This is a rush transcript of "Special Report With Bret Baier" from May 4, 2009. This copy may not be in its final form and may be updated.


PRESIDENT BARACK OBAMA: The way to make American business compe titive is not to let some citizens and businesses dodge their responsibilities while ordinary Americans pick up the slack.

MARTY REGALIA, U.S. CHAMBER OF COMMERCE ECONOMIST: The middle ground would be to sit back, take a careful look at the tax code in its entirety, and try to put together a tax code that will raise federal revenues while at the same time promoting economic growth and job growth.

Unfortunately, that can't be done with campaign rhetoric. It's going to take a reasoned, thorough look. And I don't think this administration really has an appetite for that.


BAIER: The president today, with his treasury secretary and IRS commissioner at his side, said he wants to close tax loopholes. He says he can collect $210 billion over the next ten years in new revenue, and he wants 800 more IRS agents to do it.

Some businesses and groups, like the Chamber of Commerce, aren't happy.

Let's bring in our panel, Jeff Birnbaum, managing editor digital of "The Washington Times," Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer- Jeff?

JEFF BIRNBAUM, MANAGING EDITOR DIGITAL, "THE WASHINGTON TIMES": That old chestnut, it keeps coming back. We hear this every two years after an election, that loopholes can be closed, that, in particular, these tax havens can be shut down.

The only problem with tax havens is it requires cooperation of the other countries rather than us. There is not much we can do about these, except, as President Obama suggests, reversing the burden of proof so that people are considered guilty until they prove themselves innocent for sheltering taxes overseas. That's not going to happen.

And even more, the bigger part of this proposal, which is to change foreign tax — the foreign tax credit scheme, the most complicated part of the U.S. income tax.

It will unquestionably change the amount of money that multi- national companies based here will have to pay to Uncle Sam, making us, our companies, much less competitive overseas, while at the same time not creating any new jobs in this country.

I know that's the way the president proposed this, but, in fact, extending the research credit for our companies is going to happen anyway, whether he wants to or not.

So it would lose jobs overseas and not create them here. Even the Senate Finance Committee Chairman said this has to be restudied. It's not going to pass in congress.

BAIER: A Democrat, Max Baucus.

BIRNBAUM: Max Baucus, correct.

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: Yes. And also, the last time that the president tried to get something through Congress that business didn't like, which was this mortgage cram down proposal where bankruptcy judges could change the amount of money that somebody owes on their mortgage, he lost. So this is not a slam dunk, even though he does have a big Democratic majority now in both houses.

He did say, however, that this was the down payment on bigger tax reform. And that's a pretty interesting idea, that somehow or other, he would get everybody together and really figure out a plan to make the tax codes simpler and fairer.

Whether it would bring in more revenue or not is a separate issue. But if he is planning to do that in the next year or two, that could be a big deal.

BAIER: Charles, the pushback was quick. Not only Max Baucus, you had the GOP, of course, the Senate Leader Mitch McConnell warning that this gives preferential treatment to foreign companies and hurts U.S. job creation.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: It does. But the economics of it are as bad as Jeff outlined.

The politics, however, are wonderful. I mean, first of all, Obama is sort of living out the Bill Clinton idea that he wakes up every morning finding a new way to help the American people. Every day you turn on your television, and there's Obama with a new idea that he's presenting, always himself, that is going to help America.

So he looks energetic and always out there acting on your behalf.

Secondly, who understands what these loopholes really are? This is extremely complicated stuff. And, as he presents it, who can be against tax haven or a tax loophole?

But the problem is that when we had real tax reform in 1986, what we had was a trade-off — a reduction of loopholes, which in and of themselves introduced inefficiency, but at the same time, in return, a reduction in overall rates, which also increase economic efficiency(sic).

With Obama, all you get is the so-called the closing of loopholes. One of the reasons that you have all these loopholes and these havens are sought is because America has the second highest corporate tax rate in the west. And that's why companies are looking for some kind of relief.

So instead of having a combination of closing loopholes and reducing rates, Obama is always is for increasing his revenue and stopping there, and promising that it's only a down payment for the future. I will believe the future when I see it.

LIASSON: Obama during the campaign did say he would be open to a deal where he would reduce corporate income tax rates in exchange for bigger tax reform. And he did say that again at the White House today.


LIASSON: That would have to be part of a bigger deal. But he has said that several times, that he's —

KRAUTHAMMER: But why is it that half of it is always kicked out into the indefinite future.

