Reps. Chris Van Hollen, Jim Jordan Debate Debt Ceiling; Herman Cain Talks Presidential Politics

The following is a rush transcript of the July 17, 2011, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, ANCHOR: It's crunch time in debt ceiling talks and neither side is backing down.


With President Obama and congressional Republicans deadlocked, we'll get read on where things stand from two key House members -- Jim Jordan, chairman of the House Republican Study Committee; and Chris Van Hollen, the top Democrat on the budget committee. It's a fair and balanced debate only on "Fox News Sunday."

Then, the GOP presidential race. We'll sit down with candidate Herman Cain as we continue our series "2012: One-on-One."

And for all the talk about possible default on August 2nd, the real focus may be Election Day 2012. We'll ask our Sunday group which party is gaining the upper hand with voters next year.

All right now on "Fox News Sunday."


And hello again from Fox News in Washington.

Well, with just 16 days to go until our country reaches the debt limit, and with threats from ratings agencies to downgrade the nation's credit, what deal is still possible?

Here to discuss the options are two key House leaders. Jim Jordan is chairman of the House Republican Study Committee. Chris Van Hollen is the top Democrat on the Budget Committee.

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

REP. CHRIS VAN HOLLEN, D-MD.: Good to be with you.

WALLACE: This week, the House will vote on something called "cut, cap, and balance."

And let's outline what it would do. You would cut the deficit $111 billion next year. You would cap spending under 20 percent of GDP in a decade. It's now 24 percent. And you would raise the debt ceiling only after Congress passes a balanced budget amendment.

Congressman Jordan, you're a big sponsor of this. President Obama says that it would cut Medicare and Social Security much more deeply than Paul Ryan's budget plan.

REP. JIM JORDAN, R-OHIO: It doesn't do that. And basically, it mirrors the budget proposal that House passed earlier this year.

But we like to view it as common sense American plan. I mean, Americans know we're spending too much, we're headed for a cliff, we're headed for bankruptcy. Let's cut spending in year one, let's cap it as a percentage of our economy going forward. Everyone understands our government is getting too big.

And then let's do something historic. Let's, for the first time in American history, pass a balanced budget amendment through the House and the Senate, send it to states. Have this requirement that everyone else has to live under, let's make the federal government, an entity that has a $14 trillion debt, let's make us live in the same requirement everyone else has to abide by.

WALLACE: Sounds sensible, Congressman Van Hollen. What's wrong with "cut, cap and balance"? And what are the chances that it will get through the House, through the Senate, and get signed by the president?

VAN HOLLEN: Well, no one should be fooled about this. They're not proposing a clean balanced budget amendment. What they're proposing is to manipulate the Constitution and use it to impose the Republican budget plan.

If you look that plan, it does end the Medicare guarantee. It slashes Medicaid. It slashes deeply into education. And it protects tax breaks for special interest.

They would write that into the United States Constitution. Under their proposal, it would be easier to cut Medicare than it would be to cut subsidies for oil and gas companies.

You have a majority vote to cut Medicare. You have a majority vote to create special interest loopholes. You need two-thirds to close tax breaks. That's an anti-majoritarian proposition. Framers would be turning in their grave if they read their provision.

WALLACE: And what are the chances that will become law?

VAN HOLLEN: It's not going to become law. And that's why it's so dangerous for our Republican colleagues to say that if you don't do this, we will have the United States to default on its debt.

WALLACE: Congressman Jordan, I want to give you a chance to respond. But also, as we said, there are just 16 days left before we hit this August 2 deadline. Even if "cut, cap and balance" is as good as you say it is, should we be spending precious time on what from outside observers say is not going to become law?

JORDAN: Of course we should. This is something that fixes the problem. Everyone understands in two to three years, we're going to have a debt crisis. We've got to do big, bold things, or that's where we're headed, economists virtually agree on this.

To call balancing the budget dangerous is unbelievable.

Here's what we have to do --

VAN HOLLEN: I said your version of that.

JORDAN: Here's what we have to do. Look, Mr. President, put a plan on the table. Democrats, put a plan on table. And for the next two -- we got 16 days. For the next two weeks, if the president can ever put some details to plan, let's have a national debate. Let's let the American people decide, do they want something common sense as cutting spending, capping the growth in government and requiring a balanced budget amendment to the Constitution. Do they want the common sense thing versus the president's plan? Let's have national debate.


VAN HOLLEN: Let me be clear. I didn't say dangerous to balance the budget. We want to balance the budget. The budget that they passed doesn't get into balance until the year 2040. to balance the budget they voted for would require you lift the debt ceiling by $8 trillion between now and 2021.

WALLACE: Wait, guys, gentlemen, we've got a lot to cover. Let me move to the next thing. We'll get back to a bunch of these issues.

If cut, cap and balance fails, and I must say -- most people say whether it's good policy or not, Congressman Jordan, that the chance it is actually going to pass in the next two weeks are pretty slim. The most likely fallback is some version of Mitch McConnell fallback plan.

Let's take a look at that. It would allow the president to raise the debt limit $2.5 trillion without any spending cuts, but there is talk about including more than $1 trillion in cuts and setting up another debt commission.

Congressman Van Hollen, wouldn't that be almost total failure by Democrats, who control the Senate, who control the White House, to do anything serious about our debt when we've got a $14.3 trillion debt?

VAN HOLLEN: I'm not a fan of the Mitch McConnell deal. We agree on that because it does punt it. What it does it says, we, the Congress, will not take responsibility or accountability for our own decisions.It's a political answer. Not a real answer to the problem.

