Sens. McCaskill, Coburn talk looming budget cuts; Govs. Markell, Walker prepare for sequester

The following is a rush transcript of the February 24, 2013, 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.

It's five days and counting until those automatic spending cuts kick in.


WALLACE: From defense, to food inspection to travel at airports, what happens when $85 billion in cuts are triggered Friday? And what are the chances for a last-minute deal?

We'll ask two senators at the heart of the debate: Republican Tom Coburn, and Democrat Claire McCaskill.

Then, how are governors preparing for sequestration? Will the cuts squeeze their budgets and drive some states into recession?

We'll talk with two leading governors, Scott Walker of Wisconsin and Jack Markell of Delaware.

Plus, with the president and Republicans eyeball-to-eyeball, who will blink first?

We'll ask our Sunday panel which side is winning the sequester blame game.

And our power player of the week: a brain surgeon touches a political nerve in Washington.

All, right now, on "Fox News Sunday."


WALLACE: And hello, again, from Fox News in Washington.

When all sides agreed to the sequester a year-and-a-half ago, those automatic, across-the-board spending cuts were supposed to be so painful it would force the president and Congress to make a deal. But, now, with just five days to go there is still no deal and the deadline is here.

Joining us today, two Senate leaders on budget issues, from Oklahoma Republican Tom Coburn and from Missouri, Democrat Claire McCaskill.

Senators, let's start with the big question, quick question, quick answer -- will the sequester happen? Will those $85 billion in spending cuts kick in on Friday?

Senator Coburn?

SEN. TOM COBURN, R-OKLA.: Yes, it will and it's not $85 billion, because it's a pro rata portion of that, until the end of this year. So, it won't be a full $85 billion.

WALLACE: But it's going to kick in?

COBURN: It will kick in, but at a pro rata rate. So, you're not going to see $85 billion all of a sudden shrink from the federal government.

WALLACE: We're going to get to that in a second.

Senator McCaskill, do you agree it is going to happen?

SEN. CLAIRE MCCASKILL, D-MO.: Well, unless the Republicans are willing to compromise and do a balanced approach, I think it will kick in.

I am a little confused about the Republican position at this point. It appears that Speaker Boehner does not have any kind of bill that he can even put on the floor of the House that could pass within his caucus. And I think there is a little bit of a civil war that's broken out among the Republican ranks.

WALLACE: Wait a minute, Senator McCaskill. The fact is the House has passed two measures to replace the sequester cuts with other spending cuts, equal in size but, with other cuts. They've actually passed something in the House here. And the Senate hasn't passed anything.

MCCASKILL: That's -- they passed it last year, Chris. But they've not put anything -- there is a new Congress now. And those bills have no effective law. And we are --

WALLACE: I know. But you never passed anything.

MCCASKILL: -- dealing with this in five -- but we will -- we will vote on something this week. And it will be a balanced approach. It will do both spending cuts, and it will close some loopholes -- some really important loopholes that need to be closed just from the sense of fairness in our tax code.

WALLACE: OK, we're going to pick up on that in a second. But I want to go back to what Senator Coburn said, because the president says all kinds of terrible things are going to happen if these triggers, if these sequester cuts kick in.

Take a look.


PRESIDENT BARACK OBAMA: Are Republicans in Congress really willing to let these cuts fall on our kids' schools and mental health care just to protect tax loopholes for corporate jet owners?


WALLACE: Senator Coburn, is the president exaggerating the impact of these cuts?

COBURN: Absolutely. And, you see the typical set up a straw man.

Look, the federal government is twice the size it was 11 years ago. We are spending almost $4,000 per person, per year, coming out of the federal government, $12,000. The average family is on the hook for unfunded liabilities in, quote, "in excess of three quarters of a million dollars per family."

And what sequestration is, it's a terrible way to cut spending. I don't disagree with that. But to not cut 2.5 percent out of the total budget over a year when it's twice the size it was 10 years ago? Give me a break.

The American people, you know, we see all these claims about what a tragedy it's going to be. The great example is, is if the secretary of transportation can assure us all the planes are going to be safe, then the Department of Homeland Security can assure us that we can get through the airports on time. They have plenty of flexibility in terms of discretion on how they spend money. There are easy ways to cut this money that the American people will never feel.

What you hear is an outrage because nobody wants to cut spending except -- and it will be somewhat painful, but, not cutting spending is going to be disastrous for our country.

WALLACE: Let me -- let me pick up with Senator McCaskill. Because, as you just heard Republicans say the problem is that the president isn't serious about cutting spending, Senator McCaskill. Let's watch.


SEN. JOHN HOEVEN, R-N.D.: House Republicans have already passed two bills to replace the president's sequester. So, the question is, why won't he work with us? And, the answer, quite simply, is because he wants higher taxes.


WALLACE: Now, I know you talk about a balanced approach. But, clearly, the Republicans aren't going to agree to that. Not saying who's right or who's wrong, but, Senator McCaskill, Republicans are talking about passing something this week that would give agencies, give departments, more flexibility, to set priorities so that the cuts could be made according to what makes sense and what doesn't make sense, instead of across-the-board.

You have supported this idea, but the White House opposes transfer authority.

What sense does that make?

MCCASKILL: Well -- here's really what's going on. You have as usual in Washington, a large kabuki going on about who can get blamed. There is no question that these cuts are going to be painful and they are thoughtless. And I know Tom Coburn and I agree on that.

We also agree we need to do more spending cutting. We've got to cut more spending. We agree on that.

So, why is it that we can't come to the table and agree what cuts need to happen? That's what we should be doing. We shouldn't be passing the blame to the executive branch, or saying this is Obama's sequester.