BIRNBAUM: The last time this happened was in 1986. And that was a rare moment where the government did not need to raise huge amounts of money to reduce a federal budget deficit.

The opposite is the case now. What's needed is a broad tax change that raises more revenue. And that's a much more difficult plight.

BAIER: Down the road, this doesn't go anywhere in Congress?


BAIER: Mara?

LIASSON: I don't think so, except a lot of companies who have these tax havens are getting TARP money. Maybe there's some leverage there for the White House.

KRAUTHAMMER: He will get a piece of it. I will say one-third.


BAIER: OK, with the Taliban stirring up trouble in Pakistan, are the country's nuclear weapons safe? The panel addresses the possibility of loose nukes, next.



ADMIRAL MIKE MULLEN, CHAIRMAN, JOINT CHIEFS OF STAFF: We all recognize, obviously, the worst downside of — with respect to Pakistan is that those nuclear weapons come under control of terrorists.

I don't think that's going to happen. I don't see that in any way imminent whatsoever at this particular point in time.

But it is a strategic concern that we all share. And I'm comfortable that the military leadership, in particular, is capable of dealing with that particular issue right now.


BAIER: The chairman of the Joint Chiefs saying he is gravely concerned about the progress the Taliban has made inside Pakistan as that country continues to deal with the turmoil just 60 miles from the capital.

We're back with the panel — Charles?

KRAUTHAMMER: Those words are hardly reassuring. You notice all the times that he was saying "right now," "it's not imminent at this point in time." Well, that implies that in two weeks or two months or six months, we're not sure.

This really is a dangerous situation. We're really as we were in Iran in 1979, except that there are nukes involved here. And in Iran, we equivocated. We did not support the Shah. We looked for so called moderates, and in the end we ended up with radicals in control, which is what we have today.

There is this talk in the administration trying to cozy up to the opposition leader, Nawaz Sharif, who's a dicey guy. He has a lot of ties with Islamists. He is not a reliable ally. He's actually probably a little bit stronger than the current president right now. But I'm not sure he's a good bet. I think our real bet in the — ultimately is going to be the army chief of staff, Kayani. Trained in the United States, we assume he's a friendly. All of the evidence is that he is.

And, in the end, with the army the only institution that works in Pakistan, we have to make contingencies for easing into probably a military government within a short time if the civilians lose control, as appears to be happening.

BAIER: Mara.

LIASSON: Yes, look, this is a really scary situation. I mean, there are reports that the United States has no idea where a lot of the Pakistani nuclear sites are. We don't even know where their weapons are.

And when the president was asked about this last week at the press conference, he said "I'm confident we can make these weapons secure." He didn't say "I'm confident that they are secure."

And this is a very fragile situation. And, hopefully, the Pakistani military can fight off the Taliban. But they haven't been doing such a great job.

They are still fixated on India, and that's the problem.

BAIER: You know, Secretary of State Clinton testified that the president was confident based on assurances by the Pakistani government, a government that is —

LIASSON: Yes, but they don't believe the Pakistani anymore, I know.

BAIER: —quote, "very fragile."


BAIER: Jeff?

BIRNBAUM: The real focus here has to be on the Pakistani military. The military in Pakistan is a highly professionalized group with very strong ties to the U.S. and the west.

If the military hangs together, and, hopefully, with the government there, but together, they can actually protect the nuclear weapons. And they probably know where the nuclear weapons are, unlike us.

And that, I think, is the focus of a lot of U.S. strategizing in that region, to make sure that there is military to military conversation protecting those nukes, because there is no guarantee that the government will hold together at all, even though President Obama this week will be meeting with the president of Pakistan.

BAIER: General David Petraeus last week, James Rosen reported, that he essentially gave two weeks before the government to really step up against the Taliban.

KRAUTHAMMER: And the clock is ticking, and the outlook isn't good.

Look, we have one major asset in that region, and that's India. There's one country with a larger interest in the nukes staying in control in Pakistan than the United States, it's India, which, of course, would be a target. India, presumably, has excellent intelligence in that area, and India has a very strong interest in keeping those nukes safe.

So we ought to be working on contingencies with our ally India to seize or destroy these nuclear sites if the worst scenario happens in which the government collapses and the bad guys come into possession of the military assets.

BIRNBAUM: There's a danger of an intervention here that could be a problem — the Congress of the United States, they're thing of appropriating $1.5 billion a year for the next ten years. If they do so, they may also add all sorts of benchmarks and try to fiddle with the internal workings of Pakistan, which is not a very good idea.

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