Reps. Allen West, Donna Edwards on Debt Ceiling, Medicare; Sen. John McCain Talks Arab Spring, Libya

The following is a rush transcript of the May 29, 2011 edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.


On this holiday weekend, Americans look for answers some of the nation's biggest problems.


WALLACE: Budget battles on Capitol Hill. Is there a deal be made over the debt ceiling, spending cuts and the future of Medicare? We'll have a fair and balanced debate between two of the young guns in the House, Republican Allen West and Democrat Donna Edwards.

Then, turmoil in the Middle East -- from the "Arab Spring" demands for reform to the military operation in Libya. We'll talk foreign policy hot spots with Senator John McCain. It's "Fox News Sunday" exclusive.

Also, as the GOP presidential field takes shape, what will Sarah do? We'll ask our Sunday panel what Palin's decision means for the Republican race.

And our "Power Player" of the week honors our nation's fallen military in 24 musical notes.

All right now on "Fox News Sunday."


WALLACE: And hello again from Fox News in Washington.

As we observe this Memorial Day weekend, we promise some 4th of July fireworks as we discuss some of the nation's most pressing problems two of the newer voices on Capitol Hill, Republican Allen West Florida, a Tea Party favorite, and Democrat Donna Edwards of Maryland, a member of the Progressive Caucus.

And we welcome both of you to "Fox News Sunday."


REP. ALLEN WEST, R-FLA.: Good morning. Thanks for having us.

WALLACE: Let's start with Medicare. And Paul Ryan's plan to turn it from a fee-for-service plan into a voucher system -- Congressman West, even though this wouldn't start until 2022, you've got some push-back at one of your town hall meetings recently. Let's watch.


PROTESTER: Hands off Medicare! Hands off Medicare!

WEST: I will take my hands off Medicare, and when there is no Medicare, then I will come and see you, sir!


WALLACE: Congressman West, as we saw in the special election up in New York state this week, where the Democrat beat the Republican and Medicare was a big issue, as we see in the national polls a lot of people, especially seniors, don't want to see Medicare changed this way.

WEST: Well, I think when you look at Paul Ryan's plan, first of all, there is no change for anyone who is a senior 55 years and above. But as I sit here right now, I'm 50 years of age. And we already know that the board of trustee has said, you got 13 years and something very bad is going to happen with Medicare. So, what is going to be there for myself when I get 63 to 65?

So, I think the thing that we see is at least there's a plan out there to try to have some type of reform.

And there was a great article by Mr. Stanley Druckenmiller in The Wall Street Journal back in the 15th of May that talked about the fact that the financial markets, a lot of these, you know, bond markets are looking to see: are we going to have some type of long- term viable solution and plan as we go forward?

WALLACE: But let me pick up on that, Congressman Edwards, because the knock against the Democrats is you don't have a plan, that congressional Democrats didn't pass a budget last year. Senate Democrats aren't offering a budget this year -- President Obama talks having an independent panel of medical experts who are going to find $20 billion of cuts somewhere. At least they've got a plan.

EDWARDS: Well, I think it's not true that we don't have a plan. And, in fact, when we passed the Affordable Care Act last year, we put in some real markers for Medicare that in fact reduced Medicare costs. We invested in preventive care for seniors because we know that the real drivers of Medicare are these long-term costs for chronic care that happens at the -- you know, at the end of life.

You know, Republicans are very interesting because in their budget what they would do is repeal preventive care. Prescription drug coverage -- we also closed the donut hole there, which is costing seniors a boatload of money and is not very efficient on the system.

So, to say that Democrats don't have a plan I think is incorrect. I mean, in fact, the plan is to preserve and protect Medicare for future generations. And Republicans want to dismantle that.

WEST: Yes, but I think as you sit here and look at the two of us, one of us has voted to cut Medicare. When you look at the fact you voted for the Patient Protection and Affordable Care Act, which had $500 million of cuts of Medicare. And we also have this independent payment advisory board, these 15 bureaucrats, that are supposed to control the cost of Medicare. I mean, that's something that really does scare seniors.

What we are talking is something that does not affect any senior, anyone 55 years and above. We're talking about something that does put in some type of viable plan to sustain Medicare for the future, because as we know, it was put out three weeks ago, it won't be there.

EDWARDS: Well, the congressman thinks the seniors are only interested in what's good for them. And what we know about seniors, whether they're in south Florida or in Maryland, is that they actually care about what happens with that next generation. They care about whether we're going to cover preventive care and prescription drug.

WEST: But if you don't have a plan, there is nothing for the next generation.

EDWARDS: And that they are -- and that they are not sent in the private market to negotiate with insurance companies. We know that that would be a failure. And that's exactly what the Republican plan calls for. I can't negotiate on --

WALLACE: Let me move on to another thing, because the biggest difference, it seems to me, looking at your two positions on how to deal with the deficit is over taxes.

Congresswoman Edwards, you have a big plan to increase revenues. And let's put it up on the screen. You would raise tax rates for the wealthy. You would raise the estate tax. You would tax capital gains and dividend as ordinary income and you would end tax subsidies for oil and gas companies.

So, raise taxes in the middle of a weak recovery?

EDWARDS: Well, let's be clear -- raise tax on the wealthiest 2 percent who have run away with the store for the last 10 years and haven't put money back into the economy. I mean, that's a fact, because if that trickle-down theory had worked, our economy would be in good shape right now.

