This is a rush transcript from "Special Report," October 27, 2010. This copy may not be in its final form and may be updated.


RORY REID, GUBERNATORIAL CANDIDATE D-NEV.: I’d like to start off tonight showing you Brian Sandoval's plan to create jobs. Nothing.  Now let me show you his plan to deal with our looming budget crisis.  Nothing there.

BRIAN SANDOVAL, GUBERNATORIAL CANDIDATE R-NEV.: The next governor is going to have to present a balanced budget to the legislature in the later part of December. That budget needs to be based on real figures.

REID: I have committed not to raise taxes, and I'm not going to ask local governments to do it either, Brian.

SANDOVAL: Rory, let's be clear, your budget plan doesn't add up. It includes $615 million dollars of revenue that don't exist.


BAIER: We haven't talked much about this race, the governor's race in Nevada. It's the other Reid running in Nevada, Rory Reid, as you take a Real Clear Politics Average of polls. The Republican Brian Sandoval has an 18 point lead right now heading into Election Day.  We’ll start with this race, but we have a host of races to talk with our panel about tonight.  Let's bring our panel, Steve Hayes, senior writer for The Weekly Standard, Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer.  We haven't talked about this race, Charles, because it seems like it's a big lead for the Republican.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well it's really over and it is going to be a landslide. I think what's the most interesting element of this race is that in the Reid advertisements his last name does not appear.  It's Rory. And that tells you everything you have to know about this. It isn't his age. It's not just his sort of undistinguished past. It's the fact that he is the son of an unpopular senator who actually is in the neck and neck race.

And I think it's a way for some people who may not be completely happy with Sharron Angle who is running against the father for the Senate to have a proxy vote against Reid by whacking his son in the gubernatorial election. I think this is a clear-cut case where the Reid’s are going to lose.

BAIER: Does this bleed over to the other race at all, Mara?

MARA LIASSON, NATIONAL PUBLIC RADIO: I think it's the opposite. In other words, I think that the other race bleeds into this. Reid is a very bad name to have as Charles just pointed out if you are running for statewide office in Nevada.

The other thing to say about this race it's never been a cliff hanger.  It's never been close. This is going to be one of the new governors that Republicans can point to that show that they are a diverse party. Brian Sandoval is Hispanic.

BAIER: Let's go to the Senate. West Virginia. This has been a close race. We have covered it numerous times, as we see Democrat Joe Manchin still within – he’s up 4.8 according to real clear politics over Republican John Raese. There have been new polls that suggest Raese may be up a couple. These are the average of polls here. This one looks like it's going down to the wire.

STEVE HAYES, THE WEEKLY STANDARD:  Yeah, I think it’s likely to be one of the closest races we will see next Tuesday night. You are seeing what's happening in West Virginia happening around the country. Joe Manchin talking about everything and anything but issues at this point. He doesn't want to talk about the stimulus. He doesn't want to talk about President Obama.  He doesn't want to talk about Democrats in Washington. And he certainly doesn't want to talk about Obama care.

He is has not answered the question to whether -- he favors the good parts and wants to repeal the bad parts. He still won't say whether he wants the tax hikes that you have to have in order to pay for Obama care.  He is just not answering the question.

So what he is trying to do is make the campaign about his opponent's house in Florida. So he is talking about these houses. He talking about taxes, but he is not talking about the issues.

BAIER: The popularity of Manchin as governor showed up in a Raese ad, saying we want to keep Joe here and not make him ‘Potomac Joe.’

KRAUTHAMMER: It's a really smart idea if you are the opponent of a popular governor. And it's a classic example of how the Democrats are trying to make every race a local one and Republicans are trying to nationalize it.

If you nationalize it, the Democrats are going to lose. And what Raese is arguing, this is a guy who may be OK in the state, but if you put him in the Senate, he is a guy who said originally he supported Obama care.

And, in fact, Manchin is so scared about the idea of cap and trade, this is a coal state that the Democratic administration is really trying to kill through EPA regulation, that's what the state hinges on, that he has an ad in which he takes up a rifle and shoots at a copy of the cap and trade bill.

So anything that nationalizes hurts him. That's why he’s trying to run a local election. But I'm not sure it will succeed.