The Republicans supported this, I supported it. We need to come together and make the right cuts.

And, frankly, Ash Carter at the Department of Defense said, even if we did some kind of flexibility move at the 11th hour, it's too little, too late in terms of what they've got in motion at the Department of Defense.

WALLACE: But -- I understand that. But -- wait, wait. Senator --


COBURN: Chris, I want to jump in.

WALLACE: Well, let me just -- let me just ask the question.

COBURN: I did not support this.

WALLACE: Senator Coburn, let me get me just ask Senator McCaskill this question: you're not going to get an agreement on those cuts in the next five days. The sequester is going to go through. So, the question is, why not give agency heads more flexibility so they can decide, I'm going to cut more of this and less of that?

MCCASKILL: Well, I think right now, the way this is set up, there are going to be cuts, a lot of places, and there will be some flexibility. And I think we're going to look at a number of things this week.

But it doesn't take away the real need we have. And I know Tom Coburn agrees with me on this -- we've got a much bigger problem down the line in terms of reducing our debt than just what we face this week. So, why not take offer, the very specific offer the president has on the table, that that does cut some entitlements, that does do more in terms of working on the long term debt?

And let's get a big deal, let's fund the government, let's quit careening from crisis to crisis that, frankly, hurts confidence of investors across this country and hurts our economy.

WALLACE: Senator Coburn?

COBURN: Well, I think, first of all, the crisis is made up. It's been created. I didn't support the sequester because that's a stupid way to cut spending. And I didn't support increasing the debt limit because there is no such thing as the debt limit in this country, because we always raise it.

But the fact is, is we have tons, hundreds of billions of dollars, of fat and waste and excess in the federal government. And we ought to be about cutting some of it out.

We're -- you are seeing the political game go. There is no reason that we don't go on and cut spending, even across the sequestration. Some of it is not smart. But it's the only way Washington, Republicans and Democrats, are ever going to get out of both parties, some spending cuts.

And, the reason there is no agreement is because there's no leadership from the president on actually recognizing what the problem is.

And the problem is, is an excessive, bloated, big federal government that's highly inefficient and highly ineffective.

WALLACE: Senator McCaskill, isn't there a danger for the Democrats that -- this is not a cliff. This is not like the debt ceiling where we immediately go into default. As Senator Coburn pointed out, it's only going to be about $44 billion of cuts in the rest of this fiscal year and they are going to happen rather slowly.

Isn't there a danger for Republicans, people won't feel the pain and they'll say, "You know what, we can shrink the size of government"?

MCCASKILL: Well, I think that there is -- there are several dangers that are looming. The biggest danger is that we've got a dysfunctional Congress that can't compromise. I'm proud to be part of the moderate middle. I'm happy to work with Tom Coburn -- and we have worked on ways to make our government more responsible to taxpayers.

But that's really at the heart of this, Chris. You've got some loopholes. Right now, a guy making $3 million at one end of the hall, managing a hedge fund, pays 20 percent.

And the guy at the other ends of the hall, managing an insurance company, pays north of 35 percent. That's dumb.

We need to fix these things. We need to come together in a moderate middle, have a balanced approach that fixes some of these loopholes, gains some revenue that continue to focus on getting at the waste that Tom Coburn and I agree about.

WALLACE: We are beginning to run out of time. I want to talk about a couple of other issues -- the nomination of Chuck Hagel to be defense secretary comes up this week.

Senator McCaskill, you are a member of Armed Services. You voted for Hagel in committee.

I want to play, though, one of a number of rocky moments that he had during his hearing.


CHUCK HAGEL, DEFENSE SECRETARY NOMINEE: I support the president's strong position on containment.

I've just been handed a note that I misspoke and said, I supported the president's position on containment. If I said that, it meant to say, that I obviously -- his position on containment, we don't have a position on containment.

SEN. CARL LEVIN, D-MICH., CHAIRMAN, ARMED SERVICES COMMITTEE: Just to make sure your correction is clear, we do have a position on containment, which is, we do not favor containment.


WALLACE: Senator McCaskill, during the hearing, Senator Hagel also said that Iran has, a quote, "elected, legitimate government."

Just on a question of competence, just on the question of knowledge, do you really have no second thoughts about Chuck Hagel as secretary of defense?

MCCASKILL: The president was just reelected by the American people. And he has selected a man who is very qualified to be secretary of defense. His resume from his time as an enlisted soldier, fighting in a war with great bravery and decoration, to running the USO, to serving on a variety of different important bodies that deal with national defense policy -- the president wants him in the room as he's making important decisions.

He has -- there is no question about his integrity or his character. I think the president deserves to have the cabinet he wants, as long as the person is qualified, and there are no -- there's no question of how strong his character and integrity are.

I think it's unfortunate, some of the things -- did he have the best day that day? Of course not. It wasn't a great performance in front of the committee. But, having said that, he's qualified, he is -- I think it is despicable the way his character has been impugned by some people through innuendo and inference without any shred of evidence.

WALLACE: I'm not impugning his character, I'm just impugning his competence.

MCCASKILL: No, but Senator Cruz did.

WALLACE: Or questioning his competence, to put it more properly. I mean, I know --

MCCASKILL: No, he said --

WALLACE: -- I know what the administration's policy is on prevention. You know it. He didn't.

MCCASKILL: Well, I think he misspoke, the way he said it. And, you know, was that -- should he be disqualified after a lifetime of service and a resume that clearly supports this position? Should he be disqualified because he wasn't as articulate in the committee as he should have been? I don't think he should be, and I think it's time for us to come together and unite behind him so he can do the best job possible keeping our country safe.