And so, we do -- I do subscribe to a plan that says, you know what? Middle income earners, you've already shared a fair burden of your taxes. But the wealthiest 2 percent have not.

And there's no excuse whatsoever for continuing taxes for people who make over $500,000 a year.

WALLACE: Congressman West, you got something there?

WEST: Yes. I got a very interesting article which was written on the 26th of May by Steven Moore for The Wall Street Journal that talks about -- we are talking about a 62 percent top tax rate and the absolutely abysmal effects that it will have on this economy.

And one of the great things he says here is, in the end, "The Tax Foundation recently noted that in 2009, U.S. collected a higher share of income and payroll taxes, 45 percent, from the richest 10 percent of tax files than any other nation, including some such socialist welfare states."

So, I think that we are already getting a lot of the juice from those top brackets. But go back and look at history, Donna, when we looked at Coolidge and Harding. It took those marginal tax rates down to 29 percent. And the percentage of revenues for GDP grew. But after them came Hoover and Roosevelt who took it from 24 percent up to 83 percent, and the percentage of revenues decreased. Even John F. Kennedy, when he came in and saw a 91 percent marginal tax rate said that was too high. He took it down to 71 percent.

EDWARDS: I'd like to just back to the Reagan tax rates. I mean, if we went back there, we would actually do a lot --


EDWARDS: We're talking about secure the system. And I think that what -- you know, what's happened here is we've got, you know, tax rates at the highest income levels where, you know -- whether it's George Soros or Bill Gates or whichever, you know, billionaire/millionaire doesn't pay the amount of taxes that the secretaries pay. I mean, I think the American public understands that this is not fair. And more --

WALLACE: Wait, wait. I mean, that may be true in some exceptions. But the --

EDWARDS: Well, Chris, more than that --

WALLACE: Wait, wait. There are some statistics that show the vast majority, the people in the higher income brackets pay the vast majority of taxes.

EDWARDS: Well, it needs to be proportion to their income. Income for lower income -- for middle income Americans have remained stagnant --


EDWARDS: Let me finish.

WEST: How can you make it proportionate if they don't even pay, Donna?

EDWARDS: And the fact is if we were to extend these tax rates for the wealthiest 2 percent over this next decade, it would cost the American public a fortune because in your budget, you don't even pay for them. They haven't been paid for the last decade. It's putting an unfair burden on the public.

WEST: Who's producing jobs in the country?

EDWARDS: Well, I would love it if the wealthy people holding on to the tax break put their money back to the economy. The fact is that they haven't.

WEST: Because of the economic uncertainty we have --


WALLACE: -- which brings me to the economy and the question of how you jump-start the economy.

Congressman West, House Republicans offered a plan this week to do exactly that. To get the economy going, to boost jobs. Let's take a look at the plan. Cut the top tax rate even further for individuals and business, 25 percent; less regulation; more patent protection; and pass free trade deals with other countries.

Whether that's good policy or not, the fact is we did see lower taxes, and less regulation under President George W. Bush. We ended up in a recession.

WEST: Well, the important thing is this: with President George W. Bush, he grew government. And he increased the government spending.

So, you cannot have a cut in taxes and also have a gross enlargement of government. That's one of the things that we don't want to see happen.

I got to tell you, you know, here I have been here in Congress for about five months. And I have legislation that passed that will save the American taxpayers $80 million because I found three wasteful Department of Defense programs.

And so, the thing is, while each and every one of us up here in our respective committees or whatever looking for those wasteful programs so we can cult those expenses.

WALLACE: Congresswoman Edwards, what do you think of the GOP plan as I just outlined it?

And I'd also like you to answer this -- and go ahead and talk directly to Congressman West, as you do. The Obama administration pumped $1 trillion in stimulus into the economy. The Federal Reserve has pumped trillions more. We've got 9 percent unemployment. We've got 1.8 percent GDP growth. It isn't working.

EDWARDS: Well, I mean -- I don't know that I agree with that, because, you know, first of all -- let me finish here. I mean, first of all, the trillion dollars for stimulus package -- actually $786 billion -- was absolutely necessary to make sure that this economy didn't go into a freefall. We also know that we had to make sure that we began to stimulate the kind of growth that we need in this country to invest in the future.

I -- you know what? I agree with the congressman here. I think there are actually some things that we could do both in terms of cutting back wasteful spending. But everything has to be the table, from the Defense Department, to every single department.

WEST: And I said Defense Department.

EDWARDS: But your party hasn't.

WEST: Well, I am in the party. So, obviously.

EDWARDS: And so -- your party hasn't. So I want to go back -- I want to make sure that we're really looking at the budget. But we also have to look at revenues. And that is a fact we have to look at revenues in this --

WALLACE: Well, let me ask you about that, Congressman West. Wait, wait. The fact is if you're going to get a bipartisan compromise, you know there's going to have to be some, some revenue increase in addition to spending cuts.

The Debt Commission, the Bowles-Simpson Commission came up with formula $3-to-$1, $3 in spending cuts for every $1 in revenue increase and maybe they didn't even talk about raising rates, they talk about doing away with tax breaks.

Why isn't that acceptable?