BAIER: Let's talk about another race, a House race that's getting nationalized this week. The Virginia fifth district, that's congressman, Democratic congressman Tom Perriello going against Robert Hurt. The president added this stop to Charlottesville, Mara, Friday. Many folks are looking at this in a fairly Republican district as not a help.

HAYES: This is a really, really interesting trip. I don't think he has ever made a dedicated -- this is his only dedicated trip for an individual house race. And Tom Perriello has a very kind of interesting place in the pantheon of Democrats. He is every Democrat's favorite conviction politician. In other words, he supported the Obama agenda straight through A to Z. He’s in a very tough district. I think he won by 721 votes last time. But he’s really stuck to the Obama agenda.

And the president is rewarding him though I don't think anybody thinks he has a chance to actually win. I think what the president wants to say is look, if you stick by me; I'm going to go and try to help you.

The other thing that's interesting though is when you look and costs and benefits of this, you mention, gee, maybe it's a risk. It's worse to go and campaign for him. At this point I don't think for Tom Perriello anything would be worse.

But there is a congressman in the neighboring district Glen Nigh, also a Democrat, who is taking the complete opposite strategy to win, which is that he is running ads against Obama saying how many times he broke with Nancy Pelosi. He didn't vote for health care. He didn't vote for cap and trade.

He is doing a little bit better. And to the extent the president can energize the African-American vote in that part of Virginia; he might be helped, too.

BAIER: Interesting, one district over.

Let's turn to the Senate again, California Senate. Good news, Carly Fiorina out of the hospital after an infection, having to deal with the follow-up to a breast cancer surgery. This is the Real Clear Politics average, Barbara Boxer up 6.6. Steve?

HAYES: I don't think there’s been much discussion about whether this has an impact on the race, the fact that she was hospitalized, would people think she might be weak, she might not be able to serve out her entire term or would this lead to maybe a sympathy vote, a surge.

I actually don't think it’s going to have much of an impact one way or another.  What is really likely to decide this is the ad war. The fact that she missed a few campaign stops isn't going to do the trick.

I think what's most interesting about California is that Barbara Boxer in a poll that was out today still holds a slight lead among independent voters, 38 percent to 35 percent. Now, that's pretty striking.

President Obama remains more popular in California than he does in other parts of the country. I think what you are likely to see is this race come down to the eight percent of undecided voters. Do they break with Barbara Boxer and the incumbent and President Obama or do they say we’ve had it, we want change, we want Carly Fiorina?

KRAUTHAMMER: One point on her medical condition. I'm not sure it will have an effect, but you will note how careful the Fiorina campaign was to say that it was not her cancer. It was an unrelated infection, because I think you don't want to give the impression of having chronic illness.  Unfortunately it would hurt you in an election.

And secondly how courageous she is. If you have had an infection that puts you in the hospital to go out on the trail in the last weekend as she will requires unbelievable stamina and courage.

BAIER: Back on the trail tomorrow.

Last race, very quickly, House race in Florida. It's the eighth district and this is incumbent Congressman Allen Grayson versus the Republican there Dan Webster. This one has been interesting?

KRAUTHAMMER: From the most execrable member of the Congress, and I'm giving him the benefit of the doubt. He’s a guy who said outrageous stuff. He says the Republican idea of health care that you get sick and die. He's run outrageous lies in the campaign against his opponent Daniel Webster a distinguished former legislature.

He is now behind. He won in the district by less than a fifth of a percent in a fluke victory in 2008. I think he will lose and he will deserve that loss.

BAIER: Last word, Mara -- it was interesting to see the vice president campaigning down there for Grayson.

LIASSON: At this point I don't think the White House is going to be very particular. Any warm breathing Democrat is welcome in the United States House of Representatives.

BAIER: Logon to our homepage at FOXnews.com/Special Report. Get ready for tonight's online show at 7:00 eastern. Next up, how the new health care law impacts your HSA or FSA. We'll explain.



ROBERT ZIRKELBACH, AMERICA'S HEALTH INSURANCE PLANS: If I am currently taking Claritin for my allergies, I can pull out my debit card with my health savings account and go to any drugstore and purchase that over-the-counter.

