Rick Perry on Iowa Chances; Mitch McConnell Talks Payroll Tax Cut Extension

The following is a rush transcript of the December 11, 2011, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: I'm Chris Wallace.

A former Republican frontrunner looks to Iowa to launch his campaign come back.

After early stumbles, presidential candidate Rick Perry tries to regain his footing in time for the caucuses. We continue our 2012 one-on-one series with the governor of Texas.

Then, where's the Christmas spirit on Capitol Hill? With the tax hike hanging in the balance, what will Congress do? We'll get the latest from Senate Republican leader Mitch McConnell.

Plus, top Republican candidates go negative on Newt Gingrich. We'll ask our Sunday panel if the frontrunner can weather the political storm.

And our power player of the week help wounded warriors get home for Christmas.

All right now on "Fox News Sunday."

And hello, again, from Fox News in Washington.

With just over three weeks until the Iowa caucus. The Republican candidates for president came out swinging last night in a debate in Des Moines.

Fox News correspondent Steve Brown watched the action to see who scored and who missed -- Steve.

STEVE BROWN, FOX NEWS CORRESPONDENT: Chris, there were plenty of attempts from last night's debate to knock down Newt Gingrich, the frontrunner, a peg or two. But those efforts came up short.


MITT ROMNEY, PRESIDENTIAL CANDIDATE: We can start with the idea to have a lunar colony to mine minerals from the moon. I'm not in favor of spending that kind of money to do that. He said that he would like to eliminate in some cases the child labor laws so that kids could clean schools. I don't agree with that idea.

So, we have differences of viewpoint on some issues.

NEWT GINGRICH, PRESIDENTIAL CANDIDATE: The only reason you didn't become a career politician is you lost to Teddy Kennedy in 1984.

PERRY: Now, wait a second.

BROWN (voice-over): If a clean shot was delivered on Gingrich, it may have been by Ron Paul over Gingrich's consulting gig with Freddie Mac.

REP. RON PAUL, PRESIDENTIAL CANDIDATE: While he was earning a lot of money from Freddie Mac, I was fighting over a decade to try to explain to people where the housing people where the bubble was. So, Freddie Mac gets bailed out by the taxpayer. So, in a way, Newt, I think you probably got some of our taxpayer's money.

BROWN: Michele Bachmann fired this two for one jab at the center state candidates over their previous endorsements of individual mandates for health care.

REP. MICHELE BACHMANN, PRESIDENTIAL CANDIDATE: You just heard Newt/Romney is also with Obama on the issue of payroll extension. So, if you want a difference, Michele Bachmann is the proven conservative. It's not Newt/Romney.

UNIDENTIFIED MALE: You throw a lot out there.

BROWN: But, clearly, the talk about moment of the debate was this exchange between Rick Perry and Romney about individual mandates.

ROMNEY: You know what? You raised that before, Rick.

GOV. RICK PERRY, PRESIDENTIAL CANDIDATE: It was true then. And it is true now.

ROMNEY: Rick, I tell you what, 10,000 bucks, $10,000 bet?

PERRY: I'm not in the betting business.



BROWN: That wager is not playing well here in Iowa. Some observers suggesting it shows Romney is out of touch -- Chris.

WALLACE: Steve Brown reporting from Des Moines -- Steve, thanks for that.

Now to one of the presidential contenders that got a lot riding on Iowa, Texas Governor Rick Perry, who joins us from Des Moines.

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

PERRY: Good morning, Chris. Good to be with you.

WALLACE: I got to ask you what everybody is talking about. What did you think when Mitt Romney made or offered a $10,000 bet on something in his book?

PERRY: I was taken a little aback. I'm driving out to the station this morning. I'm sure I didn't drive by a house that anyone in Iowa would even think about that a $10,000 bet was possible. So, a little out of touch with the normal Iowa citizen.

But the issue of individual mandates is still at the center here and Mitt can deny this as many times as he wants, but in his first book, hard cover of "No Apologies," he clearly stated that individual mandates should be the model for this country and then he took that out of the book in the paperback. That's the fact. And even a 10,000 bet is not going to cover that.

WALLACE: Well, one of your big moments, and as you say, it came in this confrontation over the individual mandate. You criticized him for the mandate in Romneycare. He came back at you and said, you had an individual mandate in Texas to make sixth grade girls get the HPV vaccine. And he asked, what's the difference?

PERRY: Well, clearly, we had an opt-out in that executive order and the legislature said that they didn't like the way I had gone forward. I agreed with them. And it's not in the state of Texas.

So, there is a clear difference here. He still is supporting individual mandate and that is the fact.

WALLACE: Governor, you are spending million of dollars right now on campaign commercials in Iowa. You are about to launch a 14-day bus tour across the state where you will hit 44 cities. As they say in Texas, hold them -- are you all in, in Iowa?

PERRY: Well, I'm all in, in all of those states. It's not just Iowa. But, obviously, I was the first in the nation and we respect that.

And retail politics and going out and sharing with the people of Iowa, our plan to get the country back working, how we're going to balance the budget, how we're going to overhaul Washington, D.C.