WEST: Well, Chris, I have to tell you. I've been wanting to say get rid of loopholes, get rid of subsidies. I talk about corporate business tax rate that comes down to 20 percent to 22 percent, and eliminate subsidies and loopholes. I talked about going through a tax flat which has just only one deduction pretty much for children.

But I think the most important thing that we have to understand -- and I think Donna will agree with me -- until we show we're going to be fiscally responsible here, why should we continue to tax Americans? Why should we continue to take away their most precious resource if we're not going to do the right things up here?

WALLACE: Congresswoman Edwards, answer the congressman.

EDWARDS: You know, Allen, fiscal responsibility did happen when the last Democrat was in office before President Obama. And that was President Clinton.

WEST: And he had a Republican Congress working with him.

EDWARDS: He balanced the budget. We had surpluses.

WEST: And he had a Republican Congress working with him.

EDWARDS: And those were wiped away -- those were wiped away by two wars that were unpaid for by prescription drug plan that was unpaid for, by taxes.


WEST: And we have to fight. And we have to defend our country.

EDWARDS: You know, I thank for your -- I thank you for your service. I mean, I grew up in the military, I feel very strongly about the military.

But the fact is that you cannot have two wars that are on the books that are unpaid for, tax breaks that are unpaid for the wealthiest Americans. And at the same time say that we're going to balance our budget off the backs of the seniors.

WALLACE: I got a couple of minutes left and I just want to get you both on one last subject which is the debt ceiling because we -- the clock is ticking. We're headed towards -- we now hear August 2nd as a date when we're going to run out of money and default on our debt.

What do you do about it? Congresswoman? Well, go ahead.

EDWARDS: Well, first of all, I think we have to pay our bills. And we can argue about how we got to those bills but the United States has an obligation both for ourselves and also for the rest of the world to make sure that we meet our obligations.

We can have a conversation about what cuts need to be. But I think that the Republicans are being disingenuous when all you can do is talk about spending cuts, only a portion of the budget, and then not also talk about revenue increases.

WALLACE: Congressman West?

WEST: I give you two quotes from Mr. Druckenmiller and his Wall Street Journal piece. The grave danger he sees is politicians might give the government authority to borrow beyond the current limit of $14.3 trillion without any controls -- conditions to control spending. He's willing to accept temporary delay in the interest payment he's owed on U.S. treasury bonds if the result is a Washington deal to restrain run-away entitlement cost.

EDWARDS: But you know what? If you get rid of --

WEST: That was Soros funds manager.

EDWARDS: On our debt, on our debt, if you get rid of the spending for two wars that have unpaid for and tax breaks for the wealthy Americans --

WALLACE: You want us to pull -- that's a different issue. You want us to pull out of Iraq and Afghanistan?

EDWARDS: I do, because you would then -- you would then draw our -- you would draw our responsibilities down --

WALLACE: But that's not going to by August 2nd. Even president Obama is against that.

EDWARDS: And so, I think the responsible thing is you that raise the debt limit and we work on the plan that gets us out of Iraq, out of Afghanistan.

WALLACE: Well, I can see Congressman West shaking his head. He's going to say, no way. And you know, the Republican majority in your House has been saying that.


EDWARDS: Well, I don't know. You look at that vote the other day on our spending in Afghanistan. There are a lot of Republicans who don't agree with that.

WEST: We have got to present spending control measures first. We have got to present spending control measures first. And let me tell you something that just happened, on my BlackBerry, I get 12 alerts this week of soldiers that lost their lives in Afghanistan. It's not over in Afghanistan.

WALLACE: All right. We're going to have to leave it there. But to be continued.

Congressman West, Congresswoman Edwards, thank you both so much for sharing part of your holiday weekend with us.

WEST: Happy Memorial.

WALLACE: Please come back.

EDWARDS: Thank you. Happy Memorial Day.

WALLACE: Thank you.

Up next, Senator John McCain on U.S. role in Libya and how to deal with a changing Middle east.


WALLACE: Joining us now to discuss the ongoing tension in the Middle East and to talk some 2012 politics is Senator John McCain.

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

MCCAIN: Thank you, Chris.

WALLACE: Let's start with Libya. President Obama this week seemed to expand his definition of the NATO mission there. Let's take a look.


PRESIDENT BARACK OBAMA: Meeting the U.N. mandate of civilian protection cannot be accomplished when Qaddafi remains in Libya, directing his forces in acts of aggression against the Libyan people.


WALLACE: Between that statement and the stepped up airstrikes on Tripoli, are you now satisfied with the coalition effort to topple Qaddafi?

MCCAIN: No, I'm not. But they obviously stepped it up. I'm sorry you didn't show one of the president's statement at the beginning how this is just a humanitarian effort, it's all going to be NATO. We're not going to have anything do with it. As you say, I'm glad to see him gradually changing.

But the fact is as he is gradually changing, people are dying on the ground in Libya and they wouldn't have to if we were using all of U.S. airpower and the abilities and the unique capabilities that the United States military has. And, unfortunately, we are not. Although, we are gradually stepping it up and the attacks are stepping up. There was a raid on -- a daylight raid on Tripoli, which is unusual, here in the last 24 hours.

So -- and, Qaddafi may crack. He may crack. But this could have been over a long time ago if we had brought the full weight of the American airpower to bear on him. And it's unfortunate.