WALLACE: Senator Coburn, we're running out of time. I've got to ask you two quick questions.

First of all, you are one of 15 Republican senators who sent a letter to the president this week asking him to pull the nomination. Having said that, we have Senator Shelby, Senator McCain saying they are no longer going to block his nomination. Do you agree that Hagel will be confirmed this week?

COBURN: Yes, he might be. But the danger for our country and the lack of leadership by the president is recognizing that he doesn't have the confidence of the vast majority of the Senate, which weakens him in that position.

I like Chuck Hagel as an individual, but the fact is, in modern times, we haven't had one defense secretary that's had more than three votes against him. And you're going to have 40 votes against him, or 35 votes. And that sends a signal to our allies as well as our foes that he does not have broad support in the U.S. Congress, which limits his ability to carry out his job.

WALLACE: And finally, Senator Coburn, a bipartisan group of senators is reportedly close to a deal to greatly expand background checks of almost all gun sales. But the hold-up is the question of whether or not the government should keep records of those sales.

Question: you are a member of this group. How close are you to a deal and what's the problem with keeping records?

COBURN: Well, I don't think we're that close to a deal, and there absolutely will not be recordkeeping on legitimate, law-abiding gun owners in this country. And if they want to eliminate the benefits of actually trying to prevent the sales to people who are mentally ill and to criminals, all they have to do is create a recordkeeping, and that will kill this bill.

So, if you really want to improve it, you have to eliminate the recordkeeping and give people the right and the responsibility to do the right thing and, that's check on the NCIS list to make sure you're not selling a gun to somebody who is in one of those two categories.

WALLACE: Senator McCaskill, Senator Coburn, we want to thank you both so much. Thanks for joining us today and we will be counting down to the Friday deadline for those big spending cuts. Thank you both.

Up next, two governors tell us what impact the sequester will have in their states.


WALLACE: With Washington headed for the sequester, the nation's governors are in town, and they are warning those federal spending cuts may drive their states back into recession.

Here to talk about it, Republican Governor Scott Walker of Wisconsin, and Democratic Governor Jack Markell of Delaware, head of the National Governors Association.

And, gentlemen, welcome.


MARKELL: Good to be with you.

WALLACE: Let's start with the sequester and what it will mean to your two states.

Governor Walker, according to a study, it will cost Wisconsin $1.8 billion and 36,000 jobs, and mean big cuts in health services for mothers and children and special education funding. How worried are you about the sequester in terms of Wisconsin? And do you support congressional Republicans' willingness to let the cuts kick in if the alternative is to raise taxes, the Obama idea?

WALKER: Well, I think all of us as governors have a real concern about the impact is going to be on our respective statements, both in terms of the potential, the cuts, if they do nothing, but also, in terms of what some of the alternatives might be. I mean, we already had the first wave of impact of tax increases from the last budget deal, just a little over a month ago.

And we are seeing the impact -- I mean, a typical family making $50,000 now is paying $1,000 more a year in terms of taxes. That's money out of the economy as well.

And, so, if we're not careful, a tax increase at one end can be a problem. Severe cuts on the other end could be a problem. One of the biggest problems in this city, too many times they kick the can, doesn't matter which party, down the block, if you will, and that don't really solve the problem.

So, our hope is between now and March 1st, to find a way to provide some better alternatives to the cuts in the sequester.

WALLACE: But you wouldn't support the Obama deal of a mix of tax hikes and spending cuts?

WALKER: Well, I'm confused, because when the president proposed the sequester back in 2011, he said the cuts are so bad in this that the Congress and administration will come back and provide a better alternative of cuts, and not new taxes. They already have the tax increases. That came at the end of this last year when we avoided -- at least temporarily avoided the fiscal cliff.

The challenge now is to find better, long-term ways to solve the fiscal problems facing this country right here in Washington.

WALLACE: Governor Markell, you have a much smaller impact of the sequester in Delaware. How worried are you about it?

GOV. JACK MARKELL, D-DEL.: Well, we are very concerned, particularly the effect on the economy. You know, I think a lot of us we feel like we're -- after some difficult years -- we are starting to come out of it and things are getting a little better. And, unfortunately, the sequester could put us right back where we were.

You know, we spend so much time as governors trying to put people back to work. And so, one of the most frustrating conversations any governor can have is with an employer who says, "I've got vacancies but let's say I can't find people with the right skills." Or one of the effects of the sequester could be, for example, to hit workforce development training funds. That's crazy.

And one of the things that we've got to do is we've got to figure out a way of putting people back to work as opposed to seeing cuts like this.

WALLACE: Are you literally saying that the sequester could push your state and other states back into recession?

MARKELL: I don't think there's any doubt about it. I mean, I think the Congressional Budget Office estimates there could be 750,000 fewer jobs.

You know, people talk about, what's the effect on states on the sequester? The real question is, what is the impact on the people that we serve? States are only a vehicle for service.

And so, whether it's the fact that things like Head Start, special ed, substance abuse training, low income energy assistance, or Workforce Development Funds, that all hits us, and it hits our budgets. But the real big impact could be on the economy and jobs.

WALLACE: Governor Markell, switching subjects. Vice President Joe Biden, of course, lives in the state of Delaware and recently had some advice for his wife, Jill, about how to defend herself. Let's take a look.


VICE PRESIDENT JOE BIDEN: I told my wife, we live in an area that's wooded and somewhat secluded. I said, Jill, if there's ever a problem, just walk out on the balcony here, walk out, put that double barrel shotgun and fire two blasts outside the house.