But now under this change, I am going to have to take time out of my work day, schedule an appointment with my physician to go in there and get a prescription if I want to be able to use my health savings account to be able to pay for the medication I'm taking every single day.

CHRIS KRESE, NATIONAL ASSOCIATION OF CHAIN DRUG STORES: We're talking about 15,000 over-the-counter products that now are subject to this new policy that now require a prescription.


BAIER: This is all in the health care law -- 45 million Americans are now getting notices that the pretax money they set aside for flexible savings spending or health savings accounts, you can no longer be used for over-the-counter drugs. You have to get a prescription if you are going to use that money that you have set aside pretax. This is stuff like Tylenol, cold and cough medicines, allergy medications, many others.

What does this mean in the big picture? We are back with the panel.  Charles?

KRAUTHAMMER: Two things. It's an example of the insanity of this bill. In part, the consequences here are unintended. Just adding a layer of complexity which is going to make it hard for anybody to use Tylenol.  You have to go to a doctor and get an appointment which is really nuts, adding another level of complexity.

BAIER: Because the bill needed financing to pay for it or at least show the deficit was not going to be according to the CBO.

KRAUTHAMMER: It had to say it would reduce cost. It does this crazy regulation.

But I think it's not unintended. This is the use of regulation to kill health savings accounts which are the one element, the one example of consumer sovereignty in health care. And that's what liberals want to eradicate. They want a government-run system directly or indirectly.  Health savings accounts are an affront.

What you do is you say to anybody holding it, if you have got arthritis and you want to get Aleve, you are going to have to go to a doctor, waste half a day, pay for a visit, which nobody is going to do.  It's a way to kill the private sector by attrition in the same way that employers will be dropping health care because of the huge increase in costs as a result of Obama care, and the fingerprints of the government will not be seen.

BAIER: Starts January 1st.

LIASSON: Far be it from me to argue with Charles on anything medical.  However, they only will have to go to their doctor to get a prescription for Aleve if they want other taxpayers to subsidize their purchase of Aleve. That's what this is. For people -- I think for people who thought.

BAIER: Wait a second, if you put money in your FSA.

LIASSON: That's pretax money. I have a depend --

BAIER: If you're taking the program off the table, if you are trying to get the tax money from that, it's essentially making the FSA and HSA ineffective.

LIASSON: Yes. But on the other hand, if you or someone, and I agree with all the economists who said that employer-provided health care should not be subsidized by other taxpayers who have to go out on the market and buy their own health care, then neither should this.

KRAUTHAMMER: Obama care is the greatest adding of subsidies health care in the history of the United States. And you’re begrudging a plan which allows individuals sovereignty and has a minor saving on the part of the consumer in a tax saving?

That's completely incoherent. Either you say no subsidies or not.  But this is a minor tax break to encourage people to use their own money and essentially self-insure.

HAYES: It's more than a semantic difference. It's not ultimately a subsidy of anybody. This is not fundamentally the government's money.  This is your money from the beginning. What you are opting to do is not pay tax dollars on it, I mean, from the beginning. You are not subsidizing anybody.

LIASSON: Wait a minute, the government is allowing you to do that.  Otherwise you would have to pay taxes on it?

HAYES: The government doesn't allow anybody to do anything in this case. I think it's fundamentally your money at first. If you don't want to do it, you can opt out of paying the taxes, that's what you do.

The bigger picture, I think here is quite simple. The president throughout the entire debate promised this was going to reduce costs and make things simpler. This is clear, another example that that is not the case. It wasn't the case.

And I think what you are likely to see, like we’ve seen with the mini-meds and like we’ve seen with all these other things that were predictable but ignored when they were predicted the HHS, Department of Health and Human Services having to grant exceptions and waivers, which once again, puts all of the power of the one sixth of the U.S. economy in the hands of the Secretary of Health and Human Services who’s going to be making these decisions based on regulation.  This is one regulation out of 2500 pages there are going to be dozens of others.

LIASSON: I’ll take of my tax policy hat for a minute and get back to analyzing the politics of this, which is the problem for the administration is the benefits that people are supposed to like, like keeping your kids on until they are 26 and getting rebate checks for prescription drugs, are not happening fast enough to counteract these other changes that are going to be perceived as inconveniences.

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