Now, whether we're driven in that direction by events, I don't know. But we also want big deal. The president did put a grand proposal on the table and we know that --

WALLACE: OK. We're going to get to that in a second. But if it's a choice -- the clock is ticking, 16 days -- if it's a choice between the McConnell plan or nothing, not raising the debt ceiling on August 2nd -- are you going vote for the McConnell plan?

VAN HOLLEN: I'm working very hard so that that's not our only choice. But I will say this. We cannot default on our debt. Americans can't choose not to pay the bills they incurred. And we know what a catastrophe that would be.

You know, I know there have been bills introduced in the House that suggest that you can sort of skate by this Standard & Poor's, Moody's, Chamber of Commerce, they all say that's just not so.

WALLACE: OK. We're going to -- we're going to into the whole question of default, what it would mean in a moment. Congressman Jordan, though, let's on the McConnell plan for a moment. If it comes down that, you are already shaking your head. If it comes down to McConnell plan or going past August 2nd without raising the debt limit, how will you vote?

JORDAN: Well, look, the McConnell doesn't have 218 Republican votes. No way, there's all kinds of conservative in the Republican Study committee in the House conference who will not support the plan. As Chris pointed out, it's path --

WALLACE: Wait. You're saying that the McConnell plan will not pass the House?

JORDAN: Well, I mean, who knows if there's s a combination of R's and D's who go for it. But I'm telling you, House conservative members, members of the Republican Senate, they're not going to support the McConnell plan. I'm not going to support the McConnell plan.

As Chris rightly points out, this is just kicking the can down the road. And that's -- the American people sent us here to make big tough choices. They didn't send us here to set up a commission, give the president veto power. That's not what they sent us here to do.

I keep coming back this. Put some plans on that table like we did. The only plan out there is the "cut, cap and balance" plan. Let the American people look at this over the next two and let's have a real debate.

This is so important for the future of this country. We are headed for a cliff. If we don't fix it, it's -- now, we are in big trouble. So, let's have that national debate. Not some cop out like the McConnell plan.


WALLACE: Let's talk about the debate and the question of the grand bargain, because President Obama continues to say that he wants a big deal, over $4 trillion in spending cuts and tax revenue increases.

Congressman Van Hollen, part of the problem is, and his is something that Congressman Jordan said several times now, is he's not specific. Not specific, especially on spending cuts and especially on entitlements.

And let met put up something that the head of nonpartisan Congressional Budget Office said. He was asked last month, much the president's latest plan would cut the deficit? He said, we don't estimate speeches. We need much more specificity than was provided in that speech for to us do our analysis.

I mean, the fact is that the president talked to a great detail about what he wants in revenue increases, but he is not specific at all when it comes to what he will take in spending cuts.

VAN HOLLEN: Well, the president has put a framework proposal on. He's been discussion with Speaker Boehner. I mean, they were in the White House hammering out a lot of these details. And the president has said that the framework that he wants to approach, not every detail, but the framework, is the Simpson-Bowles, the bipartisan plan.

And the reason those discussions could not continue was because our Republican colleagues refused to agree to close even one corporate tax loophole. They refused to talk about the folks at the very high end, simply going back to the rates that were place during the Clinton administration. That is a stumbling block. That's sort of a conversation ender.

If you're not even willing to talk about ending subsidies for oil and gas companies for purpose of deficit reduction, where do you go? Where do you go?

WALLACE: Let me ask you about this and then -- you can give whatever answer you want. But you were reportedly, Congressman Jordan, one of the key players who forced Speaker Boehner to walk way from talks about a grand bargain. I understand that there's a problem, a legitimate issue with fuzzy numbers coming out of the White House. But assuming that you could solve that problem, you are unwilling to accept $3 in spending cuts for every $1 in revenue increase?

JORDAN: A couple of things. Think about what the president's framework, because there's no specificity to this proposal. Think about his framework.

JORDAN: Here's what he's saying: all the spending that the Democrats did in the last Congress, the stimulus, the Obamacare, and all their budget, all the spending they did in the last Congress that we all voted against and American people didn't like as evidence by last November's election -- the president now is asking us, hey, Republicans, vote for a debt ceiling increase, even though you campaigned against it and the voters elected you to be against. Vote for debt ceiling increase to pay for all that spending. And just to add insult to injury, by the way, support tax increases while you're at it.

That's what the president says and puts no specificity to any plan. It's ridiculous.

WALLACE: Wait. Assuming there were -- if I may -- assuming there specificity, would you not accept a formula of $3 in spending cuts? I mean, this is a liberal Democratic president who is talking about $3 in spending cuts, including entitlements, for $1 in revenue.

JORDAN: Here's the president's problem. First, all the spending cut takes place in the out years. He never gives us any detail what's going to happen in the firs year, which is the only year that counts. It's the only we can make law about.

So, all the spending cuts in the out years, the tax increases are going to come soon. And the American people, this is old, the old cliche, this is Lucy and Charlie Brown and a football. And the American people say we're not falling for that game anymore. We're not going to let you promise spending cuts later to raise taxes.

Now, if these tax increases so bad that Chris talks about, well, the Democrats just controlled all the government eight months ago, why in world didn't they rid of them? You had the House, you have the Senate. You had the super majority in the Senate until Scott Brown got elected, why didn't you get rid of all -- if they are so bad and they're hurting our economy and keeping us from getting to a deal, why didn't you deal with them then?

WALLACE: It's a very good question. And I'm going to let Congressman Van Hollen answer it. But I want to ask a question first before I do -- the polls show, only 20 percent to 25 percent of Americans want a deal that is only spending cuts.

JORDAN: They also show Americans don't want tax increases. Here's what we all know, all three of us sitting here. If you raise taxes on the job creators out there, small business owners who make our economy go, you raise it now when we got 9 percent unemployment, you are making that much more difficult for our economy to grow and for jobs to be created.