WALLACE: You have a smile on your face. What do you think of that?

MARKELL: Well, I think the point that he was making is that people are entitled to have weapons, use them for self-defense. And he's obviously right about that.

WALLACE: In fact, though, wouldn't what he suggested be illegal? I -- you know, it went on the blogs, that in Delaware, you have to have a fear of your life before you can use deadly force.

MARKELL: Well, I think what he's really saying is that if she felt like she was in danger, then she -- then she has a weapon and she can use it.

WALLACE: But in fact, it would be illegal --

MARKELL: I don't know. I mean, I think -- maybe -- he doesn't live in the city of Wilmington. He does live in a fairly secluded area. So, I -- I was not the least bit troubled by his comments.

WALLACE: OK. That's a very politic answer.


WALLACE: Since he's the most famous constituent of your state.

Governor Walker, let's turn to a specific issue with you. The last time we talked, you were battling and beating the public workers unions on their collective bargaining rights. The issue is still in the courts and still being appealed.

But, what has the effect of your reforms been both on the budget and the -- for the state and for localities, and, for the unions?

WALKER: Well, it's been positive for the taxpayers. The taxpayers won, not only in our recall election. They won every time we've been upheld in the courts, in both state courts and the federal courts.

And the real impact, we just announced last Wednesday, in our state budget, was we went two years ago from a $3.6 billion budget deficit to nearly a half a billion dollar surplus. We took that money and invested it in tax cuts. We increased funding, based on performance for our schools. We invested in things like Jack talked about with workforce development. Those are things we're able to.

WALLACE: Did that specifically come from the fact that the public workers unions couldn't negotiate? Couldn't collectively bargain?

WALKER: Well, in terms of collective bargaining, we knew two years ago, unlike what they're doing here in Washington, we had to tackle the biggest part of our budget. In Washington, they're not tackling entitlements.

We knew that the biggest driver in our budget -- every state is different -- was aid to local governments. And we know if we're going to reduce that, the only way to do it without crippling local services was empowering -- much as I had been a local official for eight years -- was empowering local governments to be able to make changes, not just in terms of pension and health care contributions but even things like stopping overtime abuse, work rule changes, schedule things that make things more financially available for our schools and our local governments.

We did that, and, in turn, we were able to balance our budget. Our economy got better.

WALLACE: Let's turn to another (inaudible), because one of the big jobs all the governors are going to face over the next year is beginning to implement Obamacare, which kicks in officially the following year, the beginning of 2014.

Governor Markell, you've agreed to expand, to the expansion of Medicaid in your state, and you're going to work with the feds in setting up the health exchange in the state. It's going to become a partnership between Delaware and the federal government.

With all of the spending problems here in Washington, are you worried that maybe not the first year, the second year, but at some point, you're going to end up footing the bill for ObamaCare?

MARKELL: Well, first of all, I mean, I think they've made it very clear that they intend to stick with the deal that was offered to the states, in terms of Medicaid expansion. We made that decision for reasons of math. We get to cover additional people -- people who otherwise would not have had coverage, would have ended up in the most expensive place of all, which is the emergency room. The federal government is going to pick up 100 percent for three years and 90 percent thereafter.

In addition for us, there's actually a higher reimbursement for people that we're already serving. So, for Delaware taxpayers, that made sense.

The real exciting move about health care, though, is not what's happening in Washington. It's what's happening in states around the country.

Some of the incredible innovations, to move away from the fee- for-service model -- some great work being done in Oregon, in Arkansas and many other states. And a number of states, including Delaware, just last week, received innovation grants from the Department of Health and Human Services, to focus on exactly that.

WALLACE: Well, I want to stay with ObamaCare, though, if you will -- because, Governor Walker, you made a very different decision. You have refused the expanded Medicaid even though the feds were talking about picking up all the cost -- as Governor Markell mentions -- for the first three years and 90 percent thereafter.

And you also said, "We're not going to run the health exchange. We're going to let Washington do it."

How come?

WALKER: Well, for us, every state is a little different. Governor Markell and I talked about this, not only between Democrats and Republicans, but even sometimes amidst members of the same party.

In our case, it was a better deal for us not to take the funds, and, instead, we're able to do an alternative, we reduced the number of uninsured, by 224,580. We actually reduced the number of people on Medicaid, put 87,000 people into the marketplace and replaced them with 82,000 people who currently are living in poverty today but weren't eligible under a cap in the past from my predecessor.

WALLACE: We're getting a little in the weeds. But I want to ask you, because you pointed out the fact that there has been some difference within the parties. As you well know, seven Republican governors have agreed to the expansion of Medicare, to 133 percent of poverty, here they are up on the screen, including well-known conservatives like Rick Scott of Florida, this week, John Kasich of Ohio.

And, they say they are doing it because of, if you will, free money, the fact that they said, our taxpayers are having to pay into this system, so they've got to get the benefits of it and if the government is willing to pay 100 percent of the cost, we'd be crazy not to accept it.

And critics say that your decision is, one, that's going to cost your state millions of dollars and, two, going to mean a lot of people in Wisconsin are uninsured.

WALKER: Well, actually -- but, again, every state is different. That's why I won't criticize them, be at those Republicans or Democrats, because every state is different. In our case we reduced the number of uninsured, we reduced the number of people on Medicaid, and we actually saved a little bit of money.

Now --

WALLACE: But is part of it also that you are afraid that the feds aren't going to live up to this?

WALKER: No doubt about it. The federal government has a $16.5 trillion debt today. Just for my cost to continue Medicaid in the state of Wisconsin without any expansion, it costs me $644 million more in this budget. Thirty-nine percent of that is because the federal government, under the Affordable Care Act and other provisions, is pulling back from the previous commitments. That's today. That's without the expansion.

