans said the original set of cuts was the basis for a compromise, $30 billion which would be a big cut and that the steeper cuts make it easier for Democrats in the Senate and the White House to say no and paint the Republicans as extremists. Your reaction?

CHENEY: You know, I think that the appetite of the American people right now is for spending cuts and so I think that Nina is right in the sense that the House Republicans are going to, you know, pass this legislation that in fact will have these deeper cuts in it and then the ball is very much going to be in Harry Reid's court and in Barack Obama's court to see how they -- they manage to come to agreement on this and whether they're in fact willing to make the cuts.

I also think it's important to point out -- to pick up on something that Paul Ryan said, which is, you know, some of what you're seeing here in the House is a new style of leadership and a new style of management.

You know, we're -- gone are the days of the Nancy Pelosi speakership when, you know, she was saying things like we'll pass the bill and then you'll get to know what's in it. John Boehner is somebody who's committed to transparency, somebody who has restored authority to the key committees. They're not writing legislation now, you know, in the leadership offices and I think that's a very positive outcome.

And I think what they've demonstrated is that the Republican controlled House of Representatives is in fact listening to and implementing the will of the people who elected them.

WALLACE: But, Juan, I mean, there are some downsides to that as well. And we saw that this week, the House Republican leadership brought two measures to the Floor, one to extend provisions to the Patriot Act and the other is to demand a refund from the United Nations. They were so confident of these that they put it on the fast track what they would -- it could get approved with two-thirds vote and they lost on both of them because some Republicans jumped ship. How embarrassing and that was what we saw John Boehner respond to at the beginning of the segment.

WILLIAMS: Right. And this is the power of the Tea Party that has now come back to bite the Republican leadership. There's always been this divide between the Tea Party types and the leadership of the Republican Party. And it is now more evident than ever as the Republican leadership in the majority tries to actually govern.

It's interesting the Tea Party freshmen, I think there are 87 of them said, you know what, we were never even asked. No one asked us where we were going to vote. So the leadership was taking some things for granted and they got -- they got hurt on this. There's no question. I think there's a civil war going on right now and it's becoming apparent.

What's striking to me is -- speaking of what you were saying, it looks to me like they're setting up Barack Obama's reelection. I mean, they are positioning themselves as extremists. They want to cut things like head start, policemen on the street, you know, funding for scientific research in America. You know, people are not going to -- people are going to look at this and say, look, yes, we're concerned about the deficit, but we don't want to kill jobs, kill the economy, Republicans, why would they be doing this? Even the Chamber of Commerce doesn't want this.

WALLACE: Mr. Kristol.

KRISTOL: I think that's what the Republican members will hear when they go back. They'll vote this week. They presumably will pass these very deep cuts then they'll go home. And, you know, we'll be bearing the same task (ph).

And I am -- I think what Juan says shouldn't be dismissed out of hand by Conservatives and Republicans. There's a lot of sense (ph) with the spending cuts, but let -- that the White House is going to spend the next week saying do you realize that you, your Republican representatives just voted to cut x numbers of jobs from your police force. It will be unfair, some of these statements. But it's still, an x number of jobs from your public library and x number of emergency responders and why don't you ask your Republican congressman, your new congressman, about this at a town hall meeting.

It will be interesting to see whether the new members or the old members, too, can answer those questions instantly. It will be interesting to see where public opinion is. And I do think it's worth thing about -- I mean, this is a two-year process, not a one month process. My main concern actually about what happened in the last week is that they can make big cuts and big changes, but they can't make them all in one month and they shouldn't look as if they tried to ram stuff through, you know, just without due consideration and without building support for that in the country.

WALLACE: So, do you think that they've gone too far?

KRISTOL: I think that -- I would have accepted Paul Ryan's initial budget, which I think had serious cuts. I don't think they've gone too far. I just think they need to understand they can't just -- you know, at some point, all of the -- there's a lot of support for big cuts, but they need to also continue making the case to the country for that. And they need to follow-up with entitlement cuts, which you asked Paul Ryan about.

WALLACE: And which he certainly didn't commit to.

KRISTOL: No, well, he's having a big fight with others in the party about how far out to go in entitlements. I think it will look ridiculous if they're cutting domestic discretionary spending which they should do and then say, but on the stuff that's more than half the budget, we're going to be totally --


KRISTOL: They need to be ready -- they need to be ready to make a consistent case for why we need to re-limit government. And they can't assume that because they won one election, that everyone is going to be with them for the next two years.