Everyone understands that fundamental point. They also understand the basics: government spends too much. It's not a revenue problem. It's a spending problem. Everyone gets that basic point.

WALLACE: Congressman Van Hollen?

VAN HOLLEN: Well, we all know that CBO, nonpartisan entity, has said that the number one driver, policy decision driving the need to raise the debt ceiling now and big contributor problems were the tax cuts 2001, 2003, that disproportionately hit the top.

WALLACE: Wait, wait, wait. I just read -- I just read yesterday. If I may, I just read yesterday that Barack Obama has increased our debt 35 percent in the last 2-1/2 years. That's not the Bush tax cuts.


JORDAN: Three-point-eight trillion in the last two and a half years.

VAN HOLLEN: Number one policy decision, the biggest driver of the debt is the economy going down. That's obviously a decision -- that's not a policy decision.

WALLACE: How of $1 trillion for the stimulus?

VAN HOLLEN: The $1 trillion -- that's a short-term thing. We all know. That was a short term thing to get the economy going.

JORDAN: But it didn't work.

VAN HOLLEN: But it's not a long driver of the debt. We should get our facts straight here

Look, you asked the fundamental question, are they willing to take a bargain? It's $3 in cuts to $1 in revenue increases. The revenue increases they are talked about to begin in 2013. Nothing in the short-term. In fact, the president has talked about a payroll holiday. Number two, we're talking about closing a lot of corporate loopholes. And number, we've said, go back to the same rates that were place in the Clinton administration, which was a time when the economy was booming, 12 million jobs added -- that because they won't even talk about that framework, three-to-one, the conversation ends.

WALLACE: OK. This, what we've just seen here is problem, frankly, which is that you a not agreeing that there's no effort to get together on either side, which brings us to the deadline, 16 days.

Congressman Jordan, you say that the world isn't going to end on August 2nd. Let me just finish. You say the world isn't going to end on August 2nd, that we can pay our bondholders with the revenue that's coming in and we'll prioritize the rest of the spending. Here's the problem and let's put this up on the screen. The Bipartisan Police Center -- this was a fellow who was a Treasury official, Jay Powell, in the George H.W. Bush administration did an analysis of what the government would have to cut -- 44 percent in other spending. Even if you pay Social Security and Medicare benefits, you have to choose among military salaries, veteran benefit, unemployment insurance, the FBI, the FAA.

And Bill Gross, the head of PIMCO, which is the world's biggest bond company, bond fund, which already sold, they have already spoke within their wallet, they've already sold most of their treasury securities, he says, "The market situation might resemble what happened after Lehman Brothers collapsed in 2008."

This isn't a politician. This is the market talking.

JORDAN: Again, but the market is also saying this. Standard & Poor's is saying if we don't do something real, something that puts us on sustainable fiscal path, if we don't do something real, they're going to downgrade us, whether this debt ceiling gets passed by August 2nd or not. So, that's the most important thing to keep in mind is where we're headed.

The big crisis that's coming, that's more important than anything now. But when we get -- if, in fact, we get past August 2nd, the president is going to have to lead. He's going to have to make some choices. He's going to have to prioritize.

And there is enough money in the month of August to make sure we pay the bondholders, we make sure we pay Social Security recipients and we make sure we pay our troops in the field. After that, the president, he's going to have to do something he's unwilling to do right now. He's going to make some decision to lead.

WALLACE: And you're saying that's preferable to passing the McConnell fallback.

JORDAN: The most preferable plan --

WALLACE: I know that.

JORDAN: The preferable plan is to cut, cap and balance, which is common sense. That's the most preferable before August 2nd.

WALLACE: What is preferable, McConnell plan or go past August 2nd?

JORDAN: The McConnell plan kicks the can down the road and makes it even more likely that we're going to the big crisis that's coming two to three years from.

VAN HOLLEN: So, what you've heard is, unless you pass a constitution amendment that puts their proposed budget plan in place.

JORDAN: What's wrong with letting the states decide that? Someone's got to tell me -- what's wrong with letting the states decide whether we should have a balance -- 49 out of 50 states have it.

VAN HOLLEN: The reality is --

JORDAN: Every municipality, every township government, every city government, every family, every business. Tell me what's --


VAN HOLLEN: And you know it. You have a provision in there that makes it easier to cut Medicare. Read your own


VAN HOLLEN: It's not a real balance budget amendment --

WALLACE: Wait, wait, we're going to end this segment, gentlemen.

VAN HOLLEN: And you know it because it has

WALLACE: No, no, I'm going to end this segment.

VAN HOLLEN: Let me say this, if you allow the United States to default on its debt, which no family in America could do --

JORDAN: No one wants that.

VAN HOLLEN: It's going to hurt every family America out there in America. That's irresponsible

WALLACE: You got one sentence to response, Congressman.

JORDAN: No wants that. But a balanced budget requirement which everyone else has to live under --


WALLACE: Congressman Jordan, Congressman Van Hollen, we were able to settle all of this and arrive at a deal. Thank you, both. Thanks for coming in today, gentlemen. And we'll see how this plays out over the next 16 days.

Up next, presidential candidate Herman Cain. And they're shaking hands off-camera. Presidential Herman Cain on his plan for victory and the growing Republican field.


WALLACE: With new fundraising numbers out on the Iowa debate and straw poll now less than a month away, we continue our "2012: One-on- One" series with Republican presidential candidate, Herman Cain.

And, Mr. Cain, welcome back to "Fox News Sunday."