So, I really look at that and say, if they can't fulfill -- if Congress can't fulfill the commitments they've made, I'm concerned where they're going to be in the future. But that's unique to Wisconsin.

WALLACE: But let me -- no, it isn't unique to Wisconsin because --

WALKER: But the numbers are unique. What I'm saying is every state is a little bit different --


WALLACE: I understand.

But, Governor Markell, why is it that he doesn't trust Washington and you do?

MARKELL: Well, I think actually -- I mean, the bigger story and the one that I think a lot of people miss is the fact that no matter what happened with respect to the Affordable Care Act, what this country has to do is move away from what has become a sick care system where people get paid based on how many procedures they do to a health care system, where people get paid based on quality.

I mean, we really do have the opportunity to improve quality, reduce costs, simultaneously and the Affordable Care Act provides this foundation. Now, you're seeing --

WALLACE: That's what ObamaCare was supposed to do, but it didn't do that.

MARKELL: But, no, I think -- I think -- you are checking a point -- looking at a point in time. First of all, health --

WALLACE: Well, now.

MARKELL: First of all, health care rates did not increase at the same rates as they had before; and, secondly, if you're looking at some of the innovations around the country, we just heard yesterday in our governors-only meeting from some governors, who are already seeing significant improvements in the reduction of costs.

WALLACE: All right. We're going to have to leave it there. Governor Walker, Governor Markell, thank you both so much for coming in.

MARKELL: Thank you.

WALLACE: Please come back.

WALKER: Thanks, Chris.

MARKELL: Thank you.

WALLACE: Up next, playing politics with the sequester. We'll ask our panel how bad will those spending cuts really be, and who is winning the blame game.


OBAMA: Do you want to see a bunch of first responders lose their jobs, teachers laid off -- air traffic controllers and airport security -- put (ph) this hardship on a whole lot of people.


WALLACE: A new ad front the conservative group, Crossroads GPS, mocking the president's doom and gloom warnings about the sequester. And it is time now for our Sunday group. Bill Kristol of The Weekly Standard, Mara Liasson from National Public Radio. Republican strategist Nick Ayers and former Democratic Senator Evan Bayh. Well, first of all, and let me ask as this a group question, do you all think the sequester will happen, that the $85 billion of spending cuts will kick in, on Friday?



WALLACE: I guess ....

KRISTOL: I hate to acknowledge it, Chris -- right here.

WALLACE: It is going to happen.

KRISTOL: I hate to acknowledge the inevitability of something so stupid, but nonetheless, it probably will happen.

WALLACE: All right, well, let me pick up on that. Because one of the reasons that this seems to be -- that it's going to happen, that both sides are full speed ahead, is because both sides see some political advantage. The Democrats think that when the cuts start to become painful, voters are going to blame Republicans, Republicans think, hey, my voters in my home district back home voted for me to come and cut spending.  Question: are they both right?

KRISTOL: I guess we'll see how the politics plays out. But the idea that people are just letting this go ahead with massive cuts to the military -- I mean, when you exempt soldiers and Marines and all the other troops salaries, which are exempt, you're talking about 15, 17 percent cut in a lot of military accounts, and we are fighting a war. That is a word that never got mentioned -- never gets mentioned when we debate the sequester. We do have challenges abroad, and the idea that serious elected members of Congress and the president of the United States don't put first things first and say we've got to fix this, we at least -- we cannot cut the military to a degree that Claire McCaskill, the liberal Democrat just on the show, she never endorsed this level of cuts in the military. She knows this is wrong, and she is part of the majority in the Senate. Why aren't they doing something about it? Republicans have the majority in the House, God knows they don't think these levels of cuts in the military are responsible, why aren't they doing anything about it?

WALLACE: Well, let me pick up on this. Because the answer, the obvious answer, is first of all, you can try to make a deal and, that's not going to happen, but Mara, the idea of flexibility, of transfer authority, saying to the various agencies, OK. You don't have to cut an equal amount from each budget bucket, some things are more important, you don't cut there and some things are less important and you cut more there. Why is it the White House opposes that?

LIASSON: Well, you know, they might be faced with that in a continuing resolution with flexibility. You know, a lot of Republicans are saying, instead of shutting down the government at the end of March, let's just continue this sequester level of funding, maybe a little bit more, to accommodate Democrats in the Senate with giving flexibility to the administration, so it is up to them to divide up the pain and that might happen. And then the president is going to be faced with the decision do they want to veto that or accept it. I think right now the White House want to see if their theory is correct. That these cuts are going to be so painful, that it is going to force Republicans to go to the negotiating table. We don't know if that's going to happen. It might not.

WALLACE: Yeah, and I'm going to pick up on that with you, Nick, because in the sense, and I talked about this with the senators, aren't both sides taking a chance here? If the White House is right and it is painful and kids get thrown out of Head Start and it becomes intolerable to go through airports, are voters going to blame Republicans and say, hey, once again, they are protecting the wealthy at the expense of the middle class. Conversely, if the Republicans are right, and it isn't that painful, might voters say, you know what? We can shrink the government, and it doesn't kill things?

NICK AYERS, REPUBLICAN STRATEGIST: Chris, I don't live in D.C. And I'm surprised when I come back here, that only in this town could a three percent spending cut, you know that -- it's 85 billion this year, Rich Lowry said this week that it looks more like -- and CBS ...

WALLACE: National Review.

