This is a rush transcript from "Special Report," October 19, 2010. This copy may not be in its final form and may be updated.

BRET BAIER, HOST OF "SPECIAL REPORT": The battle over the air waves over out in Washington state in a hot race as you look at the Real Clear Politics average of polls out there. You see incumbent Senator Patty Murray holding on to a four-point lead in the average over Republican Dino Rossi. A couple of issues taking center stage out there, including healthcare as the vice president and the president head out west.

Let's bring in our panel, Steve Hayes, senior writer for the Weekly Standard, Nia-Malika Henderson of the Washington Post, and syndicated columnist Charles Krauthammer.

Steve, what about this race?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: It's interesting. Boeing, as you saw from the ads, has become this huge issue in the race because of both the economy and the news ongoing potentially having to raise premiums, its health care premiums.

BAIER: A letter went out to 90,000 employees.

HAYES: It was 90,000 non-union employees, and it said basically your premiums are going to go up. And the letter cited in the very first paragraph of the new health care legislation. So while the company has started to backtrack a little bit, it was in there, it was in there from the beginning.

And this exchange that you saw of Patty Murray saying not only did I read the bill, I helped write it. It took place in the debate last week, I though Senator Murray actually did very well in the debate overall but there was this line in a state where a recent Survey USA poll shows that voters want to repeal healthcare by a margin of 49 to 40.

You've got her embracing healthcare saying not only did I read the legislation but I wrote it. And you've seen Dino Rossi come up quickly with an ad; I think the ad is absolutely devastating.

BAIER: The White House is heading out that way. Vice President Biden out there today, the president heading out there again. He has been out there before. This is their firewall, I guess, on the Senate?

NIA-MALIKA HENDERSON, WASHINGTON POST: Very much so. Not only are those guys headed out there, Clinton is headed out there, and they are also deploying Michelle Obama. That tells how important the race is.

One of the things they are thinking about the importance of women voters. The lead that Murray has is really about women. And so in many ways this whole debate about health care is a strength to her when it comes to women voters. You will see Michelle Obama and the president out there talking about healthcare and really kind of going after those voters so they feel like if they can get those woman energized and backing Murray out there they can hold on to the seat.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: What's so interesting is that health care is playing into the election. The Democrats had calculated what they wanted to do is have some of the goodies kick in before Election Day so at the end of September, for example, the preexisting condition denial option on children was abolished. Also the lifetimes caps on your costs, so you wouldn’t be liable if they were extremely high.

They thought that would be an advantage. What they didn't calculate is that is not going to affect a lot of people immediately or dramatically. But as a result of that insurers are going to have hugely increased costs and they're going to have to start announcing premium increases starting now.

And that’s why you are getting the Boeing story in Washington State, huge increase in Connecticut and other states. This is the season in which health care costs are determined for the following year. So instead of getting an advantage by scheduling the little goodies before Election Day, what they're going to get is a backlash against the increase in the costs which is inevitable if you increase the goodies. There is no free lunch anywhere.

BAIER: Let’s turn to some other Senate races.  Kentucky, it looks like it is closing there after a bitter ad campaign by Jack Conway the Democrat. There you see the Real Clear Politics Average of Polls, Rand Paul up by 3.3. Charles?

KRAUTHAMMER: I think Conway has hurt himself. I think he really hit the dirt line, the line beyond which if you go it’s not going to work.  There is a respected Democratic congressman in his own state in Kentucky who disavowed the attack that Conway had launched against Rand accusing him of being irreligious over a prank that occurred in college.

It's almost as if there is one sort of nice sign of self-policing in this election. You go over the line and you’re going to get hurt. I think Conway will be hurt going this far in his in his attacks.

BAIER: Nia, let's go out to Nevada. The race, Sharron Angle against Harry Reid the Senate Majority leader, very tight race, essentially tied according to all the polls. And there see the average of polls. Some developments over recent days.

HENDERSON: And you will see the president going out there too to rally young folks for Reid.

One of the most interesting developments here I think is Angle's comments to the group of Latino students where she said that some of them look Asian. I think that might hurt her. That is a state where 14 percent of the electorate is Latino. So I think that might be a big gaffe for her.

Looking at this from Harry Reid’s perspective and the White House’s perspective they are in some ways playing a rope-a-dope type of politics, they’re hoping that essentially Angle will tire herself out and that  a lot of the money  will be spent and the longer this goes on she will make more gaffes and that will accrue to Reid's favor.

BAIER: She does say that the country is a melting pot and that her Mexican-American grandchildren are evidence of that.

HENDERSON: It was a more complete statement than that, but the sound bite for some Latinos at least might prove to be offensive.

BAIER: OK, to Pennsylvania, where it also appears to be a race that is tightening. There is a new poll out PPP, that’s a Democratic leaning organization that has Joe Sestak up by one point essentially erasing racing a nine point deficit. In fact the Democratic Senatorial Campaign Committee is out with an email that is trying to raise money off this new poll.

The Real Clear Politics average of polls still stands with Pat Toomey a lead of 6.3 percent according to the average of all the polls.  Steve, what about this PPP poll and what it means for this race.

HAYES: This PPP poll has Washington abuzz, as you might imagine. There is a problem with the poll. The way that the poll is conducted assumes that Democratic turnout in this election, 2010, when everybody of all stripes has acknowledged there will be a huge Republican surge; this poll assumes that Democratic turnout will be greater this year than it was in 2008.

So in 2008 they had 44 percent Democrats, 37 percent GOP, 18 percent independents actually turned out during this year, which brought President Obama to office, and President Obama won Pennsylvania. This year they are saying 48 percent of voters will be Democratic, 41 percent Republican, 18 percent independents. It is a good lesson on being skeptical of the polls and who’s exactly being polled and what kind of turnout models they're using.