I'm going to talk to them about making Congress a part-time body, just like they have here in Iowa. And I can promise, the people of Iowa think that Washington is spending too much money. They're spending too much time in town. So, make the legislature or I should say the Congress -- like their legislature here -- part-time and let them come home and have a real job, and work within the citizens, with the citizens and have an opportunity to live within the laws that they pass.

And American would be a whole lot better off and I promise you, they will be spending less and getting in less mischief in Washington, D.C.

WALLACE: Governor, your latest campaign commercial, though, doesn't talk about Congress, doesn't talk about the economy. It talks about faith and it's causing controversy.

Let's take a look at it.


PERRY: I'm not ashamed to admit that I'm a Christian. And you don't need to be in the pew every Sunday to know that there is something wrong in this country when gays can serve openly in the military but our kids can't openly celebrate Christmas or pray in school.

As president, I'll end Obama's war on religion.


WALLACE: Question, Governor, how is President Obama waging a war on religion?

PERRY: Well, I'll give you a couple of examples, when you look at his attorney general and their Justice Department going all the way to the Supreme Court to change the way that churches are allowed to hire or fire their ministers or their staff. I mean, if that's not a war on religion, I don't know what it is.

When you look at the Catholic charities that aren't allowed to have money because they've made a decision that they are not going to allow abortions in their facilities. So, this administration is keeping money away from them on programs that help people who are sexually trafficked. So, again, if that's not a war on I don't know what is.

Clearly, this administration's values are different than I would suggest that certainly the people of Iowa.

WALLACE: Let me ask you, though, about the specific charge in that commercial. You say that gays can serve openly while children can't pray in school. It was the Supreme Court back in 1962 that decided and it's been upheld since then that children couldn't pray in school. Barack Obama had nothing to do with that.

And after repeal of "don't ask, don't tell," are you saying that anyone who supports "don't ask, don't tell" is anti-religious?

PERRY: Well, let me back up and say that I would support a constitutional amendment that would allow our children to pray in school any time that they would like. Right now, those activist judges like Sotomayor and Kagan that he put on the Supreme Court, they would continue to say that that is a decision that the Supreme Court should make.

I happen to believe that that would be a local decision and that's not the Supreme Court's business to be telling Americans when and how they should pray.

On the issue of "don't ask, don't tell," it was working. And for the commander-in-chief to use your military as a political tool while we are in combat in two different locations -- at least two different locations around the world, in Iraq and Afghanistan, I think is just irresponsible.

I am commander-of-chief of 20,000 plus thousand men and women. I served in the United States Air Force. I understand the issue.

And I don't think it's one that the president of the United States and Congress for that matter should be forcing upon the men and women of the military. I think it was bad public policy and I would change it.

WALLACE: The only point I'd make about prayer in school, is that has continued under -- the ban under Republican presidents as well as Democrats, including Reagan and both of the Bushes.

PERRY: I understand that. I'm just -- I'm telling you what I believe, Chris. And I happen to believe that Americans don't agree with that decision that was made in 1962. And that if we have a constitutional amendment election in this country, allowing our children to pray in school, I would suggest to you, will pass overwhelming.

And I'll support that. I will go across this country, as I'm promoting a balanced budget amendment to the United States Constitution. I'll work on a balanced -- I should say, an amendment to allow our children to pray in school. I think Americans are greatly supportive of both of those issues.

WALLACE: Governor, Republicans are saying with this ad is getting a lot of coverage in Iowa you're running a lot, that it's a blatant attempt to reach out to evangelicals who make up about 60 percent of the Republican caucus-goers in that state.

Here is the problem with that. A recent Washington Post poll of likely caucus-goers fond that 70 percent say the economy is their top issue, only 15 percent say social issue, which raises the issue: Is faith really the key concern in Iowa right now?

PERRY: Well, I would tell you that faith is a major part of who I am. I can't change anymore than I can change that I'm the son of two tenant farmers. But I'm going to spend 14 days on a bus traveling across Iowa, talking about how to get this economy back. We've laid out a plan that clearly gets America working again. That 20 percent flat tax that allows Americans to see how this economy can get back on track, getting rid of that $15 trillion worth of debt.

And also, overhauling Washington, D.C. When we talk about overhauling Washington, D.C., American eyes and I know the citizens of Iowa's eyes brighten up when we talk about making Washington inconsequential as we can. And we do that and we get the economy back on track.

As the governor of Texas, I created a million, or I should say, I have created a million net new jobs with our legislature by getting government out of the way. I know how to do this. And Iowans will have a very good handle on it by the time they go to the caucus in January --

WALLACE: Governor --

PERRY: Or I should say --

WALLACE: I was going to say, you spoke to the Des Moines Register editorial board and had another "oops" moment. You criticized President Obama's appointment to the Supreme Court. Here it is.


PERRY: Inarguably activist judges, whether it was. -- not -- not Montemayor.


PERRY: Sotomayor.


WALLACE: And then you said eight judges on the court. As you know there are nine.

How do you respond to those who say, you know, I like Rick Perry, I like his values, but I worry, does he know enough to be president of the United States.