AYERS: Right. That it's going to be more closer to 45 billion, only could a three percent cut sound that bad in Washington, D.C. Look, the president -- Woodward's column was a game changer this week. The president now owns sequestration. It's fact. The Republicans should withstand the heat in the coming week -- the coming days and the coming weeks and then after it happens, they need to get out of this town and go on offense, explain that they had two options, they could have accepted more tax increases, which is bad for the country, they are not going to do that, or they could have allowed spending cuts. They weren't done the way that they would have proposed them, but it was better than raising taxes increases, and let me just make this point with all the governors, you know, here in town today.

Republicans have a great case to make that, look at how Republican governors in states have handled this. They have dealt with issues far bigger than three percent cuts to budget. You have guys like Chris Christie, who have closed a 33 percent budget gap. Bobby Jindal, who shrank the size of government in Louisiana by 26 percent. You have Scott Walker, who closed a $3 billion, you know, budget deficit by renegotiating important contracts in the birthplace of AFSCME, and closed massive budget deficits. So, I think Republicans are in a pretty good position withstand the heat in the coming days, but don't stay here to fight the battle. They have got to get out of -- out of Washington, D.C.

WALLACE: We should point out one of the reasons that Nick Ayers is so interested in the governors. He used to be running the Republican governors campaign, so and he got a lot of these guys elected. He also referred to the Bob Woodward article and I was just about to bring it up with you, Senator Bayh. Woodward has a piece in today's Washington Post -- he, of course, is the guy who wrote the book on the budget battles in 2011. He says, not only was it the White House that came up with the idea of the sequester, but they also accepted the idea that the sequester would be all spending cuts, not tax increases. Let's put up what Woodward writes today, "So when the president asked that a substitute for the sequester include not just spending cuts, but also new revenue, he is moving the goal posts .... That was not the deal he made." Senator Bayh, your reaction?

EVAN BAYH, FORMER U.S. SENATOR, D-IND.: Well, he may be, Chris, but, as you know, in Washington some agreements are written in blood and others are written in vanishing ink. It is pretty clear this is one of the latter and, there was an intervening election and the president won and his popularity is very high right now. So it's not unexpected that he'd revisit the agreement and ask for something more to his liking.

I think the way this all plays out, it depends on how the cuts actually affect Americans' daily lives. Right now the Republicans are focusing on polls that show that in theory, people like spending cuts. But, there are different polls that show that when you talk about specifics, not nearly so popular. My guess is, that the president wins the short-term, because he is popular, the Republican brand is still damaged, he has got the bully pulpit. The real question is, if this drags on for a while, does he get dragged into the morass and, people say, look, when you're president, governor, mayor, you are the executive, you're in charge. We expect you to fix these things. We all know Congress is dysfunctional, but to see you eventually get, you know, tarred with this whole thing. We won't know that for a while.

WALLACE: You know, it's interesting, Bill, a top White House official was so sensitive about the Woodward column that he called me last night and he said, look, it is a complete revisionist history. We accepted this -- the all cuts to the sequestration, just as a way to get the trigger. Nobody expected it to happen, and if we had wanted all spending cuts, we could have made that deal with the senators -- with the House Republicans back in August of 2011. And there wouldn't have been any sequestration.

KRISTOL: Look, the White House proposed it originally, so the White House is being misleading recently when they deny that, and on the other hand, a majority of Republicans in Congress voted for it. So they both accepted it as a trigger, as a kind of fail/safe mechanism

It will be too horrible to contemplate, and now it is happening. And it is just pathetic, really, that this is a political debate about Democrats -- I hate to sound like some -- you know, we are how many months away from the next election? It's kind of a long way. This is the kind of thing -- it's September of the election year, you understand, OK, you're not going to get a compromise for the national interest. Really, in February? Right after a national election, you people can't rise above this side (ph) thing? The president of the United States does stupid campaign events with people -- with emergency responders behind them as props. The Republicans in the House sit around saying, oh, hey, let it go in, we're tough guys, we're going to stand up to the -- what about the military? Let them go to the bases in their home states and say, explain the cutting back on training and not sending the second aircraft carrier to the Gulf ...


BAYH: We can't govern, so we're going to have an automatic pilot, that is -- everyone admits it is not the right way to go about it, and the timing is probably off, and you need long term entitlement reform that doesn't damage the economy in the short run, but the political process is just broken.

LIASSON: But you know what?

WALLACE: ... which may be one of the reasons you are no longer in the Senate, because you came to that conclusion.

BAYH: I got back on my meds, Chris.


WALLACE: All right. On that happy note, we're going to take a break here. But when we come back, will Chuck Hagel and John Brennan be confirmed or will the Republicans find some new way to block them?



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

UNIDENTIFIED MALE: At a Prayer Breakfast we are talking about fairness.

WALLACE: The world renowned brain surgeon diagnosed what is wrong with the country.

UNIDENTIFIED MALE: What is truly fair, first is what is politically fair.

WALLACE: Stay tuned. We'll be right back.




JAY CARNEY, WHITE HOUSE PRESS SECRETARY: For the sake of national security, we urge the Senate to confirm Senator Hagel. We urge the Senate to confirm John Brennan, and to get them to work, because the nation needs them to be at work.


WALLACE: White House Press Secretary Jay Carney, urging the Senate to vote this week to confirm the president's nominees, Chuck Hagel for defense and John Brennan for the CIA. And, we are back now with the panel. Well, as we mentioned earlier, 15 Senate Republicans wrote to the president this week urging him to pull the Hagel nomination. Senator Lindsey Graham, who is against the nomination, demanded more information about various speeches, various comments that Chuck Hagel made. Bill, any way that they can block the Hagel nomination or is he going to be confirmed this week?