HERMAN CAIN, REPUBLICAN PRESIDENTIAL CANDIDATE: Thanks, Chris. I'm glad to exercise my right to return to your show.


WALLACE: You plan that one. That's very good.

You say, you're along with Jim Jordan, Congressman Jordan. You say we don't need to raise the debt ceiling, that it will not be a financial Armageddon.

But the chairman of the Federal Reserve says exactly that opposite. He says it would be a financial calamity. You just saw our last segment where Bill Gross, the head of PIMCO, says that it could cause another market collapse like the fall of 2008.

WALLACE: You talk about listening to the experts.

CAIN: Yes.

WALLACE: Aren't you ignoring them?

CAIN: That's one expert.

WALLACE: I just mentioned two.

CAIN: I know. Well, that's two. I'm listening to many others who are saying that this whole thing is a charade.

Let's back up, Chris. This crisis didn't need to happen, number one. Number two, now that the president has allowed this crisis to evolve, it's, they cannot -- they can hold the debt ceiling where it is, make the hard cut like congressman about earlier, and then continue to re-establish confidence in what they are doing.

The problem is, it's all political posturing. They do not need to raise the debt ceiling. The congressman talked about pay those things that are necessary, pay the interest on the debt. Take care of the military families, and the Social Security checks. That will work.

But what the president and the Democrats don't want to do is to then make the cuts on whatever is left.

WALLACE: Yes. But let's talk about whatever is left because -- and I mentioned this with the two congressmen. The Bipartisan Policy Center, this was an analysis done by a fellow named Jay Powell, who was a top treasury official under Bush 41.

CAIN: Right.

WALLACE: He did an analysis and it found, you do that. You have the money and you can pay the bondholders. They won't go into technical default. But what's left -- you're going to have to cut other government programs like by 44 percent. That's almost half.

So, the argument he makes is, even if you pay Medicare and Medicaid. You have to choose between veterans benefits, or unemployment benefits. Military pay, or closing the FBI and the FAA.

CAIN: Not necessarily. Those are s tactics, Chris. What about money that we spend on non-essentials? What about cost?

WALLACE: There isn't 44 percent of that.

CAIN: Chris, not if you're going to try to do it straight down. You have to take program by program and find that money. Some agencies, you might need to 60 percent. Some agencies might need to cut 30 percent. To say 40 percent across the board -- no, that's not how you get there.

The way you get there is you take agency by agency by agency and look for those cuts. And some of them are going to bigger than 40 percent.

WALLACE: Since we last talked, you have put out an economic plan --

CAIN: Yes.

WALLACE: -- that you say will put America back to work. And it's based primarily, there are other things like cutting regulations. But it's based primarily on lowering taxes.

CAIN: Yes.

WALLACE: And let's put that up. You would lower the top individual and corporate tax rates to 25 percent. You would have no taxes on capital gains.

Let me just ask about this.

CAIN: Sure.

WALLACE: You talk about doing something about the debt. Eliminating capital gains taxes, would add -- add -- $1 trillion to our deficit over the next decade. That's how much we take in in capital gains.

CAIN: That's static analysis, Chris. That's where that $1 trillion come from. If you do dynamic analysis, it does not add $1 trillion. The capital gains tax is a wall between people with money and people with ideas. Ideas create new businesses. New businesses create jobs, because small businesses produce most of them.

Now, let me make one other point about this. The engine to our economic growth is the business sector. This administration has put nothing in the engine and everything in the caboose. We are never going to grow until we low those tax rates, remove that capital gains barrier and suspend taxes on repatriated profits. This is why this economy is stuck and stalled.

WALLACE: Let me ask you about another aspect to this. Warren Buffett, he had -- likes to say he pays a lower tax rate that his secretary, because he pays the vast majority of his money in capital gains. So, he's paying to, what, 15 percent.

CAIN: Right. WALLACE: While his secretary is paying at an income tax rate. What about the issue of tax fairness? I mean, the people who are going to benefit primarily if you reduce capital gain tax rate to zero are wealthy people.

CAIN: Nope, it's small businesses. Remember, small business people have organized subchapter S corporations. There are more of them than there are Warren Buffetts. I don't care about Warren Buffett's tax rate and the American people don't care about Warren Buffett's tax rate.

I care about the tax rate of those all businesses that if they eke out of profit in the business, it goes through that personal income. If they invest it and they get some gain on that capital, they're going to be double taxed. That's the group that's going to be primarily affected.

This whole thing about the Warren Buffett's tax rate is just playing the class warfare card. This whole thing about, talking about people flying around in corporate jets is just class warfare. I'm concerned about the nearly 15 million who do not have a job and they are not going to get jobs with more government spending.

They're only going to get jobs when the business sector, the engine starts to grow again. You've got to add certainty to what's going to happen in the future before businessmen and businesswomen start to grow this economy.

WALLACE: You said this week that you oppose construction of a new mosque in Murfreesboro, Tennessee, which is close to Nashville.

CAIN: Yes.

WALLACE: They have operated -- Muslim worshipers -- at another site there for more than 20 years. What's your objection to their building a new mosque?

CAIN: One of my guiding principles, Chris, is that if you want to know the solution to the problem or if you want to understand the problem, go to source closest to the problem. I talk to the people in that community.

And here's their problem and I sympathized with them. Our Constitution guarantees separation of church and state. Islam combines church and state. They are using the church part of our First Amendment to infuse their mosque in that community and the people in the community do not like it, they disagree with it.

Sharia law is what they are to infuse in to our --

WALLACE: Wait a minute. Are you saying that we should ban Muslims from worshiping in this country?

CAIN: No, I did not say that, Chris.

WALLACE: I know. I'm asking you.

