This is a rush transcript of "Special Report With Bret Baier" from January 26, 2010. This copy may not be in its final form and may be updated.


SEN. LINDSEY GRAHAM, R-S.C.: I think the administration has made a mistake that could bring the administration down. Of all the decisions Obama has made and this administration has made, spending has gotten them in trouble, this massive health care bill was rejected by the American people.

But this is one issue where most people don't see the other side. And I'm tr ying to get my colleagues to act responsibly by saying to the administration we will not fund that effort. That is your decision to make, but there will be no money to implement that decision.


BRET BAIER, ANCHOR: Republican Senator Lindsey Graham insists he has a lot of Democrats who are very concerned about the administration's plans to try detainees in civilian courts in New York, so much so the attorney general received a letter from six senators, three of them Republicans, two Democrats and one independent, saying they should call this whole thing off.

And now there is an effort in Congress to pull the funding for the trials in New York.

What about all of this as a development? Let's bring in our panel, Juan Williams, news analyst for National Public Radio, Nina Easton columnist for Time and Fortune magazines, and syndicated columnist Charles Krauthammer. Charles, this seems like a big deal, and Graham insists he’s got a lot of Democrats on his side.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: This is an issue with legs, and the race was on. The issue was discovered, the salience was discovered in Massachusetts, where a Republican understood after the administration's decision on the Christmas attacker to give him a civilian trial and to read him his Miranda rights. He shut up and denied us a lot of intelligence on active intelligence in Yemen against us.

That was scandalous and I think it resonated with the voters in Massachusetts.

Now, you can't roll that one back. The guy has his rights and you can't undo them. However, the surrogate issue is Khalid Sheikh Mohammed, which is an equivalent issue of having the guy who was behind 9/11 have a trial in New York City.

There is tremendous sentiment against that. The arguments against that are unassailable. We learned from the first trial of the World Trade Center attackers of the early 1990s that inevitably it will compromise methods and sources.

It's going to cost $200 billion a year in order to give this terrorist the biggest platform for his propaganda in the world. It makes no sense at all.

And I think what Graham may have done been in introducing the bill to force Democrats in the House to declare themselves in what’s otherwise is an abstract issue. This is going to be up or down. Do you want to appropriate the money to allow the trial or not?

I think it's brilliant politically because it will make clear who is on which side of this issue.

BAIER: Nina, Lindsey Graham, if you will remember, at the beginning of this decision, was told by the White House not to come out and speak out against it until he met with the president.

He told FOX that he met with the president and the president told him it was a, quote, "close call." He felt that this was the way to go. And Senator Graham said he didn't think it was a close call at all.

NINA EASTON, WASHINGTON BUREAU CHIEF, FORTUNE MAGAZINE: It's a close call that could provide a forum for an Al Qaeda terrorist to speak to the world coming on the heels of the Christmas Day potential bombing where this guy was interrogated for 15 minutes before he got lawyered up and has gone silent.

I think — I agree with Senator Graham on the political — there is the reality of it, the dangerous realities in that we have a report out today saying that Al Qaeda is actually going after weapons of mass destruction, is serious about it, is happy to wait a long time, happy to be patient to go after us.

Then there is the political side, which will play out this year, which I agree with Senator Graham is extremely dangerous for Democrats, because if you just look at national polls, people trust Obama's handling of terrorists.

But if it comes up in a campaign as it did in Massachusetts, where polls show — internal Scott Brown polls I was told, it was 60 to 35 percent when you were presented Scott Brown's version of how to deal with terrorists and Martha Coakley's more civil liberties oriented version of how to deal with terrorists.

And a pollster for Scott Brown said, look, when they did this ad on national security, the Scott Brown people, I thought why are you doing this? People care about health care.

BAIER: In Massachusetts.

EASTON: In Massachusetts. But it just went off the charts. And this is a state that, you know, keep in mind Republicans are outnumbered three to one by Democrats and you have a huge independent vote. And I think that the White House is underestimating the problems here just as they underestimated on health care.

BAIER: Juan?

JUAN WILLIAMS, NEWS ANALYST, NATIONAL PUBLIC RADIO: I think there is no question about the politics. That's sort of the big wraps on Democrats historically are tax and spend Democrats, and then weak on national security. So when you say, as Charles did, that this is a brilliant political move, I think it is.

Remember, the other side of this is we are not talking politics. We are talking about national security here. Do we really want to reduce this to some kind of political argument that advantage Republicans, disadvantage Democrats? I think that's a really low standard.

BAIER: However, the administration has not come up with a timeline of how this Christmas bomber was dealt with.

WILLIAMS: I'm all for that, and Steve Hayes has done yeoman's work in trying to say what is the deal, because we heard from Robert Gibbs, the White House spokesman initially, that they had 30 hours with Abdulmutallab. And he said this to Chris Wallace, we got all we could...

BAIER: And it turns out to be 50 minutes.

WILLIAMS: I don't know what the fact is — I don't know. I think no one has established that this is what — Dennis Blair, the intelligence community says absolutely here is the facts. I would like that, we don't have that.

But I will say this — it's clear they did not understand that this man was in any way tied to an organized terrorist organization when he was first captured. So we didn't have sufficient intelligence, and I think that mistakes were made on that basis. It wasn't until subsequently we understand that he had been trained by Al Qaeda in the Arabian Peninsula.

BAIER: Hold on one second. Do you believe that Democrats have concerns enough to side with Lindsey Graham to pull the money for these trials in New York?

WILLIAMS: Yes. I think there are Democrats. I don't think Lindsey Graham is the kind of guy to pull a bluff here. He has got some Democrats who are concerned about the political damage we have been talking about here tonight. There is political blood in the water.