KRISTOL: They could block it, and I think it will be a close vote for cloture on Tuesday morning, I guess. Senator Hagel has all this archive of his audio and video of many of the speeches he's given, some of the speeches have been -- there's been contention about what he actually said, but he has not opened that up, at the University of Nebraska at Omaha. So I guess it's a legitimate issue for Republican senators to say, really, Secretary of Defense is kind of an important job, can we look at these public documents, this audios of speeches -- speeches he's given?

Having said that, President Obama has done a good job of holding every Democratic senator to vote for the defense secretary who they may know is not the best choice for the job, but party loyalty sometimes trumps everything else in Washington.

WALLACE: You know, Mara, as I was talking about with Senator Coburn, you've got McCain, who voted to block, he says he's not going to vote this week to block. Richard Shelby of Alabama, he voted to block, he is not going to do that. It would seem, just on sheer mathematics, since the cloture only passed -- that was defeated by a single vote, with those two switches, Hagel gets through.

LIASSON: Yes. I think Hagel gets through. It is hard to see the math, how the Republicans could block him, and then the question is, how damaged has he been by this whole process? I think -- think if he's damaged, he was damaged more by his own performance, than by the votes against him. And he'll have to, you know, make up for that. But, as he said, he doesn't make policy and it is all coming from the White House anyway. So, I think it's just all around an inauspicious beginning for a new defense secretary.   WALLACE: Nick, as you like to say, you live in the real world outside the Beltway. Is any of this about Hagel's comments, about Benghazi and the emails, we'll get to that in a second, about the policy on drone attacks, is any of that penetrating in the real world?

AYERS: I think it is. I think that his hearings were so bad that that sort of cut through out of this town and into where average folks are asking questions. Look, it's an impossibility for the White House to say with a straight face that this is the best choice at a critical time, and what our country is facing for Chuck Hagel to run the Defense Department. It is an impossibility.

Now, is it the president's prerogative? Absolutely, I think he'll be confirmed, but, you know, this is -- this is like Andy Griffith actually turning Mayberry over to Barney. Like it's OK to act like you're in charge -- and I don't want to be rude, but, you know, Haley Barbour made a comment this week that I think is right. He said what is sad is in his second term, Obama's cabinet is starting look more like a staff, it's people who are just going to do what he tells them to do. So, I think what this pick is, is really the president making himself Defense Secretary at a time when we need a serious person over there like a Bob Gates, or a Leon Panetta.

WALLACE: Senator Bayh, I want to pick up on something that Tom Coburn said. Assume that Hagel gets in. Has he been damaged by this process, does it weaken his credibility in his clout on Capitol Hill, does it weaken his ability to deal with all the competing power structures inside the Pentagon?

BAYH: Well, the first impression was not positive, because of the -- as a result of the hearings, Chris, no doubt about that. So it is very imperative for the new Defense Secretary. He will -- Chuck will be confirmed. In his first public outing or two, to project the sense of command, of gravitas, thoroughly briefed, in charge of the facts, to dispel this original impression that was created. After that, the challenge is going to be to assemble around himself a strong management team, because that's a big management responsibility at the Pentagon. They're going to be going through some changes and fiscal challenges, even without the sequester. And, so ultimately the proof of the pudding is going to be in the eating. How does he perform as Defense Secretary? If he can come out of the blocks with a better impression, it is not such a big deal. He can put this behind him.

WALLACE: You know, Bill, one of the ways that the White House is trying to clear the path for two nominees, both Hagel at Defense and Brennan at CIA, is that they have kind of grudgingly been dragged out, have agreed to release some of the e-mails that chart how the talking points were developed after the Benghazi terror attack from the time of the attack until Susan Rice went on the five Sunday shows five days later and said that it was all a spontaneous demonstration in reaction to the anti-Islamic video. What do you expect the senators to find?

KRISTOL: I don't know, but I would like to see them. They are not classified emails, these are emails about the PR performance after the attack, and I don't see any reason why they shouldn't be made public. And let us judge whether Mr. Brennan was honest, or whether he used his position in the White House to politicize the talking points to be used to explain this tragedy.

WALLACE: Do you think that this -- I mean, the fact that they are releasing it would seem to indicate ...

KRISTOL: But they're only giving it to the Senate Intelligence Committee, I think, and the various ...

WALLACE: Well, I understand, but, in fact -- that is giving it to everybody, in a sense. I would think that there are no smoking guns there or they wouldn't release them.

KRISTOL: I think better of the Obama administration on that, Chris.

I think they just ...

WALLACE: I would think that ...


KRISTOL: Maybe you're not aware ...


WALLACE: ...we've got to take al Qaeda out.

KRISTOL: Maybe you're not aware, it's the most transparent administration in history, Chris. They just like to make things public and tell us how -- how the basis of their decision making on that. Well, you know, the truth is, that makes the media think, oh, how could you focus on Benghazi all these months, people like me and Steve Hayes and others. I mean the fact is the more we learn, the more the initial suspicions turn out to be correct. The president totally took a hike that night, in terms of making any serious -- giving any serious guidance. Afterwards, they seem to have politicized the way in which they interpreted it. There were failures beforehand. Benghazi was as much of a scandal -- it turns out to have been as much of a scandal as some of us suspected all along.


LIASSON: Yeah, I think the White House is pretty confident there is nothing in there that's going to blow up in their face. I don't think they'd be doing it otherwise, and I think both of these guys are going to be confirmed, and, you know, Brennan, I think never faced any serious opposition.