PERRY: Well, obviously, I know there are nine Supreme Court justices. I don't know how eight came out of my mouth. But the fact is, I can't tell you, I don't have memorized all of the Supreme Court judges.

Here's what I do know, that when I put an individual on the Supreme Court just like I have done in Texas, we got nine Supreme Court justices in Texas: they will be strict constructionists. They won't be activist judges. That's what Americans care about.

They are not looking for a robot that can spit out the name of every Supreme Court justice, or someone that is going to be perfect in every way. They are looking for somebody who's got values that are based with a deep rudder in the water.

And I am consistent in my conservative values. I have been consistent. And Americans are looking for someone who is going to make the right decisions, not someone who can either read a teleprompter perfectly or spit out by memory a list of names. That's not what's important to Americans.

What they are looking for an individual who has clear values and a philosophy and a fiscal conservative philosophy at that.

WALLACE: Governor, we got less than a minute left.

This week, congressional Republicans are trying to figure out if there is a way to extend the payroll tax cut. You are on record opposing that. You're also on record opposing extending unemployment benefits.

How do you answer the argument the Democrats make that you and a lot other Republicans are a lot more concerned about protecting the wealthy than you are folks who are struggling?

PERRY: We are interested in creating a climate where people who have money can risk their capital. And it's not rich people. It's about small mom and pop businesses who are afraid because of Obamacare, afraid because of over-regulation, afraid because of over- taxation that come straight out of Washington, D.C., that they can't risk their capital. They can't create jobs that in turn will create the wealth. That's what we need to be focused. Not temporary tax cuts that are going to temporarily stimulate. We already had some of that stimulation out of Washington, D.C. -- trillions of dollars. We found out $7.7 trillion was secretly moved from the Treasury to these Wall Street financers. That's what Americans are upset about, Chris.

WALLACE: Governor Perry, we're going to have to leave it there. We want to thank you so much for talking with us. And we will see you in the FOX debate in Sioux City, Iowa, Thursday night.

PERRY: Look forward to it. Godspeed.

WALLACE: Thank you, sir. Same to you.

And check out our new campaign page at foxnewsunday.com/election2012. You'll find new video, including behind the scenes material from the campaign trail. We'll have key clips from our show, a Twitter interactive area, the latest polls, and all of our political reporting in one spot. Be sure to check it out.

Up next, no holiday cheer on Capitol Hill. We'll talk to the Senate's top Republican, Mitch McConnell, about whether there will be a hike in the payroll tax in our Christmas stockings.


WALLACE: Congress is rushing to finish its business and get home for Christmas. But, first, they are trying to work out a compromise to extend the payroll tax cut next year. And so far, there's no deal.

One of the key players in this political drama is Senate Republican leader Mitch McConnell, who joins now us from Louisville.

Senator, the House is expected to pass a bill this week that would extend the payroll tax cut, but would also link it to further action, trying to move up work on the Keystone pipeline -- oil pipeline.

You're number two, Senator John Kyl, said this week, "The package that comes from the house is it. I don't think there is any further negotiation."

Question -- is that your position on the House bill -- take it or leave it?

SENATE MINORITY LEADER MITCH MCCONNELL, R-KY.: Well, if I could just briefly say, the reason we are having to deal with these emergency measures like extending the payroll tax holiday for another year is the president's policies all put in place in the first years of the administration when he had a completely compliant Congress had completely failed. They ran the debt up 35 percent. Unemployment basically hasn't budged. It's now at 8.6 percent. So, that's the reason we are discussing this kind of temporary measures.

So, let's take a look at it. I believe that we should extend the payroll tax holiday another year, avoid a tax increase on working people for another year.

MCCONNELL: I agreed with Senator Reid, my counterpart, that we ought not to do it again next year.

Now, we know that's an emergency package coupled with an extension of unemployment, with some reforms. But at the same time, Chris, we'd like to create some jobs.

And so, we have the Keystone pipeline in there. It's a shovel- ready project. The biggest and most important ready-to-go project in America, wouldn't cost the government a penny, not one penny.

Three years of environmental studies have already been done, the secretary of state was ready to sign off on it, the president called it to the White House and delayed it for a year. This would create 22,000 jobs almost immediately, ready to go, with no money.

We also have a provision in there.


WALLACE: If I may, sir, we just have -- we just have limited time. I just want to ask you, though, if I may press my question: do you agree with Senator Kyl that there is no further negotiation. The House bill, if it comes out of the House, gets to the Senate, take it or leave it?

MCCONNELL: Well, we put together a package that's very balanced. We believe it would pass the House on the bipartisan basis, and pass the Senate on a bipartisan basis. I would tell you one of the reasons it will is there's another provision in there to stopping an EPA regulation called Boiler MACT, which a lot of people haven't heard of. But Senator Mikulski and Senator Wyden and Senator Nelson in the Senate also support stopping EPA from doing that. That will save a lot jobs.

So, what we have done here, Chris, is work very hard to put together a package that actually both sides can support.

WALLACE: Well, Senate Democratic leader Reid says there's no chance that the House bill with the Keystone pipeline in it will pass the Senate. He says it will not pass the Senate.

And here's what President Obama said.