I don't, by the way, buy into this business that that's why Scott Brown beat Martha Coakley. Scott Brown won on health care issues and the fact that the people felt that the Obama administration was not listening to their concerns.

BAIER: All right, last word?

KRAUTHAMMER: But the reason the politics are potent here, it's not invented issue or a wedge issue, it's a real issue. And the substance is on the side of those who oppose giving these guys Miranda rights. It is not just an outrage, it makes no sense. And that's why it's a political issue.

The brilliance here is making an abstract issue into a concrete one and forcing a vote on the funding.

WILLIAMS: Very quickly, Charles, let me just say what I think here is that it's a close call in the president's mind because you have got deal the fact that these people are not state actors. They are terrorists.

If it's a lone wolf terrorist, exactly how do we treat him, and how does the world view how we handle it? Remember, President Bush allowed for civilian trials of people who were terrorists, but now it's all against the Democrats, against Obama, and that's why it's a political issue.

EASTON: It's a safe or you’re sorry lesson, I think, for the White House.

BAIER: Much more on this, we're sure.

President Obama is calling for a spending freeze, a position he criticized on the campaign trail. The panel takes that up in three minutes.


BAIER: This is a FOX News alert. We're just getting word now that Toyota says it will recall approximately 2.3 million vehicles to correct sticking accelerator pedals.

We wanted to bring this to you. The recall involves late model RAV 4, Corollas, Matrix, Avalon, Camry, Highlander, Sequoia models. A lot of people have these cars. Toyota is also suspending sales and some production of those vehicles.

You can definitely get more on this story on FoxNews.com and Shepard Smith will have more on it at The Fox Report, but we wanted to bring it to you.

Now for our second panel about this spending freeze that President Obama is proposing.


PRESIDENT BARACK OBAMA: Well, the problem with the spending freeze is you are using a hatchet where you need a scalpel.

SEN. JOHN MCCAIN, R-ARIZ.: I think that the president understands now how serious this problem is and it requires hatchets and scalpels. I appreciate the fact that the president has changed his position since the campaign.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: We're cutting in programs that we think have outlived their usefulness and that need to be cut. Again, that's what a family does. That's what the government should begin to do.

SEN. GEORGE LEMIEUX, R-FLA.: It's like going to a pie eating contest and now deciding like you are going to go on a diet.


BAIER: There you get some flavor for the reaction today and candidate Obama back on the campaign trail. We're back with the panel. Nina, three year freeze on non-security spending, what does this do, really?

EASTON: Well, I think it is a scalpel. It's $250 billion out of $6 trillion deficits over the years. So, it is a bit of a scalpel. It also leaves him wiggle room to do some of the things he thinks are politically good, like helping the middle class with child care tax credits during this difficult economic period.

It's not — I don't think he is making any bipartisan headway. I think we lost an opportunity for that in the Senate today where they voted down this bipartisan commission which would have forced both Republicans and Democrats to make really tough decisions on this.

BAIER: Charles?

KRAUTHAMMER: It's not a hatchet, it's not a scalpel. It's a q-tip. It's a fraud. This is a miniscule amount. Remember, it excludes defense, homeland security, veterans' affairs. It excludes all the entitlements, which are a 60 percent of the budget. It excludes stimuli past and future, the two thirds of the near trillion-dollar stimulus that has not been spent. All of that is excluded.

It excludes the $1 trillion that would end up being spent in health care if it were passed. What it is, is a $15 billion-dollar reduction in a year, 2011, in which the CBO has just announced we are going to have a deficit of $1.35 trillion, which means it is — it's a rounding error, it's lunch money.

BAIER: The administration, Juan, says you have got to start somewhere. People on the left say what is he doing? People on the right say it's not good enough. What do you think?

WILLIAMS: Wow, what a bad situation. Both ends of the political spectrum don't like it. The left says it's — reminds them of what Herbert Hoover did that kept the Great Depression rolling. It reminds them of what the Japanese did that prolonged the 90's recession.

And on the right, this decision that Nina just referred to not to have the panel look at where there is excess in government, Mitch McConnell, the Republican leader in the Senate says, it would inevitably lead to tax hikes, and he is not buying into it. He is not playing that game because he is not going to be party to it.

So I understand what both sides are saying. But if you are a voter, don't you stop and think this government is spending too much money? Somebody has to bear the burden at some point. When you see stimulus spending...

BAIER: You didn't say this a lot as we were going through all of the spending proposals that the administration was saying from the beginning.

WILLIAMS: I happen to think that you have to be responsible. I think you have to cut — in other words, there are certain areas if you want social safety nets. For example, if you want health care, you have to say we are going to cut elsewhere or we're going to raise taxes because we as an American people think this is a good thing. You can't have it both ways.

KRAUTHAMMER: This isn't a real cut. It's an appearance of cuts. It's a maneuver as a response to what happened in Massachusetts because he lost the independents, Obama, three to one, and he knows independents worry about debt and deficits and spending.


KRAUTHAMMER: So he announces a freeze which is meaningless. Remember, these departments enjoyed a 20 percent increase in budget as a result of what Obama and the Democrats have done in 2009. So you are freezing it at an extraordinarily high and unusual time.

BAIER: Hold on one second. Nina, last word — is this more of a tack to the center? Will we see more of it?

EASTON: He has been talking about spending control for months. It actually predates all of this. I think what it is, it's an appearance of a tack to the center, but is he serious about it? That's hard to believe.

He didn't take the opportunity with health care reform to lower health care costs which would have helped on the Medicare front which is a huge drag on the budget.

BAIER: That is it for the panel. We squeezed it all in. But stay tuned for the latest teleprompter troubles.

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