WALLACE: Now, another aspect that you call for is that you continue to say that the U.S. should recognize the rebels' national council as the legitimate government --


WALLACE: -- of Libya. And Defense Secretary Gates continues to say that there are some extremist elements among the opposition.

MCCAIN: Well, I would say to Secretary Gates -- as you know, I have great admiration for Secretary Gates. But I say, Secretary, the best way to get extremist elements in the lead amongst the rebels there, the liberation forces, is a stalemate. That's the way extremists come into power. Look, these people are professor at the University of Washington, he's their finance minister. A guy with doctorate from the University of Pittsburgh.

Are there people who are Muslim or -- you know, not exactly who we would like in this fight? Of course. But the reason why they're in the fight is because they hate Qaddafi who brutalized them and mistreated them. And, by the way, this recent reports of rapes in Misrata by Qaddafi forces should make us all angry.

So, the reason to recognize the TNC, let's call it that, is because then you could free up the $33 billion assets that are frozen up of Qaddafi's and a lot more. It would legitimatize them as the voice of the Libyan people. Clearly, Qaddafi is not the voice. And I think it would have a significant impact on the morale of those brave fighters who are doing a pretty good job for a disorganized and untrained group.

WALLACE: Let me turn to G-8 summit which this week pledged tens of millions of dollars to Egypt and Tunisia, to help with democratic reform and economic stability.

Some of your Republican colleagues in Congress say at a time when this nation faces a dealt crisis, we can't be sending millions of dollars to the Middle East.

MCCAIN: I think we can do things like debt relief, matching grant, stimulation, business and job opportunity. I understand that we have to be very careful because there is a strong anti-spending sentiment out there. But I think we also have to do a better job of convincing American people that a smooth transition to democracy in the region of the best guarantee of us not having to spend a lot of money in the future if the wrong people get in power.

And, finally, could I just say that I think that jobs and investment, I'd love to see American business over there telling us we'll invest. If you give us a transparent, corruption-free government, one that is good for to us be in business in Egypt and Tunisia, then we'll invest. I think that could be one of greatest incentives rather than just throwing money at them.

WALLACE: Now, the new authorities in Egypt this weekend have opened up a Gaza border crossing, which means that people are going to be able to go in and out of Gaza. Do you worry about the impact of that on Israeli security?

MCCAIN: I worry. And I worry about some of the rhetoric we're already hearing from some of the politicians in Egypt who would like to gain support and votes. I worry about an alliance between Hamas and Fatah when, one, Hamas is still dedicated to the extinction of the state of Israel.

WALLACE: But what impact do you think that opening this border crossing could have?

MCCAIN: I don't think it will have a huge impact, because I think the Israelis can defend themselves. But I think the Palestinians recognize that if they commit serious aggression, that there will be a response from Israel.

But it's time for all of them to sit down without preconditions, without saying that the '67 borders are the basis and certainly not putting Israel again on the defensive as the president has now twice. When the first time when he demanded a free zone settlement.

WALLACE: Let's turn to another trouble spot. This week, the House of Representatives voted narrowly to defeat a measure, 204 votes for the measure, 215 against. So just barely was defeated. A measure that would require President Obama to step the withdrawal of U.S. military forces from Afghanistan, 26 Republicans voted for the measure, to speed up the withdrawals.

With the takedown of Osama bin Laden are you worried that support for a U.S. role in Afghanistan is beginning to dry up?

MCCAIN: Yes. I am worried. I'm greatly worried. And it isn't so much that bin Laden, taking him out, as it is that Americans are war-weary.

Americans see all this money that we've spent. And they see the president of Afghanistan appearing ungrateful. They see the government of Pakistan, you know, in a very aggressive fashion in many ways toward us. There are continued relations with the Haqqani network and others.

But we've also got to remember that it was Afghanistan where the 9/11 attacks began. If Taliban and then al-Qaeda take over in Afghanistan we could see a very, very serious threat to the United States national security. And remember, the Russians -- after the Russians left we got out completely. So, we shouldn't ignore the lessons of history.

WALLACE: But how about the argument --

MCCAIN: And, military, there is significant success on the ground. It's tough and it's hard, as General Petraeus predicted. But I've seen this movie before. It was in 2007 that the same movement to get out of Iraq and we managed to push that back and the surge succeeded.

WALLACE: But how about the argument -- the president has already said he's going to begin drawing down U.S. troops in July. How about the argument when most of the people who would directly threaten us, for instance al Qaeda, but more of them are in Pakistan that they are in Afghanistan, what if we were to shrink the mission, from counterinsurgency to counterterrorism to focus on the ones who are a direct threat to the U.S. homeland?

MCCAIN: I believe the only way you're able to arrive at the situation is when you get a stable situation and control of the country. That's why negotiations for the Taliban I think will be fruitless until the Taliban think they can't succeed. They are fighting ferociously because they're trying to take back the whole ground they have held for a long period of time.

WALLACE: So, what would you say about the president in the July withdrawal?

MCCAIN: I never thought that was a good idea. I always thought conditions on the ground should dictate withdrawals. But the president also emphasized 2014. I believe that by 2014, we will have succeeded in Afghanistan. As we have largely in Iraq, although we've got a problem with keeping some forces, I think, for a period of time to help the Iraqis complete the job.