PRESIDENT BARACK OBAMA: Any effort to try tie Keystone to the payroll tax I will reject.


WALLACE: Question -- if the millionaire's tax that the Democrats want is a nonstarter from your point of view, and if the Keystone pipeline is a nonstarter from their point of view, where is the compromise here? And what is the chance that a deal will be worked out before more than 150 million Americans get a payroll tax hike?

MCCONNELL: Yes, that ain't going to happen, and obviously we'll reach an agreement. The president is posturing here. He had to stand up to the AFL-CIO. I'm on the same side as Jimmy Hoffa and the AFL-CIO on this. The Teamsters and the AFL-CIO want the Keystone Pipeline right now.

Look, the president has been talking about creating jobs. This is ready to go immediately. All it requires is his sign off.

And with regard to Senator Reid's comments, I'm sure he hadn't check with his own conference. There are a significant number of Democrats, Senators and House members who are going to support this package. This has bipartisan support.

WALLACE: When you said, Senator, that isn't going to happen, I just want to make sure, you are saying that the payroll tax cut will be extended?

MCCONNELL: Well, of course. I mean, it has bipartisan support. But we also need to have something in there that prevents the loss of jobs and something that will create the jobs. And that's why we inserted Boiler MACT, supported on a bipartisan basis and the Keystone pipeline supported on a bipartisan basis. One would save jobs, one would create jobs right now.

So, why not have balance rather than have the whole package designed to help those who are unemployed or preventing a tax cut on working Americans. Let's have something that actually produces and saves jobs. So, we put together a bipartisan package that I think is going to enjoy pretty support among a lot of Democrats in the Senate.

WALLACE: Well, you talk about support, bipartisan support. Aside from the merits of the argument, the president and Democrats seem to feel that they are winning this political argument. And the president made the point this week, let's watch.


OBAMA: I know many Republicans have sworn the oath never to raise taxes as long as they live. How can it be that the only time there is a catch is when it comes to raising taxes on the middle class families?


WALLACE: Why are so many Republicans -- why are so many Republicans, including more than half of your Senate Republicans, why are they voting against extending the payroll tax cut?

MCCONNELL: Well, on the president's comment -- it's hard not to laugh because four out of five of the people they are targeting, the rich people they are targeting, are actually business owners who create jobs.

Look, we are not here to defend high income people. And in this bipartisan package that we're just discussing, we make sure that millionaires don't get unemployment and don't get food stamp. We freeze the pay for members of Congress and for all federal workers, continue to freeze the pay that has been frozen.

This is a very balanced package. It doesn't do anything for millionaires. In fact, it goes after them on the benefit side.

WALLACE: But, Senator, if I may, 26, more than half of your Republicans didn't vote against the Democrat plan with the millionaire's tax. They voted against your plan, the Republican plan, that didn't have a millionaire's tax. They were against extending the payroll tax cuts.

MCCONNELL: Well, there is another package put together that I think many of them will find much more attractive because of the additional pay-fors and job-creating elements that I have been describing to you that we put in the package and come over to the House, I believe, on a bipartisan basis.

WALLACE: But let me switch subjects on you. This week, the Senate Republicans blocked the nomination of Richard Cordray, to run the Consumer Financial Protection Bureau. What's your problem with an agency that would protect consumers from mortgage lenders, from debt collectors and student lenders?

MCCONNELL: Yes, here's the problem: this new agency answers to no one, absolutely no one -- another unelected czar. We've got a bunch of those in the White House. We don't need any more of them.

And the only way we can incentivize the administration to change this agency which isn't subject to oversight by Congress, doesn't get its money from Congress, answers to literally to no one -- it's one individual who could bring down the banking system in this country if he chose to, has unlimited power. No one has that kind of power.

So, what we are saying to the president is: join with us and reform this agency, make it accountable to someone, the people elected the Congress for its funding and for its oversight, and then send up somebody and we'll be happy to confirm them. There's nothing wrong with Mr. Cordray personally. This is about an unaccountable, unelected czar. And we're simply not going to appoint him, or confirm him, or anybody else to this agency that shouldn't exist in its current form.

WALLACE: What do you think of Attorney General Holder and the way his Justice Department has handled Operation Fast and Furious?

MCCONNELL: Well, they clearly aren't being forthcoming. We believe the attorney general misled Congress. And more specifically, we believe the head of the criminal division misled Congress.

I don't know what they've got to hide. Congress has been asking for information. They ought to turn it over. It's really quite unusual to be stonewalled like this by such high members of the administration.

WALLACE: I just want to go on that, because that's a fairly explosive charge. You are believing that the attorney general knowingly misled Congress?

MCCONNELL: I don't know if he knowingly did or not. We believe he was not particularly truthful with Congress. We believe the head of the criminal division clearly has misled Congress.

Why would they want to do that? What is the point? What are they hiding?

They ought to be completely transparent about this particular operation. It's become controversial, I can understand it's embarrassing for them, but I think misleading Congress is not a great way to go.

WALLACE: So, the obvious question is, do you think that Eric Holder and Lanny Breuer, the assistant attorney general that we're talking about, do you think they should either resign or if they fail to, be fired by the president?