CAIN: I'm not saying that. What I'm saying is American laws in American courts. That's what the people of Murfreesboro are saying. That's what people are saying all --

WALLACE: The mosque isn't going to.

CAIN: Well, Chris, I happen to also know that it's not just about a religious mosque. There are other things going on based upon talking to the people closest to the problem. It's not a mosque for religious purposes. This is what the people are objecting to.

WALLACE: But -- I mean, they held rallies in 2009 and last year, to support the Palestinians, including Hamas, in Gaza. This going to a county judge who says the people -- he says that there may be a question about the open meetings rule.

CAIN: Right.

WALLACE: But he said that the people who are brought suit to try to stop this mosque haven't been heard and that they have right to build a mosque. I mean, my question, I guess is, this isn't Ground Zero in New York City. It's not hallowed ground. Don't Americans have a right of whatever religion under the Constitution, which you speak so much about, to free speech and freedom to worship.

CAIN: To the people in Murfreesboro, it is hallowed ground. They are objecting to the intentions of trying to get Sharia law. Now, that judge may have ruled, but this case isn't over with yet. I believe it's going to go all the way to the Supreme Court.

It's not hallowed ground. It's hallowed ground for people in Murfreesboro.

WALLACE: But couldn't any community then say we don't want a mosque in our community?

CAIN: They could say that.

Chris, let's go back to the fundamental issue that the people are basically saying that they are objecting to. They are objecting to the fact that Islam is both religion and of set of laws, Sharia law. That's the difference between any one of our other traditional religions where it's just about religious purposes.

The people in the community know best. And I happen to side with the people in the community.

WALLACE: So, you're saying that any community, if they want to ban a mosque.

CAIN: Yes, they have the right to do that. That's not discriminating based upon religion -- against that particular religion. There is an aspect of them building that mosque that doesn't get talked about. And the people in the community know what is it and they are talking about it. WALLACE: All right. I don't want to beat a dead horse about one mosque, but I just want to ask you one more question on this and we'll move on. This gets back to an early controversy where, as you know, you said that you're not comfortable with the idea of appointing a Muslim for your cabinet.

As someone who I'm sure who faced prejudice growing up --

CAIN: Yes.

WALLACE: -- in the '50s, '60s, how do you respond to those who say you are doing the same thing?

CAIN: I tell them that that's absolutely not true, because it is absolutely totally different. I grew up, like you said, in the '50s and the '60s. I grew up before civilian rights movement, during the civil rights movement and after the civil rights movement.

I went in to corporate America when the openness to putting blacks and minorities and corporation and I was able to move up the corporate ladder. We had some laws that were restricting people because of their color and because of their color only. That's what that situation was.

WALLACE: But aren't you willing to restrict people because of their religion?

CAIN: I'm willing to take a harder look at people that might be terrorists. That's what I'm saying. Look, I know that that there's a peaceful group of Muslims in this country. God bless them and they are tree to worship. I have no problem with that.

If you at my career, I have never discriminated against anybody because of their religion, their sex, or origin, or anything like that. I'm simply saying I owe it to the American people to be cautious because terrorists are trying to kill us. And so, yes, I'm going to err on the side of caution, rather than on the side of carelessness.

WALLACE: OK. 2012, in the last month --

CAIN: Yes.

WALLACE: Forgive me for saying this. It seems that Michele Bachmann has taken much of your support among the Tea Partiers and among social conservatives. Let's put up the latest poll of likely Iowa caucus goers. She leads the field with 32 percent. And you're back at 1 percent in this poll.

WALLACE: Has she eclipsed you? And how -- why should someone pick you over Bachmann? What is the choice between you and Bachmann?

CAIN: The choice is real simple. My entire career has been problem-solving, not politics. That poll may not reflect it, but the numbers that we have gotten in our first report reflects a little bit different story.

Secondly, if you look at the latest Gallup poll in terms of positive intensity, I lead all candidates in terms of positive intensity. Secondly, within the last six weeks, my name ID has gone from 21 percent to 48 percent. So--

WALLACE: But go back to this versus Bachmann, I mean, are you different on the issues? I mean--

CAIN: We're close on the issues. We're different on the fact that I have more direct hands-on problem-solving experience. That is where we differ. So issue-wise, we're very close, and I've said that before. The difference is, my entire career as a problem-solver, business executive at Pillsbury, Burger King, Godfather, National Restaurant Association, the problem-solving approach is where I have stronger credentials that literally many of the other candidates.

WALLACE: Let me ask you a question, because you know, we get to the bottom line, and given your experience, four years ago, Sam Brownback, the senator from Kansas, finished third in the Ames straw poll. And he felt after all his campaigning, he had to drop out, finishing third. Don't you have to finish at least that well in Iowa?

CAIN: I believe we will finish in the top three. So I would agree.

WALLACE: And if you don't, would you drop out?

CAIN: No, not going to drop out, and here is why. The nomination process doesn't stop with the early caucuses only. There are a lot of other states on the back-end of the process that could swing it from where it starts out. So, no, that is not necessarily going to be the determining factor. The biggest determining factor as to whether I stay in or drop out won't be whether I finish first, second, or third, or fourth. It's going to be the number of supporters that we're getting, and what we are hearing from the people actually out there in the states.

WALLACE: We have run out of time. I want to plug the fact that you have a new album.

CAIN: It's actually been out since 1996.

WALLACE: '96, but it's been reissued.

CAIN: Yes.

WALLACE: Called "Sunday Morning." We're not going to have time to play it, but I'll tell you, we've been listening to it here on the Fox News Sunday set. It's wonderful. What more appropriate, "Sunday Morning." There is even a song called "Sunday Morning."