WALLACE: Finally, I mean, we only got a couple of minutes left. Let's do a lightning round on 2012 politics. You know something about presidential politics. Quick questions, quick answers.

Sarah Palin announced that she is doing a bus tour starting today in Washington. It set off a media frenzy. Question -- can she win the Republican presidential nomination and can she beat Barack Obama?

MCCAIN: Of course, she can. She can. Now, whether she will or not, whether she'll even run or not, I don't know.

But you know, a lot of things happen in campaigns, Chris. You remember, I was written off a couple of times and were able to come back. So, there's going to be a roller coaster ride for all of them before we finally arrive at our nominee.

But she certainly is a major factor. And I believe that she can be very competitive.

WALLACE: And what her high negatives among -- especially among independents?

MCCAIN: I think that the -- again, that's what campaigns are all about. I've never seen anyone as mercilessly and relentlessly attacked as I have seen Sarah Palin in the last couple of years. But she also inspires great passion, particularly among Republican faithful.

WALLACE: OK. Lightning round rules. How big a problem is Romneycare for Mitt Romney?

MCCAIN: I think I it's a problem. I think he realizes that. I think he's trying to address it. Whether he will successfully or not, I don't know. But he certainly has a good grassroots campaign in places like New Hampshire and others where he is really, you know -- having been around the block once is always a benefit for you the next time.

WALLACE: Finally, after the bin Laden raid, you said enhanced interrogation did not contribute significantly to the successful take- down of bin Laden. Former Senator Rick Santorum said this.


FMR. SEN. RICK SANTORUM (R), PENNSYLVANIA: He doesn't understand how enhanced interrogation works. I mean, you break somebody, and after they're broken, they become cooperative.


WALLACE: Question -- you have never responded to Santorum. What are your thoughts about what he said?

MCCAIN: Well, I think he should look at the record including that of Director Leon Panetta, Dianne Feinstein, who both said that not only did we not get good information from the -- from KSM and others, but we got bad information. And the information that was primarily responsible for bringing bin Laden to justice had to do with standard methodology and intelligence gathering.

And when you say that, by the way, it does a bit of the disservice to the thousands of people in our intelligence agency who labored night and day putting this puzzle altogether which we've become very aware of.

WALLACE: You said, I remember, memorably in the 2008 campaign -- you were tied up during the 1968 Woodstock, things like that. What do you think of him saying you don't understand enhanced interrogation?

MCCAIN: I think Rick realizes he made a mistake there. And so, it's just -- the major object here is that understand what torture does to the image of the United States in the world. But most importantly, it's about us.

WALLACE: Senator McCain, we want to thank you as always for coming in. It's always a pleasure to talk to you, sir.

MCCAIN: Thanks for having me on.

WALLACE: Up next: as Sarah Palin's bus tour comes to Washington, we'll ask our Sunday group if she is about to steamroll the GOP president field.



SARAH PALIN, FMR. VICE PRESIDENTIAL CANDIDATE: Freedom is a God-given right and it is worth fighting for. The Constitution provides the best roadmap for the more perfect union.


WALLACE: That's a clip from Sarah Palin's video about her One Nation bus tour up the East Coast that starts today here in Washington.

And it's time now for our Sunday group: Bill Kristol of The Weekly Standard; Nina Easton of Fortune magazine; Byron York from The Washington Examiner; and Fox News political analyst Juan Williams.

Well, Bill, all Sarah Palin had to do was announce this bus tour a few days ago, and the political reporters and the chattering class went to DEFCON 1. As the man who helped spark the media's fascination with Sarah Palin three years ago, what do you think she's up to?

BILL KRISTOL, THE WEEKLY STANDARD: I don't know, honestly. I don't think she's going to run. She's done nothing that would suggest to me that she's laying the groundwork for action running for the presidency, as opposed to trying to help shape the national debate and call attention to these wonderful memorials and monuments that she'll be visiting over the next week.


WALLACE: That's the best you got?

KRISTOL: I'm leaving plenty of time for Nina here.

WALLACE: Well, let me ask you, Nina, because Palin, even here, continues to have problems. She announced that she was going to participate in the Rolling Thunder veterans events here in Washington, never told organizers, who seemed somewhat miffed and said she will not be allowed to speak because they are very devoutly a nonpolitical organization.

And take a look at these numbers from recent polls. In a Wall Street Journal poll last month, 25 percent -- this is all voters -- viewed Palin favorably, while 53 percent had an unfavorable opinion of her. That's a problem.

NINA EASTON, FORTUNE MAGAZINE: I think the upside and downside of Sarah Palin and what people need to understand is that she carries her cards very close to her vest. I mean, she and her husband Todd call the shots. I mean, even close advisers don't always know what they're up to.

That enables her to be super spontaneous, to do what she's doing this week, to which I think is really taking charge of her image again, jumping back in. It enables her to stir the sizzle, if you will. It enables her to shape the terms of the debate as she wants to take it.But I don't see any moves towards, you know, all that slog of a presidential campaign.

She hasn't visited Iowa, South Carolina, New Hampshire. She's visiting New Hampshire this week. She's not reaching out to fundraisers and so on. Not that she won't have a big impact on the race.