CHENEY: But the American people know what is true what Paul Ryan said, which is that we've tried Barack Obama's, you know, model here now with the stimulus spending. And if additional government spending was what it took to create jobs then we'd be at full employment. We're not.

WALLACE: But wait --

CHENEY: And so, I think there's a response to what Bill said is --

WALLACE: I think that's an easier argument for Republicans to make and to win, but when somebody asks them cutting, you know, $1 billion out of the National Institutes of Health or $500 million on cuts --

CHENEY: Look, the bottom line is we are in big trouble. We have got a debt that is completely unsustainable that is not just an economic concern. It's national security concern. And just like people in their own households at home, we have got to make cuts.

WILLIAMS: Yes, but, Liz, but you heard what Bill said, that the big items are Social Security, Medicare, not the small domestic programs.


EASTON: Try to take that to town halls. Cutting Social Security and cutting the cost of living on Social Security. Paul Ryan's plan to turn Medicare into vouchers -- that's going to be a political uphill battle.

WILLIAMS: I agree. And, Bill, what happened on March 4th. You talked about a two-year process. Government shuts down March 4th. That's going to hurt Republicans.

WALLACE: Well, my guess is, because we heard (INAUDIBLE) will continue, that it won't shut down March 4th.

Anyway, thank you, panel. See you next week.

And don't forget to check out panel plus where our group here will pick right up with this discussion on our Web site and we'll post the video before noon Eastern Time.

Time now for some comments you posted to our blog, "Wallace Watch."And most commented about our broadcast last week from the Super Bowl. Allen Lyons especially liked our special panel of Fox Sports analysts. "The segments with Chris, Terry, Howie and Michael were amazing. Quite a change of pace from the usual political round table. I laughed until my sides hurt." Actually, I think you guys are all funny.


WALLACE: Please keep your comments coming to

Up next, a "Power Player" of the week.


WALLACE: It is a remarkable place that offers hope and help to families going through the toughest of times. And the woman who runs it is our "Power Player" of the week.


KATHY RUSSELL, CEO, THE CHILDREN'S INN AT NIH: Physicians and nurses can only do so much.

WALLACE (voice-over): Kathy Russell is head of the Children's Inn at the National Institutes of Health. And since it opened in 1990, more than 10,000 families have stayed here, while their kids suffering from diseases with no cures or treatments go through NIH research programs.

UNIDENTIFIED MALE: It was like home from home really.

RUSSELL: The idea behind Children's Inn is really to keep families together as they go through what is likely to be the most serious crisis of their familiar's lives.

WALLACE: The inn provides rooms for families as long as they need them, from a few days to more than a year. There are game rooms, and a therapy dog to play with. And a full-time teacher to help kids keep up with their school work.

And the inn has an emergency fund for families whose finances have been drained by their child's illness.

RUSSELL: Often, we find that families need help with groceries or clothing or rent. It's not unusual for us to pay a mortgage payment to help a family get from one month to the other.

WALLACE (on camera): What do families have to pay?

RUSSELL: Families don't pay anything just to stay at the in.

WALLACE: No matter how long they stay?

RUSSELL: All free of charge.

WALLACE (voice-over): What's more remarkable, while the inn sits on government property, it was built and is financed by private contributions. The purpose of the inn is to let these kids be kids; for their families to live with other families facing the same challenges. Like Rachel Tesley (ph), a 19-year-old from Louisiana who has a severe immune deficiency and has been coming here with her mom every six to eight weeks for more man than a decade.

UNIDENTIFIED FEMALE: There's always a smile on her face when we go through the doors, it's Tesley.

WALLACE: When Rachel wanted to go home for a high school dance, the inn got her hair done and bought her a dress.

UNIDENTIFIED FEMALE: I was well enough actually to go to a dance and well enough to actually have experiences.

UNIDENTIFIED FEMALE: It touched my heart because that family.

WALLACE: While Kathy Russell runs the place, she often plays with the kids herself.

RUSSELL: These are remarkable little people who have wisdom beyond their years by virtue of their experience.

WALLACE: And as the folks at the inn help them, they know scientists at NIH are trying to come up with cures to help other children with the same disease.

RUSSELL: These are hard diseases -- cancer, blood disorders, anemia, genetic diseases in children are very challenging. And having the availability of the inn makes it easier for these kids to participate in these programs and answer questions that are important for generations to come.


WALLACE: What a wonderful place. And Children's Inn has built another house to handle more families with children with less acute illnesses but still need regular treatment.

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

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