CAIN: Exactly.

WALLACE: Mr. Cain, we want to thank you so much for coming in today. It's always a pleasure to talk to you, sir.

CAIN: Thank you.

WALLACE: Safe travels on the campaign trail, and we'll see you for the big Iowa debate.

CAIN: I'll be there.

WALLACE: Good. Coming up, our Sunday panel on the debt ceiling crisis and whether next week will finally bring a brand bargain, cut, cap and balance, or some fallback plan. Back with the panel in a moment.



PRESIDENT BARACK OBAMA: The problem is members of Congress are dug in ideologically in their various positions because they boxed themselves in with previous statements.

BOEHNER: We asked the president to lead, we asked him to put forward a plan. Not a speech, a real plan. And he hasn't. But we will.


WALLACE: President Obama and Speaker of the House John Boehner continuing to point fingers over who is to blame over the current debt ceiling stalemate. And it's time now for our Sunday group. Bill Kristol of the Weekly Standard. John Podesta, head of the Center for American Progress. Liz Cheney from Keep America Safe. And Fox News political analyst, Juan Williams.

Bill, House and Senate Republicans are separately going to be pushing for votes this week related to a balanced budget amendment. I understand that it appeals to their base, and Jim Jordan certainly makes an impassioned argument as to why it's the right policy. But shouldn't they have been doing this months ago rather than waiting for the final two weeks?

KRISTOL: I think it would have been better if the House Republicans had pushed cut, cap and balance about a month ago. They were hesitant. They hate voting for any kind of debt ceiling increase, and I'm extremely sympathetic to their dislike of giving the federal government yet more money and a ton more money to heap upon us even more debt, but it has to be increased. No one has a proposal to cut $1.4 trillion right away, which is what you would have to do. And so I think it's very, very important that on Tuesday, they are now going to pass a debt ceiling increase with spending cuts, spending caps, and a balanced budget amendment added to it. It can no longer be said that the House Republicans have their heads in the sand, they are not dealing with the debt -- they have passed the debt ceiling increase, and then it's incumbent upon the Democrats and President Obama to say, well, what version of a debt ceiling increase are you for? Are you against these spending cuts? Are you against the spending caps? Are you against the balanced budget amendment?

WALLACE: Well, and that gets us, John, to the big Republican argument about the Democrats, and especially this president, which is that he keeps talking about a big deal, but while he starts (ph) with quite a lot of specificity about revenue increases, he's fuzzy when it comes to spending cuts, especially entitlement cuts. Why?

PODESTA: Look, I think he has put a framework on the table, as Chris Van Hollen said. It includes real restraint in discretionary spending on both the domestic and the defense side. He's put forward $100 billion worth of cuts in healthcare programs in a plan that he forward. So I don't think he has -- and I think he's gone even further in his discussions with Speaker Boehner. So I don't think he has been at all nonspecific in those areas. I think--

WALLACE: He was at -- wait, he was at the news conference -- let me just ask a question. He was asked at the news conference what entitlement reforms would you make? He would only mention one, which is means testing for Medicare.


WALLACE: That's all he would mention.

PODESTA: And he's got specific cuts in his budget with respect to both Medicaid and Medicare, which are more I think -- remember, the Republicans ran against the cuts in Medicare and then flipped around and said now we've got to privatize the system, go to a voucher system, take $1.4 trillion out of Medicaid. So I think that he has been specific. There is a negotiation. But I think what we're doing now is just running the clock, wasting time, and that's tragic, I think.


CHENEY: I think that if you want to look at who's really serious about spending cuts, just look at the two budgets. The president's 2012 budget includes an additional over $7 trillion added to the national debt. The Republican budget passed by the House cut spending by $6 trillion. At this point, you have got a president who will not put a plan on the table. What he wants to do is demagogue.

CHENEY: You have seen the Republicans saying look, We have got to have some spending cuts here. I have been watching this debate from Wyoming and I have to say from Wyoming it looks an awful lot like politicians in this town who -- a lot of politicians who seem to want to kick the can down the road. You have a group of Republicans, particularly in the House and some in the Senate, like Jim Jordan who are saying no. We have got a freight train of debt that is hurtling down the tracks toward us. The only responsible thing we can do here is get spending under control.

WALLACE: Liz, you've got divided government. I mean it is- you've got Democrats controlling the White House and the Senate. You've got Republicans controlling the House. Eventually, I mean, any negotiation people have to be willing to give.

CHENEY: The Republicans and the Democrats both need-we have to be able to raise the debt ceiling. We cannot leave it where it is. Given that, though, the president and the Democrats have got to understand that people are not willing to vote for that increase without significant change in terms of our spending, significant cuts in spending.


WALLACE: All right. But let me ask you this question. I'm sorry, Juan I'll get to you in a second.

Let's just assume, and I understand the Republican argument that all of the cuts that the president talks about are fuzzy. If you could get $3 in spending cuts for $1 in revenue increases, would you make that deal?

CHENEY: If I was voting, absolutely not. Because revenue increases, tax increases, is what the president wants. And I think it is important to distinguish that. Tax increases right now are going to be job killers, they are going to lead to slowing the already sluggish economic growth. The president himself acknowledged that in 2009 you do not raise taxes in the middle of an economic down turn. It is the wrong thing to do.

WALLACE: Taxes wouldn't kick in until 2013.

CHENEY: Yes, but you know as well as I do, Chris, that businesses sitting out there making their plans, if they are looking ahead they know they are going to have massive increases in taxes because of Obamacare. They have massive new regulations. Now we're going to have new tax increases in 2013. They are not going to hire. They're not going to invest.