To me, the person to watch for in the next couple weeks is Michele Bachmann, who I do think will announce by June 15th, who is bringing advisers on board, and I do think will fill a lot of that space, the sort of Sarah Palin space.

WALLACE: Byron, let's turn to the frontrunner in the race, Mitt Romney, who visited Iowa for the first time in seven months, which is kind of remarkable. But he wouldn't say whether or not he'll participate in the big straw poll there in August, which is a big deal in Iowa and to Iowa caucus-goers. He wouldn't say whether if he were president, he would sign the Paul Ryan Medicare plan into law. I know it sounds like an odd question, but Pawlenty had said he would sign it into law.

How do you assess his chances?

BYRON YORK, THE WASHINGTON EXAMINER: Well, as far as strategy goes, if you talk to Romney advisers, they'll say, we're going to do it different this time, it didn't work the last time. So the question is, will he skip Iowa?

He poured zillions of dollars into Iowa last time and did not -- well, it did not prevail. Mike Huckabee won. So they're going to do things differently this time. And he wouldn't commit to Ames, which could be viewed by people in Iowa as a sign that he's just not going to play hard there. Right now they're saying they'll play hard everywhere, but all the signs that they're going to do things differently, emphasize New Hampshire a lot more this time.

WALLACE: And what's your sense, not just Iowa, but writ large about Romney's chances?

JUAN WILLIAMS, FOX NEWS POLITICAL ANALYST: Well, I think the fact that you see all these people trying to jump in the race right now after Mitch Daniels decided not to run, Chris, is evidence that people are just dissatisfied with the field. And I think the big divide here in terms of people like Sarah Palin, Michele Bachmann, is that people who are social conservatives feel they don't have a candidate.

The reason Romney won't go to Iowa is that he feels he can't play ball with social conservatives. That's why I don't think he's going to do well in South Carolina. He might do somewhat well in New Hampshire, which he was -- you know, he was the governor of the neighboring state, Massachusetts, but he just doesn't have the sense of a passionate grassroots following that would elevate him in this contest right now. He's a very weak frontrunner, and I think that's why you see so many people jumping in.

WALLACE: But one of the arguments is if the social conservatives -- you'd have Michele Bachmann, you'd have Herman Cain, you'd have Tim Pawlenty -- they split that vote -- he got, what, I think 25 percent of the vote in Iowa -- that he could win conceivably.

WILLIAMS: He could, but what I'm saying is we're still at the point where the big money has not come behind any candidate to give them momentum. I think there's a thirst on the part of establishment Republicans at this point for someone even like Jeb Bush to jump in the race.

WALLACE: All right. Let me turn, Bill, to two people whose names were prominently mentioned this week, that they might jump into the race. One is Governor Rick Perry of Texas. The other is Rudy Giuliani, the former mayor of New York City.

What do you think, one, is the likelihood either will get in? And two, what kind of a factor do you think either of them will be?

KRISTOL: I think it's unlikely Rudy Giuliani will get in. And if he does, I think it's unlikely he'll be the nominee. That's a reason he didn't win -- I mean, presumably, he would have been a stronger candidate in 2008, when the memory of his mayoralty was fresher than now.

WALLACE: Then why is he up in New Hampshire?

KRISTOL: Because all these guys look at the field and they think, really? I mean, I have as good a career as these other people who are running. Why don't I get a shot? And it is a wide open race.

I think Governor Perry could well get in, and I have thought for months that if you came down from Mars and sort of looked at the possible Republican candidates, and you saw the governor of the second largest state in the nation with an extremely good record -- Texas has created jobs over the last 10 years while he's been governor, while the rest of the country has not -- over the last two years, I think Texas is the only state in the country perhaps that has net job creation I the private sector, and he's a Tea Party favorite.

I mean, what do you need to be the Republican nominee? You need to have a proven record, I think, and you need to be accepted to and even exciting for Tea Party activist types.

Perry checks both those boxes at once. I think Perry could be formidable if he got it.

WALLACE: And how late could he get in and still be a player?

KRISTOL: I think everyone's got until September. You know, I just came back from The Weekly Standard cruise, and you talk to Weekly Standard readers, Fox News viewers, conservative activists, Republican primary voters. They don't have the attitude like people here do that you've got to get in now, I want to know who's running. They have the attitude of, hey, we don't have to vote until February or March or April.

Let's let people take their time. Let's see how the debate on the debt ceiling goes in Congress, and make up our minds about someone like Paul Ryan. Let's see what Perry decides. Let's see Allen West decides.

WILLIAMS: But people don't understand, you've got to build an infrastructure to run. You have to have money to run.

KRISTOL: I disagree. They understand more than insiders like you, Juan, about the new world. I'm serious about this.


KRISTOL: I think their sense is in the new world of the Internet, immediate sort of news and the ability to raise money on the Internet, that you can go much later than you could in the old days.

WALLACE:OK. We have to take a break here.

But when we come back, the debate over what to do about Medicare started out nasty and is getting worse.



SPEAKER OF THE HOUSE JOHN BOEHNER, R-OHIO: The only plan out there to preserve and protect Medicare for current and future retirees is the plan that we put forward.



SENATE MAJORITY LEADER HARRY REID, D-NEV.: The Republican plan to end Medicare is a nonstarter here in the Senate. I hope my Republican colleagues will stop pursuing this misguided plan and start working with Democrats on smart ways to reduce the deficit.