MCCONNELL: Look, I'm not calling for anybody's resignation today. But I'm calling for them to be more forthcoming, to be more accountable, to tell us what happened. That's what we've been asking them to do. And so far, we haven't gotten straight answers.

WALLACE: Senator McConnell, we're going to have to leave there. I want to thank you so much for coming in today, sir, and we'll stay on top of all of these stories.

MCCONNELL: Thank you.

WALLACE: Up next: The GOP candidates trailing Newt Gingrich, try to rough them up in last night's debate. We'll ask our Sunday panel how it went.



PERRY: If you will cheat on your wife, if you will cheat on your spouse, then why wouldn't you cheat on your business partner, or why wouldn't you cheat on anybody, for that matter?

GINGRICH: I've said up front openly I've made mistakes at times, I've had to go to God for forgiveness, I've had to seek reconciliation.


WALLACE: That's just one example of how Newt Gingrich came under fire repeatedly at last night's debate.

And it's time now for our Sunday group -- Paul Gigot of The Wall Street Journal, and also the host of The Journal Editorial Report on the Fox News Channel; Mara Liasson, from National Public Radio; former State Department official Liz Cheney; and Fox News political analyst Juan Williams.

So, last night's debate, I think it's fair to say that all the candidates went after the new front-runner, Newt Gingrich.

Paul, despite the Speaker's promise to be relentlessly positive, he went back at them pretty quickly. Your read on the debate?

PAUL GIGOT, THE WALL STREET JOURNAL: I thought he did pretty well. There's always a question with Newt Gingrich, does the bad Newt come out, the condescending Newt, the guy who looks in the mirror and sees Charles de Gaulle? And he avoided that.

He kept a sense of humor. I thought he deflected some of the attacks. And then he had a pretty good answer for most of them. I thought his answer particularly on the personal one, the one about his marriage, was very effective, asking for forgiveness. And I think he's going to find that the voters, I think, honor that, and that's not going to become an issue in the future. So I think he held up pretty well so far.

WALLACE: Do you think, Mara, that they stumped him up on some of the other issues, the K Street connection, the mandates, some of that stuff?

MARA LIASSON, NATIONAL PUBLIC RADIO: I don't think so. I think that all week, we have heard about Newt's problems. There are tons of them, he has a lot of baggage, and the Republican voters so far seem to be absorbing that and discounting it. I think that one of the charges against him that he's a career politician, he had a pretty good comeback for to Romney, saying, you tried to be a career politician, and you would have been one if you hadn't lost to Ted Kennedy in 1994.

So, if people are counting on -- if Romney, for instance, is counting on Gingrich to implode, he has a lot of good reasons to think he will, because that's Newt's history. It's just that he hasn't done it yet.

WALLACE: Liz, let's talk about Romney. One of the things that struck me is he seemed a little conflicted about the degree to which he wanted to go hard at Gingrich and the degree to which he wanted to be positive. And therefore, may not have been totally effective at either. And then there is the thing that everybody is talking about, which s when he turned to Rick Perry and said, "You want to bet $10,000 on it?"

Your thoughts about Mitt Romney?

LIZ CHENEY, FMR. STATE DEPT. OFFICIAL: I think it's probably human, you know, that it's much easier to attack when you are not standing there on the stage next to people. I think that it's clear that we're in a situation now where Newt Gingrich is challenging Mitt Romney in a way that none of the other candidates have, and so that's why you're seeing some of it turn negative. We're getting very close to actual voting and caucusing, and I think that also explains a lot of it.

I actually thought that one of the best moments last night was Rick Perry's moment on the issue of the Palestinians, when Rick Perry said, look, remember here, the problem is Barack Obama's policy. And while I do think, ultimately -- and some people disagree with this, but I think that these debates have been very good for the country and good for Republicans. They've given people a chance to hear what these Republican candidates think and to answer questions. It's important for our candidates also to remember that, ultimately, the opponent we're going after is Barack Obama.

WALLACE: Juan, your thoughts about the dynamics of last night?

JUAN WILLIAMS, FOX NEWS POLITICAL ANALYST: Well, I thought that it's clear that Romney wants to make Newt Gingrich out to be sort of an inconsistent, unreliable conservative, which is exactly the charge against Mitt Romney. But now Mitt Romney wants to extend that to Gingrich, and so he brings up things like right-wing social engineering, sitting with Nancy Pelosi on the global warming issue. And I think all of these things are part of a very heavy train of baggage that Newt Gingrich brings with him.

The one thing I would say is, we've seen ups and downs -- Bachmann, Trump, Cain, Perry, and now Newt. But I don't know that Newt is going to last given all that baggage. That's the question I think everybody has. Is Newt really serious?

I mean, are Republicans really thinking of nominating Newt Gingrich? I have seen polls that indicate now he has a strong lead in Iowa, he's much closer in New Hampshire that anybody would have guessed, an outrageous lead in South Carolina, and even close to President Obama in Ohio, Pennsylvania, key swing states.

WALLACE: Let me get to this issue that Liz mentioned, Paul, about the Palestinian state, because one of the issues with Gingrich is, can he stick to his script? And this week, in an interview with The Jewish Channel, he questioned the whole idea of a Palestinian state which goes back at least three presidents.