CHENEY: We have got to cut spending. Taxes are not the issue here. And the Republicans are right to say absolutely not, Mr. President. We want a dollar of spending cuts for every dollar of debt limit increase.

WILLIAMS: Well, I'm really glad to hear Liz say this. Of course, she thinks that the debt ceiling has to be raised. At least that is rational. Because I'm amazed at the number of Republicans who will say it is just an arbitrary deadline being set the Treasury secretary, despite what we have heard from Standard & Poor's, what we have heard from Moody's, what we have heard from the Federal Reserve Chairman Ben Bernanke.

The second part of what you said, Liz, with regard to tax hikes. If this was about taxes, then we would see interest rates already high in this country. Interest rates are a historical low at the moment. It is not the problem. And for $3 in cuts, which is what Republicans have said they want. Here is someone saying, well, you know, what, let's have the super rich share some of the responsibility for doing away with the deficit. And still the Republicans say no. It lacks the element which I think is so key, which is just reasonableness. Enough with the political posturing.

Bill Kristol talks about now, Republicans will have a package on the floor, come Tuesday, when they have this vote in the House. That vote is so symbolic and empty. It rattles around like an empty vase it makes me so angry.

WALLACE: Wait, wait, wait.

I mean, look, we have heard all of these arguments. I mean, it is 16 days and counting. Where do you get a deal?

KRISTOL: You don't get I don't think, and I'm against all these closed door negotiations. Let people put their cards on the table. Let's not have this horrible, you know, poker game that is going on where everyone, you know, liars' poker and all that stuff. Let's have a serious-the House of Representatives is going to pass legislation Tuesday. That is different from speeches, that is different from closed door negotiations. Let the Democrats respond.

WALLACE: Where does that get us if it is not going to pass the Senate?

KRISTOL: Well, how do we know it is not going to pass the Senate? Let's have majority leader bring it up. Let's have a real-

WALLACE: John Podesta, is it going to pass the Senate?

KRISTOL: Wait, wait, if Democrats don't like parts of it, let them offer amendments and let them offer alternate legislation. He is the president of the United States and he has no proposal. There is not proposal on the floor right by the Democratic majority in the Senate, or the president of the United States to deal with this problem. And the House Republicans, to their credit -- they should have done it a month ago -- to their credit on Tuesday they are going to pass actual legislation that will raise the debt ceiling and cut spending.

WALLACE: All right. All right. I have to break in here. And we are going to continue this conversation. And when we come back, in addition to talking about this, we are going to focus on the political impact that the debate over the debt ceiling may have on the 2012 presidential race. We'll be right back.



OBAMA: Whoever the Republican nominee is, you know, we're going to have a big serious debate about what we believe is the right way to guide America forward and win the future. And I'm confident that I will win that debate.


WALLACE: President Obama acknowledging the current debate over the country's debt and the size and scope of government will be one of the big issues in the presidential race next year.

We're back now with the panel.

White House officials do seem genuinely confident, like the president said, that they are winning the argument at this point, at least politically. They say the president is the one who comes off- because he wants a big deal, he is the one who comes off that he wants a balance. Which if you believe the polls, is what most people want, between spending cuts and at least some revenue increases.

Bill, are they right to feel -- forget the substance -- are they right to feel good about their position?

KRISTOL: There is no empirical evidence helping the president, you know? If you look at the different polls, Gallup, Rasmussen, etc cetera. The president's approval rating has drifted down over the last two, three, four weeks. I think in the last Gallup he was, he had a higher disapproval than approval. In his matched up against the generic Republican candidate, he looses now by 5 points. I think it was 7, the biggest margin, I think, in the Gallup, which he has been loosing.

So, I think, inside the Beltway everyone thinks, Obama is out maneuvering those Republicans. And the Republicans have made some mistakes, but the truth is, the longer we have this debate about debt and deficit, and the magnitude of President Obama's spending, and the failure of the stimulus, and the failure of his big spending programs. I think it hurts the president and I don't think the public thinks we should shy away from that debate.

WILLIAMS: There is not one of the Republicans running who beats President Obama head-to-head. So that whole business about generic -- that is like Harry Potter running against Luke Skywalker. There is reality to it. But the reality is--

WALLACE: Potter/Skywalker, that would be a hard choice.



WILLIAMS: But let me just say--

KRISTOL: We should Potter against Voldemort, obviously?


WILLIAMS: That if you look at the numbers right now, it is overwhelming. And the president said, even the Republicans would go for some kind of tax hikes on the super rich in order to get a deal and avoid this calamity.

WALLACE: But Juan -- wait, wait, wait -- but Juan, I mean, this president came into office, he was elected-first of all to fix the economy, which we would all agree he hasn't done. But secondly, we were told he was the one who was going to end the partisan rancor. He was going to make the town work. I mean, if they can't get a deal. And as this goes on, doesn't that hurt him, and you know, one of the reasons people voted for him was he was going to fix the system?

WILLIAMS: But there is no evidence that he is not working towards a deal. That he is willing to compromise. He is willing to say, as you point out earlier, there is too much spending in the town, let's have substantial cuts. Eric Cantor said, they had, in terms of the Biden negotiation, $2 trillion on the table. But Eric Cantor wasn't willing to say yes, we have some increased revenue to go with it.

CHENEY: Look, this president is completely out of step with history and out of step where most the American people are. He does not fundamentally believe that the private sector creates job. I will give you three example of where he stands in his press conferences this week.

Neither press conference, did he, at any time, he say the words "private sector." He believes the solution is we'll have more government growth, we'll have the government hire people. Secondly, at one point in the second press conference, or the first press conference, he said that really, he doesn't think he ought to be able to keep more than he needs from the government. Now this notion that the government somehow decides what the American people need and ought to keep is not any kind of a recipe for economic health. It certainly isn't capitalism.