WALLACE: That was House Speaker John Boehner and Senate Majority Leader Harry Reid this week, just part of the growing political battle over what to do about and Medicare.

And we're back now with the panel. Bill, the big development this week was the special election in Upstate New York in which Kathy Hochul, a Democrat, won in a district that has gone Republican for more than a half a century. Well, it wasn't the only factor. Paul Ryan's Medicare plan was a big issue there.

How big a problem is it for Republicans?

KRISTOL: It's a problem if they don't have anyone who can defend it well and defend it aggressively and say that the choice is not the status quo and Paul Ryan's reform. The choice is Paul Ryan's reform or Obamacare, or some other kinds of changes in Medicare because the status quo in unsustainable. We're going broke.

Jane Corwin, in New York 26, was unable to make that case. It's pretty important that the Republican candidates next year and the Republican presidential candidate, I would add, be able to make that case.

WALLACE: But Nina, both side in aftermath of the New York 26th race held their ground. Senate Republicans, except for four of them, all voted for the Ryan plan when it came up for kind of a shell vote in the Senate. And yet, House and Senate Democrats just intensified their attacks.

So who's right?

EASTON: Well, I think the Republicans ultimately are going to have the high ground on this. I mean, you look at -- the conventional wisdom now is hardening around this idea that this is going to be an albatross around the Republicans' necks. But if you listen to two little moments last week, one with Bill Clinton whispering to Paul Ryan backstage at a debt commission debate, I'm worried.

I'm worried. I'm glad we won the special election, but I'm worried it's going to give us an excuse to do nothing. The other moment to me was House --

WALLACE: But let me just say, he also said that the Ryan plan was wrong.

EASTON: That's right, but he is worried that they're doing nothing.


EASTON: The same thing, House Democratic Whip Steny Hoyer says, look, Medicare reform has to be on the table, he told a reporter this week. But we're not going to come out with specifics because its' dangerous, and look what happened to Paul Ryan.

That says to me that they know they don't have the guts to pursue serious reform. And they know they have to. It is going bankrupt.

I mean, if you don't have serious reform, you are signing the death papers for Medicare. And I think that's a very viable case to make.

YORK: The Republicans aren't listening. You had the House and Senate together. There are 288 Republicans in Congress; 275 of them had voted for this. They own it.

But there is this huge debate going on inside the Republican Caucus right now in how did we get here? They looked -- during the whole Obamacare debate, they looked at Democrats and said how could they be spending all of this time on national health care when the public cares most about jobs? And they ran and won in November on jobs, jobs, jobs, jobs. And now, five months later, they find themselves mired in this Medicare debate.

And what you saw this week was they're trying to pivot jobs in the economy. There a horrible irony in that world, but they are trying to pivot to jobs in the economy. Eric Cantor came out with this new jobs creator plan. So they're going to try to emphasize what they seem to have forgotten for a while, which is that the public's number one concern remains jobs and the economy.

WALLACE: But, Byron, I get a sense of what you're saying. You think that voting for the Paul Ryan plan and making it such a big deal, and now seeing it dominate the debate -- because, quite frankly, the Republican plan on the economy, which isn't all that new, kind of vanished without a trace this week.

You think that was a mistake.

YORK: Well, we don't a word called "Mediscare" for nothing. They knew this was going to happen, but I think they have been surprised at the degree to which it's completely taken over the debate. And the other pro-growth parts of the Ryan plan and their own growth policies have just fallen aside.

WALLACE: Let's look at this from the Democrats' point of view, because their plan at this point seems to be exactly, you know, Mediscare. We're not going to offer anything. The Senate Democrats this decided this week they are not going to offer a budget, they don't have a plan to cut Medicare, and they're just simply going to say, look at what those guys are doing.

Can they make that work all the way until 2012?

WILLIAMS: Yes. Well, it's not that they are offering nothing. They have a plan.

They have a health care plan, the Affordable Care Act, on the table. And when they put the plan up there, and they know it has some cuts in terms of things like Medicare Advantage in it, all Republicans did was use scare tactics and talk about death panels, and this is terrible, this is intrusive government.

The fact is that now, with the Paul Ryan plan, the Republicans have put something on the that is extremely unpopular, as we just saw in the special election. And all this talk, including on this panel about, well, it's just a messaging problem? You know what? Jane Corwin, the Republican, she tried exactly the message of you guys and said, oh, well, you know, it's really about the deficit issue. Don't forget the deficit voters.

You know what the voters said? This is a bad plan for seniors. It's going to drive up costs for us in terms of care at the end of our lives, and we don't want it. And we don't want it for our kids and grandfathering people who are over 55. Those people still said we don't want you to do it.

EASTON: Even with the health care reform, the prediction is Medicare is going bankrupt. You can't get away from that. And it's important to note, the Ryan plan is not going to pass the Senate. It's a Democratic-controlled Senate. But there are other plans out there. There's --


WALLACE: Wait a minute. That was the plan that the House offered. That is -- I mean, Paul Ryan may be the face of the Republican Party more than anybody else on Capitol Hill.