Let's watch.


GINGRICH: There was no Palestinian as a state. It's part of the Ottoman Empire. And I think that we've had an invented Palestinian people who have been Arabs and who are historically part of the Arab community.


WALLACE: Elliott Abrams, who's a long-time conservative, foreign policy adviser to a number of Republican presidents, said using that reasoning, Gingrich's reasoning, Jordan, Syria and Iraq are all invented people and have no right to statehood.

GIGOT: I think Elliott Abrams wins that argument. It was a needlessly provocative way to put it, and it was one of -- I think reflects one of Gingrich's weaknesses, which is that he tends to over- intellectualize things, and he tries to put a historical gloss on everything. So he goes back to the Ottoman Empire and he forgets that we're in a delicate diplomacy with Israel and the Palestinians, and this is a way to provoke them and suggest that they have no right to any kind of state.

His answer last night was better, because he put the issue and the context of the Palestinian continued attacks on Israel and the terror. And that is a much better way to construct the argument.

WALLACE: Liz, you agree with that, or not, as a foreign policy thinker?

CHENEY: Yes, I agree with that. And I think that --

WALLACE: Agree with Paul?

CHENEY: I agree with what Paul said. I think that the challenge here is, you don't want the attention focused on a sound bite from one of our candidates. You want the attention focused on the fact that President Obama has got the worst relationship with the state of Israel that any president has had in a very long time, that you've got Iran, by some accounts, six to eight months form obtaining a nuclear weapon, and precisely at the moment when we should be working closely with the Israelis and closely with the Arabs on a whole range of issues, including Iran, that's what we need to be focused on, not on our own talking points

WALLACE: Mara, I want you to pick up on what Juan said, because the conventional wisdom, I think, among Democrats is Gingrich would be a much easier general election opponent than Mitt Romney would. Of course, those are also the folks who were saying in 1980, man, we can't wait to run against Ronald Reagan.

If he can survive the nomination fight, how electable do you think Newt Gingrich is, and how many problems does he have in a general election where, it's not just the Republican base, but it's Independents and moderates?

LIASSON: I think he has a lot of problems. I think the Democrats have good reasons for preferring Newt Gingrich to run against -- over Mitt Romney. That doesn't mean he's going to be a pushover.

He's not somebody who's going to be easily dismissed. He's an expert debater. You've seen him. This is why he's surged in the polls, because he is a good debater. He says he's going to trail Barack Obama around the country and challenge him everywhere.

And I don't think they take him lightly. I just think they prefer him over Mitt Romney. And I think they have good reason to.

WALLACE: Juan, Fox News released a new poll this week that rated the candidates on various characteristics. And let's put it on the screen. It's interesting.

Gingrich scored better -- this is among Republican voters -- on strong leader and true conservative. Romney did better on honest, presidential and caring.

How do you read that?

WILLIAMS: Well, I think that people think that Mitt Romney is a problem solver. And going back to history with the Olympics, a businessman, they think that he's had success there and he can deal with problems.

But Newt Gingrich, on the other hand, I think comes across as strong. And I think what's equated here, the definition of leader, especially in Republican circles these days, is a little bit like a talk show host, somebody who is really powerful, who goes out there and is willing to punch at President Obama and tell him off and let him know how much we don't like him. And I think that's what they don't see. They don't see that passion in Mitt Romney.

WALLACE: Real quickly -- we've got about 30 seconds, Paul -- could that be a problem? We used to talk about Bush derangement syndrome, that the Republicans have such -- Obama derangement syndrome, that they're looking for somebody who can, figuratively, bloody Obama's nose in a debate, but not necessarily the person who might be the most electable.

GIGOT: It's possible, but I don't think any of them -- either of them, Romney or Gingrich, have a clear, easy path to beat President Obama. I mean, Mitt Romney is not offering right now a great division that contrasts with what President Obama is offering. And look, they're going to try to make him into Gordon Gekko before this is over as a rich guy who has no -- he's out of the touch with the public.

So I'm not so sure who is more electable at this point. I think we're best left to fight this out and see who lasts through the primaries.

WALLACE: All right.

We have to take a break here. But when we come back, President Obama's poll numbers hit new lows as he tries to rally his base with a populist message.



OBAMA: Reversing structural problems in our economy that have been building up for two decades, that's going to take time. It's going to take more than a year, it's going to take more than two years, it's going to take more than one term. It probably takes more than one president.


WALLACE: President Obama explaining why the economic recovery is taking so long and asking voters for patience.

And we're back now with the panel.

Well, back in 2009, Mr. Obama said that if he couldn't get the economy fixed in three years, he would be a one-term president. Now he says fixing the economy will take more than one term, perhaps more than one president.

Is he going to be able to get the voters to buy that, Paul?

GIGOT: He's trying hard. I mean, his speech this week was an attempt to change the subject.

He can't run on the economy because people think it's lousy, or that it's the achievements he's had. He can't run on health care or the stimulus because people don't like those and don't think they're going to work.