Finally, the president at the end of the press conference, says he wants to increase taxes and get through this initial crisis so that he can spend more on infrastructure. This is an insatiable appetite for spending.


CHENEY: It is driving the country off of a cliff. It is completely irresponsible.

PODESTA: I think that is so fundamentally wrong on the facts. President Obama has proposed taking the domestic government down to the size that it was in the Eisenhower administration. That is in his budget. We have taxes now lower than they have ever been since 1950, and have --

WALLACE: A lot of that has to do with the fact that we're in a recession.

PODESTA: We're in a recession, but the Bush tax cuts have contributed substantially to that, particularly for the high end. What are the Republicans proposing? Go even further than that. Now we're in a hostage-taking situation on the debt limit that will be catastrophic if we actually do go over that August 2 deadline. I actually think this is the craziest hostage-taking that we've seen since Al Pacino and John Cazale were in "Dog Day Afternoon."

WALLACE: Very good reference. That is our second movie reference.

PODESTA: Well, we like movies around here. Right, Chris?

But I think that they have got to come to grips with the fact that it would be catastrophic, as Ronald Reagan had said in 1983, as S&P and Moody's had said, as Ben Bernanke has said. If we don't raise the debt limit by August 2 and those 44 percent in cuts take place, it will do nothing but drive the economy in to a second recession.

Now, that may be the cynical attitude of the House Republican leadership. Maybe that's what they want, which is to damage Obama by damaging the economy. But I think that the American people see what the framework is right now.

CHENEY: But I was quoting what the president said in his press conference. This president has added more to the debt than all previous presidents combined.


CHENEY: All you've got to do is find - all you've got to, all you've --

WALLACE: Wait, wait.

PODESTA: Every independent-


CHENEY: Let me finish.


WALLACE: Let her finish. Juan, Juan, stop it.

Go ahead.

CHENEY: This man's stimulus program did nothing to help that, we're at 9.2 percent unemployment. You could easily find $1.4 trillion in savings if you would repeal Obamacare. Not complicated. This president refuses to put Obama care on the table.

PODESTA: Every, every, independent analysis.

CHENEY: There is no way that you can claim that he has been a responsible fiscal steward of this economy

PODESTA: Says 60 percent of that run up goes to Bush tax cuts-


WALLACE: Wait, wait, Liz.

PODESTA: Medicare part D and the two wars.

CHENEY: Bush tax cuts, which you guys keep talking about.

PODESTA: The Recovery Act contributes 15 percent to that.

CHENEY: You guys keep talking the Bush tax cuts for super rich.

WALLACE: Here's the question. Wait, wait. Wait. OK. Everybody calm?

Let's -- what is going to happen? I mean, all you are doing is repeating the arguments we heard and heard and heard. Every one of your agrees that we cannot get past August 2nd without raising the debt ceiling. I think you all agree. Yes?

WILLIAMS: Correct.



WALLACE: So, what is going to happen?

KRISTOL: The Republicans will pass the Cut, Cap and Balance, on Tuesday. They will then and pass prioritizing of federal expenditures if there are a few days or a couple of weeks where the debt ceiling goes past August 2, so Social Security, Medicare, Defense are taken care of.

They will also pass, I believe, next week, a short-term increase, for maybe a month. $100 billion-

WALLACE: Which the president says he'll veto.

KRISTOL: Well, let him explain that to the American public. They are going to say a $100 billion increase in the debt ceiling, $100 billion in domestic spending cuts, which the president himself has endorses it. He's going to veto it? Why? Because it doesn't accord with his vision of what should happen? So, I think Republicans are in pretty good shape.

WALLACE: John, what's the end game?

PODESTA: I think it is -- I don't like it, but it's probably some version of McConnell, which is cut the deficit now by $1.3, $1.4 trillion. Get this passed, get the debt limit past the election, and then fight it out next year in the election. President Obama will frame it and the Republicans can answer.

WALLACE: You have about 30 seconds. What is going to happen?

CHENEY: The president will lose the election of 2012. The American people are --


WALLACE: No, no, no, I'm talking about August, not November 6.

CHENEY: I think we will -- that the Republicans in the House will in fact pass spending cuts along with a debt limit increase. And I think it will then go to the president and it will be up to him, as Bill said, to explain to the American people he is demanding we not act on this until 2012.

WALLACE: Juan, 15 seconds.

WILLIAMS: The outrage from Wall Street is just going to become so intense that Republicans will eventually have to say yes to something.

WALLACE: Thank you, panel. See you next week. Thank you for staying inside the clock.

Don't forget to check out "Panel Plus". You are really going to watch today because without any time limits our group will pick right up with the discussion on the our website. We will post the video before noon Eastern Time.

Up next, we hear from you.


WALLACE: Time now for comments you posted to the blog Wallace Watch.

With the August 2 debt deadline fast approaching, many of you had questions about what happens next, like we did. Bret Nichols writes: "If Congress and the president did not have a deal by August 2, will the salaries and benefits of all Washington leaders and staff also be suspended, along with other payments?"

Muriel Somebothy (ph) from Las Vegas asks -- "How much of the debt ceiling, if any, would be affected by the repeal of the healthcare law known as Obamacare?"

And finally, Ann Healey sent this. "Why cut Social Security from those of us elderly women who only have Social Security as the income? Let's cut foreign aid from countries that do not support us. Where is the common sense?"

Please keep your comments coming to us at

That is it for today. We have want to wish the U.S. women's soccer team all the best in today's World Cup final. Have a great week. We'll see you "Fox News Sunday."

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