EASTON: But you don't see Senate Democrats rushing to embrace that or any other serious reforms as a negotiating point. You don't see that. What you see them, you see them hiding because they're afraid to stand up to activists who are -- who will call this -- that will say that this is cruel, or cuts --

WILLIAMS: Let me just say you must have forgotten. Newt Gingrich, last -- I guess it was a few Sundays ago, said it was Republican radicalism and social engineering. Tim Pawlenty, you know, says that he likes it but he will introduce his own plan.

I think what you see is a failure of the presidential candidates on the Republican side to support this. And I don't think you see a good job even being done by Republicans in the House and Senate in terms of making the case for it because everybody knows it's a loser.

YORK: Republicans would say that Obamacare cut half a trillion dollars from Medicare to ensure previously uncovered people, whereas their plan cuts it to the extend the life of Medicare. That is a difference.

KRISTOL: They also need to be more aggressive making the case that, ultimately, competition will improve Medicare. And I think that's something they've been too much in the mode of, oh, our cuts are going to be delayed. They need to really explain, which I believe to be true, incidentally, that these reforms would actually improve the quality of health care in the country.

WILLIAMS: In other words, you trust the insurance industry.

KRISTOL: But leaving aside these silly talking points --



KRISTOL: Fine. And look, in 2012, there's the man on the ballot called President Obama. He passed Obamacare. The choice will Obamacare versus the Republican vision for the future of health care, and the choice will be on the debt and deficit, which is an even bigger issue than Medicare in particular.

Which party do you believe is serious about the fact that we are going broke? And if Republicans can't convince the country in 2012 that, A, we're going to broke, and, B, the Obama administration, the Democratic Party aren't serious about it, then the Republican Party deserves to lose, honestly. If they can't nominate a candidate who can make this case --

WILLIAMS: I understand. OK. So the big difference between you and me is you trust the insurance companies, who have been absolutely abusive of people. And secondly, Republicans, for all this talk about oh, the deficit, the debt, we have to be serious, entitlement reform, refused to consider raising taxes.

EASTON: Juan, serious Democrats in think thanks who actually want reform trust the private -- trust making it more of a private system than it is now. OK?

WILLIAMS: Why would anybody trust the insurance companies? This is a puzzle to me.

YORK: The problem for Republicans, this is a huge experiment. Even with the bad news we've had about Medicare, the problems are more than a decade away. It is a huge experiment to try to convince the voters that we have to do something really big, right now, for a problem that is still on horizon.

WALLACE: Well, I'm glad we settled that. Thank you all, panel. See you next week.

Don't forget to check out "Panel Plus," where our group picks right up with the discussion on our Web site, And we promise we'll post the video before noon Eastern Time.

Up next, our "Power Player of the Week."


WALLACE: It's a holiday tradition here that we profile a man who created his own special project to make every day a Memorial Day for our fallen heroes.

Once again, he's our "Power Player of the Week."


TOM DAY, FOUNDER, BUGLES ACROSS AMERICA: You're playing it. It's only 24 notes. But it's so meaningful to that family.

WALLACE (voice-over): Tom Day is talking about playing "Taps" at the funerals of military veterans. And he should know. He is the founder and president of an organization called Bugles Across America.

(on camera): All told, how many funerals have you done since you started Bugles Across America"?

DAY: Two hundred thousand.

WALLACE: Really?

DAY: In 10 years. Right.

WALLACE (voice-over): It started back in 2000, when Congress gave every vet the right to a funeral with military honors, including two uniformed officers to present a flag and play "Taps."

The problem was the military only had 500 buglers, so they sent someone to play a recorded "Taps" on a boom box or an electronic device inside a bugle.

Tom Day, who played in the Marines in the '50s, didn't like it.

DAY: I call it stolen dignity, that these veterans can't get live "Taps" when we are out there ready to perform live "Taps."

WALLACE: So he started his organization, recruiting 400 horn players within a year.

DAY: Now we have 6,270 horn players. And we're doing 2,200 funerals a month.

WALLACE: It's become quite an operation that Day runs out of his basement near Chicago.

Families can go on his Web site to ask for a bugler. A message is sent to every horn player within 100 miles of the funeral. Day gives away bugles and helps with uniforms.

While they get support from foundations, he runs a deficit every year.

WALLACE (on camera): How do you make up for shortfall?

DAY: I kind of make it up myself.

WALLACE: Fifteen thousand dollars, $20,000 a year?

DAY: Probably $10,000.

You finish the last of the 24 notes, you put the horn down, and the flag has been presented. Then the family comes over. The kisses, the handshakes from these families, there is nothing -- no amount of money could ever buy the feeling that I get from the family once I finish the 24 notes.

WALLACE (voice-over): With soldiers killed in Iraq and Afghanistan, plus 1,800 veterans of World War II dying every day, there is a flood of military funerals. Day says he wants to keep going until he dies, then leave his organization in solid shape to carry on.

DAY: I want every family to have live "Taps" at that going-away presentation of their veteran. And it kind of tells the Marines who are guarding the gates in heaven, live "Taps," we're going to let this veteran ride in.


WALLACE: Since we first ran this story two years ago, Tom Day's organization has grown to more than 7,500 members who play at more than 3,000 funerals a month.

If you want to learn more, go to

And that's it for today. We hope you will take a moment this weekend to remember all the men and women who have given their lives defending our freedom.

We leave you today with Tom Day playing live "Taps," and we'll see you next "Fox News Sunday."

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