So he's going to run to blame other people. He's going to run against the rich, he's going to run against bankers, he's going to run against Republicans, blame other people.

It's as if he is making the case, I really wasn't there for two years and didn't get everything I wanted in the first two years. It's like -- you know, this is building up. We've had gridlock. No we didn't. For two years he got everything he wanted, virtually.

But he has to change the subject now. We'll see if voters buy it. And he may get away with it if Republicans don't come back and make the case that, in fact, Obama's policies are substantially responsible for where we are.

WALLACE: Well, at this point, the voters seem to understand that, Mara. CBS News has a new poll out just the end of this week, and the numbers are brutal for the president. Let's put them up.

Mr. Obama's approval numbers, as you can see, are not so bad. Forty-four percent approve of the job he's doing, 46 percent disapprove. But look at this -- 75 percent of Americans now think the country is headed in the wrong direction. And when asked, "Does Obama deserve to be reelected?" Forty-one percent say yes, 54 percent say no.

Mara, that's a deep hole he's in.

LIASSON: Well, that's a really deep hole, and he has to hope that a fair number of those 54 percent are persuadable and he can change their minds by making a clear choice between himself and his opponent. Reelection campaigns are always referendums on the incumbent. This one will be the same. But if you can make a clear choice, you have a better chance of winning the referendum.

And that's why this campaign is going to be very tough, very negative. He has to disqualify his opponent and he has to disqualify the Republican philosophy, which he started to do this week in his speech. And I don't see any other path for him.

The economy is terrible. When you look at other presidents -- certainly Jimmy Carter and George H. W. Bush -- incumbents who have lost, the numbers look pretty similar. I mean, obviously at this point --


LIASSON: Yes, George H. W. Bush had even a higher approval rating. But when you look at consumer confidence and when you look at a lot of the other indicators, they're pretty similar. So he has to make history again, in a different way, by defying the odds to get reelected.

WALLACE: You know, you've made a couple of references to the speech. The president went to Kansas this week to make a populist speech echoing Republican President Theodore Roosevelt to say that he's looking out for the middle class, while Republicans are looking out for the rich.


OBAMA: They want to go back to the same policies that stacked the deck against middle class Americans for way too many years. And their philosophy is simple: we are better off when everybody is left to fend for themselves and play by their own rules


WALLACE: Liz, could that work? Could that get him reelected?

CHENEY: It's ludicrous. I mean, frankly, you have a situation where you've got a president of the United States -- normally, one seeking reelection would go to the American people and say here's my record, here's what I've accomplished, judge me on my record. This president has got these three signature things that he has done that have made the economy worse -- more regulation, Obamacare, stimulus plan -- failed to do anything at all about entitlement reform, which is what we really need to do.

And I also want to point out that he's gotten a pass in many ways on national security and foreign policy. He, right now, as commander- in-chief, is performing abysmally with respect to Afghanistan and Iraq. He's about to snatch defeat from what was a victory in Iraq by pulling everybody out, not being able to accomplish even a strategic agreement for a long-term relationship --

WALLACE: What about his comment in the press conference when he said -- because there was all this stuff of him being an appeaser -- and in the White House press conference, he said, "Ask Osama bin Laden if I'm an appeaser."

CHENEY: Right. He wants to talk about Bin Laden. It's terrific that he got Bin Laden. We all give him credit for that.

But Iraq and Afghanistan are two places where this president is absolutely failing. In Afghanistan, he is pulling our troops so fast, that he's putting the mission at risk.

We've got these two wars that have been incredibly important and in which we've sacrificed tremendous lives and treasure. This president's performance means that we may lose both wars. And the only reason that that's not getting covered is because his performance on the economy is so abysmal.

WALLACE: You know, it's interesting, Juan. This is at least the third big theme that the president has tried out this year. First, it was win the future. And in the State of the Union speech, let's invest in education and infrastructure. Then he was, this summer, going to be the adult in the room during the debate over the debt ceiling. And now he's the champion of the middle class.

And none of it seems to have taken voters' minds off what, unfortunately for him, Bill Clinton this week called the lousy economy.

WILLIAMS: Well, everybody is talking about the economy. I think it would be a dodge. There is no way to ignore reality. That's the reality. We have a lousy economy.

And hopefully it's improving slightly. We got slightly better numbers in terms of jobless applications this week. The unemployment rate has gone down slightly. But that's the big issue.

I will say with regard to the numbers that we were just looking at from CBS, which are not good numbers for the White House, that, nonetheless, when it comes to national security, Liz, the American people think this president has done a terrific job. CHENEY: That's just not true, Juan.

WALLACE: It is true. Look at the polls.

CHENEY: Juan, look at Iraq and Afghanistan.


Go ahead.

WILLIAMS: So that's what the polls say, is what I'm saying. And if you look at Afghanistan and Iraq, we've been there 10 years, Liz. And you say a quick pullout? My gosh, the American people say time to come home, time to rebuild America.

And I would also say they like this president --

CHENEY: Sacrificed all those gains, put at risk all the gains. WILLIAMS: I don't agree with you on that, and I don't think the American people agree with you.

