This is a rush transcript of "Special Report With Bret Baier" from February 2, 2009. This copy may not be in its final form and may be updated.


SENATE MINOITY LEADER MITCH MCCONNELL, R-KY.: He's one of our brightest, mo st capable members. The president certainly has an eye for talent.

Senator Gregg has assured me that if this were to happen, if it were to happen, it would not chain the makeup of the Senate. In other words, whoever is appointed to replace him would caucus with Senate Republicans. So I think it would have no impact on the balance of power in the Senate.


BRET BAIER, HOST: That's Senate Minority Leader Mitch McConnell talking about Senator Judd Gregg, Republican from New Hampshire, who is still at this hour the leading candidate for the next Commerce Department Secretary.

We are being told by Major Garrett's reporting that the Obama White House will name the commerce secretary, tomorrow, on Tuesday, and that Gregg is still the leading candidate.

Here is what Gregg said about this, quote: "I have made it clear to Senate leadership on both sides of the aisle and to the governor of New Hampshire that I would not leave the Senate if I felt my departure would cause a change in the makeup of the Senate.

"The Senate leadership, both Democratic and Republican, and the governor understand this concern, and I appreciate their consideration of this position."

So what about all of this? Some analytical observations from Mort Kondracke, executive editor of Roll Call, Nina Easton, Washington bureau chief of Fortune magazine and syndicated columnist Charles Krauthammer — FOX News contributors all.

Charles, first of all, why would Judd Gregg take this position?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, that's the question I have been asking. Really, the job is not really worth a pitcher of warm spit, to quote a famous vice president years ago. It a second-level job in the cabinet. It doesn't have a lot of influence.

Ask yourself who was the commerce secretary in the Bush administration. Nobody can tell you. The only one who is remembered historically is Herbert Hoover.

Now, it might be that Gregg, looking at an upcoming reelection campaign in two years, thinking that his state has been trending Democratic as the southern part of New Hampshire becomes a colony of liberal Massachusetts, that he may lose. And so he wants a graceful exit. That's possible.

What I think Obama's calculation is clear: It gets him — it looks as if he's reaching across the aisle again. Secondly, it weakens the Republicans because whoever substitutes on the Senate side is going to be a weaker candidate in 2010 and, also, probably less conservative.

And, thirdly, perhaps he thinks that he's going to do a grand compromise next year or at the end of the stimulus, in which there is going to be a commission and an agreement on curbing entitlements.

And for that, perhaps, he wants to have a Republican on the team who can make an argument to conservatives and Republicans, because it will probably include a hike in taxes, and he would need a Republican on his side in that argument.

BAIER: And no offense to Don Evans or Carlos Gutierrez, because we do know who they were — Nina?

KRAUTHAMMER: I assumed it is the man on the street wouldn't know. I knew that you would.

BAIER: Thank you.

NINA EASTON, FOX NEWS CONTRIBUTOR: I think it's a very clever move by the Obama people.

I mean, as Charles said — a couple of things. First of all, politically, it kind of warms the seat for the next — for possibly a democrat, because if they pick Bonnie Newman, or whoever they pick, it is going to be somebody who is only in there a short time and is not necessarily going to be set up as a long-time incumbent.

So the prospects of holding on to that seat long term are hurt, I think, for the Republicans.

Secondly, the Obama administration, once they get past the stimulus, yes, the next thing will be budget and entitlement reform, because this mountain of debt is about to hit us.

And Judd Gregg is not only a budget hawk — he's a real Republican, by the way. This isn't just a token appointment. This guy is a serious partisan player. And he is a budget wonk. They'll have him there. He's somebody who can reach out to Republicans.

But I also think it will set up a divide that is already going to start happening within the administration over free trade, because he's a real serious free trader. I know we don't hear about free trade a lot now, but we heard a lot about it during the campaign. It was an igniting kind of issue.

Labor is very protectionist, and this is going to set up a problem where labor supporters for Obama are not going to be happy down the line, I think.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Yes, well, this is Judd Gregg's third term, and he's tired of the Senate. Everything I hear is that he wanted an exit strategy, and this gives him a good exit strategy.