WALLACE: Senator Bayh, meanwhile, the U.S. and our allies are going to sit down in Kazakhstan on Tuesday with Iran to discuss once again the nuclear program, for the first time, I was astonished to see this, since last June, and all of this comes at a time when Iran is tripling its centrifuge capacity so that it can enrich uranium even faster. What do you think of the chances for any progress there?

BAYH: I would be skeptical about the chances for progress, Chris. I think the important thing is to remember the Iranians respect strength. Talking to them is one thing, but we've got to keep the sanctions on and let them know that ultimately we will just not tolerate them becoming a nuclear weapons power. That's all they appreciate and understand.

WALLACE: But if they are tripling their centrifuge capacity, the sanctions we've put in don't seem to have sent a message.

BAYH: Well, they are imposing real economic hardship on the country, but if you look at the supreme leader there, he's fairly contemptuous of the west. He thinks that we are weak, that their capacity to endure hardship is greater than ours, and that they can just kind of wait this out, and he ultimately gets what he wants, which is a nuclear capability. That is the message that we need to counteract and say, we are going to make this as hard on you as we possibly can, and if push comes to shove we'll do something about this.

WALLACE: And speaking ...

BAYH: But he's got to believe it.

WALLACE: And speaking of push coming to shove, I remember Netanyahu, you know, with the cartoon bomb at the U.N., and drawing the red line. We are getting to the red line, probably by summer, aren't we?

KRISTOL: I wish Evan Bayh were Defense Secretary, not Chuck Hagel. Because Evan Bayh believes, and instead over the years ...

BAYH: Well, there go my chances.


KRISTOL: They were very high, anyway. I like to endorse you every now for things, to make sure you can continue to be a valued panelist here on Fox News Sunday.

WALLACE: Your thoughts?

KRISTOL: I think Israel faces a very difficult decision, and I think they have said repeatedly they cannot tolerate an Iranian nuclear weapon, and I think if they are confident at the Obama-Biden- Hagel-Kerry administration is not going to act, they may have to act.

WALLACE: Thank you, panel, see you next week. Don't forget to check out "Panel Plus," where our group hits right up with the discussion on our Web site, And we'll post the video before noon, Eastern time. And make sure to follow us on Twitter @foxnewssunday. Up next, our "Power Player" of the week.


WALLACE: He's a world renowned brain surgeon and a big philanthropist. Which is why we interviewed him last year. But now he's also become a political lightning rod. So it seemed like a good time to revisit our "Power Player" of the week.


DOCTOR BEN CARSON, NEUROSURGEON: I think that it's the most appropriate venue to deal with what is ripping our nation apart and the fact that we are moving away from our values and principles.


WALLACE: Ben Carson is talking about the speech. His remarks at the National Prayer Breakfast two weeks ago. With President Obama listening, Carson diagnosed what is wrong with the country. Such as political correctness.


CARSON: We have reached the point where people are afraid to actually talk about what they want to say. Because, somebody might be offended.


WALLACE: And the benefits of a flat tax.


CARSON: If some people say -- They say, well, that is not fair, because it doesn't hurt the guy who made $10 billion as much as the guy who made 10 -- where does it say you have to hurt the guy?


WALLACE (on camera): Why is that relevant at a prayer breakfast?

CARSON: Because at a prayer breakfast, we are talking about fairness. I think it is a perfect opportunity to talk about what is truly fair, versus what is politically fair.

WALLACE (voice over): The response has been electric. Two-and- a-half million people have viewed Carson's speech online. A "Wall Street Journal" editorial proclaimed, Ben Carson for president.

UNIDENTIFIED MALE: This is the kind of thing the Republican Party should have been saying for the past four years.

WALLACE: But liberals were upset. Especially that Carson said it at the prayer breakfast.

BOB BECKEL, FORMER DEM. CAMPAIGN MANAGER: It is a way for people to commune with the God of their choice. And this guy turns it into a Republican talking point political session.

CARSON: Human potential is something that we don't really talk about a lot.

WALLACE: We first sat down with Carson a year ago at Johns Hopkins Medical Center in Baltimore. He is legendary for taking on the toughest cases, the so-called hopeless patients.

CARSON: In some cases, it becomes clear that the only shot this person has is if you do something.

WALLACE: Carson knows all about human potential, because he's lived it. His mother got married at 13 and was illiterate. But he ended up going to Yale, and becoming a brain surgeon. And since 1994, he and his wife, Candy, have run the Carson scholars fund, giving millions to help kids go to college.

(on camera): Why do you think your speech struck such a nerve?

CARSON: The average American wants a nation that is for, of and by the people and not for, of and by the government.

WALLACE (voice over): As for the critics.

CARSON: They weren't listening. They were looking to criticize. Anything that they don't necessarily agree with.

WALLACE: Carson doesn't think he'd be a good candidate for president. Too blunt, he says. Nor will he seek the office. But he doesn't rule it out. And, he isn't afraid of any challenge.

WALLACE (on camera): Do you have any qualms about the fact that in a sense, you were lecturing the president of the United States while he just had to sit there?

CARSON: Well, you know, I serve God and my purpose is to please him. And, if God be for you, who can be against you?


WALLACE: You may want to keep Ben Carson on your political radar. At age 61 he's retiring from surgery this June. So, he's going to need something to do.

Now, this program note: Next Sunday, we'll have the first interview with Mitt and Ann Romney since the election. We'll ask them about the campaign, how they've dealt with their defeat, and what Governor Romney thinks of President Obama's second term agenda. It is an exclusive interview with Mitt and Ann Romney. That's it for today, have a great week and we'll see you next, "Fox News Sunday."

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