And finally, the American people like President Obama. His personal numbers are very high. They like him, they like his family. They think he's a good leader.

So, it's the economy, the harsh reality of the economy, that pulls him down. And when it come to this speech, that was a very important speech, and it's starting to echo the language that people are saying, you know what? Wait a second. It's harder for the middle class, it's harder for a kid just out of school to get a job these days, it's harder to move up into the middle class.

And again, that's a reality. So why shouldn't the president be saying, oh, you know, those Republicans, they will do anything to protect the rich? They certainly won't let the payroll tax cut go if it means a surcharge on people who make more than $1 million.

WALLACE: Let me ask you about that, Paul. I mean, just from a messaging standpoint, not from a policy standpoint, do Republicans have a problem when, boy, they have fought tooth and nail to defend every tax cut and the majority of Senate Republicans are voting against extending a tax cut for the middle class?

GIGOT: Yes, they do. And I think they've really muffed this. They've got on their back foot -- they probably should have just whisked the payroll tax cut through and voted for it, and not allowed Obama to change the subject like this.

I think on the speech, there is a warning for Republicans, because Obama is making a moral argument for the superiority of government economic policy and government redistribution and a quality of outcomes. If Republicans don't meet that, that politics of envy, I would call it, with a politics of growth and opportunity, and a comparable moral vision, they will lose.

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

Thank you, 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, FoxNewsSunday.com. We'll post the video before noon Eastern Time.

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


WALLACE: When members of our military are wounded, the government pays for immediate family members to make just one trip to visit them. That isn't nearly enough for wounded warriors or their families.

Our "Power Player of the Week" decided to do something about it.


FLETCHER GILL, CO-FOUNDER, LUKE'S WINGS: We want our wounded warriors to know that they are still loved, that they're still wanted, that they're still needed in the world.

WALLACE (voice-over): Fletcher Gill is co-founder of Luke's Wings, an all-volunteer nonprofit that brings wounded soldiers together with their families. It started four years ago when they met Luke Shirley (ph), who lost an arm and leg at Walter Reed Hospital.

GILL: When his mom showed up, his mood changed and his morale changed. And that was pretty obvious to us that having your family with you is incredibly important.

WALLACE: This year, Luke's Wings will raise more than $200,000 from contributions and corporate sponsors. With that money, they'll pay for more than 130 family members to visit wounded soldiers in hospitals and rehab centers, like Army Master Sergeant Todd Landen, who greeted his daughter Kelsie last Sunday in Houston. Two days later, he was going in for his 13th surgery for wounds suffered in Iraq .

KELSIE LANDEN, LUKE'S WINGS RECIPIENT: It's like a dream to be here with him and support him through the operation, and just to know that I'm here by his side.

MSG TODD LANDEN, LUKE'S WINGS RECIPIENT: I didn't intend to take or ask for anything from Luke's, but they keep stepping up. Hospitals can be a lonely place for an injured soldier (ph)

GILL: I think it's very helpful in those situations.

WALLACE (on camera): You say very helpful. The difference between life and death.

GILL: Sometimes, yes.

WALLACE: You get emotional about this.

GILL: I do. These are friends of mine. We get to know these families for years. So, they mean a lot to us.

WALLACE (voice-over): Now Gill has a new project called No Soldier Spends Christmas Alone. There are 32,000 wounded warriors, so he can't help all of them. But he hopes to raise $100,00 before Christmas to bring 250 families together this year.

GILL: We want to make sure that every wounded warrior is by the Christmas tree on Christmas morning with their kids, period.

WALLACE: The day we were in his office, Gill was arranging to fly a family in to spend Christmas with their soldier here in Washington.

GILL: We're just going to go ahead and book all these flights for you. UNIDENTIFIED FEMALE: Oh. Thank you so much.

GILL: You're welcome.

UNIDENTIFIED FEMALE: I very much appreciate it.

WALLACE: Fletcher Gill has a long family connection to the military.

GILL: Benjamin Dowd (ph), my ancestor from Connecticut, fought in the American Revolution. So we go pretty far back. And then my great uncle was a general in World War II.

WALLACE: As in General Dwight Eisenhower, supreme commander of allied forces in Europe.

Now Gill is doing his part. Families can apply on his Web site, and within 48 hours be on a flight to see their loved one. Gill works in commercial real estate, but he volunteers another 40 hours a week on his charity.

GILL: Everybody it is a volunteer. In our bylaws I get $1 a year. In about a million years from now I might cash in on that. But right now, I'm not writing myself a check.

WALLACE: He says the satisfaction is payment enough.

GILL: I just want to keep saying yes to every flight request we get. That's the bottom line. We service eight military hospitals right now, and we just want to keep saying yes.


WALLACE: If you're interested in signing up for a family visit, or you'd like to contribute, you can find out more about Luke's Wings at our Web site, FoxNewsSunday.com.

Now these program notes.

Be sure to watch Fox News Channel Thursday night at 9 p.m. for the final debate with all the major candidates before the Iowa caucuses. That's 9 p.m. Eastern on Thursday.

And next week, our exclusive guest will be Republican presidential candidate Mitt Romney in his first Sunday show interview in almost two years.

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

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