And he, presumably, will be part of the team that works with Kent Conrad. He has been working with Kent Conrad, the Chairman of the Senate Budget Committee on long-term entitlement reform, and they have got this idea for a commission that would agree, a bipartisan commission, and he presumably would be on it.

So the next senator is supposedly going to be Bonnie Newman, who is a former Dean at the Kennedy School of Government at Harvard, was Gregg's chief of staff when he was in the House, was a commerce official under Reagan, was a White House official under Bush, but then became the chairman of Republicans for Lynch, Lynch being the governor who is going to appoint her.

BAIER: The Democratic governor.

KONDRACKE: Right. She is a Republican — the conservatives will all say she is a Republican in name only of the Olympia Snowe variety. She is a pretty liberal Republican.

BAIER: So down the line, a loss for Republicans if Judd Gregg takes this?

KONDRACKE: Absolutely. Judd Gregg is one of the strongest Republicans there is.

BAIER: No doubt about it.

EASTON: Definitely in the Senate, no doubt about it.

KRAUTHAMMER: Small net loss now, big one in two years.

BAIER: Another Obama cabinet choice is having some tax issues. We just heard it a few moments ago. The panel weighs in on Tom Daschle's problems after the break.



TOM DASCHLE, HHS SECRETARY-DESIGNATE: The Obama administration has put a very high standard on public service. The American people have high expectations for those of us who serve the public good. That's especially true when it comes to taxes.


BAIER: Former Senator, now Health and Human Services secretary-designate, Tom Daschle up on Capitol Hill just a few moments ago defending himself for not paying his taxes, something he said was "unintentional, deeply embarrassing, and disappointing."

We are back with the panel. Mort, is this a major problem for Tom Daschle?

KONDRACKE: I don't think so, in the end. It's a huge embarrassment following on the Tim Geithner affair. This is much more. Tim Geithner had to pay back $34,000, I believe. This is $140,000, basically because he had a car and driver. I'm amazed that a car and driver in 2007 cost $93,000.

BAIER: It's also consulting work that —

KONDRACKE: But the consulting work was a mistake, apparently, on his employer's part on the 1099. And the truth is that he did not get a 1099 form, a tax form from the people who provided him with the car and driver that included the money.

Now, he was used to be driven around by a chauffeur when he was a Senate Leader, and he may have thought, well this is the way it works. There is no evidence here of purposeful evasion of taxes. And I don't think he will get denied of this job.

After all, there's one former senator in all of U.S. history who came up for confirmation and has been denied — John Tower, nominee for Secretary of Defense, who was an alcoholic, or allegedly an alcoholic, and a womanizer, and he would have had his finger somewhere close to the button.

I think Tom Daschle is too admired to be not confirmed.

BAIER: White House Press Secretary Robert Gibbs did say a number of times it was a serious mistake today from the podium.

EASTON: Yes. But the Senate club, as Mort indicated, is going to take care of its own.

What I find most interesting is as you step back, I do think this is a moment where the zeitgeist in Washington is beginning to change, not only from the liberal left blogosphere, who is attacking him for taking speaking fees from industries that he is going to regulate in healthcare, but, secondly, from the press, because what you didn't see from the Robert Gibbs interchange was how drilled Gibbs was by reporters, who kept saying "Well, is there any amount of back taxes that is too much? I thought you were going to change the way that Washington works."

He really had a very different press briefing today, and I think that has sort of taking the bloom off the rose of this reformist, outsider president who came to town.

KRAUTHAMMER: I agree. I think, look, Democrats are the ones who preached all of last year that paying high taxes is patriotic. Well, only if you pay them.

And the other — it was Jim DeMint, the senator from South Carolina, who said that of course Democrats like higher taxes. They all know that in the end they aren't going to pay them.

With Daschle—it might have been unintentional, but it's hardly as if he was lent a pickup on Saturday night to take his date to a movie. This is a year — two years with a Cadillac and a driver.

But the real loser here — Daschle will be confirmed. The loser is Obama. He doesn't walk on water. He is not the guy who is going to reform America.

And with all of these — the Geithner affair, Bill Richardson and now the nonpayment of taxes with Daschle, the sheen on the clean Obama administration is already off.

Content and Programming Copyright 2009 FOX News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2009 CQ Transcriptions, LLC, which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon FOX News Network, LLC'S and CQ Transcriptions, LLC's copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.