BAIER: Do you think the White House has given up on the House?  Do you think despite what Robert Gibbs said that there is a sense in the White House that perhaps the House is going Republican?

HAYES: Yes, I think that it’s basic political reality.

HENDERSON: I spoke to some people in the White House and they say they still see a way to hold on to the House. It is just difficult because field is so large. Almost 100 races are close.

BAIER: On the table.

KRAUTHAMMER: It's a matter of the triage of resources. Where are you going to send the big guns? If you are Democrat, you can hold the Senate. It requires the Republicans to draw an inside straight to get about six or seven of the toss ups.

So in that case if you want to put all your resources in those states, for example, in Washington state as you showed her earlier, because if you flip one or two of those you retain the Senate, and that would be extremely important the next couple of years. Losing one House is one thing; losing two will be a catastrophe if you're a Democrat.

BAIER: And 13 days starting tomorrow. We'll have a big election night. Stay tuned to Fox for everything politics.

Up next, Iran gets involved in Afghanistan talks.



RICHARD HOLBROOKE, AFGHANISTAN AND PAKISTAN ENVOY: We recognize that Iran with its long, almost completely open border with Afghanistan, with the huge drug problem which the Ambassador Yannucci mentioned, has a role to play in the peaceful settlement of this situation in Afghanistan.  So for the United States today there is no problem with their presence.


BAIER: Two weeks ago, Afghan officials intercepted a shipment of Iranian weapons to the Taliban inside Afghanistan. But on Monday Iranian diplomats were at the table talking about Afghanistan at the invitation of the Obama administration.

General David Petraeus briefed all of the diplomats about the transition from U.S. and NATO troops to afghan forces giving them all a briefing.

Meantime, today, Venezuelan president Hugo Chavez visited Tehran.  It was his ninth trip in the past 18 months with his friend and ally Mahmoud Ahmadinejad talking about a number of different issues. What about all of this and the developments? We're back with the panel. Charles, first on the NATO invite for the Iranians at the table.

KRAUTHAMMER: Well, to hear Holbrooke, how calm and collected he was, you would think it is the most natural and benign thing in the world having Iran at the table. In fact, if you live in the region and you see that it's a very important sign.

Iran has defined itself for three decades by its anti- Americanism. All of its foreign affairs are aimed at -- affairs are aimed at weakening the United States and attacking the U.S. and its allies. The use of terror and proxies, it has been that way for a long time.

Once you ask them in what it tells people in the region, meaning Afghanistan is the Americans are looking for an exit. It's not just as they have already heard the president is talking about today to withdraw that is item number one.

Now, you get item number two, Iran at the table. Iran means us no good, ever anywhere. If it is at the table it means we are prepared to get a settlement in Afghanistan which is going to be a bad one or something in which we are willing to tolerate an essential enemy of the United States having an important role.  You can argue it is inevitable. It is only inevitable if America is going to leave and leave a mess behind. Iran, other elements and go home. I think that is how it is read in the region.

BAIER: Nia, the administration is obviously portraying this as a positive sign that Iran agreed to be at the table and see it as a diplomatic win.

HENDERSON: I think Charles is essentially right here. Everyone is eyeing the exit strategy and end date of drawdown of troops that is supposed to begin in July, and it feels like there is a lot at the table being legitimatized and stepping in.

You also heard from the Taliban that they are eyeing this date too, and readying for the population for what this means. I think in many ways it seems to be an odd and troubling development.

BAIER: Steve, we have done many reports about Iran's influence inside Afghanistan and actually directly linking to the killing of U.S. troops.

HAYES: Directly. I mean the shipment of arms that you mentioned was only the latest and the largest. What has been happening in Iraq has been happening in Afghanistan for years. The first intelligence was in 2004, Iran aiding the Taliban and the insurgency there.

I think really the problem is with two different people looking that the. One is Hamid Karzai. What does he say as he tries to figure out how should I behave and who should I listen to. He knows full well what Iran has been doing with respect to the insurgency.

And the second is you have American soldiers intercepting these arm shipments from Iran into Afghanistan and then turn around and read in the front page of The New York Times that the United States that its leaders are sitting down with Iran who has a policy approved at the highest levels of the regime of killing American soldier is and affecting U.S. interests.  How is the soldier in Afghanistan looking at this news?

BAIER: Charles, and about the visit by Chavez to Tehran, the significance there. His ninth but he goes from Tehran to Moscow to talk about a nuclear deal.

KRAUTHAMMER: There are two segments of anti-Americanism in the world. Iran with Hezbollah and Hamas and its other elements. In Latin America, it is the Chavez, of course, with Nicaragua and the other smaller allies.

You have the joining of these two elements. They are not an existential threat but on the sidelines encouraging them and helping them in some ways in always China and Russia. Actually, Turkey has joined with Iran and the others in that region.

So it shows you the rise of the opposition elements and the symbolism of Chavez and the president of Iran are, of course, the most intense in their hatred of the United States and opposition to all of our policies.

BAIER: Quickly, Nia, do you sense any urgency on the Iranian issue at the White House?

HENDERSON: I think he is they are still talking about sanctions.  I think this is troubling for them since Iran seems to be a doubling down on their nuclear ambitions. We will have to wait and see in the next couple of days what we see out of the White House on this one.

BAIER: Steve?

HAYES: If they are sitting down with the Iranian leadership giving them briefings about what we're doing militarily, it doesn't seem to me that they are interested in mending it.

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